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. The head of Delta Air Lines said that despite
300% tariffs threatened against Bombardier, the carrier still expects to buy planes from
the Canadian manufacturer without paying a tariff.
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And in today's video, we are going to discuss “Threatening
the 737 Why Boeing Contested Delta’s CSeries
Order.” So without any further ado, Let's begin.
Ever since Boeing announced it would temporarily
halt production of the grounded 737 Max aircraft, there has been a strong sense of deja vu among
residents of Renton, a small city in Washington state where the planes are made. The city,
just south of Seattle, has spent decades as an echo chamber for the company’s ups and
downs. But this time, thanks to population growth and a more diversified workforce that
has sought to get away from being a “one-company town”, the community and its local economy
appear prepared to weather this latest Boeing storm.
Bombardier argued Boeing’s large 737 order
book shows there has been no adverse impact from its CSeries jet and that the U.S. planemaker
does not manufacture a jet that competes with the new model. “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. Delta
wants to buy 75 C Series planes, which Boeing challenged for being unfairly subsidized and
a competitor to variants of its 737 aircraft.
The U.S. Commerce Department made two preliminary decisions, to place a 220% tariff and an 80%
import duty on the planes. And ultimately, the C Series order was so vital to get sales
moving that Bombardier might still see it as worthwhile, even if it effectively loses
the U.S. market as a result. The risk to Boeing on this one is higher than the risk to Bombardier,
and they've been emboldened by having a Trump White House to theoretically back them.
But that doesn't make the risks go away, it
makes them bigger. Boeing has been a fixture in Washington state since it was founded in
Seattle by Bill Boeing more than a century ago. When it landed in Renton in 1941, it
catapulted the area “from a fourth-class city to a second-class city basically overnight,”
according to the Renton History Museum’s city history database.
Bombardier won breakthrough orders for the
CSeries from Delta and Air Canada (45 firm CS300s) but has not announced any new orders
since despite CS100s and CS300s in service with Swiss International Air Lines (SWISS)
and Latvia’s airBaltic performing quite well. Delta’s first CSeries delivery is
scheduled for the spring of 2018.
“Once Delta and Air Canada start flying those birds in the US and Canada, airlines
will see the CASM is phenomenal,” Bombardier VP-regional aircraft Kevin Smith told reporters
at the Regional Airline Association convention in West Palm Beach, Florida. “When Delta
starts operating the aircraft out of New York and Los Angeles and then Seattle, and Air
Canada takes delivery in the spring of 2019, the aircraft will be ubiquitous. It will be
everywhere.” Bastian argued that Boeing won’t be able
to show it was harmed by Delta’s deal because
it no longer makes the same size planes with 100 to 150 seats. Bombardier’s only competitor
for the Delta deal from Brazilian manufacturer Embraer, which offered used E190 aircraft
from Air Canada. “As you look through this, and try to see how exactly a harm case is
going to be developed, particularly to justify the type of tariffs that are being contemplated,
to us it’s unrealistic, a bit nonsensical,” Bastian said.
“I continue to believe that there is not
a case to be made specific to the Delta order, that there was any harm brought to the Boeing
Company.” Transport Canada Civil Aviation (TCCA) and the European Aviation Safety Authority
(EASA) have suggested that they will want to independently assess the Boeing patch,
and they will not clear the 737 MAX plane to fly in their airspace based on approval
from the U.S. Federal Aviation Administration alone, whose rulings till now have been almost
universally accepted by aviation authorities worldwide.
A tour de force by Starliner might also help distract from a potential problem Boeing is
facing back on earth: An exodus of some of the company's most experienced engineers that
threaten its rebound from a bruising run that includes the grounding of its 737 Max jets
after two fatal crashes and the plunge in global air travel amid the spread of Covid-19.
“It’s hard to overestimate the significance of it,” said Andrew Aldrin, director of
the Aldrin Space Institute at the Florida Institute of Technology.
The employees appear to discuss instances
in which the company concealed such problems
from the F.A.A. during the regulator’s certification
of the simulators, which were used in the development of the Max, as well as in training
for pilots who had not previously flown a 737. At that point, US passengers are sure
to take notice of the aircraft’s comfort,
Bombardier believes. The growing buzz about the aircraft’s comfort
combined with its cost performance in service in both North America and Europe will convince
airlines in the US and globally that it is a must-have. At least, that is the theory,
which largely hinges on Delta operating the CS100 out of major US markets (with an assist
from Air Canada, which is expected to operate CS300s from US cities to Canadian hubs to
connect passengers to the airline’s Boeing 787 network).
Bastian said the debate has reached the highest
levels of government, with interests beyond the aerospace industry. He expects the debate
to play out over the next year. “We think the (Bombardier) aircraft needs to come to
market. We believe it will come to market,” Bastian said. “We think we will get it at
the agreed, contractual price. We are not going to be forced to pay tariffs or anything
of that ilk. There should not be any concerns on our investors’ minds in that regard.”
The suspension of production of the 737 Max,
previously Boeing’s bestselling plane, was announced in two crashes that killed 346 people
in October 2018 and March 2021. The planes had been grounded worldwide, but when it became
clear the Federal Aviation Administration was not going to sign off on the aircraft’s
return to service before 2020, the company opted to temporarily stop making them.
More than 3,200 engineers and technical workers
have left the company’s Seattle airplane manufacturing hub since the start of last
year, about 18% of the union that represents them, with only a scant number added behind.
In all, Boeing is aiming to cut 23,000 employees from its executive committee to the factory
floor through layoffs, buyouts, and retirement initiatives it launched as it racked up record
financial losses. A duty on the CSeries, particularly
one that makes sales to US airlines less likely,
inevitably will hurt UTC. Is the Trump
administration prepared for collateral damage to US companies and workers? And UK
Prime Minister Theresa May has already expressed her disappointment with the potential CSeries
duty given its implications on wing production in Northern Ireland. Does the Trump administration
want a trade tiff with the UK as it tries to negotiate a post-Brexit trade deal with
the UK? Bombardier's CSeries and its aggressive sales tactics threaten the very existence
of Boeing's 737 Max 7 and the US aerospace industry, Boeing's vice-chairman Ray Conner
told US trade officials.
"The 100-150 seat market matters greatly to Boeing, and Bombardier is very close to forcing
us out of this altogether," Conner said during a hearing held by the United States International
Trade Commission. In several instances, Boeing employees insulted the F.A.A. officials reviewing
the plane. In an exchange from 2015, a Boeing employee said that a presentation the company
gave to the F.A.A. was so complicated that, for the agency officials and even himself,
“it was like dogs watching TV.”
Several employees seemed consumed with limiting training for airline crews to fly the plane,
a significant victory for Boeing that would
benefit the company financially. In the development
of the Max, Boeing had promised to offer Southwest a discount of $1 million per plane if regulators
required simulator training. The Canadian airframer's tactics have depressed prices
for competing for small narrowbody aircraft like 737-700s and 737 Max 7s, Boeing says,
adding that pressure from Bombardier forced Boeing to cut the price of 737-700s it sold
to United Airlines.
"The way they're pricing it is dumped beyond any reasonable imagination," Robert Novick,
an attorney for Boeing, told the Trade Commission. "If Boeing cannot secure additional orders
for the 737 Max 7, or is forced to sell at depressed prices, the program will not succeed
and Boeing will be eliminated from the 100 to 150 seat market."
The specifics of what happened in the regulatory system are still emerging (and despite executives’
assurances, we don’t even really know what happened on the flights yet). But the big
picture is coming into view: A major employer faced a major financial threat, and short-term
politics and greed won out over the integrity of the regulatory system.
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