January 26, 2018 / 10:23 PM / 7 months ago

Breakingviews - Boeing needs Embraer deal to fly after tariff crash

NEW YORK (Reuters Breakingviews) - Who knew trade wars were so complicated? A U.S. trade agency on Friday surprisingly rejected calls by the $205 billion aerospace giant and the Trump administration to impose duties on Bombardier’s C Series jet. It shifts the regional-airplane dogfight back to the marketplace, where it belongs, upping the pressure on Boeing to seal a tricky merger with Embraer.

A Bombardier C Series aircraft is pictured during a news conference to announce a partnership between Airbus and Bombardier on the C Series aircraft programme, in Colomiers near Toulouse, France, October 17, 2017. REUTERS/Regis Duvignau

Chicago-based Boeing’s decision to file a trade complaint against Bombardier was unusual, as it doesn’t make a direct competitor to the 100-to-150 seat aircraft. Delta Air Lines, whose order for 75 Bombardier planes triggered last year’s grievance, said Boeing didn’t make a serious bid of its own but merely offered to sell it some secondhand Embraer jets.

Yet as Bombardier and Embraer extend the size of their flagship regional airliners, they have closed the gap with Boeing’s 737 and Airbus’s A320 models. The threat of potential Chinese competition has made both the American and European giants eager to buttress their flanks.

Commerce Secretary Wilbur Ross said $1.5 billion in Canadian government subsidies for Bombardier would damage U.S. industry. The 300 percent duties he tentatively approved would have effectively closed the American market to the company. That prompted it to sell a majority stake in its C Series program to Airbus. Boeing countered that the deal wasn’t sure to go through and that a promised C Series assembly plant in Alabama was “years away,” at best.

For the U.S. International Trade Commission, an independent agency, to unanimously reject the arguments of America’s largest exporter and the Trump administration is a stunning rebuke. It suggests that President Donald Trump may find it as hard to back up some of his tough trade talk as trying to dismantle Obamacare and build a wall on the Mexican border.

For Boeing, the verdict will redouble the pressure it faces to strike a deal with Embraer, whose E-jet family competes head-on with Bombardier. The two companies have been talking for weeks, but Brazil’s Defense Minister Raul Jungmann has said a foreign takeover of Embraer, which also produces fighter jets, was out of the question. Boeing chief Dennis Muilenburg will have to think creatively to assuage sensitivities in Brasilia so he can get back to the big fight with Airbus.

Breakingviews

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