Published: Sat, May 20, 2017
World | By Paul Elliott

Ottawa delivers aerospace threat ahead of NAFTA talks

Canada's government is threatening to "review" its defense contracts with Boeing Co., which include a planned purchase of Super Hornet fighter jets, in response to the US company's trade challenge against rival Bombardier Inc.

Foreign Minister Chrystia Freeland issued the threat in a statement Thursday.

The Commerce probe, which was expected, parallels an investigation by the U.S. International Trade Commission into Boeing's allegations that Bombardier sold 75 CSeries planes to Delta Air Lines Inc past year at a price well below cost.

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.

The antidumping investigation will look into charges that Canada's Bombardier receives subsidies of almost 80 percent, and could lead the US Commerce Department to impose equivalent punitive import duties.

The Liberals linked the trade dispute and fighter jet purchase Thursday after US officials in Washington held a hearing into dumping allegations that Boeing brought against Bombardier.

Delta agreed past year to buy up to 75 Bombardier CSeries planes, a deal worth an estimated $5.6 billion based on the list price of about $71.8 million.

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.

Yet the threat also cast a fresh light on the government's plan, announced last November, to sole-source the Super Hornets as a stopgap to supplement Canada's aging fleet of CF-18s.

According to various military experts, Freeland was most likely talking about the 18 Super Hornets purchase, a deal that could be worth up to $2 billion.

"It is untenable for us to continue competing with government subsidized competitors" Boeing Vice Chairman Raymond L. Conner said. 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.

In the wake of the decision by the Department of Commerce to initiate an investigation targeting Bombardier's C Series aircraft program, Caisse de dépôt et placement du Québec (CDPQ) will prove conclusively that its investments in the company were always done on commercial terms. A preliminary determination on the petition is expected by June 12.

Boeing is calling for countervailing duties of 79.41 per cent and anti-dumping charges of 79.82 per cent. It claims Bombardier has received more than US$3 billion in government subsidies so far. CDPQ's acquisition of a 30 per cent stake in Bombardier's rail division was completed after extensive due diligence and in consultation with outside advisers.

Boeing said the firm hoped there would be no impact on the proposed Super Hornet sale but made clear it had no regrets about challenging Bombardier.

He said Boeing could lose $10 billion (7.67 billion pounds) to $20 billion in military sales to Canada, encompassing order for jets, helicopters and maritime surveillance planes.

Boeing's annual sales were US$94.6 billion previous year.

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