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Home Blog Bombardier v. Boeing - what wasn't said

Bombardier v. Boeing - what wasn't said

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Comments about the Bombardier affair demonstrate the abyss of misunderstanding about the nature of trade and of the economic process itself.

US aircraft manufacturer Boeing has initiated a court case against Bombardier, relating to the proposed sale of aircraft to the US company Delta Airlines. Claiming unfair competition, the threat is to impose a tariff of over 200%. This threatens the livelihood of workers at a branch factory in Northern Ireland, which manufactures the wings of the aircraft. Boeing apparently produces no aircraft which would compete with the Bombardier model, which is for short-haul routes. The alleged unfairness is that Bombardier has received financial assistance from the Quebec government.

While a lot has been said linking the affair to Brexit, with which it has nothing to do, no commentator has pointed out that the main losers in this affair are Delta Airlines, which is being made to pay more for the aircraft it has chosen, or will have to purchase an alternative, and Delta's passengers, since the additional costs will be reflected in higher fares. Other losers are the Canadian taxpayers.

There is more than a hint of double standards here, because Boeing is able to transfer to its civil aviation division technology originally developed as part of its military contracts for the US government. But then again Bombardier management knows the situation. The Northern Ireland dimension is also worth a look. Factories like Bombardier's are sometimes located in peripheral regions because of the availability of labour, with or without some kind of financial inducement from government. This is partly an attempt to mitigate the damage done by a tax system which ignores geographical disadvantage, since the same amount of tax has to be paid per unit of added value anywhere in the country; this has the effect of amplifying those disadvantages and sending large tracts of the country below the margin of economic production.

Factories such as Bombardier's wing production unit can only nibble at the problem. To make matters worse, they tend to be one-product plants - they have all their eggs in a single basket. This savours of bad commercial strategy as much as anything else, since aircraft technology is to some extent transferable, for example, to the buoyant wind power industry.

Returning to the Bombardier affair: the company got a raw deal from the British government over the Inter-City 125 train replacement project. Hitachi having won the contract on the basis that its design came closest to the original, impossible to meet, specification produced by the Department for Transport. The specification was then altered so much that it ought to have been put out for re-tendering, since the final design was one for which Bombardier had a product available almost off-the-shelf. For reasons which have not yet been revealed, Bombardier refrained from taking legal action.

Bombardier has also possibly lost out, over a contract to provide new trains for regional routes in France. This is a wasteful job-creating scheme supported by the French government, with the aim of keeping Alstom's Belfort plant with a flow of work, since the existing 1980s (Corail) stock can almost certainly be refurbished and kept in service for another decade or two. The replacement has been brought forward, but the clever scheme is to use new TGV high-speed trains on the regional routes. where they cannot operate at their 300 kph design speed. Bombardier does not currently produce a TGV equivalent and has thereby not had the opportunity to tender for the new trains.How all this fits into EU competition rules is an interesting question.

The worrying thing here is that none of these points has had an airing even in the heavyweight newspapers.

 

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