The International Trade Commission Reached a Perfect Compromise

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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.

© 2018, Ernest S. Arvai. All rights reserved.

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