Bombardier stock watchers bracing for impact of U.S. duties on CSeries jets

David Paddon, The Canadian Press</span>
Published Wednesday, September 27, 2017 9:15AM EDT

TORONTO -- Bombardier Inc. shares will be under pressure today as investors weigh the prospect of having a 219 per cent duty slapped on U.S. sales of its flagship CSeries passenger jets.

Analysts say the U.S. Department of Commerce's preliminary duty decision, which was much harsher than expected, raises questions about the future of a key order of CS100 jets by Delta Air Lines as well as future sales to other customers.

Bombardier (TSX:BBD.B) closed at $2.27 on Tuesday, before the magnitude of the preliminary duty was known. Its U.S. rival Boeing Co. had been seeking an 80 per cent duty.

The U.S. Commerce Department on Tuesday ruled in favour of U.S. aircraft maker Boeing, which alleged that Bombardier used unfair government subsidies to sell aircraft at artificially low prices.U.S.-based Delta Air Lines, which plans to buy as many as 125 of Bombardier's new CS100 aircraft, has argued that Boeing doesn't even make the 100-seat planes it needs.

Prime Minister Justin Trudeau had threatened to stop doing business with Boeing, which is in talks to sell Ottawa 18 Super Hornet jet fighters. British Prime Minister Theresa May took to Twitter Wednesday to say she is "bitterly disappointed" by the U.S. government's decision. She added that Britain will work with the Montreal-based company to protect jobs, including more than 4,000 in Northern Ireland.

U.S. Commerce Secretary Wilbur Ross said Wednesday to reporters in Hong Kong that the decision was part of playing fair.

"It's not out of any anti-Canadian or any anti-U.K.. or certainly any anti-Northern Ireland sentiment, but even with your friends and even with your allies, you must obey the rules," Ross said, adding that the decision was preliminary and a final ruling is expected in months. "The consequences are what they will be."

On the Frankfurt stock market, where Bombardier has a secondary listing, the company's shares were down about two per cent prior to today's opening of the Toronto Stock Exchange.

Analyst Walter Spracklin of RBC Dominion Securities said in a note to clients that Tuesday's preliminary duty is just one step and a key decision isn't expected until February when a final ruling is made.

But, he added the possibility of such a large penalty on U.S. sales of the CSeries will hang over Bombardier shares even though they won't be levied until Bombardier makes its first delivery of a CSeries planes -- scheduled to be purchased next year by Delta under a 2016 agreement. Other analysts said the uncertainty could also make it more difficult for Bombardier to negotiate sales of the jet in other foreign markets.

The main area of concern is what Delta does with its order after the U.S. International Trade Commission decides whether Boeing has suffered damages from sales of the CSeries to the airline, Spracklin says.

In a separate note about Bombardier's commuter rail division, Spracklin says a proposed merger of Germany-based Siemens and France-based Alstom would be "a mild negative for Bombardier," given that the Canadian company is also reported to have been in talks with Siemens.

"While we believe a merger with Siemens would have been beneficial for Bombardier as it would have led to synergies from operations and R&D, we nonetheless expect Bombardier to remain a key player in addressing the ever-growing market for mass transit solutions worldwide."

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