|It sure doesn't look scary...|
Bombardier got hit with another tariff this past week. The US Commerce Department imposed an 80% anti-dumping tariff on the CS100. This is in addition to the 220% "countervailing" tariffs imposed the week before by the same office. These tariffs come at the behest of Boeing; which accuses Bombardier of both receiving unfair government subsidies and selling the CS100 at below market prices in order to gain market share.
Boeing does have a fair argument. Bombardier has been the recipient of tax breaks and government loans. The aerospace firm has been derided (rightly so) for crying poverty amply rewarding its upper executive. Canada does seem to have a love/hate relationship with Bombardier.
Of course, Boeing does the exact same thing.
Boeing has received massive tax breaks on the state and federal level. Boeing "dumps" its airliners at a loss in order to break into new markets. After selling a fleet of 787s to Air Canada recently, Air Canada was able to immediately sell some of these airliners for a profit.
Almost immediately after "dumping" airliners into the Canadian market, Boeing is now crying foul because Bombardier is doing the same.
We will not even touch on Boeing's defence division, which receives an enormous amount of Government largesse. Even Donald Trump criticized the $4 billion cost of Boeing's new Air Force One.
Hypocrisy, thy name is Boeing.
|The Boeing 787. Each one sold to Air Canada at a loss.|
So why is Boing making such a fuss?
Boeing does not currently manufacture a direct competitor to the CS100 nor does it have a similar aircraft in development. Its closest competitor to the CS100 would be the 737-700, a significantly larger plane (149 seats vs. 133) that lacks both the composite construction and the geared turbofan of the C-Series.
One could commend Bombardier for fulfilling a niche that both Boeing and Airbus seem to have little interest in. The CS100 fills the gap. It is larger than regional jets like Bombardier's own CRJ Series and Embraerer's E-Jet; yet it is smaller than full-sized airliners like the 737 or A319. The CS100 presents itself as the "Goldilocks" for routes with too much demand for an E-Jet but a 737 would likely have empty seats. The C-Series' use of lightweight composites and geared turbofans help push its operating costs down, making it even more attractive to an industry where efficiency is king.
While the C-Series' groundbreaking design helps efficiency, it also introduces risk. Planes that cannot fly cannot earn revenue. No carrier wants to have to ground their planes due to an unforeseen issue with new technology. This makes it difficult for even the best designs to find buyers at the start of a production run.
It is for this reason Bombardier and Canada's aerospace sector had reason to celebrate when Delta Airlines ordered 75 CS100s. This was seen as a huge vote a confidence for Bombardier's new jet.
|The 160-seat CS-300.|
Boeing's protests likely have more to do with preventing the CS300 from entering the US market than the CS100. While the smaller C-Series may not pose much of a threat, the CS-300 certainly does.
Ironically, the C-Series follows Boeing's example in following current trends in commercial air travel... Only on a smaller scale.
What made the 747 so successful was widespread use of the "hub-and-spoke" airline model. Passengers would embark at smaller airport, fly to centralized "hub" airport, then towards their final destination. Larger "wide body" aircraft like the 747 were perfect aircraft for travel between "hub" airports, taking hundreds of passengers with a single flight. Jumbo jets make for an incredibly efficient means of travel when every seat is full.
The Boeing 747 enjoyed this near-monopoly until the 2000s, when Airbus unveiled its A380. Where as the 747 incorporated a distinctive "hump" with a single-aisle cabin, the A380 utilizes a complete "double-decker" design with substantially more seating than even the largest 747 variant.
Oddly enough, Boeing has no plans to compete against the A380 with a successor to the 747. In fact, Boeing may soon end 747 production altogether. This may seem like Boeing is conceding the market to Airbus, but the A380 has not exactly been a raging sales success.
|The Boeing "Triple Seven".|
Aircraft like the 777 and 787 have opened the market up for more "point-to-point" routes instead of the typical "hub-and-spoke". Instead of flying a smaller plane to a hub, boarding another plane to another hub, then another towards a final destination, passengers can do the trip in a single flight.
This is a huge deal.
Increased security following 9/11 combined with the arrival of discount "no-frills" carriers has made air travel a much different beast compared to the 70s and 80s. Customers no longer look at air travel as a luxury, but as a necessity. They simply want to pay their money, get on the plane, and get to where they need to go. Who wants to spend an entire day struggling through mind-numbing layovers, security gates, and overpriced gift shops when you can simply just get there.
By offering more point-to-point routes, airlines are meeting the customer demand. To do so they need smaller, more efficient aircraft then what has been the industry norm for the last 30 years...
Starting to sound familiar?
|The Boeing 737... Circa 1967.|
This 50-year-old aircraft has since become the best selling commercial airliner in history. Throughout the years, the 737 has evolved into countless variants and sizes. It has been used as the platform for several military aircraft, including the P-8 Poseidon. If you have ever flown on an aircraft, there are good odds it was a 737.
Despite its age, Boeing still builds dozens of 737s a month in order to meet demand. Since demand is so high, it has pushed forward a replacement until 2030...
Enter the C-Series.
Like Boeing's own 787, the C-Series is a modern jetliner utilizing composite materials. This lets it fly the same routes with less passengers while still being profitable. It also helps meet the demand for more point-to-point routes. According to officials at Air Canada, the C-Series has a "CASM (cost per available seat mile) rates that are equivalent to much larger airplanes".
Scarier still to Boeing is Bombardier's interest in further expanding the C-Series line with the CS500. This 189-seat variant would strike right at the very heart of the 737 market. While Boeing has managed to achieve a duopoly with Airbus for the full-size airliner market, the C-Series has the potential to shake up that market.
Having already conceded the "jumbo jet" market to Airbus in order to concentrate on the more "midsize" airliner market, Boeing now risks losing part of its substantial share of the "compact" airliner market. A position it seems to have (until now) taken for granted.
Boeing has had 50 years to develop a successor to the 737. Instead it has chosen to bet by on a series of upgrades such as more efficient wings, engines and other evolutionary changes. Now that a newcomer has come forth, Boeing has been caught with their pants down.
Boeing could have followed the free-market mantra of "competition encourages innovation" and developing its own "right size" airliner. Instead Boeing has chosen to meet the challenge using lawyers and lobbyists, instead of aerospace engineers.
|Korean Air CS300|
The US Department of Commerce is far from a impartial entity, it is a politically appointed organization that is concerned solely with American interests. Its decisions are often overturned by the US Court of International Trade (CIT). Due to the 1988 Free Trade Agreement between Canada and the USA, cases involving "dumping or countervailing duties" can be heard by a panel with representatives from both nations.
As per Chapter 19:
In Article 1904, the two governments have agreed to a unique dispute settlement mechanism that guarantees the impartial application of their respective antidumping or countervailing duty determination by a bilateral panel with binding powers. This will mean that producers in both countries will continue to have the right to seek redress from dumped or subsidized imports, but any relief granted will be subject to challenge and review by a binational panel which will determine whether existing laws were applied correctly and fairly. Canadian producers who have in the past complained that political pressures in the United States have disposed U.S. official to side with complainants will now be able to appeal to a bilateral tribunal.
In the meantime, Bombardier is still marketing the C-Series to international buyers. Korean Air has ordered 10 CS300s, Air Canada has ordered 45, China's Loong Air has committed to 20, and so on. Bombardier is said to have "doubled its efforts" to sell the C-Series to the emerging Chinese market.
In the end, Boeing's attempts to stifle the C-Series may backfire spectacularly.
By invoking the ire of both Canada and Britain, Boeing has jeopardized future sales of its defense division. Not only has it all but lost an almost guaranteed Super Hornet sale to Canada, but it has put future contracts in danger as well.
Not only that, but Boeing may have given Bombardier the unintended gift of "street cred" in the competitive airliner market. This battle has given the C-Series a lot of publicity over the last few months, and potential customers have to be asking why Boeing is so afraid of this little jetliner.
Sometimes it takes a newcomer to shake things up. American car manufacturers were caught off-guard by more efficient cars built by the Japanese in the 80s. GM and Ford lost enormous amounts of market share and have never recovered. Bombardier's C-Series has the potential of doing similar damage to Boeing.