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Boeing scrambles to save big Canada fighter jet deal: source

Stock MarketsMay 19, 2017 06:01PM ET
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© Reuters. FILE PHOTO: Super Hornet fighter jet breaks the sound barrier

By David Ljunggren and Alwyn Scott

OTTAWA/SEATTLE (Reuters) - Boeing (NYSE:BA) Co on Friday rushed to fix a gamble that looks to have gone wrong, with the defense unit of the U.S. plane maker seeking to fend off a Canadian threat to scrap the purchase of 18 Super Hornet jets, a source familiar with the matter told Reuters.

That move follows Canada's threat on Thursday that it could ditch its plans to buy the jets if the United States backed Boeing's claims that Canadian plane maker Bombardier Inc dumped jetliners in the U.S. market.

Political insiders say the Liberal government of Prime Minister Justin Trudeau is furious about Boeing's allegations, which comes at a time when trade relations between the United States and Canada are at a low.

"Boeing made the calculation that taking this action was worth the risk," the source said, requesting anonymity due to the sensitivity of the situation. "However, Boeing military sales division is concerned and is seeking to communicate with Canadian government decision-makers to mitigate the possible impact to their Super Hornet sale."

Boeing said the firm hoped there would be no impact on the proposed Super Hornet sale but made clear it had no regrets about challenging Bombardier.

"This action is being taken against Bombardier's pricing practices which are illegal and aggressive. It is a very clear case of dumping," said spokesman Charlie Miller.

One industry source said a senior Boeing official tried to arrange a meeting with Trudeau recently but had been turned down.

A Trudeau spokesman declined to comment but said government ministers had not met with Boeing since it launched the Bombardier challenge. Boeing did not immediately reply to a request for comment.

POTENTIAL WINNERS

Richard Aboulafia, aerospace analyst at Teal Group, said that although Boeing's complaint appears valid, "the secondary effects are disastrous."

He said Boeing could lose $10 billion to $20 billion in military sales to Canada, encompassing order for jets, helicopters and maritime surveillance planes.

Potential winners include rival makers of jets, such as Lockheed Martin Corp (NYSE:LMT), Dassault Aviation SA, Airbus SE and Saab AB, analysts said.

The U.S. Commerce Department on Thursday launched an investigation into Boeing's claims.

"This is a strong shot across the bow to the United States to say 'Shut this thing down pretty damn quickly,'" said a Canadian defense industry source.

Trudeau twice side-stepped questions about the threat when speaking to reporters on Friday in British Columbia.

The Boeing saga further increases tensions between Canada and the United States in the run-up to talks on renewing the North American Free Trade Agreement (NAFTA), with the Trump administration on Thursday setting the clock ticking toward a mid-August start of renegotiations..

Last month Washington slapped anti-dumping duties on Canadian timber, prompting Canada to threaten retaliation.

Bombardier is based in the electoral important province of Quebec, where the ruling Liberals say they need to pick up support to be sure of winning federal election in October 2019.

Canada unveiled plans to buy the Super Hornets last November as a stop-gap measure while it prepared an open five-year competition to replace its aging fleet of 77 Boeing CF-18 fighter jets.

Defense analyst David Perry of the Canadian Global Affairs Institute said one option for Ottawa would be to scrap the idea of a stopgap force and go straight to the permanent competition.

The threat against Boeing only complicates a Canadian military procurement system which many analysts say is broken.

The previous Conservative government announced in 2010 it would buy 65 Lockheed Martin F-35 fighters in a sole-source contract but after protests, scrapped the decision and announced an open competition that was never held.

In the run-up to the November 2015 election that brought the Liberals to power, Trudeau said he would not buy the F-35s on the grounds they were too expensive. His government has since softened its opposition.

Military procurement in Canada is handled by both the ministers of defense and public works, neither of whom were immediately available for comment.

Boeing's defense unit is called Defense, Space & Security.

Boeing scrambles to save big Canada fighter jet deal: source
 

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