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Boeing lands another victory against Bombardier, but taxpayers are the real losers

Boeing, Airbus and Bombardier – the top three aerospace companies – are failures. They cannot survive on their own, never have, never will. Taxpayers are always on the hook, often lavishly so, and they can't ever win. Capitalism at its finest, they are not.

When the companies' fortunes fly, it is the shareholders who cash in, even though the companies' success was in good part propelled by the taxpayer-funded loans, loan guarantees, grants, tax credits, export assistance and assorted subsidies that are showered on the "national champion." When the companies struggle because of botched management decisions or dud products, it is the taxpayers who absorb the losses.

Taxpayers have to because these companies, like the largest banks, are too big to fail. It is impossible to imagine that Boeing, Airbus or Bombardier would ever be allowed to burn on the tarmac, no matter what sins each commits. They have too many employees, too many government contracts and too many suppliers, none of which can be sacrificed in the name of creative destruction or protecting the taxpayer. Their government sponsors have created monsters that have to be subsidized no matter what – because their rivals are also subsidized – and which have to be defended from competition no matter what.

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Related: Trump administration punishes Bombardier with another import duty

Read more: Doubts arise over Theresa May's influence in Boeing-Bombardier dispute

The warped, government-sponsored aerospace industry is going through a particularly ugly phase which is seeing mighty Boeing, the maker of everything from the Boeing 787 Dreamliner passenger jet to the F/A-18 Hornet fighter-bomber, gang up on much smaller Bombardier, which became Canada's favourite tech son after BlackBerry conceded defeat to Apple's iPhone.

Boeing accused Bombardier of selling its new C Series jet to Delta Air Lines at an "absurdly low" price, in effect dumping the plane into the U.S. market, where the Canadian company was desperate for a high-profile order for the slow-selling plane. On Friday, as expected, the U.S. Commerce Department hit Bombardier's C Series (and other foreign makers of aircraft in the 100- to 150-seat range) with preliminary anti-dumping duties of 80 per cent. The penalty comes on top of a separate countervailing duty of nearly 220 per cent imposed by the department last week.

The duties were requested by Boeing and if they are upheld, the C Series, a clever and efficient machine by all accounts, will be wiped out of the American market.

It all began a decade ago, when Bombardier formally launched the C Series, after several false starts. The single-aisle aircraft would be an entirely new product aimed at the gap between the regional jet (pioneered by Bombardier) and the workhorse Boeing 737 and archrival Airbus A320.

Bombardier's mistake was not in the design or the engineering of the new plane; it was underestimating the ruthless competitive response of Boeing and Airbus. The industry's two heavyweights did not so much fear the first version of the C Series, the CS100, which seats 120 passengers in the standard, single-class version, but the inevitable stretched versions that would compete directly with the 737 and A320. Bombardier's bigger CS300 seats 140 in the standard, single class version and a theoretical CS500 would come with 160-plus seats, eating into the 737-A320 duopoly. Boeing had nightmare visions of companies like Ryanair, Europe's biggest airline, which flies only 737s, switching to big versions of the C Series.

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In response to the C Series, Boeing launched the 737 Max and Airbus launched the A320neo, both of them more efficient versions of the old models. Prices came down and both companies put enormous pressure on their customers to shun Bombardier's "nice little airplane," as Airbus's chief salesman, John Leahy, dismissively called it.

Boeing and Airbus wanted to kill the C Series, in reality. In an interview last year with The Globe and Mail, Tom Williams, Airbus's chief operating officer, said "I always take the view that you should be paranoid and that your enemies are out to get you and you should always be ready to react. So I think we did the right thing ... I think it is more difficult for Bombardier to sell the C Series against the 737 Max and the 320neo."

The anti-Bombardier campaign has had considerable success. The C Series went more than $2-billion (U.S.) over budget. Sales have been slow. Bombardier's share price collapsed. Enter the taxpayer, of course. Last year, Bombardier bagged a $372.5-million (Canadian) "repayable contribution" from the Canadian government. Earlier, the Quebec government invested $1.3-billion into the C Series in exchange for 49.5 per cent of the project. Author and subsidy tracker Mark Milke has calculated that Bombardier, including its de Havilland subsidiary, has probably received $4.1-billion in federal and Quebec aid over the past 50 years, a figure that has excluded the funds injected into Bombardier's Northern Ireland plant by the British government.

There is little doubt that the federal and provincial assistance has allowed Bombardier to cut the prices on C Series, but Boeing's complaint against Bombardier is laughable. Boeing is one of the most heavily subsidized companies on the planet. A 2015 report by Good Jobs First, an independent government-accountability research group in Washington, estimated that Boeing had soaked up $64-billion (U.S.) federal loans, loan guarantees and other assistance between 2000 and 2014. State and local subsidies larded another $13-billion onto Boeing's tally.

Backed by the nationalistic administration of President Donald Trump, Boeing stands a good chance of eradicating the C Series from the American market. Import duties will make the plane absurdly expensive.

But the protectionist move, while highly damaging, will not prove fatal for Bombardier. The company's failure is unthinkable. Taxpayers will come to the rescue once again, whether or not they want to. Everywhere, governments have created aerospace industries that lobby for a "level playing field" – no unfair subsidies, in other words – but in reality one can't imagine making planes without torrents of unfair subsidies. Sadly for the taxpayer, this dubious business model will never change.

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About the Author
European Columnist

Eric Reguly is the European columnist for The Globe and Mail and is based in Rome. Since 2007, when he moved to Europe, he has primarily covered economic and financial stories, ranging from the euro zone crisis and the bank bailouts to the rise and fall of Russia's oligarchs and the merger of Fiat and Chrysler. More

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