’s
appears to have emerged the real winner from
’s rift with Canada over
’s C Series passenger jetliner.
Canada’s liberal government has reportedly decided to scrap its planned $5.2 billion purchase of new
E/F Super Hornets as an interim step to replacing its aging fleet of older-model Hornets. Instead, the Royal Canadian Air Force would buy earlier-generation Hornets from Australia as a short-term solution.
The decision, if confirmed, is seen as retaliation for Boeing and the U.S. government’s effort to penalize Canadian company Bombardier for allegedly dumping the C Series jetliner into the U.S. market at improperly low prices. Boeing filed an anti-dumping suit with the U.S. Commerce Department and the International Trade Commission (ITC) in April, saying Bombardier was unfairly subsidized by the Canadian government.
Ottawa has not yet confirmed reports that the Canadian government is backing out of the Super Hornet deal. Defense Minister Harjit Sajjan told reporters Dec. 5: “We are going to fill that interim capability gap. I look forward to making the announcement at the appropriate time.”
Losing the Canadian order would undeniably be a blow for Boeing’s fighter business. The company stands to lose not just the 18 new Super Hornets Ottawa planned to buy initially, but the chance to capture all 65 new fighters the Royal Canadian Air Force (RCAF) needs to recapitalize its fighter force.
Even worse, the dispute could drive the RCAF straight into competitor Lockheed Martin’s lap.
For a relatively small air force like Canada’s, it makes little sense to operate two types of aircraft, virtually guaranteeing the first 18 Super Hornets would have been followed by 47 more, argues Richard Aboulafia, an analyst with the Teal Group.
“Having a unique, 18-aircraft squadron just doesn’t make a lot of economic or military sense,” Aboulafia says. “Most likely they would’ve said, ‘Hey, we would save billions if we simply buy 47 more—that takes care of our fighter requirement for the next three decades.’”
Buying the Australian aircraft, which are almost identical in terms of age and capability to Canada’s current fleet, is at most a five-year Band-Aid for the aging fighter force, Aboulafia says.
If Canada scraps the Super Hornet deal and pursues a competition for a next-generation fighter in the next five years, Lockheed’s F-35 will almost inevitably emerge victorious, analysts agree.
The Boeing-Bombardier dispute gives Canada’s liberal new Prime Minister Justin Trudeau, who campaigned on dropping plans to buy the expensive and politically controversial F-35, an excuse to go running back to Lockheed.
“The RCAF ultimately wanted [F-35s]. Industry wanted them too. But Trudeau had campaigned on basically a Super Hornet platform and Boeing could’ve easily held him to it … until they gave him the perfect out,” Aboulafia says.
Of course, Canada could also see bids for
’s
, the
and
’s
. But Loren Thompson of the Lexington Institute argues that Canada will likely opt for the F-35 anyway, because most of its key allies are migrating to the stealthy fighter.
“The Super Hornet buy was basically a bridge to a long-term solution that would replace Canada’s Cold War fighters,” Thompson says. “It appears that most of the key allies are migrating to a stealthy solution, and that makes F-35 the only game in town.”
Plus, the further out Canada pushes its fighter competition, the less advantage Boeing has on cost. The price of an F-35 has been coming down for years, with Lockheed projecting an $80 million F-35A by fiscal 2019. Meanwhile, as the Super Hornet ages and Boeing struggles to maintain the production line, the company will be hard-pressed to keep costs from rising.
“We don’t even know if the Super Hornet line will be open,” Aboulafia says. “Chances are the Super Hornet will migrate upward, and the F-35A will probably migrate down.”
Despite the fallout, Boeing’s decision to pursue the C Series suit in the face of potential retaliation from the Canadian government signals the company has decided the stakes are much higher for its commercial market than its military side. The rationale is clear: Losing the Canadian Super Hornets is clearly a blow, but it is far from the catastrophe it would have been 18 months ago, when Boeing was facing the potential shutdown of both the F/A-18 and
production lines. But with upgrade programs, international sales to Kuwait and Qatar, and potentially new U.S. orders, it looks like both of Boeing’s fighters will remain in production through at least the late 2020s.
Boeing will continue to deliver 24 F/A-18s per year at the rate of two per month—the minimum rate required to sustain the production line—to the U.S. and international customers, Boeing spokeswoman Kelly Kaplan said.
The U.S. Navy also is investing almost $300 million through fiscal 2022 in upgrading existing Super Hornets to Boeing’s proposed Block III configuration, which guarantees the company a reliable source of manufacturing work that may be done on the existing production line.
But Canada was arguably the biggest single opportunity for the Super Hornet outside of additional sales from the U.S. government, says Byron Callan of the Capital Alpha Group.
Aboulafia agrees, saying Boeing may have missed an ideal opportunity to further cement the future of the F/A-18 line.
“It’s very hard to compete on the world market when you are overwhelmingly reliant on upgrades of existing planes,” Aboulafia says. “Boeing might have missed a golden moment in time.”
Although Lockheed wins in the short-term, the Boeing-Bombardier dispute could ultimately spell trouble for U.S. defense companies in the global market more broadly. A similar battle has been brewing for years between Boeing and
over what the U.S. government sees as the European Union giving unfair subsidies to the European company.
If such aggressive action by the U.S. over trade disputes continues, particularly if President Trump makes good on his pledge to pull out of NAFTA, it could drive foreign militaries to look elsewhere for equipment.
“How could this affect for example Germany’s interest in the F-35? If the U.S. is going after Bombardier on effectively aircraft subsidies, is Airbus next?” Callan says. “Countries will make choices and they are not going to look just at their military interests. They are going to look at their broader economic interests as well.”
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