With friends like these . . . Connecting the dots between Boeing, Bombardier and Big Macs

To better appreciate the current dispute between Bombardier and Boeing, you have to know something about hamburgers. Specifically, you have to watch The Founder, where Michael Keaton plays McDonald's franchise founder Ray Kroc, strong-arming the McDonald brothers out of their restaurant concept, their business system and their name.

Tony Wilson
Boughton Law

To better appreciate the current dispute between Bombardier and Boeing, you have to know something about hamburgers. Specifically, you have to watch The Founder, where Michael Keaton plays McDonald's franchise founder Ray Kroc, strong-arming the McDonald brothers out of their restaurant concept, their business system and their name.

Some of the dialogue is revealing. Says Keaton-as-Kroc about the contract he signed with the McDonald brothers: "Contracts are like hearts . . . They're meant to be broken." Later in the movie, Kroc shares his theory about business to the outmanoeuvred McDonalds. "Business is war. It's dog eat dog, rat eat rat. If my competitor were drowning, I'd walk over and put a hose right in his mouth."

Enter Bombardier, the Québec-based aircraft manufacturer that is seen as an existential threat to Boeing. To understand the Boeing/ Bombardier dispute more theatrically, you have to see Boeing as Ray Kroc — a man prepared to put a garden hose down the throat of his drowning competitor because "business is war."

As we all know by now, Bombardier entered a contract with Delta Air Lines to sell up to 125 of its CS100 aircraft. Boeing complained to the U.S. Commerce department that it suffered material injury from the sale, notwithstanding the inconvenient fact that Boeing doesn't produce a comparable product to Bombardier's C Series jet and the equally inconvenient fact that Boeing didn't bother to bid on the Delta contract. In short, Boeing complained about a contract on which it didn't bid regarding jets it doesn’t make. Naturally, Boeing’s emboldened protectionist allies in Washington slapped import duties on Bombardier eventually totalling 300 per cent because Bombardier (shockingly!) receives subsidies — yes, subsidies — from the Quebec and federal governments.

We all know the federal and Quebec governments subsidize Bombardier. But let's not kid ourselves. Boeing receives some of the highest federal, state and local subsidies in the United States, having received approximately US$457 million in non-payable federal grants between 2000 and 2014, US$64 billion in federal loans and loan guarantees and US$18-billion contract awards in 2014. And that doesn't include military contracts. Approximately 36 per cent of the almost US$95 billion in revenue that Boeing earned in 2016 came from the U.S. Department of Defense, which is funded by the U.S. government.

If Boeing received grants or loans from various levels of government in the U.S. and is being paid billions of dollars by the U.S. government to manufacture military aircraft, it is receiving government subsidies and to complain that Bombardier is also receiving government subsidies is laughable. Boeing, say British politicians trying to protect a Bombardier manufacturing facility in Belfast, "is the king of corporate welfare" and a "subsidy junkie," notwithstanding Boeing's regular denials.

If the first thing to know about the Boeing-Bombardier dispute is Kroc's character in The Founder, the second thing you have to know is Captain Louis Renault's character in Casablanca; in particular, the scene where Renault closes down Rick's Café. Renault proclaims he is "shocked . . . shocked to find that gambling is going on here" — as he takes his winnings. In the same vein, Boeing is shocked . . . shocked to discover Bombardier is receiving government subsidies. As Renault proclaimed, “round up the usual suspects!”

Canada subsequently raised the stakes in the summer by announcing that it would not buy Boeing’s Super Hornets for $6.3 billion. "We won't do business with a company that's busy trying to sue us and trying to put our aerospace workers out of business," said Prime Minister Justin Trudeau.

And, realistically, there are alternatives to Boeing's Super Hornets — Swedish manufacturer Saab’s JAS Gripen NG, for example. Said one analyst: “Faster than the F-35, more fierce, more flexible, more frugal, and the option of building our own Gripens on our own soil.  Heck, we might even convince Saab to call the Canadian made Gripens Arrow IIs instead.” And you don't even need the little IKEA key to build them!

But the bomb dropped on Boeing in mid-October (as if magically from a B-52) a week after Boeing launched a "feel-good" public relations campaign about what a jolly good friend and neighbour it is to Canada (notwithstanding all that unfortunate hose-down-the-throat stuff).

Bombardier transferred a majority interest in the C Series jets to Boeing’s arch-enemy Airbus. Airbus could assemble the CS-100 jets for the U.S. market from its facility in Alabama with components made in the U.S., Northern Ireland and Canada, likely avoiding the 300-per-cent duties. A deal with Airbus would also allow Bombardier jets access to Airbus' marketing arm and its European and Asian clients. Thus, instead of allowing the fictional Kroc to put a garden hose down Bombardier's throat, Bombardier (with the help of Airbus) has redirected that hose up Boeing’s . . . tailpipe.

Having driven Bombardier into the arms of Boeing’s biggest competitor, Boeing (still denying it is a subsidy junkie) calls it a "questionable deal between two heavily state-subsidized competitors to skirt the recent findings of the U.S. government." Did anyone at Boeing not think it might push Bombardier into the arms of Airbus? Did anyone at Boeing not think that Canada might find a different military aircraft than the Super Hornet? Does anyone at Boeing have the slightest bit of egg on their face? One can only hope.

In any event, Bombardier's shares went up in value as soon as the Airbus deal was announced, meaning it might one day be able to pay off its government loans.

But this whole brouhaha says something about our relationship with the United States and the NAFTA negotiations. I suppose if NAFTA is cancelled, the Canada-European Union Comprehensive Economic and Trade Agreement, which went into force provisionally in September, may help Canadian businesses find other markets for their products as it will eliminate 90 per cent of the tariffs between Canada and the EU.

As Humphrey Bogart’s Rick Blaine said at the end of Casablanca to Renault, CETA might be “the beginning of a beautiful friendship."

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