Opinion-Policy Nexus

A few thoughts today about Bombardier and Boeing.

First, Boeing’s complaint to the U.S. Commerce Department about Bombardier and the subsidies it receives from governments in Canada really has nothing to do with the sale of those 75 Bombardier 100-passenger C Series jetliners to Delta Airlines. It has everything to do with Boeing’s determination to defend its turf from foreign competition.

Second, the countervailing duty of 219 per cent that the Commerce Department proposes to slap on sales of Bombardier’s C Series aircraft is patently absurd. Boeing did not bid for Delta’s business. It does not make aircraft in the 100-seat category. Yet it asked for an 80 per cent duty, citing unfair competition, and the Commerce Department, knowing which way the wind from the White House is blowing, obligingly made it 219 per cent.

Third, Boeing’s immediate goal is to prevent Bombardier from getting a toehold in the U.S. market for its C-300 series of larger aircraft that would compete with Boeing planes. As Canada’s Foreign Affairs Minister Chrystia Freeland argued, the U.S. duties are “clearly aimed at eliminating Bombardier’s C Series aircraft from the U.S. market.”

Fourth, all governments subsidize their aircraft industries, none more than the United States. Between 2000 and 2014, Boeing received $64 billion in loans and loan guarantees from Washington plus $13 billion in subsidies from state and local governments. In addition, the U.S. Export-Import Bank, popularly known as the Bank of Boeing, subsidizes foreign airlines with low-interest loans that save them up to $20 million on each Boeing plane they purchase.

Fifth, there is a history of bad blood between Boeing and the Canadian government that may have exacerbated the current situation. It goes back to the late 1980s when the Mulroney Conservative government was in office and Air Canada was still government-owned.

The airline was looking for new aircraft. There was a heated competition between Boeing, which was already established in the Canadian market, and a newcomer, Airbus Industrie, a European consortium that was trying to break into North America. In the end, after some of the most frenetic lobbying Ottawa had ever experienced, Air Canada chose Airbus, ordering 34 A-320s in a purchase worth $1.8 billion.

Boeing was outraged. It protested at the highest levels. It was convinced that Airbus, through its lobbyist Karlheinz Schreiber, had bribed friends of the Mulroney government. Tom Niles, the U.S. ambassador in Ottawa, alleged just that in his secret reports to Washington. Years later, in 2007, the Hamilton Spectator obtained access to the Niles correspondence through the U.S. Freedom of Information Act.

 In April 1988 – with the government on the verge of calling a general election – Niles said this in a message to the State Department:

"One aspect ... which may become a matter of public debate is the role played by the Ottawa lobbying firm GCI, headed by former Newfoundland premier and Mulroney confidant Frank Moores. A man with an unsavoury reputation, Moores has spearheaded the Airbus effort in Canada for several years, and stands personally to gain upwards of $50 million should the A-320 sale go through.”

In what reads like a plea for a well-planted leak, Niles added this:  “To the extent this fact becomes publicly known, it will not help the Airbus cause, particularly in a pre-election atmosphere.”

This American unhappiness was the seed that grew into the notorious Airbus scandal which featured Frank Moores, who died in 2005; the lobbyist Schreiber who eventually went to prison in Germany; and Brian Mulroney, who publicly acknowledged that he had accepted envelopes of cash from Schreiber after he retired as prime minister.

Back in 1988, according to the Ottawa grapevine, the government was able to keep lid on the impending scandal by warning Boeing, in effect, to shut up or lose future business in Canada. Today, the Justin Trudeau government is using a similar tactic, trying to make Boeing back off Bombardier by threatening not to purchase replacement fighter jets from Boeing. But times have changed and so has the administration in Washington. The old tactic is not working this time.

Trudeau faces a hard decision. The government has invested too much taxpayer money and too much political capital in its support of Bombardier – and the high-tech jobs that the aircraft industry represents – to be able to back off now. To do so, would mean risking the Liberals’ electoral base in Quebec and the support of voters across the country who expect their government to stand up to the bully next door. But if Trudeau presses ahead, he risks alienating the Trump administration and putting NAFTA in even greater jeopardy than it is today.

Talk about a rock and a hard place!

Posted
Monday, October 2, 2017 - 04:34