Could Boeing’s future military contracts with Canada be at risk?
By Ross Marowits and Alexander PanettaGeneral Aerospace Boeing Bombardier ITC
Foreign Affairs minister hints that Canada may revisit its purchase of Super Hornets.
The federal government hinted Thursday that Boeing should not take future military contracts with Canada for granted, a veiled threat that coincided with a spat between the aerospace giant and rival Bombardier.
Foreign Affairs Minister Chrystia Freeland’s comment that it’s “reviewing current military procurement that relates to Boeing” appeared to be a not-so-subtle hint that the government would revisit its purchase of Super Hornets.
The government has said it plans to sole-source 18 Super Hornets as a stop-gap measure before running a full competition to replace its aging CF-18 fleet.
The Liberals say the Super Hornets, which internal estimates suggest could cost as much as $2 billion, are urgently needed.
Military officials and defence industry representatives contacted by The Canadian Press on Thursday were united in assuming that Freeland’s warning related to the planned Super Hornet purchase.
Freeland’s comments came as the next potential Canada-U.S. trade dispute unfolded Thursday with the aerospace giants clashing at a Washington hearing.
“The U.S. market is the most open in the world, but we must take action if our rules are being broken,” U.S. Commerce Secretary Wilbur Ross said in a statement after the hearing began into Boeing’s claim that Bombardier received subsidies allowing it to sell its CSeries planes at below-market prices.
Aerospace analyst Richard Aboulafia of the Teal Group said the Canadian government’s move was inevitable, putting into question Boeing’s strategy in taking on Bombardier.
“If Boeing is smart it’ll press the do-over button and walk away,” he said in an interview, adding the aeronautics powerhouse has much more to risk from losing military contracts than the tiny gain from a successful trade complaint.
“Boeing values Canada as a customer and supplier-partner for both our commercial and defence businesses,” said company spokesman Dan Curran.
“Two of Canada’s most recent acquisitions of Boeing military products, the C-17 Globemaster and CH-47 Chinook, were delivered on-time and/or ahead of schedule.”
In an emailed statement Boeing also pointed out that it places substantial amounts of commercial and defence work in Canada and has a supply chain that “leverages the breadth and depth of the Canadian aerospace industry.”
Lobbyists, lawyers and aerospace executives crowded a room in Washington for a little battle playing out in the broader context of the day’s larger trade news: the U.S. announcement that NAFTA renegotiations will start in the next 90 days.
Bombardier has made it clear that its true goal is to grab half the international market share for 100-to-150-seat aircraft, according to Boeing, which argues its rival has received an unfair head start from Canadian taxpayers.
Boeing vice-president Raymond Conner said the sale of cheap, subsidized planes to Delta Air Lines helped build momentum for Bombardier to enter a new market. If Bombardier reaches its stated goal, he said, it would squeeze Boeing from that market and cost the company US$330 million a year in annual sales.
“Today we are at a critical moment,” Conner told the seven-member U.S. International Trade Commission. “If you don’t fix it now, it will be too late to do anything about it later.”
Boeing has petitioned the U.S. Commerce Department and the U.S. International Trade Commission to investigate subsidies of Bombardier’s CSeries aircraft that it says have allowed the company to export planes at well below cost. A preliminary determination on the petition is expected by June 12.
If the ITC determines there is a threat of injury to the U.S. industry, preliminary countervailing duties could be announced in July, followed in October by preliminary anti-dumping duties, unless the deadlines are extended. Final determinations are scheduled for October and December.
Boeing is calling for countervailing duties of 79.41 per cent and anti-dumping charges of 79.82 per cent.
It complains that Bombardier has received more than US$3 billion in government subsidies so far that have allowed it to engage in “predatory pricing.”
Lawyers for the U.S. aerospace giant argued Thursday that Bombardier’s own words prove it was rescued financially by multibillion-dollar assistance from the Quebec government, which last year invested US$1 billion in exchange for a 49.5 per cent stake in the CSeries. The company also shored up its finances by selling a 30 per cent stake in its railway division to pension fund manager Caisse de depot for US$1.5 billion.
Bombardier representatives countered that their planes never competed with Boeing in a sale to Delta — which the American rival describes as a seminal moment.
Bombardier lawyer Peter Lichtenbaum said the plaintiff is a global powerhouse that hasn’t lost any sales as a result of Bombardier, has an enviable order backlog and doesn’t even compete with Bombardier in the sales campaigns it has complained about because the CSeries is smaller than Boeing’s 737-800 and Max 8 planes.
“Boeing’s petition in this case is unprecedented in its overreach,” he said. “If this is a case of David vs. Goliath, Boeing has cast itself in the wrong role.”
Boeing’s annual sales were US$94.6 billion last year. That means the US$330 million Conner expressed concern about amounts to one-third of one per cent of its annual sales. Bombardier revenues last year were US$16.3 billion, including US$9.9 billion from aerospace activities.