Delta Vows Not to Pay U.S. Duties on Bombardier's C Series

Updated on
  • Airline sticks by plan to take aircraft, says delays possible
  • U.S. ruling after Boeing complaint is souring diplomatic ties

Bombardier Said Exploring Options on Aerospace Assets

Delta Air Lines Inc. pledged not to pay import duties on Bombardier Inc.’s marquee jetliner, which was socked in the last two weeks with 300 percent tariffs by the U.S. Commerce Department.

It’s possible Delta will delay deliveries of the C Series planes, which are scheduled to begin next year, Chief Executive Officer Ed Bastian said Wednesday. The airline is also considering “various other plans” if the preliminary duties are finalized, he said without elaborating. Delta last year agreed to buy at least 75 of the jets at a list price of more than $5 billion.

“We will not pay those tariffs, and that is very clear,” Bastian said on a conference call after reporting third-quarter results. “We intend to take the aircraft.”

Delta’s determination not to pay the import charges raised the stakes in a dispute pitting Montreal-based Bombardier against Boeing Co., which accused its Canadian rival of selling the C Series at “absurdly low prices.” Boeing won support from President Donald Trump’s administration, which ruled that Bombardier sold the planes at less than their fair market value after benefiting from government subsidies in Canada.

Bombardier jumped 6.8 percent to C$2.35 at the close in Toronto, the biggest gain in five months. Delta advanced less than 1 percent to $53.07.

Diplomatic Tensions

The trade spat has soured diplomatic relations between the U.S. and two key allies.

Canadian Prime Minister Justin Trudeau warned that the dispute is endangering his government’s purchase of new military jets from Boeing. Speaking to reporters in Washington after a meeting at the White House, Trudeau said he told Trump Canada disagrees “vehemently” with the tariffs.

Duties are “something that we look very negatively on,” Trudeau said. “I certainly mentioned that this was a block to us making any military procurements from Boeing.”

The U.S. Commerce Department ruling has also drawn fire from British Prime Minister Theresa May, who lobbied Trump on behalf of Bombardier and the more than 4,000 people it employs at facilities in Northern Ireland.

The tariffs, which consist of 220 percent countervailing duties and 80 percent anti-dumping restrictions, could be reversed by the U.S. International Trade Commission if it concludes that Boeing wasn’t injured by Bombardier’s jet program. That decision is expected to be made next year. The Commerce Department also still needs to issue a final ruling in both cases.

The argument that Boeing was harmed by the C Series is “unrealistic, a bit nonsensical,” Bastian said on the conference call. He said Boeing competed against Bombardier by offering Delta used Embraer SA E190 planes.

Potential Delays

Bombardier CEO Alain Bellemare is counting on the C Series to help fuel an increase of almost 50 percent in annual revenue by 2020. The company has begun ramping up output at its Mirabel factory north of Montreal, with about 30 units of the jet due to be shipped this year.

Delta, which has options to buy 50 more of the C Series jets, is the biggest buyer of the plane. Including the Delta deal, Bombardier has amassed 360 firm orders for the C Series and more than 400 other commitments.

Any appeal of the U.S. duties by Bombardier would likely delay the start of shipments to Delta, said Nick Heymann, an analyst at William Blair & Co.

“Delta wants this plane. They wanted it yesterday,” Heymann said in an interview. “The next part of the process is to find out how Boeing was harmed -- and if this case goes to appeal, then you will have a delay.”

— With assistance by Josh Wingrove

(Updates with comments by Canadian prime minister in seventh paragraph.)