Boeing Gets Big Payoff by Cozying Up to Trump After Charlottesville
They got off on the wrong foot with the White House over the price of Air Force One, but after sticking with the president they got a 300% tariff on a Canadian rival.
In seeking to ruthlessly cripple the Canadian airplane builder Bombardier, Boeing has provoked the most damaging and wide-ranging political controversy in its history. At the same time the company is playing lickspittle to the Trump White House in order to protect and shore up its future in the aerospace business.
Make no mistake, the Commerce Department’s latest and enlarged proposal that a 300 percent tariff should be slapped on every one of the 75 Bombardier C Series jets ordered by Delta Airlines is effectively locking the Canadians out of the U.S. market. When he proposed an earlier 220 percent tariff Commerce Secretary Wilbur Ross said, “Even our closest allies must play by the rules” but he surely knew that the move would jeopardize the whole project and immediately sour relations between America and two long-standing allies whose economies are interdependent with ours: Canada and Great Britain.
What has been less obvious is that this move happened after Boeing spent months getting onside with Donald Trump after a very public rebuke from him. In fact, there is every indication that the hit on Bombardier might not have gone Boeing’s way if CEO Dennis Mullenberg had not responded as avidly as he did to threats from Trump.
And Mullenberg’s predecessor as CEO, James McNerney, even resisted pressure to disband a group of business titans recruited by Trump, including McNerney, to advise him on trade policy when they were disgusted by Trump’s failure to condemn the fascists marching at Charlottesville after one killed a protester.
The very public threats to Boeing began before Trump took office, in December, when Trump tweeted, “Boeing is building a brand new 747 Air Force One for future presidents, but costs are out of control, more than $4billion. Cancel order!”
At that point there was no actual order or contract for the two new jumbo jets needed to replace the current presidential jets, dating from 1990, by 2024. However the General Accountability Office had predicted that the cost might be as high as $3.2 billion.
“Boeing is doing a little bit of a number. We want Boeing to make a lot of money but not that much,” the president-elect told reporters gathered at Trump Tower in Manhattan.
On Jan. 17 Mullenberg met Trump at Trump Tower and afterward said, “We made some great progress on simplifying the requirements for Air Force One, streamlining the process, streamlining certification by using commercial practices, all of that is going to provide a better airplane at a lower cost.”
Boeing’s stock, which had taken a hit after Trump’s tweet, recovered. Mullenberg’s mentor and former CEO McNerney had joined Trump’s group of business advisers back in December and was clearly an influential voice in making Boeing’s interests very clear to the administration, including to Commerce Secretary Ross. (In his business career Ross had no experience in global markets—he made a fortune as a banker buying up and turning around bankrupt companies.)
Boeing changed their approach to the Air Force One program. Instead of drawing the jets from the existing production line they bought two that had been parked in the Mojave Desert in California after the original purchaser, a Russian airline, went bust. The price was said to be about half of the list price of $390 million each. But the real cost comes when they are converted to the Air Force’s specifications, including secret self-defense systems and a securely independent communications system. These upgrades are what led to the GAO’s number ending up in the billions. It is impossible to know what the final price will be, but stripping down already completed airplanes and rebuilding them is not likely to be any less expensive than incorporating the upgrades as an airplane is on the assembly line—indeed, it could be more expensive.
It was obvious by April that Trump was by then fully on board with the new image of Boeing as a diligent consumer of public money. So much so that when Trump took aim at another program said to be wildly out of control, Lockheed Martin’s F-35 Joint Strike Fighter, he threatened that he would move the business to Boeing. Of the program he said, “It was a disaster. So I called Lockheed and said, I’m sorry, we’re going to have to bid this out to another company, namely Boeing.”
This made no sense. Boeing had no substitute for the F-35. But they did have a military business that, compared with Lockheed’s, was not doing well.
Boeing lost out in contests for the two largest future military airplane contracts—in 2001 for the F-35, beaten by Lockheed, and in 2015 for the B-21 Long Range Strike Bomber, beaten by Northrop Grumman. This left them dependent on two old programs for their main revenue stream, the F-15, launched in 1972, and the F-18 Super Hornet, launched in 1992. Unless they get “a large buy” from the Navy, in Trump’s words, some analysts predict that a merger of Boeing’s military business and Northrop Grumman is likely.
For Boeing, even with the Air Force One angst behind them, it was not easy to gauge the effects of Trump’s erratic behavior on their commercial airliner business. For example, when he ranted against China and its trade practices as part of his “America First” policy. In 2015 Boeing delivered 191 airliners to China and by 2018 a quarter of all of Boeing’s deliveries will be to Chinese customers—helping to support 150,000 American jobs.
All this business was something that McNerney had personally driven and he could stress its importance to the White House. But that all blew up in August. Trump’s refusal to disavow “Jews will not replace us” at Charlottesville appalled the group of advisers—including McNerney. But McNerney, according to a report in The New York Times, thought their mission of promoting a pro-business agenda at the White House was too important for them to quit. He was in a minority. The group was dissolved.
All along, Boeing was unusually belligerent in its bid to block the sale of the Bombardier jets to Delta. Their case was based on price dumping. They said that Bombardier had given Delta a price of under $20 million per airplane when the actual list price was $79.5 million (analysts believe the cost price is $33.2 million).
To seasoned observers of Boeing this smacks of blatant hypocrisy. In 2011 the World Trade Organization ruled that over the years Boeing had received between $3 billion and $4 billion in local, state, and federal support for each of its commercial jet programs. And analysts have calculated that more than 300 Boeing 787 Dreamliners were sold for at least $25 million below cost when the program’s huge cost overruns are accounted for. More recently, Boeing gave United Airlines a 70 percent discount on an order for the smallest of the 737 family of jets—specifically to persuade United not to order the Bombardier C Series.
Most airlines are not happy with either Boeing’s action or the punitive tariff imposed by the Trump Commerce Department. They want the freedom to choose whatever jet best suits their needs—wherever it is made.
On the face of it, Bombardier’s C Series jets are not competing in size with any Boeing model. Indeed, Delta pointed out that no U.S. manufacturer offers a similar model carrying between 100 and 140 passengers. Boeing canceled their only model in the category, the 717, 10 years ago. Boeing’s closest current model is the smallest version of its ubiquitous 737.
But these comparisons of size miss an important point. The C Series cabin introduces a suite of passenger comforts—wider coach class seats, larger windows, vastly improved air quality—that makes the 737’s cabin seem archaic by comparison—which, in fact, it is, since it is essentially a 50-year-old design.
Passengers notice this stuff. In essence, Boeing is trying to kill off an airplane that passengers love in order to protect one that no passenger could love—Boeing is still selling so many 737s that passengers have no choice but to fly in them for decades to come.
The backlash to the 220 percent tariff has been fierce. It is true that the Bombardier program has been kept alive only by an injection of at least $3.5 billion of state funds. But the company’s survival is vital both in Canada and Northern Ireland, where the C Series wings are built and where they are the largest employer.
What nobody in the White House seemed to realize—or, perhaps, to care about—was that British Prime Minister Theresa May depends for her majority in the British parliament on a block of 10 lawmakers from the Democratic Unionist Party in Northern Ireland. May had personally appealed to Trump to block action against Bombardier. Trump’s indifference has rendered her impotent in the eyes of the Irish politicians—and many others.
The Commerce Department action cannot take effect until it has been reviewed and either approved, changed, or dropped by the government’s International Trade Commission. That has to happen by Feb. 1. But serious damage has already been done by introducing uncertainty about whether Bombardier can survive.
Canada has threatened to cancel a $5 billion order of Super Hornets from Boeing and the British government has similarly threatened to review all of its future military business with Boeing. Amid this festering mess of collateral damage one thing, at least, seems clear: Boeing has a friend in the White House and Britain and Canada do not.