Earlier this morning I was happily considering the new entertainment system Delta is planning to install on its Bombardier CSeries CS100 aircraft set for delivery starting in early 2018. This afternoon that order appears significantly challenged. The US International Trade Commission, a part of the Department of Commerce, sided with Boeing on a case filed in April 2017. The ITC mandated a 220% tariff be applied to any deliveries of a CSeries in the United States. Based on Boeing’s claim of a $20mm/aircraft price tag (Delta says it paid more than that) a $44mm surcharge would be added, payable to the US Government, for any new CSeries planes that come in to the US market.
Also, the ruling is not final yet so expect things will change.
Read More: Gogo Vision Touch IFE to launch on Delta’s CSeries in 2018
The Boeing case argues that Bombardier violated price dumping rules in pricing the CSeries when securing its 75-aircraft deal with Delta. Specifically, Boeing claims that government investment in Bombardier (Quebec now owns nearly half of the company) is an illegal subsidy. The price dumping allowed Bombardier to harm aerospace workers in the United States and throughout the global supply chain. Which, of course, ignores just how many of the components Bombardier uses in the CSeries are built in the US.
In many ways the case hinges on whether the 737-700 or 737 MAX 7, Boeing’s smallest jets, compete with the CSeries. The Boeing version flies with ~116-120 seats in a typical 2-cabin configuration (United has a 116 and a 118 seat version) while Swiss operates its CSeries CS100 with 125 seats on board. The newer MAX7 was redesigned and stretched in July 2016, adding 12 extra seats to bring it to a 140-seat layout. That move came a couple months after Delta’s CSeries order was announced.
Read More: On board the AirBaltic CS300
Delta claims what it really wants is a 100-110 seat plane, something that the CS100 fits nicely with a 2-class configuration and some rows of extra legroom seats. The 737 MAX 7 is simply too large for that to work reasonably. But it didn’t stop Boeing from filing suit nor did it stop the ITC from finding in its favor.
The truth of the matter is that I don’t really know the Commerce rules nor how subsidies and tariffs are calculated. Some quick back-of-the-napkin math suggests that the 220% puts the real total price to Delta ABOVE the list price Bombardier sells the CS100 at (~$72mm). And that’s before one considers that large aircraft orders typically get significant discounts, often 40-50%, from list price. So even if the $20mm price is illegal the “true up” to full price would probably be closer to 75%, not 220%.
Read More: Friday Flyday: Taking the CS100 for a spin
Also, I’ve spent a few hours inside the CSeries, both on the ground and in the air (the latter courtesy of Bombardier, a necessity given it was not yet in service). It is way more comfortable to sit in than the many Boeing 737s I’ve been in. I know that doesn’t really matter when it comes to deciding trade sanctions, but it is a spectacular aircraft on the versions I’ve been inside.
Read More: A Few Thoughts on the Bombardier CSeries CS300 First Flight
Losing the Delta order could be a death blow to the product line and potentially to the company. No doubt that’s Boeing’s goal here.
The reality is that if the tariffs stick, the deal doesn’t. The deal is at significant risk here. Delta will be fine. Bombardier won’t.
— Jon Ostrower (@jonostrower) September 27, 2017
Ironically, the biggest winner is probably a Boeing competitor. Brazilian manufacturer Embraer makes a 100 seat aircraft in the E2-190 family. Those are also a nice ride (well, the original E-190s are; the E2 is still working through certification), but hard to know where the market ends up in the end.
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Very bad news for Belfast and about 1,000 Bombadier wing assembly employees
I assume the winner will be the non-US bank that provides low interest leases for everything so it’s not delivered to the US.
It is unclear that this really works. But, yes, it is one of the many things being discussed.
Seth Miller I have no doubt it involves another Boeing complaint.
Delta doesn’t believe in aviation subsidies, right? As a friend of mine mentioned, the airline should be applauding this decision, and Bastian should be happy to pay the tariff. 😉
Off course boeing win. The battle was in the land of USA. Why would US government body render a decision not in favour of its home industry? It would be ridiculous…
Hello, please respond to delta changing the charge amount to $250,000 from $25,000 for diamond status for 2019. This is ridiculous, a 1000% increase, and it hits their most loyal customers. They do not want to serve their clientele any longer. It is totally absurd, please comment on it.
Sure…I really don’t care.
The CC loophole was fine but, quite frankly, cheap loyalty is cheap and that’s not the customer you reward with the best service. At least not when the goal is to continually improve profit margins.
Is there an option for Delta to create a shell corporation in Ireland or elsewhere, and then lease the aircraft for domestic flights?
Insanity.
Why 220%? Any reason or thought behind the value of the tariff?
This ruling has zero chance of being upheld on appeal. There was no doubt the ITC would rule for Boeing, as everything under the Trump administration has become about protectionism, whether it makes any sense or not. Boeing’s arguments were a laughably bad abuse of anti-dumping laws to try to cripple a competitor that’s not actually competing with them. This will definitely be overturned by the WTO on appeal.