US government imposes 220% import tariff on Bombardier

Bombardier’s corporate bonds have suffered the sharpest drop in more than two years following the US government’s decision to impose a 220% tariff on its passenger aircraft.

The US Department of Commerce yesterday announced its preliminary decision to instruct the country’s Customs and Border Protection to collect cash deposits from Bombardier – and all other Canadian manufacturers of 100- to 150-seat civil aircraft – when it delivers up to 125 C Series aircraft to Delta Airlines next year.

And the value of Bombardier’s corporate bonds tumbled overnight in response. Its senior unsecured notes were down by more than seven price points at 99.963, according to Bloomberg prices at 10am London time today. That’s the largest fall that the bonds have suffered in more than two years, says Bloomberg.

The DoC’s decision to impose the punitive tariff comes as part of a legal battle between the Canadian aircraft and train manufacturer and Boeing, which took its rival to court in the US alleging that it had received financial support from the Canadian government that allowed it to sell its C Series planes at below-market prices.

The DoC has carried out a countervailing duty investigation and says it has made a preliminary determination that imports should be subject to a 219.63% import tariff. It will continue to review that figure and make a final ruling in February.

Countervailing duties aim to counter “unfair subsidies” from governments to companies in the form of grants, loans, equity infusions, tax breaks and production inputs.

In a statement on its website, US Secretary of Commerce Wilbur Ross said: “The US values its relationships with Canada, but even our closest allies must play by the rules. The subsidisation of goods by foreign governments is something that the Trump Administration takes very seriously, and we will continue to evaluate and verify the accuracy of this preliminary determination.”

Boeing lodged a petition with the US International Trade Commission and the DoC in April, claiming that large government subsidies had helped Bombardier to “dump” its C Series aircraft in the US.

The move came after Bombardier won a $5.6 billion deal last year to supply up to 125 C Series aircraft to Delta Airlines. Boeing didn’t compete for the contract.

Bombardier has condemned the tariff as “absurd and divorced from the reality about the financing of multibillion-dollar aircraft programmes”.

In a statement on its website, the company said: “We strongly disagree with the Commerce Department’s preliminary decision. This result underscores what we have been saying for months: the US trade laws were never intended to be used in this manner, and Boeing is seeking to use a skewed process to stifle competition and prevent US airlines and their passengers from benefiting from the C Series.”