Bombardier and Boeing vie over trade subsidies at Washington hearing

The Canadian government is at a tribunal hearing today, arguing against the imposition of duties on Bombardier planes. The country's ambassador to Washington says potential duties of up to 300 per cent are illegitimate for several reasons.

Ambassador to Washington says potential duties of up to 300% are illegitimate

Delta bought Bombardier's C Series jets for $20 million a piece. (Francois Mori/Canadian Press)

Boeing Co. and Bombardier Inc. went head to head on Monday over the U.S. plane maker's claim that its Canadian rival used billions of dollars in illegal government subsidies to dump its newest jetliner in the United States at below cost.

At a contentious hearing of the U.S. International Trade Commission (ITC), Boeing accused Bombardier of harming its ability to sell 737s in the U.S. market, in one of the final stages of a bitter trade dispute due to conclude in February.

Bombardier argued Boeing's large 737 order book shows there has been no adverse impact from its C Series jet. "Boeing is making money hand over fist. And with a backlog of 737 orders years into the future, there are no signs of difficulty on the horizon," Bombardier representative Peter Lichtenbaum said in opening remarks.

If the ITC sides with Boeing, as it has so far, it could effectively keep U.S. airlines from using Bombardier's C Series jet by imposing duties of nearly 300 per cent, one of the largest ever imposed for a market-based economy, Boeing said.

"These investigations have already established beyond question that Bombardier has taken billions of dollars in illegal government subsidies to prop up its C Series program. The C Series would not even exist at this point but for those subsidies," Boeing said in a statement emailed during Bombardier's panel remarks.

The U.S. Department of Commerce is due to finalize the proposed duties on Monday or Tuesday. If Bombardier wins, Chicago-based Boeing says its smallest 737 model could face unfair competition from the C Series for decades.

Canada's Ambassador to the United States David MacNaughton warned that a positive finding of material harm to Boeing by the ITC could present a possible violation of World Trade Organization agreements and prompt a more formal complaint with the global trade group.

"Boeing's assertion that future imports from Canada threaten to cause material injury is necessarily based on just the type of speculation and conjecture that is prohibited under both U.S. and international law," MacNaughton told the panel.

Canada earlier this month scrapped plans to buy 18 Boeing Super Hornet fighter jets, underlining Ottawa's anger over the trade challenge. Boeing has said it considered all potential risks before deciding to launch its trade case.

The case stems from an April 2016 sale of 75 C Series jets to Delta Air Lines Inc. Boeing claims Delta paid $20 million US per plane, well below an estimated cost of $33 million US and what Bombardier charges in Canada.

"A single large order, like Bombardier's sale to Delta, takes years of demand out of the market. In this industry, if we lose a sale, it's gone forever. That's years of lost production and deliveries for Boeing, years of lost work for our employees, and years of lost work for our U.S. suppliers," Boeing executive vice-president Kevin McAllister said.

Canadian Ambassador to the United States David MacNaughton went to bat on Bombardier's behalf at a trade hearing in Washington on Monday. (Fred Chartrand/Canadian Press)

European plane maker Airbus SE, which is buying a controlling stake in the C Series program and has a competing plane, has said it would add a second C Series production line to a factory in Alabama, making it a U.S. product for domestic airlines.

Boeing says that should not negate the duties because Airbus and Bombardier would import fuselages and wings and merely be assembling in the United States. But Bombardier argues that Boeing's case is against full imports of airplanes, not parts, so it does not apply to imports of wings, fuselages and other pieces.

Bombardier says more than half of the value of C Series content comes from the United States, including engines by Pratt & Whitney.

Boeing says the Delta deal was market defining because other airlines will demand the same low price and the planes will be in service for decades. All jetliners are sold below cost initially because airlines are taking a risk on a new jet model and upfront development costs are high, Bombardier argues.

The cost drops over time as the factory produces more planes and gets better at making them. The U.S. plane maker said Bombardier failed to co-operate in a U.S. investigation providing pricing information to the United States.

Bombardier said it turned over the Delta sales contract but cannot accurately estimate the cost and price of those planes because they are being built and delivered in coming years. Boeing says the C Series would not exist without hundreds of millions of dollars in launch aid from the governments of Canada and Britain and a $1 billion US equity infusion from the province of Quebec.

Those subsidies are not prohibited because they are either market-based investments or repayable loans, Bombardier said. Bombardier also argues that Boeing and Airbus do not compete with the C Series because their planes are larger and have more range.

The C Series' more direct competitors are smaller jets made by Embraer Mitsubishi.

The C Series poses no threat to the U.S. aerospace industry because building it at the Airbus factory in Alabama would create U.S. jobs and generate billions of dollars in business for U.S. aerospace companies, Bombardier said.