Bombardier says Airbus deal puts it on strong legal ground to avoid CSeries duties

MONTREAL — Bombardier believes it is on strong legal ground to avoid import duties for its CSeries commercial jets by setting up a second assembly line at Airbus’ plant in Alabama.

The Montreal-based company has a legal opinion that no duties can apply because half the parts, starting with the engines, and the final assembly for U.S. customers are American, according to a source.

“The assembly in the U.S. can resolve the issue because then it becomes a domestic product and therefore a domestic product would not have the import tariff apply to this,” Bombardier CEO Alain Bellemare said Tuesday in Europe after announcing a partnership with Airbus.

The European aircraft giant said it will buy a majority stake in Bombardier’s CSeries program for no financial payment, with Bombardier (TSX:BBD.B) holding a 31 per cent stake and the Quebec government 19 per cent.

The Airbus-Bombardier partnership shakes up the aircraft industry and appears to put in question Boeing’s trade complaint, which has resulted in preliminary duties of nearly 300 per cent.

Bellemare said the company will continue to fight Boeing’s “unfair and unjustified” petition. Boeing said it will maintain the pressure in an effort to have aircraft manufacturers compete on a level playing field.

Industry analysts say the partnership appears to give Bombardier the legal edge in a political skirmish.

“With the aircraft now having a U.S. domestic production line, the issue around the Boeing trade complaint will be moot as the CSeries will no longer be imported into the United States for U.S. customers,” said Cameron Doerksen of National Bank Financial.

Richard Aboulafia of the Teal Group said the big loser is Boeing, whose petition has thrown Bombardier into the hands of its main global competitor.

“The new deal destroys Boeing’s trade case. They (and Commerce) can try to persist, but the new Alabama CSeries line makes that futile,” he said in a report.

Aboulafia said the Commerce Department will rule that it has no authority on jetliners exported from Alabama to Delta Air Lines headquarters in Georgia. The airline, which has ordered up to 125 CSeries, declined to comment on the new partnership. Its CEO last week said deliveries could be delayed but it wouldn’t pay duties.

Aboulafia also believes the result will be a stronger alliance between Boeing and Brazil’s Embraer.

Ultimately, he expects the politicized trade complaint will be undercut by the very politicians Boeing appealed to most — the protectionist wing of the Republican party.

While the CSeries, Airbus and Bombardier are the winners, Aboulafia adds U.S. President Donald Trump’s name to the list.

“I predict an official Trump Tweet taking credit for bringing Airbus factory jobs to Alabama. If Boeing leadership expected loyalty from Trump, they were mistaken.”

Bombardier investors warmly received the Airbus partnership, driving up the Montreal-based company’s shares to a nearly three-year high on Tuesday.

Shares reached $2.97 in early trading and were up nearly 20 per cent at $2.83 in later activity on the Toronto Stock Exchange.

Ross Marowits, The Canadian Press