Will the U.S. Market Be out of Reach for Bombardier, Inc. on October 5?

If the U.S. Department of Commerce indeed rules in Boeing Co.’s (NYSE:BA) favour, the proposed 143.4% duty would all but exclude Bombardier, Inc. (TSX:BBD.B) from the U.S. airplane market.

| More on:

In the latest leg of the dispute between Canadian aerospace company Bombardier, Inc. (TSX:BBD.B) and its American rival Boeing Co. (NYSE:BA), Boeing has alleged that Bombardier has not been completely open in providing information to the U.S. Department of Commerce, which is conducting the investigation into Bombardier’s alleged dumping of its CSeries planes in the U.S. market. As such, Boeing has requested that the initial anti-dumping duty, which was requested as part of the initial investigation (already at an exorbitantly high 79.8%), be raised to 143.4% — a duty which would all but exclude Bombardier from the U.S. market.

Other analysts have gone to lengths to prove that Bombardier could exist without the U.S. market. Some analysts have cited comments made by Jerry Dias, the union leader for Unifor, (the union representing Bombardier workers) that “…we have so many things that the United States needs that if they want to get into a protracted trade war with Canada I would suggest that they wouldn’t do very well.”

The reality remains, however, that Bombardier needs the U.S. market. The 75 CSeries 100 plane order (with the option for an add-on order of 50 planes, which is now in doubt) was Bombardier’s largest order for the CSeries plane. According to current estimates of CSeries plane orders, that one order from Delta Air Lines, Inc. (NYSE:DAL) represents more than 65% of all CSeries 100 plane orders — the plane which has caused the most controversy in the Boeing/Bombardier trade dispute.

On October 5, the U.S. Department of Commerce is widely expected to rule that Bombardier has not complied with international trade laws. The expectation is that either the nearly 80% duty or the +140% duty will be applied to all Bombardier airplanes — a reality which will force Bombardier to seriously examine other international markets for its airplanes; this is something the company has done, but it has not been as successful in developing as of yet.

Reasons for why Bombardier may not be as successful in developing an international sales base as their peers are numerous. With Brazilian firm Embraer offering similar airplanes to those of Bombardier’s CSeries models, increased competition globally has created a natural headwind in this arena. Coupled with a World Bank investigation stemming from alleged bribery and misconduct for an emerging market train signaling systems order from Azerbaijan, questions as to the viability of Bombardier moving forward, should the company be excluded from all deals financed by the World Bank (which, in the case of emerging market countries, are many), remain a huge potential headwind.

Bottom line

I would stay as far away from Bombardier as possible, given the risks associated with the ability of the Canadian airplane and train maker to continue to operate in the U.S. and emerging markets, pending key litigation outcomes, which are slated for the fourth quarter.

Stay Foolish, my friends.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Chris MacDonald has no position in any stocks mentioned in this article.

More on Investing

Canadian Dollars
Stock Market

Where to Invest $5,000 in April 2024

Do you have some extra cash to spare? Here are five companies to invest $5,000 in next month.

Read more »

Plane on runway, aircraft
Stocks for Beginners

Up 53% From its 52-Week Low, Is Cargojet Stock Still a Buy?

Cargojet (TSX:CJT) stock is up a whopping 53%, nearing closer to 52-week highs from 52-week lows, so what's next for…

Read more »

Question marks in a pile
Bank Stocks

Should You Buy Canadian Western Bank for its 4.8% Dividend Yield?

Down 35% from all-time highs, Canadian Western Bank offers a tasty dividend yield of 4.8%. Is the TSX bank stock…

Read more »

Gold bars
Metals and Mining Stocks

Why Alamos Gold Jumped 7% on Wednesday

Alamos (TSX:AGI) stock and Argonaut Gold (TSX:AR) surged after the companies announced a friendly acquisition for $325 million.

Read more »

tsx today
Stock Market

TSX Today: Why Record-Breaking Rally Could Extend on Thursday, March 28

The main TSX index closed above the 22,000 level for the first time yesterday and remains on track to post…

Read more »

Nuclear power station cooling tower
Metals and Mining Stocks

If You’d Invested $1,000 in Cameco Stock 5 Years Ago, This Is How Much You’d Have Now

Cameco (TSX:CCO) stock still looks undervalued, despite a 258% rally. Can the uranium miner deliver more capital gains to shareholders?

Read more »

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

TFSA Magic: Earn Enormous Passive Income That the CRA Can’t Touch

If you're seeking out passive income, with zero taxes involved, then get on board with a TFSA and this portfolio…

Read more »

potted green plant grows up in arrow shape
Stocks for Beginners

3 Growth Stocks I’m Buying in April

These three growth stocks are up in the last year, and that is likely to continue on as we keep…

Read more »