Economy & Business

Businesses Dislike Competition: Boeing vs. Bombardier Edition

I have said it before but I will say it again: Cronyism is the greatest threat to capitalism. Beyond the unfair government handouts that private companies receive to boost their profits, there is something unseemly about a business model built on the expectation that the government will help you against competition.

A blatant example of this sad reality can be found in the battle waged by Boeing against the Canadian manufacturer Bombardier. At the heart of the dispute before the U.S. Commerce Department and the U.S. International Trade Commission is Boeing’s claim that the Canadian company was harming Boeing with its dumping practices — i.e., Boeing claims that Bombardier is distorting trade with the sale of a new series of passenger planes to Delta at a price — $19.6 million — that Boeing alleges is well below the $33 million that the planes should have cost. Boeing also complains that it is unfair since Bombardier is getting help from Canadian taxpayers and, hence, getting an edge over the competition in that market.

The Canadian paper The Star reports:

Boeing has petitioned the U.S. Commerce Department and the U.S. International Trade Commission to investigate subsidies of Bombardier’s CSeries aircraft that it says have allowed the company to export planes at well below cost.

Boeing is calling for countervailing duties of 79.41 per cent and anti-dumping charges of 79.82 per cent.

Before I proceed, let me state the obvious. First, LOL. It’s rich that Boeing, the Mother of All Trade-Subsidy Receivers and the No. 1 beneficiary of the Ex-Im Bank and other government’s handouts, is complaining about “unfair” trade practices. Remember, Boeing is one of the leading companies lobbying to see a tax provision implemented (the Border Adjustment Tax) that would exempt its export income from taxes.

LOL 2.0: What are we to think of Boeing crying about a company seeking unfair advantage when it is still taking out full-page newspaper ads praising President Trump based, I assume, on the president bringing the Ex-Im Bank back from the dead!

Third, it tells you how distorted the mindset of companies such as Boeing are when they complain about being harmed simply based on the fact that a competitor sells its products at a lower price. As if the only way Bombardier could be selling its plane at a lower price is by the use of dumping practices.

Indeed, Delta has said (more on this below) that it chose Bombardier planes to “reduce cost per seat as consumers continue to seek low fares” and because the aircraft offered “next-generation” efficiency, maintenance, and “compelling . . . passenger amenities.”

Selling goods and services at a lower price than one’s competitor is what competition in the marketplace is all about! Companies are competing for consumers by offering better products and services at lower prices. The company that is better and cheaper gets the consumers and, as a result, harms the other company. However, in a free marketplace, the loser doesn’t get to complain to the government or demand that the winner be punished, especially not in the same week the White House dedicated an entire event to lamenting consumers’ poor air-travel experiences.

Well, that is unless you are Boeing apparently. According to Seeking Alpha:

Boeing’s claims seem to be based on the proposition that if the Bombardier deal with Delta Air Lines . . . is allowed to continue as is, Boeing 737 business is materially threatened.

The Canadian government, Bombardier, and Delta have all now submitted their initial briefs in the inquiry. Interestingly, they don’t touch on the question of subsidies but instead focus on Boeing’s claim that to have suffered actual harm from Bombardier.

The Delta brief is a must read. It shows that Boeing is complaining about Bombardier’s sale to Delta in a market in which Boeing does not even compete (it doesn’t produce any aircraft in the 100–125-seat range, which is what Delta was seeking to buy). Also, Boeing’s complaint is over hypothetical harms that it admits won’t materialize for years, if at all.

Here are some relevant sections from the Delta and Canadian briefs.

Delta on how Boeing “has not lost a single sale” in this market, because it doesn’t offer a product in this market:

Boeing has not lost a single sale. . . . In fact, as the following illustration shows, Boeing does not produce a single aircraft in the 100-to 125-seat range.

On why buying Boeing’s larger aircraft wouldn’t make sense:

If an airline’s aircraft are too big for a particular flight or route, the airline risks flying with empty seats. Flying with empty seats means a higher per-seat cost, which means a poorer return for the airlines’ shareholders or an increased ticket price for their customers.

On how, even if Delta opted for Boeing’s inferior product, Boeing couldn’t deliver for years:

As a result of Boeing’s remarkable order backlog, Boeing told Delta that Boeing was effectively sold out until 2020 . . . Fundamentally, Boeing was not competing for new orders when Delta was negotiating with Bombardier. Boeing had no viable competitive alternative to the CS100 and no ability to timely deliver aircraft to Delta.

Delta concludes that instead of offering a competitive product of its own, “Boeing instead attempted solely to block Bombardier.”

US trade remedy laws are not intended to create a choice for airlines like Delta between a domestic product that is too big and uneconomical to fly the intended missions and, at the time of the CS 100 purchase, was not even available until 2020 . . . Delta’s fleet contains numerous Boeing planes that are the right size for their mission. Delta was not looking for a non-Boeing aircraft at any price. Delta was looking for the right sized aircraft . . . 

Boeing has not demonstrated a reasonable indication of an imminent threat of material injury to the domestic industry. Instead, Boeing has built its case around a single sale it did not lose, for an aircraft it does not produce, in a market segment it ceased serving in 2006.

And here’s the key piece from the Canadian brief, noting that Boeing’s entire complaint is based on hypothetical harm at some future date:

Canada notes this highly unusual petition alleges no present injury and instead speculates largely on future events. . . . The Commission has never before addressed such a case, with (1) zero subject imports during the period of investigation, (2) no domestic shipments during the period of investigation, and (3) no near term subject import or domestic shipments expected.

Every major power with an aerospace industry subsidizes it, and to that I say: Shame on you all! Build planes on your own without production or loan subsidies.

But considering that Boeing’s sales were $94.6 billion last year and Bombardier’s aerospace revenues were $9.9 billion, it seems safe to say Boeing’s Goliath isn’t facing any imminent threat from Bombardier’s David.

David Williams has a good article on all this. I like his conclusion: “Boeing is claiming it simply wants fair trade. In fact, Boeing wants to be able to trade just as unfairly as other countries do — and then some.”

Veronique de Rugy — Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University. Her primary research interests include the U.S. economy, the federal budget, homeland security, taxation, ...

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