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Bombardier Stock Bombs After US Penalty

bombardier

Image source: Austin Deppe / Shutterstock.com

What's going on?

The US government declared that it would slap a big penalty on Canadian aircraft maker Bombardier, after Boeing, a major US competitor, complained that Bombardier had received unfair government support from the Canadian and British governments.

 

What does this mean?

Boeing alleges that Canadian government support (i.e. special funding for Bombardier) allowed Bombardier to sell its short-haul “C-Series” jets at unfairly cheap prices to Delta Air Lines in the US. The dispute jeopardizes this key order, worth over $5 billion.

For Boeing to ultimately win this case, it must show it was harmed by Bombardier’s supposedly unfair advantage (even though Boeing wasn’t actually competing for this order from Delta). So, a penalty on Bombardier isn’t guaranteed just yet – a final decision is due in February. But this initial ruling suggests the direction the US government may take – and it upset both the Canadian and British governments, who are concerned about associated job losses in their countries (see below).

Why should I care?

The bigger picture: Trade war alert…
The jobs on the line make this a political issue. Canada has already threatened to cancel a $5 billion order from Boeing in retaliation. The UK is also affected as Bombardier employs thousands of workers in Northern Ireland. The British defense secretary warned the dispute could jeopardize the UK’s contracts with Boeing. Moreover, the timing of this dispute is especially sensitive given the US is reviewing its trade relationships with both countries – Canada with a partial renegotiation of the North American Free Trade Area (NAFTA), and the UK given its decision to leave the European Union.

For markets: Bombardier can’t catch a break!
The order from Delta is worth 30% of the revenue Bombardier made last year. Its stock fell 8% on Wednesday. From a longer-term perspective, the C-Series jet is key to the future of Bombardier (which is no stranger to difficulties – having almost gone bust in 2015, and requiring a government bailout).

Originally posted as part of the Finimize daily email.

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