Boeing Promises to Spend $18B Over 10 Years if Canada Awards Contract for Super Hornets

Boeing has promised to spend $18 billion in Canadian aerospace industry over the next decade if the contract is awarded.

Canadian Prime Minister Justin Trudeau is scheduled to discuss the five-month old dispute between Boeing and Bombardier with his British counterpart Theresa May on Monday. May is also siding with Bombardier which has large facilities in Northern Ireland, The Globe and Mail reported.

Boeing complained in April to the US Department of Commerce that Bombardier's C Series planes were unfairly subsidized by the Canadian and Quebec governments. Last year, Bombardier sold 75 109-seat CS100 planes to Delta Air Lines at a cut-rate cost, which led to Boeing's accusation of predatory pricing.

Bombardier has denied any wrongdoing and is currently defending itself in front of the International Trade Commission.

The government is refusing to sign a planned multibillion-dollar contract for Super Hornets as long as Boeing pursues its complaint against Bombardier at the International Trade Commission in the US, The globe and the mail reported quoting Federal officials as saying last week.

The Canadian government is looking at buying second-hand fighter jets from Australia instead of buying a new fleet of 18 Super Hornets from Boeing.

A Canadian delegation was in Australia last month to see if the second-hand F/A-18 fighters placed on the market could fit Ottawa’s needs for interim fleet.

"We recognize the Canadian government might be upset with us. We don't intend to upset anybody, but we plainly have to do what we believe is right," Boeing International president Marc Allen was quoted by the news daily as saying.

The U.S. Department of Defence revealed this week that the contract for the Super Hornets could be worth up to $6.4-billion, putting an approximate value on the benefits package that could flow to Canadian industry over five years.

"We have committed to working with the government of Canada agreeing to meet 100 per cent Canadian content value in addition to all other requirements in the areas of value proposition elements, export assistance, regional diversity and support of small-medium business growth," Boeing said in a statement to The Globe and Mail.

The company added that the overall investments and economic activity generated by the major industrial groups involved in the Super Hornet, including engine-maker General Electric Co., will greatly outpace the minimum ITB package over the next decade.

"Canadian aerospace firms stand to benefit greatly with Boeing's ITB proposal. We project that between Boeing and the Super Hornet industry team, the direct spend on the Canadian aerospace sector will exceed over $18-billion over the next 10 years, far exceeding the stated ITB requirements," the company added.

Sahir Khan, of the University of Ottawa's Institute of Fiscal Studies and Democracy, said there is irony in the fact that Boeing is heralding the potential offsets from the fighter jet contract at the same time as it criticizes government subsidies to Bombardier.

According to Mr. Khan, who is a former assistant parliamentary budget officer, regional benefits are in fact government subsidies for the Canadian industry hidden in major military contracts.

"All else being equal, offsets tend to increase the cost of acquisition and sustainment with the positive tradeoff being jobs and technology transfer to the acquiring country," Mr. Khan said. "From a policy point of view, offsets must be viewed in comparison to other program instruments such as direct subsidies, tax incentives, loans, wage/training credits in terms of both costs and potential impact."