{"id":22381,"date":"2017-11-14T15:32:12","date_gmt":"2017-11-14T20:32:12","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/the-air-war-the-isolationist-danger-to-global-aerospace-in-the-era-of-the-populist-soundbite\/"},"modified":"2017-11-14T15:32:12","modified_gmt":"2017-11-14T20:32:12","slug":"the-air-war-the-isolationist-danger-to-global-aerospace-in-the-era-of-the-populist-soundbite","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/the-air-war-the-isolationist-danger-to-global-aerospace-in-the-era-of-the-populist-soundbite\/","title":{"rendered":"The Air War: The Isolationist Danger to Global Aerospace in the Era of the Populist Soundbite"},"content":{"rendered":"
\"\"<\/a>
Source:<\/strong> Bombardier, \u201cBombardier-Airbus C Series Partnership,\u201d http:\/\/ir.bombardier.com\/en\/event-calendar\/71792-conference-call-for-investors-and-financial-analysts, accessed November 2017.<\/figcaption><\/figure>\n
\n

Amid a rising tide of protectionism, businesses must adapt their operations and public communications to a new politicalenvironment. Nowhere is this more evident than in aerospace, where manufacturers deal closely with governments as both regulators and customers. In the last six months, inter-company trade disputes, which were normal only a few years ago, threatened multiple major national defense contracts, drove Bombardier to seek strategic alternatives, and undermined American, British, and Canadian trade ties.<\/p>\n

The global commercial aviation market has long been dominated by Boeing and Airbus. Among smaller commercial planes, that dominance eroded and a host of players compete led by Bombardier and Embraer. As those companies grew, they increased the size of the planes they produce, culminating in Bombardier\u2019s C Series with ~100-150 passenger capacities.[1] The C Series was $2bn over budget, requiring $1bn in Quebecois equity and Canadian, British, and Quebecois low-rate debt to keep the project afloat.[2] In 2016, Delta placed the first large U.S. order at 75 planes and over $5bn, marking one of the first major wins for the C Series program.[3]<\/p>\n

\"\"<\/a>
Source:<\/strong> Walton, Myles, \u201cBoeing-Airbus duopoly continues,\u201d Deutsche Bank Securities, October 17, 2017, via Thomson ONE, accessed November 2017.<\/figcaption><\/figure>\n

Boeing, whose 737s are slightly larger than some C Series jets, filed claims with the U.S. International Trade Commission. Boeing argued that the C Series should be tariffed based on unfair government subsidies and initial pricing below fair value.[4] Such trade claims were relatively common in the decades-long battle between Airbus and Boeing. Barely a year ago, the World Trade Organization held that Airbus\u2019 A350 was dependent on EU subsidies, a significant boost to Boeing, to relatively little fanfare.[5] Boeing\u2019s C Series claim engendered a very different response. Discussing Canada\u2019s potential purchase of Boeing F-18 jets to upgrade its air force, Canadian PM Justin Trudeau said he \u201cwon\u2019t do business with a company that\u2019s busy trying to sue us and put our aerospace workers out of business.\u201d[6] In the U.K., where Bombardier manufactures C Series wings, Sir Michael Fallon hinted that the dispute risked Boeing\u2019s defense contracts.[7] Finally, Quebec Premier Philippe Couillard declared, \u201cQuebec is attacked, Quebec will resist.\u201d[8]<\/p>\n

In a highly politicized environment, aircraft manufacturers and regulators have also internalized the new language of trade. Bombardier argued that Boeing, whose international sales are supported by U.S. Export-Import Bank loans, was hypocritical to attack Bombardier\u2019s subsidies and make trade claims which threaten Bombardier\u2019s American and British jobs.[9] Boeing responded that its supply chain employs over 35,000 British and Canadian workers.[10] When the ITC made its initial rulings to impose 300% tariffs on the C Series, making the planes cost-prohibitive in the U.S. market, Commerce Secretary Wilbur Ross said the government would do \u201ceverything in our power to stand up for American companies and their workers.\u201d[11]<\/p>\n

\"\"<\/a>
Source:<\/strong> \u201cAirbus and Bombardier Announce C Series Partnership,\u201d press release, October 16, 2017, http:\/\/www.airbus.com\/newsroom\/press-releases\/en\/2017\/10\/airbus-bombardier-cseries-agreement.html, accessed November 2017.<\/figcaption><\/figure>\n

Bombardier\u2019s response struck at the core of the populist trade debate. It partnered with Airbus, giving the European giant just over 50% control of the program and CAD 50m in warrants and agreeing to fund the next $700m in program cash costs. Airbus will provide sales and supply chain support and will open a new C Series assembly line at its Alabama plant.[12] While the U.S. found duties should be applied to imported parts,[13] it\u2019s unlikely that Boeing will press trade claims that may deny jobs from Alabaman workers. Bombardier used Boeing\u2019s popular rhetoric against itself and pitted it against American workers, an uncomfortable position for a government supplier.<\/p>\n

In a world where isolationism has become a regular political tool, corporate management needs to be ready for their supply chain to escalate into a toxic political debate. Bombardier survived, but Boeing must still mend relationships with Canada and Britain. To that end, Boeing recently launched a campaign to raise awareness of its impact on the Canadian economy.[14] Going forward, aerospace companies will need to rethink whether aggressive pricing and government financial support are worth alienating export markets. They should also refrain from competitively-driven trade disputes which can cause political headaches that jeopardize lucrative defense contracts. Should Boeing press its claim against the C Series or partner with Bombardier competitor Embraer on a similar program? Should the U.S. government approach trade claims differently when they are simply a competitive tool? Two years ago, it would have been absurd for governments to threaten fundamental national security programs for the sake of commercial trade. Now, this is the new world order.<\/p>\n

(713 words)<\/strong><\/p>\n

\n

Footnotes<\/strong><\/span><\/p>\n

[1] Frederic Tomesco et. al., \u201cAirbus Snaps Up Bombardier Jet in New Challenge to Boeing,\u201d Bloomberg, October 16, 2017, https:\/\/www.bloomberg.com\/news\/articles\/2017-10-16\/airbus-to-buy-majority-stake-in-bombardier-c-series-jet-program<\/a>, accessed November 2017.<\/p>\n

[2] Konark Gupta, \u201cBombardier-Boeing Dispute: Politics aside, business as usual,\u201d Macquarie Research, September 28, 2017, via Thomson ONE, accessed November 2017.<\/p>\n

[3] Ana Swanson, \u201cIn Trump Era, Boeing Trade Case Boils Over Into \u2018Multicountry Feud\u2019,\u201d New York Times, September 25, 2017, https:\/\/www.nytimes.com\/2017\/09\/25\/business\/boeing-commerce-department-bombardier-trump.html<\/a>, accessed November 2017.<\/p>\n

[4] Dan Ikenson, \u201c\u2019America First\u2019 Ethos Emboldens Boeing To Battle Bombardier, Benefiting White-Collar Washington,\u201d Forbes, July 12, 2017, https:\/\/www.forbes.com\/sites\/danikenson\/2017\/07\/12\/america-first-ethos-emboldens-boeing-to-battle-bombardier-benefiting-white-collar-washington\/#259c38c614c7<\/a>, accessed November 2017.<\/p>\n

[5] Peggy Hollinger et. al., \u201cWTO gives Boeing lift with Airbus ruling,\u201d Financial Times, September 22, 2016, https:\/\/www.ft.com\/content\/517850e0-80e2-11e6-bc52-0c7211ef3198<\/a>, accessed November 2017.<\/p>\n

[6] Swanson, \u201cIn Trump Era, Boeing Trade Case Boils Over Into \u2018Multicountry Feud\u2019.\u201d<\/p>\n

[7] Julian O\u2019Neill, \u201cBoeing UK contracts jeopardized over Bombardier row,\u201d BBC News, September 27, 2017, http:\/\/www.bbc.com\/news\/uk-northern-ireland-41397181<\/a>, accessed November 2017.<\/p>\n

[8] Frederic Tomesco et. al., \u201cBombardier Dives on Blow to $6 Billion Bet-the-Company Jetliner,\u201d Bloomberg, September 27, 2017, https:\/\/www.bloomberg.com\/news\/articles\/2017-09-27\/bombardier-s-6-billion-jet-takes-hit-as-boeing-wins-u-s-duties<\/a>, accessed November 2017.<\/p>\n

[9] \u201cBoeing\u2019s Hypocrisy,\u201d press release, September 18, 2017, on Bombardier website, http:\/\/www.bombardier.com\/en\/media\/newsList\/details.binc-20170918-boeings-hypocrite-allegations.bombardiercom.html<\/a>, accessed November 2017.<\/p>\n

[10] \u201cBoeing Statement RE: Commerce Duty Determination on Bombardier Subsidies,\u201d press release, September 26, 2017, on Boeing UK website, http:\/\/www.boeing.co.uk\/news-media-room\/news-releases\/2017\/september\/boeing-statement-commerce-duty-determination-on-bombardier-subsidies.page<\/a>, accessed November 2017.<\/p>\n

[11] John Campbell, \u201cFurther tariff of 80% imposed on import of C-Series plane,\u201d BBC News, October 7, 2017, http:\/\/www.bbc.com\/news\/uk-northern-ireland-41532309<\/a>, accessed November 2017.<\/p>\n

[12] Phil Buller et. al., \u201cC-Series \u2013 why and what it means,\u201d Barclays Bank, October 17, 2017, via Thomson ONE, accessed November 2017.<\/p>\n

[13] Tomesco et. al., \u201cAirbus Snaps Up Bombardier Jet in New Challenge to Boeing.\u201d<\/p>\n

[14] \u201cBoeing Launches Outreach Campaign in Canada,\u201d press release, October 10, 2017, on Boeing website, http:\/\/boeing.mediaroom.com\/2017-10-10-Boeing-Launches-Outreach-Campaign-in-Canada<\/a>, accessed November 2017.<\/p>\n","protected":false},"excerpt":{"rendered":"

In a protectionist political environment, Boeing must adjust its tactics in civil aviation after Bombardier and Airbus outmaneuvered it by forcing it to choose between opposing American jobs and accepting increased foreign competition.<\/p>\n","protected":false},"author":9954,"featured_media":22390,"comment_status":"open","ping_status":"closed","template":"","categories":[285,1900,889,1287,944,2515,3239,3240],"class_list":["post-22381","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-aerospace","category-airbus","category-aviation","category-boeing","category-bombardier","category-international-trade","category-isolationism","category-protectionism","hck-taxonomy-organization-boeing","hck-taxonomy-industry-aerospace","hck-taxonomy-country-united-states"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/rc-tom-challenge-2017\/","yoast_head":"\nThe Air War: The Isolationist Danger to Global Aerospace in the Era of the Populist Soundbite - 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