Posts Tagged “ITC”

Premium 2018.4 – What the ITC Decision Means for the Industry

By |

Welcome to AirInsight Premium content. This page is only available to active members.

Already a member?

Interested in becoming a member?

Read more »

The International Trade Commission Reached a Perfect Compromise

By |

In the trade case brought by Boeing against Bombardier, the International Trade Commission (ITC) in the US was quite logical in both of their findings.  The first finding was that Bombardier was dumping aircraft at below their cost. That is technically correct, as Bombardier, like every other manufacturer, sells early aircraft in their program to a major launch customer below its current cost, as Bombardier has not yet moved completely down its learning curve to a steady state production rate.

Bombardier also received government subsidies in the development of its program.  This is not unusual, as Airbus, Boeing, and Embraer have all received government subsidies of various types, and all prices to launch customers are at less than the cost of early deliveries, as they will not have progressed far enough down the learning curve.  So while Bombardier’s actions were normal in the industry, they remained technically in violation of the anti-dumping provisions.

Should Canada have wished to do the same to Boeing, they would have found that Air Canada purchased their 787s, and subsequently leased them back at a profit as the fair market value was higher than the price they paid.  While these actions happen every day, the law is the law, and the letter of the law must drive judgments.

The economic damages portion of the case, which many observers felt Boeing would win, given their request that this is restricted to the 100-150 seat market, also was logically decided.  Delta Air Lines wanted a 100 seat jet, and is a large customer of used Boeing aircraft in that category, acquiring every 717 it can get its hands on.  Delta has the specific need for a 100 seat aircraft in its network, flown by Delta mainline pilots rather than regional operators.

Boeing no longer makes an aircraft of that size and could play in the procurement process with Bombardier, other than offer ex-Air Canada E-190s.  The ITC’s logic could have been that if you no longer participate in that segment of the market, you cannot be harmed.  Delta’s argument, that a 138 seat 737 MAX7 won’t work in a market, probably had an influence on the ITC.

While Boeing wanted to restrict the action to the 100-150 seat segment, the ITC was wise enough to view the 737 MAX program in its entirety, including the fact that the larger 737 MAX is going to profitable, with a backlog of more than 4,000 aircraft, and is sold out for the next seven years.  It is difficult to find harm to someone that is doing so well, has record level orders and production rates, and is literally sold out for the foreseeable future.  Boeing’s stock price to date certainly does not reflect that the C Series is an imminent threat.

Many observers believed that Bombardier had logical and winning arguments, but believed that politics would trump logic.  It did not, as the arguments in favor of Bombardier were compelling to commission members, who voted unanimously in Bombardier’s favor.

Of course, several events since the case started changed the nature of the situation midway through the process.  Airbus’ acquisition of the C Series program resulted in planning for a Mobile, Alabama C Series assembly line, effectively making it a domestic product.   Much as BMW, Mercedes Benz, Honda, Toyota, Nissan and Subaru all build vehicles in the United States, the establishment of a US operation gives a political victory to the Trump administration (even though none of the ITC committee members were Trump appointees) and could be construed as an international trade win.  With more than 50% of the Canadian built C Series content already from the US, there is no question that it would be considered a domestic product. Boeing has argued that would not be the case.

The Bottom Line

It is refreshing to see regulators utilize logic in their decision processes.  The ITC was correct in its first ruling on dumping, as by the letter of the law, Bombardier did dump its product.  But the ITC was also correct in its second ruling of “no harm – no foul” after reviewing Boeing’s strong market position and Bombardier’s assembly line plans for the US.  The ITC rulings are a perfect compromise and a win-win for the industry.

Read more »

Trade Wars:  Canada files WTO Complaint Against US

By |

Canada has filed a WTO complaint against the United States with respect to anti-dumping and countervailing duty proceedings today.  This is likely in response to recent actions with respect to the Bombardier C Series aircraft as well as actions taken against the Canadian lumber industry by US regulators in the last year.

While we do not expect this WTO complaint to change the outcome of the Department of Commerce and International Trade Commission hearings regarding aircraft, this does provide Canada and Bombardier one further avenue to pursue as they argue their case against US sanctions.

The retaliation by Canada is evident that Ottawa is prepared for a trade war, and that Canada will not accept the recent actions by US authorities without a fight.  The US and Canada, who are the number one trade partners for each country, stand to lose more than they gain should a full blown trade war erupt.

Let’s hope some sanity enters the process before it escalates beyond control.

Read more »

The ITC Boeing Vs Bombardier Hearing

By |

A hearing on the Boeing vs. Bombardier anti-dumping trade case was held Monday in Washington DC before the International Trade Commission (ITC).  AirInsight attended the hearing, and our main takeaways follow.

Boeing’s Case and Arguments

  • As one might expect, Boeing’s attorney, Robert Novick, was impressive. While one might disagree with his views, his command of the room and his ability to rephrase questions ensured that Boeing answered the question in the best possible manner.
  • The case for Boeing rests on the threat to their MAX7. Boeing believes that the CS100 is a manifest threat to their MAX7 and cited the price they obtained from the United deal as an example of the damage they suffered.  Of course, there was no public definition of exactly how much that damage was.  Then Boeing brought up the Delta deal as another example of harm they had suffered.  Both deals were opportunities for the ITC to probe further into details, but they failed to do so at the level one might reasonably expect.
  • Boeing mentioned the MAX7 sales as being “decimated” – which was a superb opportunity to probe by the ITC. Boeing made a great point when explaining that “launch pricing” that Delta and Bombardier used for their deal cannot be plausible since the CSeries program was eight years old.
  • Boeing further pointed out that the Delta deal came with “irrational pricing”.  The ITC might have jumped on this to ask how exactly Boeing knows the price since they are not a party to the contract.
  • Boeing studiously avoided any talk of Embraer. The ITC mentioned them briefly and Bombardier mentioned them a lot.  The absence of recognition by Boeing must leave one wondering why? It’s not like they don’t exist, and Boeing did sell several used Embraer aircraft to Delta.
  • Boeing also noted that Spirit and JetBlue both publicly offered support to Bombardier’s CSeries. Once again, the ITC might have asked a key question: Neither of these airlines has any Boeing’s in their fleets. Why is that? Does Boeing believe they have a chance with the MAX7 at these airlines?  Does their MAX7 offer these airlines more than a CSeries aircraft?
  • Boeing pointed out that the CSeries cannot succeed in the market without access to the US airline industry. Another potential ITC question: If that is the case, how come so few MAX7s have sold in the US and even fewer outside the US?


  • Bombardier played the defendant and was in good company. On their side, they had Canada, the UK, and the EU. Those are big guns.  Then came Delta, which was the most important witness of them all.
  • Bombardier has not covered itself in glory with the CSeries. (The history of the CSeries program is covered extensively in our most recent report on that program.) Bombardier could have had a deal with Delta as far back as 2011.  But management at that time (the “auto era”) lacked the vision to understand the importance of a marquee US customer. Launch pricing at that time would have been understandable by everyone and hard to argue against. Bombardier put forward the argument that launch pricing can occur at any time before the EIS and given their slow progress to EIS this makes sense.
  • The CSeries offers better economics than the MAX7 – but Boeing did not appreciate the help Bombardier got from various state agencies. Boeing argued (plausibly) that absent this support, there would be no Bombardier and no CSeries. But in fairness, every aerospace program benefits in some way from government help.
  • Bombardier’s team was uncharacteristic for Canadians – they were aggressive and made their argument forcefully. While admitting fumbles developing the CSeries, they focused on what the aircraft has turned out to be.  Which is technically successful.
  • Bombardier made the case (which Boeing disputes) that their new final assembly line in Mobile will deliver to US customers. Although no detailed plans have been shared, Bombardier has (apparently) committed to this.  (Boeing’s Mr. Novick spoke several times about Bombardier’s “trust us” approach, casting doubt on this)
  • Bombardier said that Delta was willing to wait for two more years for their US-made CS100s. Boeing also disputed this, saying no airline wants to wait that long – of course, they should know from their 787 experiences and massive payments to customers for program delays.


  • It was apparent that there is a lot of risk at an ITC hearing. It is not too strong a point to make that the entire Canadian commercial aerospace industry is under a manifest threat.  The stakes are huge.
  • Listening to questions from the ITC commissioners left anyone vaguely familiar with the industry wondering if the panel was sufficiently qualified to even hear the case. While there were some brief flashes of insight, these were not pursued with appropriate follow-up questions. Even when the staff was asked if they had any questions, they demurred.  One might have thought the staff would be more knowledgeable and would have jumped at the opportunity.
  • The case is highly technical, and the audience looked to be more than 80% attorneys. That amount of intellectual and legal horsepower sends a message.  The audience understands exactly what is at stake.
  • Even though the questions addressed to Boeing were more aggressive than those to Bombardier, it was unclear where the panel was in terms of the two sides.  Based on the questions one might have discerned which way they were leaning.  But so many questions were so poorly expressed (giving Mr. Novick plenty to work with)

Missed Opportunities

  • The panel missed several opportunities to follow-up on questions that would have been logical and obvious to any aviation industry observer. For example, Boeing’s 737-700 sales dropped off precipitously from 2006 onward.  A key question should have been: Why have the customers that have taken delivery of 1,160 737-700 not flocked to the MAX7?  And, specifically, why has the largest 737-700 customer Southwest ordered only 30 MAX7s compared to 170 MAX8s?
  • Why did Boeing change the specifications of the 737 MAX7? Was it the economics, or lack thereof, causing the aircraft not to sell?  Or is it that compared to CSeries, this MAX7 is heavier, burns more fuel, and is costlier to operate – therefore requiring more seats to improve its economics?
  • While Boeing cited the United deal pricing as damaging, United determined that the 65 737-700s they ordered in competition with Bombardier were not needed, and changed their order to larger models above the range in which Bombardier competes.  ITC might have asked why would United make a switch within two months of the order?  That was certainly highly unusual and worth probing deeper into. (Bombardier brought this up but ITC did not jump on it as they might have)
  • The strange thing is this case hinges on an order for which Boeing does not manufacture a competing aircraft and wasn’t invited to compete (Delta) and a case in which the airline (United) initially ordered the existing and less efficient 737-700 over the 737 MAX7 and later changed its mind, opting for larger 737-900 aircraft instead.  These two deals offered ITC a chance to dig into the deals and talk details without even discussing prices. It would have become apparent that airline planning is an art – and Delta’s planner was in the room to explain the way it works and help the ITC comprehend that art.

The On-Going Process

The process for an ITC case typically includes an appeal.  No matter what the ITC decides, this is unlikely to be the last stop in the process.  We have spoken with attorneys who are experienced in ITC cases, and they indicate that it is quite rare for the US side to lose in any complaint brought before this panel – it seems the “fix is in” in favor of plaintiffs.

According to attorney Jeff Ifrah, “Antidumping and Countervailing Duty cases are on the rise again. So far in 2017, we have seen almost a 50% increase in newly initiated cases. This certainly seems in line with the White House’s views on so-called “fair trade.” While it is certainly possible that the ITC can determine that Boeing failed to demonstrate injury and thus possible that the ITC throw out the enormous anti-subsidy duties against Bombardier, such a possibility is extremely unlikely. The ITC is notorious for following the Commerce Department’s lead in these matters, and a finding of injury is all but a certainty in this case. An appeal can proceed to D.C. based federal court or to a NAFTA or WTO Panel.  (Assuming Trump does not actually withdraw from NAFTA). The WTO is notoriously slow.  My bet would be on a NAFTA Panel.  Canada has done very well before NAFTA panels in the past and given the factual record, in this case, it is quite likely Canada will be victorious before a NAFTA Panel in this case. Indeed, in the seven prior NAFTA panels that I participated in, Canada (or Canadian provinces) were victorious each and every time.”

However, there are appeals, even to the NAFTA panel.  At the NAFTA panel level, where the nations appoint members, panelists will be far more knowledgeable.  The chances that Bombardier wins at this level are substantially higher.

We can expect continued appeals, and Bombardier-Airbus will build a new Final Assembly Line in Alabama to effectively make this a domestic aircraft, since the Canadian-built aircraft already have more than 50% of their content from US sources, and assembling in the US will add to that content.  It is our view that those aircraft will be considered domestic, and therefore not be subject to tariffs.  After all, the new Alabama line creates new jobs while the Renton facility will not layoff anyone because the MAX8, 9 and 10 need lots of people to build them at rate 57 and higher.

Nonetheless, legal processes create uncertainty around the CSeries program, which is what Boeing wanted to happen.  Even if Boeing were to lose on appeal, they would disrupt the marketplace because as long as potential customers are uncertain about the CSeries future, they are unlikely to commit to purchases.  The relationship between Airbus and Bombardier, which developed after Boeing brought the case, has changed that uncertainty significantly, has restored market confidence in the program globally, and airlines now expect Alabama-built aircraft to be considered as domestic in the US.  Bear in mind JetBlue and Spirit are Airbus customers.


This process will focus on whether Bombardier sold aircraft below their cost.  Since Bombardier has not yet produced the Delta aircraft, it can only estimate what its costs will be once it moves down the learning curve.  As a result, this becomes a matter of opinions.  We expect Boeing to win this round, based on the technical interpretation of the law.   Unless the ITC determines that industry practices prevail over technicalities, a tariff might be enforced.  But then will Canada, the UK and EU need to take similar actions and impose tariffs on Boeing aircraft to counter this action? This is a zero-sum game.

No matter what the ITC decides, Boeing is the loser in this case in the court of public opinion.  The airlines see this as a Goliath bringing a suit against David, and foreign governments in Canada, the UK, and EU have already or will likely take retaliatory action against Boeing that will cost the company much more than the loss of an order at Delta or having to sharpen their pencils at United.

Boeing’s narrow-body position, with a strong seven-year backlog for the 737 MAX and the need to increase production rates, clearly hasn’t been harmed by the CSeries. Everyone in the industry understands this.  The net result of forcing Bombardier into Airbus hands is adding the Canadian and UK governments to the French, German, Spanish, and EU support for Airbus over the longer term.  By bringing this case, Boeing has already lost international business, and if they win, could expect even more losses in the future.  A Boeing win is a Boeing loss.


Boeing: Boeing-Brief-121317.pdf; Boeing-ITC-presentation
Bombardier: BBD-Brief-121317 ; BBD-ITC-presentation
Staff: Staff-Report-121117

Read more »