WASHINGTON — The U.S. Commerce Department on Tuesday sided with Boeing in a case against Canadian aerospace firm Bombardier that marks a big win for the company’s commercial side ― but places a potential $5 billion Super Hornet order at risk.
In April, Boeing lodged a complaint with the Commerce Department that Bombardier had received more than $3 billion in government subsidies on its C-series jets that allowed it to undercut its competition. Boeing does not produce a rival to the C-series, but the United States’ largest aerospace company feared that Bombardier’s advantage in that market could allow it to feed larger profits into creating larger airliners that Boeing would then have to compete against.
Tuesday evening, Treasury announced it was siding with Boeing and recommended imposing a 219 percent tariff on Bombardier C Series imports, a massive price hike for the commercial design. And although the dispute revolved around Bombardier and Boeing’s commercial business, the row caused turmoil in the U.S.-Canada relationship that filtered into the defense aerospace market.
Shortly after Boeing announced its complaint, Canada’s defense and foreign ministers threatened to cancel a planned purchase of 18 F/A-18E/F Super Hornet jets, which are manufactured by Boeing in St. Louis, Missouri. Canadian Prime Minister Justin Trudeau has repeated that claim, saying the country could stop doing business with Boeing altogether unless the company pulled its complaint.
The decision on Tuesday leaves the fate of the Super Hornet deal still unclear, although Richard Aboulafia, an aerospace analyst with the Teal Group, said it likely potends the end of Boeing’s negotiations with Canada.
“This kills it, unless Boeing re-thinks. They aimed for their own foot, and managed to hit it right above the big toe,” he said.
Trudeau campaigned on a platform of cancelling Canada’s F-35 joint strike fighter purchase. His government announced last year that instead of buying the F-35, it would purchase an interim buy of Super Hornets and restart a fighter competition after a new defense strategy had been formed.
A Canadian Super Hornet buy could give Boeing a foothold in a future competition, as the country will have to make training and infrastructure investments in order to support F/A-18E/F flight operations.
The U.S. government has also taken steps to move the Super Hornet deal forward.
Earlier this month, the U.S. State Department approved the sale of 18 Super Hornets to Canada despite a final contract agreement being in question. The arms package, valued at $5.23 billion, included 10 F/A-18Es and 8 F/A-18Fs as well as associated engines, AN/APG-79 active electronically scanned array radars, 20mm guns, electronic warfare countermeasures systems, 100 AIM-9X Sidewinder missiles and other gear.
Instead of buying new Super Hornets from the United States, the Canadian government could opt to buy used F/A-18s from Australia ― an economical move that would let Canada punish Boeing and allow Trudeau to keep his campaign promise.
Meanwhile, F-35 manufacturer Lockheed Martin has said that it could offer joint strike fighters to Canada in lieu of the Super Hornet. That option could help to preserve defense and trade relations between the United States and Canada.
Despite the unpopularity of the F-35 with the Canadian public, Lockheed has industrial leverage due to Canadian defense companies’ work on the program. As a partner of the F-35 program, an estimated 110 Canadian firms have already racked up more than CA$825 million, or $668 million in U.S. dollars. Should Canada ultimately walk away from an F-35 purchase, Lockheed could pull its business from the country.
Following Tuesday’s ruling, Boeing applauded punishing its rival for taking “massive illegal subsidies in violation of existing trade law.
“Global trade works only if everyone plays by the rules that we’ve all endorsed to ensure fair competition, as adjudicated by independent national and international bodies,” a company statement read. “This dispute has nothing to do with limiting innovation or competition, which we welcome. Rather, it has everything to do with maintaining a level playing field and ensuring that aerospace companies abide by trade agreements.”
Meanwhile, Bombardier strongly condemned the U.S. government’s decision, calling it “absurd and divorced from reality.” The company also voiced hope that the International Trade Commission would ultimately rule in its favor.
“Looking beyond today’s and next month’s preliminary decisions, the International Trade Commission will determine next year whether Boeing suffered any injury from the C Series. Because Boeing did not compete at Delta and because Boeing years ago abandoned the market the C Series serves, there is no harm,” it said in a statement.
Aaron Mehta in Washington contributed to this report.