Recent events in the aerospace industry resemble a game of chess.
Players: Aircraft manufacturers Boeing, based in Washington state, and Bombardier, headquartered in Quebec.
Opening moves: Boeing deployed its pieces quickly in an attempt to take control of the board’s centre. It complained to the U.S. government that Bombardier was selling the CSeries jets to Delta Airlines at one-quarter of the aircraft’s list price, thanks to unfair subsidies from the Canadian, Quebec and U.K. governments. (Bombardier’s Belfast factory makes components for the jets.)
The next few moves involved Delta denying the sale price quoted by Boeing, and diplomatic and trade talks, but Boeing’s major pieces were fully mobilized.
Then, in September, the U.S. government — arguably Boeing’s queen — imposed a 219 per cent tariff on the CSeries aircraft sold in the States.
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Industry and trade experts say they had expected a tariff to be announced — the U.S. has played this tactic before. It imposed temporary tariffs on steel imports in 2002 and on Chinese tires in 2009.
What was unexpected, the experts say, is the tariff’s size — 219 per cent is far higher than Boeing requested. Boeing might have made a strategic error that cost it credibility and trust.
Selling new lines of aircraft at discounted prices is standard practice in the aerospace industry. Government subsidies for aerospace companies are also standard practice. Boeing itself is heavily subsidized by U.S. federal and state governments.
Given all this, a reaction from a typical Canadian watching the evening news might have been: “I hope the Canadian government retaliates.”
And, indeed, the Canadian government, which had placed orders for 18 of Boeing’s F-18 Super Hornets for the Royal Canadian Air Force, threatened to drop the contracts. The U.K. made similar threats.
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Boeing, however, didn’t back down, and the game continued.
Nothing is straightforward in chess or the global marketplace. Tit-for-tat tactics can easily backfire.
Bombardier is a Canadian company. It employs thousands of people in Quebec.
But we benefit from Boeing, too. Boeing directly employs 1,400 people at its Winnipeg plant, and contributes significantly to B.C.’s economy.
According to a 2015 study by KPMG, 36 B.C. aerospace companies have direct contracts with Boeing — hardly surprising, given Boeing’s base just over the border.
Airbus, next on the list, is served by 28 B.C. companies. Of the five aerospace companies in that class, Bombardier contracts the fewest B.C. firms.
British Columbia is more closely tied to West Coast Boeing than to Canadian Bombardier. Canadian reprisals against Boeing could lead to losses of highly paid B.C. jobs.
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Boeing’s strategy seems to focus on keeping Bombardier out of the U.S. midsized-aircraft market. The CSeries is a new kind of aircraft for Bombardier. It marks the company’s entry into a market in which Boeing is already a major player, even though Boeing stopped making aircraft similar to the CSeries years ago.
Industry experts say it isn’t the CSeries itself that concerns Boeing. What really threatens the company, they say, are options in the Bombardier-Delta contract that Delta might — or might not — choose to act on in the future. Those options apparently do compete directly with Boeing business.
Then there’s the matter of Airbus. The European aerospace consortium isn’t a player in this game, but is in another game Boeing is playing. Boeing failed to act when Airbus quietly entered the U.S. market in the 1970s. Now Airbus is a major competitor to Boeing.
By prompting trade sanctions against Bombardier, Boeing’s strategy in the game we’re seeing played in the news this year is to prevent history from repeating.
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But Boeing failed to consider how Bombardier might move its key pieces. The Quebec company quickly moved to align with Airbus and negotiated an agreement with the European company. As a result, the CSeries jet will be manufactured at Airbus’s U.S. facilities.
This bypasses the U.S. tariffs on CSeries aircraft components. It also strengthens both Bombardier’s and Airbus’s positions in the U.S. market against Boeing.
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What does this new configuration of the industry mean for Boeing’s Canadian employees and downstream contracts with B.C. companies? We’ll know as the game unfolds.
