Boeing CEO: Bombardier sold new planes at used plane prices

Kevin McAllister Boeing Commercial Airplanes CEO

Boeing Commercial Airplanes CEO Kevin McAllister testified in front of the International Trade Commission on Monday.
Boeing claims it was harmed when Bombardier used government subsidies to offer unnaturally low prices to Delta.
Delta and the Canadian government both refute this claim.

Boeing Commercial Airplanes CEO Kevin McAllister testified before the International Trade Commission on Bombardier's sale of 75 C Series airliners to Delta Air Lines in 2016.

The ITC is gathering testimony ahead of its ruling on whether or not to make the Department of Commerce's proposed 299.45% tariff on Bombardier C Series jet bound for the US into effect.

The Seattle-based airplane maker has accused its Canadian rivals of using government subsidies to prop up unseasonably low prices.

"Subsidized competitors don’t face the same market realities we do. Our fortunes rise or fall based on the business decisions we make. There’s no one there to bail us out if we misstep," McAllister said. "But because of its massive government subsidies, Bombardier doesn’t have to worry about these market realities. It used those subsidies to create and sell airplanes for millions of dollars under cost in the United States. "

According to Boeing, the low prices Bombardier is offering is "destroying" the marking for its 737-700 and 737MAX 7 airliners.

In his testimony, McAllister said:

"As we explained in May, Bombardier’s unfair competition is destroying the market for the 700 and MAX 7 airplanes. It started in 2015. We competed our 700 head-to-head with the CS100 at United. But Bombardier slashed its prices. That pushed us to the wall. The -700 ultimately won at United against the CS100, but only after we were forced to slash our prices to the lowest possible level. And this lowered the pricing threshold for both the -700 and the MAX 7. But this was only the first sign of how bad things would ultimately get.

"The United campaign proved that the -700 could compete and win against the CS100. But, Bombardier was even more aggressive at Delta. Delta was looking to buy used airplanes. As we were pulling together a package to meet Delta’s requirements, Bombardier swooped in and offered to sell Delta brand new C Series airplanes for less than 20 million dollars each. No new airplane, rationally priced—including the 700—could compete at that price point. Essentially, Bombardier offered new airplanes at used airplane prices. And it worked. Delta bought 75 C Series airplanes with options for 50 more."

According to McAllister, Boeing's aggressive stance on the issues comes from its decade-long trade dispute with Airbus.

"In some ways, this is déjà vu for Boeing," he said. "From Airbus’s very inception, we’ve lived the Airbus threat and suffered the Airbus injury. We’ve seen Airbus use billions and billions in government subsidies to create its products and muscle its way into the market, putting American aerospace companies out of business."

In response, Canadian Ambassador to the US, David MacNaughton called the facts of the case "perplexing."

"Boeing did not compete against the plane that Bombardier sold to Delta because it does not have a plane in that size," Ambassador MacNaughton said in a statement to the ITC. "Moreover, it is difficult to understand how a company with such an enviable commercial and financial position and an order book stretching nearly seven years into the future could file a case complaining of a threat of future injury by a new entrant to the market."

"Boeing has been quite candid that its target is not the plane that exists now, but the competitive threat that Bombardier may pose in the future," he added.

Delta Air Lines CEO Ed Bastian is adamant that the price it received from Bombardier is completely above board and Boeing wasn't harmed as a result of the deal.

"As a launch customer, we got launch customer pricing just like every single launch customer on every single aircraft product whether it's made by Boeing or Airbus or Embraer or Bombardier," Bastian told Business Insider in a recent interview. "I don't see how Boeing can justify harm when they don't have the product. That has mystified me all along."

According to Delta, the only proposal submitted by Boeing was for a block of 20 second-hand Brazilian Embraer regional jets.

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