MONTREAL/TOULOUSE, France--Boeing Co said on Tuesday that Bombardier Inc's CSeries jets could still be hit with high U.S. import duties, even if they are assembled in Alabama through an industry-changing deal with Airbus.
The deal announced on Monday gives Airbus a majority stake in Bombardier's troubled CSeries jetliner programme, securing the plane's future and giving the Canadian firm a possible way out of a damaging trade dispute with Boeing, in which the U.S. Commerce Department has threatened to impose a 300 percent import duties.
Boeing said that the announced deal has no effect on the pending U.S. Department of Commerce proceedings. "Any duties finally levied against the C-Series... will have to be paid on any imported C-Series airplane or part, or it will not be permitted into the country," Michael Luttig, Boeing's general counsel, said in a statement.
Investors cheered the winners of the deal that is set to shake up the $125 billion a year market for large jets. Bombardier shares jumped 15.7 percent on Tuesday, while shares in Toulouse, France-based Airbus rose 4.8 percent.
The transaction would give Airbus a 50.01 percent stake in an entity recently carved out of Bombardier to produce and market the CSeries, four years after it first flew with a goal to enter the large jets market. But in a move emblematic of the huge risks of aerospace competition, Bombardier will get just one dollar for the majority stake in exchange for Airbus's purchasing and marketing power to support an aircraft that has won fans for its fuel efficiency but had not secured a new order in 18 months for the 110-130 seat plane due to doubts over its future.
Bombardier's strategy of performing final assembly in Alabama might allow the CSeries to avoid duties because the trade case targets partially and fully-assembled aircraft, said U.S. international trade lawyer William Perry. Bombardier and Airbus could argue they are importing parts, like the wing from Northern Ireland, to be assembled in the United States.
"That may be the loophole Bombardier is hoping to use," he said by phone.
In reality, the terms of the deal mean Bombardier could pay Airbus to take over by agreeing to underwrite $700 million of risks related to cost overruns in coming years. "It's an unexpected move by Airbus but indicates they see good market potential for the CSeries. Neither they nor Boeing currently offer an aircraft in the regional jet market," said aerospace consultant John Strickland of JLS Consulting.
The deal is similar to one that Airbus walked away from in 2015 when it decided the investment in a plane that had not yet entered service was too risky - with one major difference: that some of the jets will be produced in the United States. That could change the power balance in Bombardier's costly trade dispute with Boeing, though it is not the main reason why the two former rivals have come together, executives said.
"Assembly in the U.S. can resolve the (tariff) issue because it then becomes a domestic product," Bombardier's chief executive, Alain Bellemare, told reporters at Airbus's headquarters in Toulouse.
Airbus CEO Tom Enders hailed the tie-up as "a win for Canada ... a win for the UK," referring to Bombardier's wing-making factory in Northern Ireland whose future had been threatened by the distant trade war. He said it would also create new U.S. jobs.
