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Delta vows not to pay 'nonsensical' 300% duty on Bombardier planes

12 October 2017

Delta Air Lines Inc has vowed not to pay the import duties the US Department of Commerce wants to put on the delivery of each of its Canadian Bombardier C Series jetliners.

Delta was socked in the last two weeks with 300 per cent tariffs by the department.

"We do not expect to pay the tariffs and we do expect to take the planes," said Delta chief executive Ed Bastian on the company's earnings call on Wednesday morning. "We will not pay tariffs that are being discussed and debated."

Delta's determination not to pay the import charges raised the stakes in a dispute pitting Montreal-based Bombardier against Boeing Co, which accused its Canadian rival of selling the C Series at ''absurdly low prices''. Boeing won support from President Donald Trump's administration, which ruled that Bombardier sold the planes at less than their fair market value after benefiting from government subsidies in Canada.

Bastian cautioned that there may be a delay in starting delivery of the first jets from Bombardier, due to arrive in the spring of 2018. The airline is also considering ''various other plans'' if the preliminary duties are finalised, he said without elaborating. But he anticipated there would be a conclusion to the trade dispute between Bombardier and Boeing over the next 12 months.

Delta in 2016 ordered as many as 125 new CS100 jets from the Canadian aerospace company Bombardier. The deal sparked allegations by Boeing that the plane maker had sold the C Series to Delta at "absurdly low prices". Boeing took its case to the US Department of Commerce, claiming the sale had harmed the US manufacturer and its single-aisle 737 products.

The Commerce Department preliminarily ruled in two separate cases the C Series should be subject to import tariffs as much as 300 per cent.

Early next year the International Trade Commission, a quasi-judicial body of the US government, will determine if harm was done to Boeing by the deal.

Bastian emphasised that he does not believe Boeing suffered harm. ''In our opinion it is very difficult for Boeing or any US manufacturer to claim harm with a product that we purchased that [Boeing] did not offer and they don't produce," he said.

Boeing stopped producing jets the size the Delta wanted to purchase in 2006. As part of Delta's competition between manufacturers to supply it small airliners, Bombardier offered the CS100, while Boeing offered used Brazilian regional jets, not all-new airplanes.

"As you look through this and try to see how exactly a harm case is going to be developed, particularly to justify the type of tariffs that are being contemplated, to us it's unrealistic, a bit nonsensical," Bastian said.

The trade feud has sparked a diplomatic row between the United States, Canada and the United Kingdom. Canada has threatened to kill a deal to buy Boeing F/A-18 Super Hornets, and the UK said future Royal Air Force purchases from Boeing might be in question should the tariffs be imposed.

"We won't do business with a company that's busy trying to sue us and put our aerospace workers out of business," Canadian Prime Minister Justin Trudeau said last month.

Bombardier's aerospace division employs 28,500 worldwide. The airplane is also half produced by US aerospace companies, including United Technologies which supplies the jet's Pratt & Whitney engines.

Trudeau met with President Donald Trump on Wednesday and the Bombardier issue was discussed directly. The prime minister said he told Trump he "disagreed vehemently" with the rulings.

"It's inconceivable that we would make military purchases of Boeing aircraft if Boeing continues to behave that way," Trudeau, speaking French, said through a translator at a press conference. "It wasn't an easy conversation, but it was an important conversation to have."

The US Commerce Department ruling has also drawn fire from British Prime Minister Theresa May, who lobbied Trump on behalf of Bombardier, which employs more than 4,000 people in Northern Ireland, where the jet's wings are manufactured.

Bastian said the airline is crafting "various other plans that we're also contemplating and looking at, alternatives which I will not get into" should the aircraft's arrival in its fleet be delayed past spring 2018, when the first delivery is scheduled.

"We will not pay those tariffs," he said. "And that is very clear."

Bombardier CEO Alain Bellemare is counting on the C Series to help fuel an increase of almost 50 per cent in annual revenue by 2020. The company has begun ramping up output at its Mirabel factory north of Montreal, with about 30 units of the jet due to be shipped this year.

Delta, which has options to buy 50 more of the C Series jets, is the biggest buyer of the plane. Including the Delta deal, Bombardier has amassed 360 firm orders for the C Series and more than 400 other commitments.

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