Bombardier Overshadows NAFTA Talks as Britain, Quebec Threaten Retaliation

On Wednesday, Stiff U.S. duties imposed on the CSeries jet of Bombardier Inc sparked threats of retaliation from Britain and Canada’s Quebec province as the dispute, which may have an effect on thousands of jobs, overshadowed North American trade talks.

On Tuesday, the U.S. Commerce Department slapped preliminary anti-subsidy duties of 220% on the jets, which if upheld, could effectively shut Bombardier out of the U.S. market, after the rival Boeing Co started a trade challenge accusing Canada of subsidising the aircraft unfairly.

The topic loomed large at the North American Free Trade Agreement (NAFTA) discussions in Ottawa where the countries acknowledged relations between Ottawa and Washington had become strained over the U.S. action.

Minister Chrystia Freeland, the Canadian Foreign, said that she raised the issue with Robert Lighthizer, the U.S. Trade Representative. He informed reporters: “I’m not saying it doesn’t have an effect on relationships – it does – but not on this negotiation.”

The duties sent its shares and bond prices lower. The shares initially declined 14% before regaining ground to end down 7.5% at C$2.10. According to MarketAxess data, many of its junk-rated bonds also declined.

“This puts a cloud over the company with regard to the CSeries,” said the portfolio manager at Avenue Investment Management, Bryden Teich. “As long as there’s this uncertainty, it will affect the share price.”

The duties produce “a level playing field in the aerospace market,” said Brazil’s Embraer, another rival, which welcomed the move.

Bombardier is a major employer in Quebec, a province where the Liberals of Prime Minister Justin Trudeau say they need to win extra seats in an election scheduled for October 2019.

Quebec Premier Philippe Couillard called on Ottawa to make sure that “not a bolt, not a part, not a plane from Boeing” will be allowed to enter Canada until the dispute had been settled.

“Boeing may have won a battle but, let me tell you, the war is far from over. And we will win,” Couillard told reporters, describing the duties as an attack.

In a statement, Boeing reiterated that it was not attacking Canada and the issue was a commercial dispute with Bombardier.

In Ottawa, Trudeau stated that the government was “disappointed and … will continue to fight for good Canadian jobs.” He has previously announced that Canada will not pursue plans to buy 18 Boeing F-18 Super Hornet fighter jets unless the challenge is withdrawn.

Francois-Philippe Champagne, Canadian Trade Minister, dubbed it as a deplorable decision and one which determines that Boeing is not a “trustworthy partner.”

“Our message to the Americans is to tell them that this decision will also have an impact on American suppliers and jobs in the United States,” added Champagne.

BROADENING TRADE BATTLE

The Boeing-Bombardier dispute has snowballed into a larger trade battle. Bombardier is a dominant employer in Northern Ireland, where many legislators are retaining British Prime Minister Theresa May’s minority Conservative government in power.

On Wednesday, Britain told Boeing that it could lose out on British defence contracts because of the conflict. In a tweet, May said that she was “bitterly disappointed” by the ruling.

Boeing stated that it was committed to Britain.

The duties on Bombardier record the second U.S. trade action against Canadian companies since President Donald Trump won office. Earlier in 2017, the United States imposed preliminary anti-subsidy duties on Canadian softwood lumber.

In April, Boeing started its challenge, claiming Bombardier had dropped airliners on the U.S. market when it struck a deal for 75 CSeries planes with Delta Air Lines Inc.

On Wednesday, Delta’s CEO said the challenge of Boeing was “absurd” and predicted that the duties would not be made permanent when Commerce comes up with a final decision in 2018.

Bombardier, which considered bankruptcy in 2015 and is undertaking a five-year plan to improve margins and performance, is still catching up with almost $9 billion in debt.

On Tuesday, the company also got shunned by Siemens AG, which decided to merge with France’s Alstom instead.

Bombardier may need to raise more equity in order to support a capital-intensive business, according to the president of Lorne Steinberg Wealth Management Inc in Montreal, Lorne Steinberg.