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Boeing promises $18-billion in benefits if Super Hornet contract goes ahead

Ottawa is undeterred by Boeing’s promise of future investment and is doubling down on its requirement that the U.S. aerospace giant drop an oustanding trade complaint against Bombardier.

Peter Newcomb/Bloomberg News

Boeing Co. is upping the pressure on the federal government to finalize the purchase of Super Hornets, promising that the manufacturers of the fighter jet will spend $18-billion in Canada's aerospace industry over the next 10 years if the contract is awarded.

The promised benefits are the latest salvo in the five-month-long dispute that is pitting U.S.-based Boeing against Bombardier Inc. and the federal government. The two sides are applying economic and political pressure on their rivals as tensions grow.

Prime Minister Justin Trudeau is scheduled to discuss the controversy on Monday with his British counterpart, Theresa May, during a meeting in Ottawa. Ms. May is also siding with Bombardier, which has large facilities in Northern Ireland.

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Ottawa is refusing to sign the deal to buy 18 Super Hornets, or even hold talks with Boeing, unless the company drops a trade complaint against Canadian-based Bombardier before the U.S. Department of Commerce.

The government froze out Boeing in April after the company complained that Bombardier C Series planes were unfairly subsidized by the Canadian and Quebec governments. A first ruling by the U.S. International Trade Commission is expected on Sept. 25.

Still, the acquisition process for the Super Hornets continues. When Ottawa launched the purchase of the Super Hornets in March, before the start of the dispute with Boeing, it told the U.S. government that it wanted 100 per cent of the value of the contract to be spent on Canadian offsets under Canada's Industrial and Technological Benefits (ITB) Policy.

The U.S. Department of Defence revealed this week that the contract for the Super Hornets could be worth up to $6.4-billion, putting an approximate value on the benefits package that could flow to Canadian industry over five years.

"We have committed to working with the government of Canada agreeing to meet 100 per cent Canadian content value in addition to all other requirements in the areas of value proposition elements, export assistance, regional diversity and support of small-medium business growth," Boeing said in a statement to The Globe and Mail.

The company added that the overall investments and economic activity generated by the major industrial groups involved in the Super Hornet, including engine-maker General Electric Co., will greatly outpace the minimum ITB package over the next decade.

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"Canadian aerospace firms stand to benefit greatly with Boeing's ITB proposal. We project that between Boeing and the Super Hornet industry team, the direct spend on the Canadian aerospace sector will exceed over $18-billion over the next 10 years, far exceeding the stated ITB requirements," the company added.

Earlier this month, 10 companies that are part of the "Boeing team in Canada" sent a letter to Mr. Trudeau urging him to approve the Super Hornet deal.

Ottawa is undeterred, stating it is refusing to sign a new deal with Boeing until it drops its case against Bombardier. According to the federal government, Bombardier is at the heart of Canada's aerospace industry, generating $5.1-billion in economic activity a year.

"The government made it clear that the ITB policy would be applied to this purchase, however, as Boeing is not acting as a trusted partner, we have suspended our engagement with Boeing," said Karl Sasseville, a spokesman for Innovation Minister Navdeep Bains.

Sahir Khan, of the University of Ottawa's Institute of Fiscal Studies and Democracy, said there is irony in the fact that Boeing is heralding the potential offsets from the fighter jet contract at the same time as it criticizes government subsidies to Bombardier.

According to Mr. Khan, who is a former assistant parliamentary budget officer, regional benefits are in fact government subsidies for the Canadian industry hidden in major military contracts.

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"All else being equal, offsets tend to increase the cost of acquisition and sustainment with the positive tradeoff being jobs and technology transfer to the acquiring country," Mr. Khan said. "From a policy point of view, offsets must be viewed in comparison to other program instruments such as direct subsidies, tax incentives, loans, wage/training credits in terms of both costs and potential impact."

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