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TRANSPORTATION

Bombardier Inc. was dealt a double blow on Tuesday as moves by the U.S. government and European rivals pose serious competitive threats to the Montreal-based plane and train maker. Here are five things you need to know.


U.S. decision

The U.S. government ruled against Bombardier on Tuesday by imposing duties of nearly 220 per cent on imports of its C Series planes into the U.S. market. With its preliminary decision, the U.S. Department of Commerce sided with Boeing Co., which had complained that Bombardier sold its C Series aircraft to Delta Air Lines Inc. at "absurdly low prices" while benefiting from unfair government aid. Bombardier has received provincial and federal subsidies to help shore up its C Series program – most recently, a $372.5-million pledge of federal aid that also supports its Global 7000 business jet program. The U.S. government was widely expected to back Boeing, and Commerce will issue a final ruling on the matter in the coming weeks.

"The U.S. values its relationship with Canada but even our closest allies must play by the rules," Commerce Secretary Wilbur Ross said in a statement. "The subsidization of goods by foreign governments is something that the Trump administration takes very seriously and we will continue to evaluate and verify the accuracy of this preliminary determination."


The fallout

The trade spat will not end with Tuesday's ruling. Bombardier, the Canadian government, Delta and other carriers "would likely appeal the case to the U.S. Court of International Trade," Credit Suisse analysts said Monday in a report. Bombardier has a prominent backer in Canadian Prime Minister Justin Trudeau. Last week, Mr. Trudeau urged Canadian firms to direct pressure at Chicago-based Boeing over its trade complaint. "I encourage people who work with Boeing across the country to tell the company the extent to which its actions against the Canadian aerospace industry is not in its interest and certainly not in the interest of Canadians," he said at a news conference. Boeing's actions may also threaten the potential sale of its fighter jets to the Canadian government.


Rail merger

Bombardier's rail business took a blow on Tuesday as Germany's Siemens AG reached a deal to merge its rail operations with France's Alstom SA. In doing so, they would create Europe's dominant rail business, with an aim at countering increased competition from China's CCRC Corp. Siemens had previously been in talks with Bombardier about joining forces.


Bombardier shares

Bombardier stock recently tumbled after news of the Siemens-Alstom talks, but jumped Tuesday after Reuters reported the company aims to close deals with Chinese airlines in the coming months. However, with the Alstom-Siemens merger being confirmed at around the close, and with the U.S. government decision issued hours after the bell, all eyes will be on Bombardier at Wednesday's open.

On Monday, Desjardins Securities analyst Benoit Poirier issued a research report on Bombardier, saying its shares "could be under pressure [Tuesday] depending on the outcome related to the countervailing duty and the rail merger." He added: "We would view any share price weakness as a buying opportunity for long-term investors, as we continue to believe BBD shares have the potential to reach $5 per share by 2020 as management proceeds with its 2020 plan." Mr. Poirier has a "buy" rating on the company and share-price target of $3.25.


Investigation

Against the backdrop of these two developments, Bombardier is beset by allegations of corruption. Sweden's National Anti-Corruption Unit has charged a Bombardier employee with "aggravated bribery" in connection with a $340-million (U.S.) contract to sell railway equipment in Azerbaijan. Five others at Bombardier Transportation Sweden are suspects in the investigation of the 2013 deal, Swedish prosecutors have said.