US government imposes 220% import tariff on Bombardier

US government imposes 220% import tariff on Bombardier

Bombardier’s corporate bonds have suffered the sharpest drop in more than two years following the US government’s decision to impose a 220% tariff on its passenger aircraft.

The US Department of Commerce yesterday announced its preliminary decision to instruct the country’s Customs and Border Protection to collect cash deposits from Bombardier – and all other Canadian manufacturers of 100- to 150-seat civil aircraft – when it delivers up to 125 C Series aircraft to Delta Airlines next year.

And the value of Bombardier’s corporate bonds tumbled overnight in response. Its senior unsecured notes were down by more than seven price points at 99.963, according to Bloomberg prices at 10am London time today. That’s the largest fall that the bonds have suffered in more than two years, says Bloomberg.

The DoC’s decision to impose the punitive tariff comes as part of a legal battle between the Canadian aircraft and train manufacturer and Boeing, which took its rival to court in the US alleging that it had received financial support from the Canadian government that allowed it to sell its C Series planes at below-market prices.

The DoC has carried out a countervailing duty investigation and has made a preliminary determination that imports should be subject to a 219.63% import tariff – the amount it says Bombardier received in subsidies. It will continue to review that figure and make a final ruling in February.

Countervailing duties aim to counter “unfair subsidies” from governments to companies in the form of grants, loans, equity infusions, tax breaks and production inputs.

In a statement on its website, US Secretary of Commerce Wilbur Ross said: “The US values its relationships with Canada, but even our closest allies must play by the rules. The subsidisation of goods by foreign governments is something that the Trump Administration takes very seriously, and we will continue to evaluate and verify the accuracy of this preliminary determination.”

Boeing lodged a petition with the US International Trade Commission and the DoC in April, claiming that large government subsidies had helped Bombardier to “dump” its C Series aircraft in the US.

The move came after Bombardier won a $5.6 billion deal last year to supply up to 125 C Series aircraft to Delta Airlines. Boeing didn’t compete for the contract.

Bombardier has condemned the tariff as “absurd and divorced from the reality about the financing of multibillion-dollar aircraft programmes”.

In a statement on its website, the company said: “We strongly disagree with the Commerce Department’s preliminary decision. This result underscores what we have been saying for months: the US trade laws were never intended to be used in this manner, and Boeing is seeking to use a skewed process to stifle competition and prevent US airlines and their passengers from benefiting from the C Series.”

The International Trade Commission would decide next year whether Boeing had suffered “any injury” from Bombardier’s deal with Delta Airlines. “Because Boeing did not compete at Delta and because Boeing years ago abandoned the market the C Series serves, there is no harm.

“The US government should reject Boeing’s attempt to unfairly tilt the playing field in its favour and to impose an indirect tax on the flying public through unjustified import tariffs,” said Bombardier.

The DoC decision has been criticised in the UK, where more than 4,000 people work for Bombardier in its Northern Ireland plant. About 1,000 jobs are linked to the C Series project.

A UK government spokeswoman told The Guardian: “This is a disappointing interim statement but only the first step in the process. We will continue to strongly defend UK interests in support of Bombardier at the very highest level because an adverse outcome risks jobs and livelihoods among the 4,200 skilled workers in Belfast.

“Boeing’s position in this case is unjustified and frankly not what we would expect of a long-term partner to the UK – as well as damaging the wider global aerospace industry.”

 

Elizabeth Eyre
By Elizabeth Eyre September 27, 2017 13:08