BY MATTHEW KANDRACH – Published January 12, 2017
U.S-based aerospace giant Boeing’s move to acquire Brazil’s Embraer is the latest and perhaps most revealing evidence yet that Boeing has little concern for the flying public. If the U.S. International Trade Commission fails to see through Boeing’s shenanigans, future innovation and improvements in the commercial aerospace business will suffer a tremendous setback.
The Boeing playbook has now become legend. Step one: Block Bombardier’s CSeries jetliner from the U.S. market by filing a ginned-up trade violation claim alleging the CSeries will unfairly hurt Boeing 737 sales. Step two: Acquire Embraer, which actually makes an aircraft that competes with the CSeries. Step Three: Enjoy a monopoly in the small single-aisle space.
If Boeing’s master plan is executed, it will be a disaster for U.S consumers.
For those not following the case closely, last spring Boeing asked the ITC to investigate whether Montreal-based Bombardier sold 75 of its new CSeries passenger jets to Delta Airlines at a price so low it would have been impossible without support from the Canadian government. As is typical when U.S. companies petition the U.S. government, the ITC commissioners initially sided with Boeing in the investigation.
Subsequently, the U.S. Department of Commerce recommended import duties of nearly 300 percent on the CSeries, high enough to scuttle the deal with Delta and effectively end Bombardier’s emergence as a producer of a new generation of planes in a market segment dismissed by Boeing years ago. The ITC will make its final determination later this month as to whether Boeing has actually suffered any harm (i.e., lost sales) because of the CSeries.
For months, many in the industry have questioned the “logic” of Boeing’s claim, as it made so little sense. Boeing’s contention that it is threatened by Bombardier is undermined chiefly by the simple fact that it does not actually make a plane that competes directly with the CSeries.
In fact, it is common knowledge that Boeing abandoned the market years ago. That’s right — Boeing never actually offered Delta a plane because it simply did not make one in the size Delta needed. And, even if Boeing were able to upsell Delta to a bigger plane, Boeing has admitted that its production backlog was oversold and couldn’t meet Delta’s timeline.
Boeing’s assertion that it is threatened in a market niche in which it makes no directly competing product has raised many questions about its motives. Boeing’s contention that the case was about preserving American jobs was further undermined in October when Bombardier and Airbus announced a partnership to make the CSeries in Alabama, rather than Canada, creating hundreds of new U.S. manufacturing jobs.
Throughout this saga it has become apparent that Boeing is trying to protect its own business interest with little regard for the American traveler. Limiting airline choice forces airlines to fly aircraft that are too big and less efficient on certain routes. The increased costs would be passed onto consumers in the form of higher ticket prices, or worse, airlines would limit direct flights between smaller city pairs.
Boeing’s actions are hostile to the forces of innovation as well as the principles of basic market competition that benefit all consumers. Bombardier’s CSeries planes are ideally sized to maximize the efficiency of regional operations for many carriers. The CSeries are more fuel efficient, quieter and roomier than comparable planes. And there is more room for baggage. But a more pleasant flying experience and lower passenger fares are immaterial to Boeing’s obsession with keeping the U.S. market to itself.
And Boeing quietly pursued Embraer while simultaneously petitioning the U.S. government to impose huge tariffs on Embraer’s only competitor.
Unfortunately, when a multibillion company tries to stifle competition through the cynical misuse of trade laws and the acquisition of would-be rivals to keep market share for itself and maximize its profits, consumers inevitably lose. It is time to tell Boeing it needs to play by the rules instead of trying to manipulate the rules. For our sake, let’s hope that’s just what the ITC decides later this month.
Matthew Kandrach is President of CASE – Consumer Action for a Strong Economy, a free-market oriented consumer advocacy organization.
