{"id":26952,"date":"2017-11-15T23:05:56","date_gmt":"2017-11-16T04:05:56","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/us-isolationism-takes-flight-hitting-bombardier\/"},"modified":"2017-12-09T01:23:07","modified_gmt":"2017-12-09T06:23:07","slug":"us-isolationism-takes-flight-to-ground-bombardier","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/us-isolationism-takes-flight-to-ground-bombardier\/","title":{"rendered":"US Isolationism Takes Flight to Ground Bombardier"},"content":{"rendered":"

The Economist<\/em> warned that \u201cdisengaging will not cut America off from the world so much as leave it vulnerable to the turmoil and strife that the new nationalism engenders.\u201d1<\/sup> Bombardier has become both a casualty and live demonstration of this rising trend.<\/p>\n

Boeing Co., seeing an opportunity to exploit this rhetoric, has successfully petitioned the US government to impose punitive tariffs on Bombardier Inc., a small Canadian airplane and train manufacturer driving innovation in the aerospace industry. Delta Air Lines placed an order of at least 75 of its C Series aircraft, valued at $5.6bn (excluding any potential discounts)2<\/sup>. The development costs for the C series, $5bn, exceeded the initial budget by more than double, forcing equity injections by the Canadian government; this order had assuaged the concerns around the company\u2019s future, given their falling revenues and production delays. Arguing that Bombardier had been given illegal and \u2018unfair\u2019 state aid, Boeing successfully convinced the US Department of Commerce that they\u2019d \u2018dumped\u2019 the jet at below cost prices. The government intends to levy a 300% import tax on Bombardier, effectively tripling the cost of the C Series jet (the US International Trade Commission, USITC, will rule on the matter early next year).3<\/sup><\/p>\n

This is a strawman argument; state subsidies have been a key part of airline manufacturing for decades. Moreover, Boeing did not even bid for the contract. The smallest plane that Boeing produces is the 737, which is considerably bigger and not even a direct like-for-like comparison: \u201cneither Boeing nor any other U.S. manufacturer makes any 100-110 seat aircraft that competes with the CS100\u201d4<\/sup>.<\/p>\n

The impact of this decision (and isolationism more broadly) extends beyond the firm\u2019s home market. Bombardier has a global supply chain, sourcing its wings from its production facility based in the UK. Bombardier employs ~4,500 people in Northern Ireland, 1,000 of which build the wings for the C Series \u2013 all of whom now have their jobs at risk.<\/p>\n

The entire situation resembles a strange sort of novella: the USA, keen to enact an \u201caggressive defence of US trade remedies laws\u201d, lands a direct blow to both of its closest allies. Canada, a staunch proponent against isolationism, risks having an innovative upstart driven out of business (displacing tens of thousands of workers). The UK, ironically also isolationist vis-\u00e0-vis the European Union and heavily reliant on the USA as a key trade partner in a post-Brexit world, is embarrassingly undermined by Trump\u2019s decision.<\/p>\n

Boeing and the US government are essentially trying to trip Bombardier at the first hurdle as they try to establish a foothold in the broader jet airliner market. Bombardier Aerospace has previously focused on propeller planes, and winning Delta\u2019s bid for the jets solidifies their entry into the US. Boeing is motivated by wishing to avoid another Airbus scenario; Airbus entered the aerospace engineering industry in the 1970s as a nonentity and, with support from the French government, has now grown into Boeing\u2019s largest competitor, generating \u20ac66.5bn in 20165<\/sup>. Boeing is keen to avoid Bombardier from disrupting the jet airliner market and doing the same.<\/p>\n

Given the capital expenditure that would be required to expand its supply chain operations into the USA to avoid the tariff, management couldn\u2019t pursue this option, as it would drive them to insolvency. Opportunely, Airbus purchased a majority stake in the programme, offering its manufacturing and marketing expertise as part of the joint venture \u2013 and, crucially, access to their Alabama production facility6<\/sup>. This would arguably allow them to circumvent the tariff as it would be assembled in the US.<\/p>\n

In an effort to establish greater stability and longevity to the company (and ultimately recoup their development costs), Bombardier has also successfully diversified its customer base by looking for customers outside of the USA. They\u2019ve recently acquired contracts from two airline carriers: an unnamed European customer, and EgyptAir7<\/sup>.<\/p>\n

To further protect itself against rising protectionism in the short and medium term, management has two options. The obvious low-hanging fruit would be to continue looking for customers outside of the USA. Each incremental order for the C series, combined with Airbus\u2019 backing, generates more revenue and instils greater confidence in its ability to deliver on their orders. Another option is to rely on the Canadian and UK governments to lobby the US government on their behalf. Both have already threatened to halt orders of Boeing aircraft8<\/sup>.<\/p>\n

While the matter seems to be settled for now, the USITC has still not rendered their verdict on the Delta order. Would it be worth the firm building facilities in the US market for future production \u2013\u00a0thus protecting themselves against the risk of more jingoistic trade policies (as well as other macroeconomic forces)? How far will the US government take this trade aggression \u2013\u00a0and, by extension, is Bombardier now \u2018safe\u2019 from further repercussions?<\/p>\n

(797 words)<\/p>\n

 <\/p>\n

References<\/h2>\n
    \n
  1. The Economist<\/i>, \u201cThe new nationalism,\u201d (Nov. 19, 2016)<\/li>\n
  2. “Delta Orders Up To 125 C-Series Bombardier Jets”. 2017. Ft.Com<\/i>. https:\/\/www.ft.com\/content\/51456e4a-5733-3423-bccc-5d264a5a82bb.<\/li>\n
  3. “US Blow To Bombardier Puts Jobs In Canada And UK At Risk”. 2017. Ft.Com<\/i>. https:\/\/www.ft.com\/content\/2de9932c-a315-11e7-9e4f-7f5e6a7c98a2.<\/li>\n
  4. Mayeda, More, and More Tomesco. 2017. “U.S. Slaps Duties On Bombardier’s C Series Jet In Win For Boeing”. Bloomberg.Com<\/i>. https:\/\/www.bloomberg.com\/news\/articles\/2017-09-26\/u-s-imposes-duties-on-bombardier-jets-in-setback-for-c-series.<\/li>\n
  5. Gordon Rayner, Laura Hughes, and Iain Withers. 2017. “Theresa May Threatens US With\u00a0Trade War Over Bombardier Row”. The Telegraph<\/i>. http:\/\/www.telegraph.co.uk\/news\/2017\/09\/27\/theresa-may-threatens-us-withtrade-war-bombardier-row\/.<\/li>\n
  6. Tomesco, More, and More Johnsson. 2017. “Boeing Scorns Airbus, Bombardier Plan For Alabama Facility”. Bloomberg.Com<\/i>. https:\/\/www.bloomberg.com\/news\/articles\/2017-11-15\/boeing-scorns-airbus-bombardier-plan-for-c-series-plant-in-u-s.<\/li>\n
  7. “Bombardier Clinches C Series Order From Egyptair”. 2017. Ft.Com<\/i>. https:\/\/www.ft.com\/content\/40cb252c-c940-11e7-aa33-c63fdc9b8c6c.<\/li>\n
  8. “Trudeau And Trump Discuss Bombardier Row”. 2017. BBC News<\/i>. http:\/\/www.bbc.com\/news\/uk-northern-ireland-41592474.<\/li>\n<\/ol>\n","protected":false},"excerpt":{"rendered":"

    The USA, keen to enact an \u201caggressive defence of US trade remedies laws\u201d, attacks Canadian aerospace firm Bombardier \u2013 landing a direct blow to both of its closest allies.<\/p>\n","protected":false},"author":9656,"featured_media":26994,"comment_status":"open","ping_status":"closed","template":"","categories":[285,1900,1287,944,440,3239,4229,897,1633],"class_list":["post-26952","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-aerospace","category-airbus","category-boeing","category-bombardier","category-canada","category-isolationism","category-northern-ireland","category-united-kingdom","category-united-states","hck-taxonomy-organization-bombardier","hck-taxonomy-industry-aerospace","hck-taxonomy-country-canada"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/rc-tom-challenge-2017\/","yoast_head":"\nUS Isolationism Takes Flight to Ground Bombardier - Technology and Operations Management<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/us-isolationism-takes-flight-to-ground-bombardier\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"US Isolationism Takes Flight to Ground Bombardier - 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