Canada, as expected, has fired back at Boeing (NYSE: BA) over the aerospace giant's trade complaint against Canadian manufacturer Bombardier (NASDAQOTH: BDRBF). It's a drop in the bucket for Boeing for now, but problems could escalate quickly if the company doesn't tread carefully.
The Canadian government said Dec. 12 that it would proceed as planned with a competition to buy 88 new jet fighters, but said it would disqualify bidders who caused "harm" to the national economy. Though Canada doesn't mention Boeing in the statement, the comments are a clear reference to Boeing's trade challenge accusing Bombardier of selling its CSeries passenger jet at a drastically discounted price.
A Boeing F/A-18F Super Hornet in flight. Absent the trade dispute, the Super Hornet would be a favorite in the Canadian competition. Image source: Boeing.
The U.S. Department of Commerce in September issued an initial recommendation agreeing with Boeing's claims and proposing tariffs totaling 300% on the CSeries planes. That decision would effectively bar the CSeries from the U.S. market, putting the entire program and the jobs around the globe it supports at risk.
Canada is also scrapping a plan to buy 18 Boeing fighter jets intended as a stopgap, instead sourcing used jets from Australia.
Boeing could win the battle and lose the war
Boeing in response said it would review the project requirements and make a decision on whether or not to bid when the time comes. The company likely feels it is in a relatively good position despite the rhetoric coming from Canadian politicians: The Lockheed Martin F-35, one logical alternative to the Boeing F/A-18 Super Hornet, has previously been criticized in Canada as too expensive.
The Eurofighter Typhoon is another alternative, but Canadian military officials tend to favor buying U.S.-made products because it allows them to co-ordinate more seamlessly with their key North American ally. Buying the Super Hornet would also greatly reduce training costs.
The Super Hornet in recent years has enjoyed a renaissance of sorts, with the U.S. Navy slated to buy 80 frames over the next five years to address its fighter shortfall, and Boeing seems confident it can keep the production line going into the early 2020s.
But Canada has other upcoming projects, including new aerial refueling tankers and drone aircraft, as well as an upgrade in its space satellite program. Since Boeing would likely be among the favorites to win those contracts, the company would miss out on billions in revenue if the CSeries dispute causes Canada to shy away from Boeing in future competitions.