WASHINGTON — The US Department of Commerce has delivered a breathtaking blow to the ambitions of Canadian aircraft manufacturer Bombardier, slapping a 219% tariff on the sale of Bombardier’s flagship CSeries jet to US giant Delta Air Lines. The decision against Bombardier was an expected outcome given the anti-trade bent of the new US administration. However, the size of the tariff is unprecedented in recent US history, and it could have massively negative consequences for both Bombardier and Boeing, along with Delta.

Delta originally ordered 75 Bombardier CS100 jets last year, in a deal that it can be argued helped save Bombardier. Sales of the CSeries had been flagging for years, but the twin deals with Delta and Air Canada breathed new life into the CSeries program and helped justify the investments (by Quebec state and others) in 2016 and 2017 that kept Bombardier afloat. The deal was a massive blow for Boeing, which had previously managed to keep the CSeries from winning two successive orders at rival United Airlines by offering a screaming deal on its own Boeing 737-700s.

The exact facts of the case are in Boeing’s favor

What is unquestionably true is that Bombardier sold these jets to Delta for well below the planes list price of $76.5 million. Boeing threw out a number of ~$20 million per plane, our market intelligence suggests a price point substantially higher than that but still at a massive discount relative to list pricing. More importantly, we do understand that the planes were sold below Bombardier’s actual cost of production. So by the letter of the law, there’s probably a justifiable case that Bombardier was “dumping” when it sold the CS100s to Delta.

aerial view of Lausanne and Lac Leman

But that ignores the entire context of the US airline industry and Boeing’s own history

But that is no excuse for this ruling, which ignores all of the basic principles of how the commercial aircraft industry works worldwide, and the manner in which Boeing sells planes itself. Discounts are incredibly common in the airline industry, as essentially no carrier pays full price. In fact, the average discount is close to 45%, and both Boeing and Airbus frequently offer discounts larger than that.

Moreover, it is incredibly common for manufacturers to sell planes for less than the price of production. Boeing itself sold its first few hundred 787 Dreamliner for less than production cost, in some cases by tens of millions of dollars. So what we have here is essentially a situation where regulators judge something by the letter of the law while completely ignoring the actual business context of the industry in question. This kind of obtuse and siloed regulatory decision-making has been criticized by Republicans for years. Now their commerce department is engaging in it.

This may be a death knell for an independent Bombardier

Unfortunately, Bombardier may now be locked out of one the core markets for the CS100s. The United States is one of few markets (along with Europe) where short-haul segments are so plentiful, that multiple carriers can make the CS100 work (China and East Asia have too long flight segments and ATC concerns). United, JetBlue, and even American are credible customers for the CSeries, but not if every sale is subject to this kind of tariff.

Without the US market, there are only so many orders out there in the 100-150 seat segment for Bombardier, and it may be difficult to make the plane and the business work, at least on a standalone basis.

This isn’t necessarily a good thing for Boeing

So for Bombardier, this brings up a dilemma. One possible solution would be for Bombardier to sell itself to COMAC (the state-owned Chinese aircraft manufacturer). COMAC is currently years behind Western technology, but Bombardier, on the other hand, has excellent technology. The combination of Bombardier’s expertise with COMAC’s access to capital and a large home market could create a devastating competitor to Boeing and Airbus on the global scale, something far more threatening than a standalone Bombardier.

Even if Bombardier doesn’t sell itself, Boeing will likely not walk away scot-free. A tariff of this size probably renders the CS100 uneconomical for Delta to operate (and at the very least substantially jacks up its capital expenditures). The problem for Boeing is that Delta is coming up on a big narrowbody replacement decision, and this tariff decision isn’t likely to engender much goodwill towards Boeing in that process. Boeing can still win the order, but Airbus is the leader in the clubhouse now, and Boeing may have to give Delta an even more aggressive discount to compensate.

So, on the whole, while this decision may seem like a win for Boeing at first glance, over time it may well prove to be a major loss.