Boeing Sticks Its Foot In It

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Consolidation of the commercial airliner business has been happening since the first passenger-carrying biplanes rattled across the landscape. In the middle of the last century, there were dozens of viable manufacturers innovating and doing their best to cater to a rapidly evolving industry.

But being the best has never been a guarantee of business success and Douglas Aircraft was a classic example. The DC-3 was hands down the most successful design of its time but Douglas was unable to leverage that into a dominating position in the jet era. The DC-8 was a rushed response to the Boeing 707 and while it had its fans as a “pilot’s airplane” it never seriously challenged the 707. 

On the other hand, the DC-9 was a tremendously successful design that didn’t end commercial service in the U.S. until 2014 when Delta finally retired the steam-gauge workhorses after 50 years of service.

So it’s more than a little ironic that Delta’s choice for replacing the DC-9, whose derivatives ended up being built by Boeing until the middle of the last decade, is the Bombardier CSeries. It ordered 75 with an option for 50 more and nobody is denying it got a smoking deal on what current operators of the type say is a really good airplane.

That choice turned into one of the biggest shifts in dynamics in the aerospace industry in decades. It also sets the stage for a major battle of giants.

Boeing started the spat by trying to keep Bombardier’s little jets out of the U.S. It’s quickly turned into full-scale warfare with arch-enemy Airbus and the battleground will be the U.S. It also really annoyed Canada, which may not sound like a big deal but it has a role to play in all this.

Boeing convinced the Department of Commerce to slap an unprecedented 292 percent tariff on the CSeries that Delta ordered in a transparent appeal to economic nationalism.

Bombardier responded by turning the CSeries program over to Airbus with the idea of building Delta’s planes at Airbus’s Mobile, Alabama, facilities. They would be late, but Delta would eventually get them.

Then, in a decision that surprised every aviation pundit, the U.S. International Trade Commission unanimously rejected the Department of Commerce tariffs, saying since Boeing doesn’t make 100- to 150-seat airliners (since it stopped making the DC-9-derived 717), Boeing couldn’t be harmed by the CSeries sale to Delta.

The whole thing changed.

Delta can now get its aircraft on time and Bombardier has wisely committed to continuing the arrangement with Airbus because that will blunt any further challenges on U.S. deals that Boeing might mount. Cash will be flowing and the CSeries will be in service in the U.S. sooner rather than later. Airbus can be ready to crank out CSeries in Mobile as Delta's U.S. competitors, comforted by the big safety net the association with Airbus offers in the future support of the type, watch the efficient new jets start playing in their sandbox.

Boeing hasn’t commented on the trade commission decision and says it’s waiting for the full reasoning before it decides on a response. It might appeal but the decision was unanimous and the odds of success don't look good. At best it would be a delaying tactic but Airbus and Bombardier seem to have that covered.

In the meantime, Boeing is talking to Embraer about taking over its airliner business in a Hail Mary rearguard action. While Embraer has a solid track record in the small airliner business, any deal with the Brazilian company will not include any defense work because the government of Brazil, which holds a veto vote on the Embraer board of directors, is not about to give up those capabilities to a foreign power.

There are no such constraints on the Bombardier/Airbus deal and that may be a factor in Canada’s long-overdue purchase of $20 billion worth of fighters. 

Until the CSeries fracas, Boeing was considered the odds-on favorite to win that contract with the last production run of its Super Hornet but the trade dispute has all but ruled that out according to Prime Minister Justin Trudeau.

So, in its attempt to swat a fly, Boeing has inadvertently stuck its hand down the throat of a lion. Time will tell how many fingers it loses.

I wonder what Donald Douglas would think.

Comments (12)

I prefer flying on Boeing aircraft because I've had some bad experiences on Airbus aircraft (mainly related to maintenance delays and almost missing connections because of it, whereas I've rarely ever had this problem with Boeing), but I'm not above criticizing Boeing. And their spat over the CSeries was a bad move, which they're only now realizing.

That being said, I can understand why they did what they did (understanding doesn't mean agreeing with). The aviation business is a cruel business with no sympathy for the successful, as illustrated by the Douglas example provided. Lockheed is another one (though they have at least survived by switching to almost exclusively relying on government contracts). In theory, a free-market economy means only the best will survive, but especially in aviation that doesn't seem to be true, and luck appears to be as much a factor as quality of product.

Posted by: Gary Baluha | February 5, 2018 7:45 AM    Report this comment

Economic nationalism? I'm not sure that Boeing tried to do anything different than what EU/Airbus does every single day.

Posted by: Mark Fraser | February 5, 2018 8:57 AM    Report this comment

Boeing is one of the biggest job exporters in the world. They are no friend to their employees or to the communities that support them, who are so often subjected to Boeing's form of extortion, just to "keep them around to provide jobs". For Boeing to refer to themselves as patriotic or "nationalistic" is laughable.

Posted by: Ken Keen | February 5, 2018 9:27 AM    Report this comment

Talking nonsense here. The European nations sponsor Airbus at will. Not same for Boeing.

Posted by: Rafael Sierra | February 5, 2018 11:47 AM    Report this comment

The USITC ruling amounts to this:
Dumping is unlawful, but unless you can show particular harm, you won't get a fovorable ruling.
I guess Boeing will have to wait for a CS-500 fire sale scenario.

Posted by: YARS (Tom Yarsley) | February 5, 2018 3:07 PM    Report this comment

To the extent that Boeing gets exclusive orders from the USG they are getting indirect subsidies IMO. Think of the B767 tanker program. The one that congress mandated they get as opposed to it being competitively bid.

Posted by: Jeff Land | February 5, 2018 5:37 PM    Report this comment

Someone in the Boeing corner office needs to lose their job over this. It's their job to chart a strategic course and they made an normal situation infinitely worse. They failed at their job and need to go.

Posted by: JEFFREY SMITH | February 5, 2018 10:29 PM    Report this comment

Jeffrey:
By your standards, Boeing still would be building exclusively aluminum airplanes, using 1/4-inch hand drills and hole duplicators.
Boeing saw demonstrable dumping; they sought remediation; the USITC basically - and unexpectedly - said "no harm; no foul."

As to Jeff Land's assertion that government business comprises "a subsidy," it could be argued that Boeing's commercial business comprises a subsidy to its ability to compete for government business (the 767-based tanker program being just one example). Neither assertion survives scrutiny.

Posted by: YARS (Tom Yarsley) | February 6, 2018 4:37 AM    Report this comment

I cannot help but wonder exactly what Boeing was after here. Sure Bombardier was being subsidized but with no US builder of planes that size, the US consumer was being subsidized by foreign gov'ts with no harm to US companies. The lawyers had to know they lacked status (dog in the fight) and, win or lose, it would cost them Canadian and British business as well as drive a weak competitor to look for help. Had Boeing actually had a deal in the works with Embraer, they would have at least been able to show an expectation of harm.

Posted by: Richard Montague | February 6, 2018 7:46 AM    Report this comment

Corporate legal department gone rogue. They have to justify their existence so why not beat up on a financially weaker competitor. This one was not really well thought out. Guess they don't teach the principle of unintended consequences at the big $ law schools any more.

Posted by: Leo LeBoeuf | February 6, 2018 10:54 AM    Report this comment

In 2002, Boeing won the USAF KC-135 replacement program with it's B-767. The contract was terminated when corrupt procurement practices and illegal manipulation by Boeing was uncovered. Look up Darlene Druyun. In 2006/7, a new RFP was issued by the USAF; Northrop Grumman / EADS won with it's KC-45A in 2008. Boeing immediately complained to the GAO and the USAF had to rebid the project AGAIN! In 2010, Northrop Grumman threw up its hands when it saw the new selection criteria which was skewed toward Boeing's KC-67A. EADS stayed in the competition but lost in 2011. So here we are in 2018 and the first production KC-67A has yet to be delivered to the USAF ... 16 years after the first replacement program was spoiled by Boeing. Meanwhile, within the USAF, there's likely some young Captain flying a KC-135A that his grandfather flew. Thanks a lot, Boeing. No sympathy from THIS former Air Force type.

It is ironic that the EADS North America facility in Mobile, AL was originally built to produce the KC-45A tanker which Northrop-Grumman/EADS won in 2008 and Boeing then spoiled. Now, that very same facility will be building Bombardier / Airbus airplanes. Be careful what you ask for, Boeing ... you might just get it. The "bully" got slapped on this one. And thanks to the delays due to Boeing's complaining, the first production KC-67A tanker flew for the first time in December while the Airbus A330/MRTT has been flying for years and has been selected by numerous foreign Air Forces.

And -- oh -- did I mention that the KC-67A is a smaller airplane that carries less fuel and stuff than the Airbus A330 / MRTT ? The life cycle of the replacement airplanes was envisioned as 40 years ... we've already used up 16 of 'em waiting for the thing.

Posted by: Larry Stencel | February 6, 2018 11:03 AM    Report this comment

Airbus is rejoicing. It's a tough world in aviation. Airbus has not relented their aversion against Boeing. Fair play or not. So why should Boeing.

Posted by: Rafael Sierra | February 6, 2018 5:54 PM    Report this comment

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