Oral evidence: Bombardier, HC 533
Oral evidence, 13 December 2017.
Witnesses
Sir Michael Arthur, Steven Gillard and Matthew Knowles.
Chair
Sir Michael, gentlemen, good morning. It is very good to see you here. Thank you so much for coming to talk to us. Thank you also for your written evidence, which the members have read and inwardly digested. I would like to hand the floor over to you for a quick summary of where we are currently standing from a Boeing perspective.
Sir Michael Arthur
Thank you very much, Chairman. Perhaps I could also introduce, on my right, Matt Knowles, our director of communications; and, on my left, Steven Gillard, who is our director of government affairs. I thank you, Chairman, for inviting us to help you with your inquiry, and we look forward to this session. Can I make two broad points by way of introduction? First, I would like to set the scene for Boeing in the UK. We have had an 80-year partnership here. We employ 2,200 people, which is twice the number five years ago. We spend over £2 billion a year in our tier-1 supply chain. That has trebled in the last five years and that sustains about 16,500 jobs, which, again, has doubled in the last five years. There is a picture of very steady growth there. A year ago, with the British Government, we agreed, because we both have the same aspiration, that we would try to grow that footprint even more, so we have committed to double again over the coming years and to try to increase the number of UK suppliers who get on to Boeing platforms. I can tell you more about that, if you are interested, as we go forward. This year, you may have noticed that we broke ground on our first ever European factory in Sheffield, which comes on stream next year. Our people are with the Armed Forces when they deploy at home and abroad, keeping the aeroplanes flying, so we are very integrated into the whole defence effort here. That just leaves me to conclude that we see ourselves very much as a British company, part of a global company, which, of course, has deep US roots. That is the first general point of background. Second, what brings us together today is absolutely, straight down the middle, a legal problem in the United States. We were faced with a company wanting to sell into the United States in violation, as we believe, of a trade law. Because we compete directly on the products in question, we took appropriate action with the US authorities: the quasi‑judicial authority of the International Trade Commission. As you know, it is sitting at the moment and its preliminary ruling has been that our case has been an accurate one and that there has been damage done. That will go forward in the coming weeks. The substance of this was that Bombardier had a sale pricing in the United States that was massively below both the cost price and the price that they sold in other markets, which is a classic case of “dumping” under international trade law. We, as a company, and I believe this Parliament and the UK Government, believe in a level playing field, the rule of law and trade law, and compliance with that. That is what this is all about. It is very much a legal rather than political process that is running forth in the United States. I just have a final word on that. A third country, Brazil, has also picked up the same issue and challenged the Canadians and others in the WTO case. We see this as a trade issue in the United States where we have not done any wrong because we were the victim of a dumped sale that we had to challenge in the interests of a level playing field. We actually like competition; it makes us better, but we like it to be fair competition. I will stop there, Chairman.
Chair
Thank you. Canada stands accused of acting illegally. Justin Trudeau has taken great exception to that and has said that it will not buy any more F-18s while it stands accused by Boeing of acting illegally. However, the UK Government also stands accused of acting illegally. That is quite a serious matter. Are you surprised that mild‑mannered Ministers like Michael Fallon and Greg Clark should have reacted so severely to this? Does that worry you about the prospects for the future in the UK of Boeing? How would you respond to Unite the Union, which is the UK-wide trade union serving your employees right across the country, which, when giving evidence to us a little while ago, felt that the UK Government should be taking more action, by which it meant stopping off future orders, for example, for the P-8 Poseidon and the Apache helicopter?
Sir Michael Arthur
Let me give an initial answer to that, and perhaps I will invite Steve or Matt to come in. First, on the UK launch aid, that was a repayable launch investment that the UK Government did. That has been used as a tool in other cases in the past where we challenged before the WTO and the WTO has ruled against that. There is masses of documentation there and I would be very happy to supply the Committee with some material from that, if you like. We see that as outside the approved framework of WTO subsidies and therefore illegal, for want of a better word. That is not the way that the WTO has approved subsidies. That is why we challenged the UK Government on that. On the wider effect on Boeing business in the UK, as I said just now, we are growing very fast, not just in the defence sector but in the non‑defence sector as well. Our partnership with the Ministry of Defence has long been a very close one and I hope, going forward, that the British Government will choose what they decide is the best value for money and fit‑for‑purpose equipment and services for the Armed Forces. We are neutral on that as long as they choose what they feel is best for the country.
Steven Gillard
On the defence side, our perspective would be that this is a commercial legal case involving civil aerospace. We do not see a linkage with the defence business because we do not see a linkage between the commercial activity and national security. Why do the UK Armed Forces choose our equipment? It is because it has proven to be battle‑winning, life‑saving and value for money. That calculation has not changed. Denying Boeing equipment to the Armed Forces would not be in the interests of national security. We would draw a line between national security interests and the commercial legal case.
Chair
The C Series and the Embraer E2 are both certified to land at London City Airport while the 737 is not. Can you tell me why that is?
Sir Michael Arthur
It is a question of the weight of the aircraft, as I understand it. Matt Knowles might be able to give you a bit more detail.
Matthew Knowles
Yes. I would like to verify and to get back to you in order to be sure, but my understanding is that the maximum take‑off weight of the aircraft is heavier than the other two, given the short runway at the airport.
Chair
The truth is that it is just too big, isn’t it?
Sir Michael Arthur
The difference in size between the planes in this configuration is marginal in the sense that they are still competing together. There is a difference of less than 10 seats between the 737‑7 and the C Series.
Chair
Do you mean the CS100? To be clear, which C Series do you mean?
Matthew Knowles
It is the C Series 300. There is less than 10 seats difference between the 737-700 and the C Series 300.
Steven Gillard
The question really relates to whether the CS100 is a competitor. The question that you are trying to get to is whether the CS100 competes directly with the 737 MAX 7 or the 737-700. With regards to that, it does and it has. The CS100 competed directly against the 737-700 for a contract with United Airlines. When we look at Bombardier’s own marketing material, which I am sure that Matt will talk about later, it shows clearly that the two aircraft are direct competitors.
Chair
Your chief executive officer recently said that Boeing has sold about 740 737s more than it can produce and has produced. In other words, you are grossly oversold. Is it not the case that, even if Delta had wanted 737s, which it does not appear to want, you could not deliver them and that is why you did not bid for the Delta contract?
Sir Michael Arthur
We have a very long backlog, as do other airline companies, of orders. Exactly when in that sequence the customer gets the plane is a matter for negotiation with the customers. Matt, do you want to give your figures on the total order book for 737s and 320s?
Matthew Knowles
On the particular competition that you have raised, the original competition was one that Boeing was taking part in with used regional jets, which was the request of the customer. The nature of the competition changed when Bombardier offered its larger jets at a dumped price, and that was the moment that Boeing chose to withdraw from the competition.
Chair
You have changed the subject ever so slightly and I am glad you have done so. Are you seriously saying that the customer wants some second-hand aircraft, which are clearly dirtier than a new airframe? Are you really saying that that is what customers want?
Matthew Knowles
That was the original request.
Chair
I find that very strange.
Matthew Knowles
An aircraft that lasts 25 to 30 years will change hands a number of times between airlines during the course of its lifetime.
Chair
At what part of the tender process did you object to what was going on, that is to say the Bombardier bid, which you claim was priced at an absurdly low price point?
Matthew Knowles
We had probably better check to be 100% sure on that, rather than take a guess.
Chair
That is quite important, because these things are fairly iterative. I would be very surprised if, during the tendering process, there was not a discussion about need, which you say evolved, and that you were not then able to inject your airframe, the 737, into the mix. It would only become an impossibility for you at the point at which you understand the price to be uncompetitive.
Sir Michael Arthur
This will be in some of the detail that is before the ITC as it weighs up the issues that we have put forward to it. We have to leave that in the hands of the ITC to publish all that once it has come to its conclusions.
Chair
Are you telling me that you would not be prepared to share that particular piece of information in advance of the ITC hearing?
Sir Michael Arthur
No. I am sure we can find the answer to your question on the exact point at which we decided not to bid further and why.
Chair
That is really what I am driving at. We are trying to establish, as is clear from my line of argument, whether the 737 is a competitor to the C Series, which is a very important part of this discussion, and when exactly you decided to introduce your 737, or not, into this particular Delta mix. That is important in better understanding your thinking on this matter.
Matthew Knowles
There are two points to consider on that. Steve raised the fact that the aircraft have completed and we have Bombardier’s materials here that we can share with you.
Chair
That is not in this particular competition.
Matthew Knowles
No, not in this particular competition. That is correct.
Ian Paisley
Sir Michael, I wanted to pick up on something that you said to our Chairman in an answer there. I think I am quoting you accurately, and I am sure the transcript will reflect this. You said you compete directly on the products in question: that the C Series directly competes with your products. That is not the case.
Sir Michael Arthur
This is a discussion that we have been having. If you look at the material that Bombardier put out, it says that the C Series competes directly with both the 737 and the A320. That is out in the public domain.
Ian Paisley
I am asking you that. You do not compete directly with Bombardier.
Matthew Knowles
May I?
Sir Michael Arthur
Yes, please.
Ian Paisley
No, excuse me, Matthew. I asked Sir Michael because the words came out of Sir Michael’s mouth.
Matthew Knowles
My apologies.
Sir Michael Arthur
The fact is that they have started this competition. You heard on United that we have already had one head-to-head competition with them. The Delta issue is one that we will come back to the Chairman on, as to at exactly what point we ceased the competition. It seems, for those two existing examples, that there has been a competition. Going forward, we would expect that to happen again because of their publicity.
Ian Paisley
There seems to be and you would expect but there actually is not commercial competition between you in this.
Sir Michael Arthur
The plane is quite new.
Ian Paisley
The Chairman asked a question of you about what the CEO of your company said. The 737 has practically sold out. You have no capacity to build more 737s, according to your CEO. You have a backlog of 4,400 737s and you cannot meet demand. You are complaining about lost sales that you cannot fulfil. For the ordinary punter on the street in the United Kingdom who is employed by Bombardier, that looks spiteful, does it not? It is not commercial; it is spiteful.
Sir Michael Arthur
All the big airline companies have long order books stretching forward several years. Airbus is exactly the same as us. The numbers are not identical but they are very similar. We are ramping up our production as fast as we can. I can give you the numbers of how many per month we are making, rising to 57. For example, on the 737 we are talking about, the winglets are made in the Isle of Wight so more stuff is done on the Isle of Wight to help make those planes. We are growing the production very quickly.
Ian Paisley
Sir Michael, you cannot at the present time commercially sell your planes against the C Series because of the way the market stands and what your CEO has said. You have opposed Bombardier from even entering the market. That looks spiteful.
Sir Michael Arthur
In any competition and with any customer, part of the negotiation is about when the planes will be delivered. Some like them sooner; some like them later, and we adjust our delivery times.
Ian Paisley
Is it not spiteful? Your opposition is purely that the UK that has acted illegally.
Sir Michael Arthur
It is not the UK; Bombardier has acted illegally.
Ian Paisley
Your contention is that the UK has violated US and international law.
Sir Michael Arthur
There are two elements to this. There is the question of the subsidies, which we deem to be illegal, for how the plane has been constructed. Then there is the element of the dumping in this case, which is also using illegal subsidies. That is what the ITC is testing.
Ian Paisley
Can I ask you about the settlements discussion? The best way for this to be resolved would be some kind of arbitration between the actual companies. Has Boeing walked away from arbitration in Canada?
Sir Michael Arthur
The way we would see for this to be settled, once we have a ruling from the courts, is for Bombardier to comply with it, and that is the end of the story. It can then carry on competing.
Ian Paisley
I did not ask you about the courts. I asked you whether you have walked away from discussions in Canada about settlement.
Sir Michael Arthur
We have had lots of conversations with the Canadian Government.
Ian Paisley
When was the last discussion you had?
Sir Michael Arthur
I am not sure I can tell you the exact date of that but I can come back to you.
Ian Paisley
Was it in June or July?
Sir Michael Arthur
I am afraid I cannot give you an exact date but we are in constant touch.
Ian Paisley
Was it in the last few weeks? You do not need to give the exact date.
Sir Michael Arthur
Does anybody have more detail on that?
Steven Gillard
We would have to write back.
Ian Paisley
It was possibly months ago.
Steven Gillard
We would not want to speculate.
Chair
Would you like to write back?
Steven Gillard
Yes, we will write back to you. It would not be right to speculate.
Ian Paisley
The only point that I want to try to find out from you, Sir Michael, is this. If you were in serious discussions, you would be able to tell us that you were in discussions with the Canadian Government. You have effectively walked away from arbitration with Bombardier and with Canada. It does not appear that you want to settle this deal.
Sir Michael Arthur
We would be very happy for this to be settled in accordance with the law. We have had very good faith discussions, so I would not like to accept the implications of what you are saying, Mr Paisley. We have been trying to get through this but we have come out where we are.
Ian Paisley
You have been trying to get through it by walking away from talks.
Sir Michael Arthur
Why would we have an interest in not finding a solution? We want to find a solution to this.
Ian Paisley
No, you want to punish Bombardier.
Sir Michael Arthur
I do not accept that. We would like to find a level playing field.
Ian Paisley
A 300% increase in the tariff is punishment, isn’t it?
Sir Michael Arthur
That would be for the courts to determine.
Ian Paisley
That is what you want to see. It is your contention that that should happen.
Sir Michael Arthur
It is based on our assessment of the cost of the damage done through the dumping. It is for the courts to adjudicate what that is.
Steven Gillard
On that 300%, it is really important to understand that that is a US ITC and Department of Commerce calculation based upon a long-established formula. It is nothing to do with Boeing. It is very important that we understand how that mechanism works.
Ian Paisley
You brought the action in the full knowledge that that is how the action works and that that would be the punishment enforced. You did not decide to go to arbitration and say, “Can we sort this out as two companies, and as two companies that employ thousands of people in the United Kingdom?” You flew the flag this morning. You waved the Union Jack better than any Ulsterman I have seen this morning, saying you are a great British company.
Sir Michael Arthur
That is true.
Ian Paisley
Bombardier employs more people directly in the United Kingdom than your company, sir.
Sir Michael Arthur
We do our best to grow our employment here, as I said to you before.
Ian Paisley
You have attacked another British employer, effectively.
Matthew Knowles
The important point that we might return to more than once is that Bombardier is in the dock here for violating trade law. Some of these questions need to be asked of Bombardier. Its management chose to launch a product that the market has not warmed to and it chose to violate trade law in the United States. Those are questions for Bombardier. We are simply asking for the law to be enforced for a level playing field.
Ian Paisley
I thought that your product was so good that you could sell it anywhere, that you could take on Bombardier, or any company, nose by nose.
Matthew Knowles
On a level playing field, yes.
Ian Paisley
You could have taken them on but you are not competing with this jet.
Matthew Knowles
In what way, sir?
Ian Paisley
Your CEO said that you cannot even sell the stuff, didn’t he? You are at maximum capacity. You have order books that are full right the way and you cannot meet demand. You are complaining about lost sales that you could never fulfil.
Matthew Knowles
No, sir, we are increasing capacity to meet that demand. We have gone from 42 aeroplanes a month to 47 on the 737 line. We will go to 52 and then 57 to meet the demand. This all goes back to a level playing field and following the law. That is all we are asking for.
Chair
You have 4,400 aircraft in backlog, according to your CEO. Is that correct?
Sir Michael Arthur
Yes.
Chair
That is a huge number of aircraft.
Sir Michael Arthur
It is, which, incidentally, is very good news for the UK economy.
Chair
Of course it is. The point that Ian Paisley and I have been making is that you simply cannot satisfy demand. You certainly could not satisfy Delta’s demand during the tendering process that has just passed.
Sir Michael Arthur
Chairman, customers are buying our aeroplanes every day. That is because, as part of that negotiation, we work out when they will get their planes and when they want them. We can supply them and we have been ramping up our production, as we have both been saying, to much higher rates—historically high rates—to meet that demand.
Lady Hermon
Thank you very much indeed for coming before us this morning. It is very good to have you here representing Boeing. Sir Michael, you say that Boeing, and I am quoting here, sees itself as a British company.
Sir Michael Arthur
Boeing UK sees itself as a British company.
Lady Hermon
Right, Boeing UK sees itself as a British company. That being the case, does it not worry you or concern you about the potential damage that Boeing’s actions will have for the economy in Northern Ireland, the potential of making thousands of people in Northern Ireland unemployed?
Sir Michael Arthur
No one wants to see job losses. I completely agree. That is why we are trying to do the opposite, which is to create more jobs across the United Kingdom.
Lady Hermon
How is that going to felt by those in Belfast?
Sir Michael Arthur
Those jobs are at risk because of Bombardier’s management taking certain decisions that put those jobs at risk. The criticism, if I may, Lady Hermon, should be directed not at us but at Bombardier. Let me give you some figures. One of your other witnesses mentioned that, several years ago, there were 10,500 jobs there, then it went down to 7,000 jobs and we are now at 4,000 jobs. On the C Series, we are talking about 800 jobs at the maximum of production. My worry is that Boeing has been used as a scapegoat for that reduction in Northern Ireland jobs, which we all regret, but it pre‑dates the issue that brings us together today. We feel that we are being a bit of a scapegoat for this.
Lady Hermon
I am not making you a scapegoat at all, Sir Michael. I just want you to answer the question: does Boeing UK care about the potential for thousands of job losses in Bombardier in Northern Ireland? Do you care?
Sir Michael Arthur
We all care about job losses wherever they are and, as I said before, we are trying very hard to grow. We are growing our business by at least a job a day across the United Kingdom. We have been doing that steadily for several years and will carry on. We do mind a lot about employment in the UK and are trying our best to help.
Lady Hermon
How many jobs has Boeing grown in Northern Ireland in the recent year, two years, three years or 20 years?
Sir Michael Arthur
We would have to go back into the supply chain to give you an accurate figure on that. We can try to do that. It would take a bit of research. If we may, we will come back to you on that.
Lady Hermon
Yes. Can I ascertain exactly what precipitated this complaint by Boeing in America? The reason I ask is because the timing seems very odd. We get a new President, President Trump, in January, and then, within a short period of time, Boeing has lodged a complaint. Is there a connection between the two?
Sir Michael Arthur
Not at all. This is a purely commercial decision made by us as a company, for the reasons that we have explored already, because of prices in a dumping situation that are just not acceptable to us if we are going to compete globally on a level playing field. The timing with US politics is nothing to do with us.
Lady Hermon
You are claiming, Sir Michael, that it has nothing to do with President Trump coming into the White House.
Steven Gillard
First, this is a legal process, not a political process. Secondly, our case was lodged in April of this year. The Brazilian case before the WTO was lodged in February of this year. The timing is driven by Bombardier’s behaviour, not by politics. It is really important to be clear about that.
Lady Hermon
I am not so interested in Brazil. If we want to hear from those who are representing Brazil, we will ask them to come before us as witnesses. We have representatives from Boeing here today. This is a really serious issue, and I ask you to understand and appreciate the potential damage to Northern Ireland by Boeing’s actions. This is a company that is claiming that it is a British company. It just seems a bit perverse. May I just say that? Steven, if I may call you that, or Mr Gillard, you have repeated on a number of occasions already—and you have just repeated to me—that this is a “commercial legal case”. However, that is actually not how it is being perceived at all. It is perceived as a dispute, a very unpleasant and unnecessary dispute, between the British Government—the Prime Minister, Theresa May, has been dragged into this—and the American Administration. This is our special relationship between the UK and America. How are you going to resolve that? The damage is enormous to that relationship if jobs are lost at Bombardier in Northern Ireland. Do you appreciate that?
Steven Gillard
We understand the political sensitivity.
Lady Hermon
Do you?
Steven Gillard
We do, but it is not our place to comment on behalf of the British Government or on behalf of the United States Government. This is being handled through an independent quasi-judicial agency of the United States Federal Government, the International Trade Commission, and the commissioners who are looking at this case were political appointees of previous Administrations, not the current Administration. This is an independent legal process that is being followed.
Lady Hermon
This is an independent legal process that is being followed. Is it correct to say that Boeing could withdraw the complaint at any stage?
Steven Gillard
I would have to look to Matt for that point.
Sir Michael Arthur
Why would we withdraw a case when we feel in a commercial context that there has been a dumping for which there are courts there to adjudicate? This goes back to my point about us being a scapegoat. This was a pure commercial challenge for a sale that we felt was unfair.
Lady Hermon
Can I just repeat the question again? Is it not correct that Boeing could withdraw its complaint at any stage?
Matthew Knowles
Yes.
Lady Hermon
Thank you.
Matthew Knowles
It is equally correct that Bombardier could comply with the law.
Lady Hermon
Of course, we have taken evidence that Bombardier has at every stage complied with the law and that, in fact, there have been no illegal state aids given to Bombardier.
Matthew Knowles
That is what the ITC will determine.
Lady Hermon
You have confirmed that Boeing is capable and is competent to withdraw this complaint at any stage.
Sir Michael Arthur
Technically.
Matthew Knowles
Our commitment to a level playing field in the aerospace market has been demonstrated through this action, so I believe that the case continues.
Lady Hermon
How would you describe the relationship between senior management at Boeing and President Trump?
Sir Michael Arthur
As with any major company with a global presence, we have relationships with the Governments in question. The United States Government are one of our partners, as are the British Government and many others.
Lady Hermon
Let me rephrase the question. Is it a close relationship? Would you describe it as a close relationship between senior management at Boeing and President Trump?
Sir Michael Arthur
It is not quite right to be commenting here on another Government. We, as a commercial company in the United States, work with the US authorities.
Chair
It is a fair question. You say in your written evidence that you have a relationship with the UK Government geared at improving your footprint in the UK. It is perfectly reasonable to ask a large corporation, which you are, what sort of relationship you have with the Administration in the US.
Sir Michael Arthur
Of course we have commitments to try to grow the business in the United States, as well as to try to grow the business here. As a global company, we believe very strongly that, as we grow overseas and grow the company, that helps grow the business in the United States. The 737 is a classic example; as we sell the 737, the Isle of Wight makes more winglets and Seattle makes more of the other things. We grow in both countries and both Governments welcome that.
Chair
I just asked you whether you think it is credible that a large corporation like Boeing does not respond to the political mood music, and that a department like the Department of Commerce will not be influenced in some way in its thinking by, for example, “America first” and the protectionism that that implies.
Sir Michael Arthur
As Steve has just said, the commissioners adjudicating on this have not been appointed by the current US Administration. That is a fact.
Chair
Clearly, the European Commission does not take the view that there is anything amiss here. It has very strict rules on state aid.
Sir Michael Arthur
The WTO has looked at that. This is a separate trade dispute but there have been repeated appeals and adjudications by the WTO, which are coming to a head in the next few months, which have ruled against the European Commission on that point. This is a WTO ruling, not an American ruling.
Lady Hermon
As a former diplomat, Sir Michael, does it not cause you embarrassment to find that the Prime Minister, Theresa May, has to phone the White House over the dispute between Boeing and Bombardier? It was not just once; I understand she has had several contacts. Does that not embarrass you?
Sir Michael Arthur
The press and others have made a lot of headlines about this issue. This goes back to the point that I made to you just now that, to an extent, we feel we have become a scapegoat for other, wider issues. We are just trying to keep this on a completely legal and commercial basis. It is not for us to do politics; it is for us to make aeroplanes.
Lady Hermon
Let me just repeat that question, because I did not mention the word “scapegoat”; you have referred to being a scapegoat on a number of occasions. I have asked you, as a former British diplomat in senior positions, whether it causes you embarrassment that the Prime Minister of this country has to phone the White House in relation to this dispute. This dispute is unnecessary, spiteful and could be withdrawn. You have confirmed today that it could be withdrawn at any time by Boeing. Are you embarrassed?
Sir Michael Arthur
I was 30 years or so as a diplomat, as you kindly note, but the issues between companies and the issues between Governments often get mixed up. I have a long experience of seeing that happen. The Boeing position on this is a purely commercial and legal position that we are in, in the middle of a court hearing, which is a difficult point to go into more detail on.
Lady Hermon
I take it that you do not feel any embarrassment.
Sir Michael Arthur
That is not the right word. These are different parts of the forest and they interlink.
Lady Hermon
One can understand why you were a diplomat. Thank you so much.
Kate Hoey
As Lady Hermon has just said, you were a former British diplomat for a number of years, our ambassador to Germany and our High Commissioner to India. Presumably, you have some diplomatic skills, having been our ambassador.
Sir Michael Arthur
Probably not.
Kate Hoey
I really want to go back to what Ian Paisley was talking about in terms of the settlement discussions. I am amazed that you are so unclear about when you last met in Canada and what went on. What was being offered by you as a compromise solution in trying to negotiate a settlement?
Sir Michael Arthur
The discussions that we have primarily been having are with Bombardier because they are the people that are behind this. We tried to avoid having to go to court on this. As we said to the Chairman, we will come back to you with exact dates on when we did meet them.
Kate Hoey
Yes, but it is December now. Are you saying that you cannot remember whether the last time there was any kind of talks was a couple of weeks ago, three weeks ago or, as we probably think it may well have been, over the summer, and whether you walked out of the talks?
Sir Michael Arthur
It is certainly not the case that we walked out of the talks. I would not want to give that impression. The exact nature of the talks is confidential between the Government and us. We will come back to you with more detail on when. It does not change the substance of the fact that we found that we had to go to court.
Kate Hoey
Were you willing at any time to offer any kind of compromise rather than going on to court? Had you anything in mind?
Sir Michael Arthur
Of course we are looking to find solutions but they were not found.
Kate Hoey
Do we have any? Can you tell us any of them so that we can judge?
Matthew Knowles
I do not think we would talk about the conversations that we had in private. Our counterparts in the US and Canada would have had those conversations with the Governments there, and it is important for us that we get you the accurate picture of that. We will go away and do that for you.
Kate Hoey
Are you proud of the way that Boeing has handled this?
Sir Michael Arthur
I do not think issues of pride come into it. This is a question of a material fact that has been challenged in the courts and we are awaiting the decision of the courts. It is a factual matter.
Kate Hoey
Who could make the decision within Boeing to withdraw the court action?
Sir Michael Arthur
Boeing speaks with one voice. The Boeing company is a legal entity so, if any actions were taken to launch or not to launch, that would be the Boeing company.
Kate Hoey
I am sorry—perhaps I should know—but are you the top man?
Sir Michael Arthur
No, these things go up to the top of the company.
Kate Hoey
You could not make the decision to withdraw.
Sir Michael Arthur
I could not.
Kate Hoey
Could you suggest it?
Sir Michael Arthur
The Boeing company acts as a whole and is very open inside itself, but it acts as a legal entity.
Kate Hoey
So we are clear and the public are clear, your written evidence said that Bombardier was leveraging illegal state subsidies. Are you suggesting that Bombardier acted illegally?
Sir Michael Arthur
Within the terms of the rules of trade set out by the WTO, yes.
Kate Hoey
Are you also suggesting therefore that the British Government acted illegally?
Sir Michael Arthur
We are saying that Bombardier, when it came to the sale, offered the plane at prices that are deemed to be dumping prices. We, as a country, quite often challenge other people on dumping. It is a fairly familiar term. We believe that these planes were dumped using subsidies that would not be approved by the WTO.
Kate Hoey
Are you saying that the British Government acted illegally?
Sir Michael Arthur
We are saying that the way they put their aid in is outwith the rulings of the WTO.
Matthew Knowles
We have laid that out in the case to the ITC and it will make the decision.
Kate Hoey
In simple layman terms, are you saying that the British Government acted illegally?
Sir Michael Arthur
We say that they did not act in accordance with the WTO, which has ruled many times on this issue.
Chair
Delta, JetBlue, Air Canada and Spirit have all said that your aircraft, the Boeing 737, is not a competitor to the C Series. Who is right?
Matthew Knowles
May I distribute some material, Chairman?
Sir Michael Arthur
This is Bombardier’s own publicity about whether it competes with us. Clearly it does.
Chair
I am advised by the clerk that we would be very happy to have it after the evidence session.
Sir Michael Arthur
That is Bombardier’s own publicity about how it is competing with the 737s. It has a little chart that shows the C Series and the 737 directly head-to-head.
Chair
I am rather confused by this. As I tried to illustrate in my initial remarks, and as I have now said with these companies—your customers, potentially—there seems to be a real difference of opinion between you, who believe that the C Series and the 737 go head-to-head, and practically everybody else, who says that they do not.
Sir Michael Arthur
Bombardier says they do and Airbus says they do. When Airbus talked about its arrangement with Bombardier recently, Mr Brégier made exactly the same point.
Chair
Sorry, who did?
Sir Michael Arthur
The COO of Airbus said, “Now we have a partnership with Bombardier, we are competing with the 737”. That is not verbatim but that is the point he was making. The sources we have indicate that they are competing head-to-head, and that is one of the issues that we have lodged with the courts.
Ian Paisley
I have a very specific point, Sir Michael. I find this really strange. At your 2016 investor conference, Ray Conner of Boeing spoke about the C Series publicly and he said these words: “We are not competing with those C Series and the 737 Max”. Your public position right up to now has been that this is not a competitor jet. You did that in public in 2016.
Sir Michael Arthur
The context of what Ray was saying was that we were not competing in any particular campaign against that. However, when we have the evidence that Matt has—
Ian Paisley
That is marketing guff.
Matthew Knowles
It is Bombardier’s own material. Sir Michael Arthur:
Ian Paisley
It is marketing material. Come on. That is glossy brochure material. You know that. You are even smiling yourself. It is guff. You said in 2016, “We do not compete against this plane. It is not a competitor of ours. We do not even take it under our notice”, and then you do this.
Matthew Knowles
We have the contribution of four airlines that the Chairman has mentioned. There are a number of competitions that have not gone into the public domain where they have gone up against each other. We come back to the United Airlines competition, which was a direct competition between the 737 and the CS100, not the CS300, and Boeing won that competition at United. They do compete. Bombardier says they compete and so do other airlines. We could have this discussion all day but there are two sides to every story.
Chair
Could you say which airlines take a different view to Delta, JetBlue, Air Canada and Spirit?
Matthew Knowles
I can only publicly give you United because it is the only one that has done this competition in public.
Chair
Just United?
Matthew Knowles
Publicly, because there are others that have run competitions but in private.
Jim Shannon
Gentlemen, you have got a gist of the question. We are probably all coming from the same way. I just want to ask a couple of questions. First of all, have you had any direct discussions with Bombardier at any time prior to the ban coming in on Bombardier’s C Series planes? That is the first question. Did you, for instance, bring it to the attention of Bombardier before the USA Government took their stance?
Sir Michael Arthur
We have had conversations with Bombardier for many years. We are in constant touch and work together in some areas as well. There are always conversations with Bombardier.
Jim Shannon
Have you worked together with Bombardier and, for instance, made it aware of what you are going to do? Is that right?
Sir Michael Arthur
I do not think we should go into the detail of what the two companies are discussing together.
Jim Shannon
What discussions did you have with Bombardier about the C Series, in particular, and did you have discussions about what your intentions were?
Sir Michael Arthur
We have talked for many years about all sorts of co-operation. It has other products and we have talked about those. It is quite normal, in the industry, for global OEMs, of which Bombardier is another, to talk to each other about things.
Jim Shannon
Did you bring Boeing’s intentions to the attention of Bombardier in terms of its discussions with the USA Government about the C Series? Did you do that? It is a straightforward question.
Sir Michael Arthur
I do not feel able to answer that question directly but, if you would like me to check and give you an answer later, I will try.
Jim Shannon
You can contact the Chair.
Sir Michael Arthur
Within the confines of commercial confidentiality, we will try to let you have what we can on it.
Jim Shannon
Was it Boeing who brought the C Series issue to the attention of the USA Government? Was it Boeing who brought it to their attention? It is interesting that, all of a sudden, Donald Trump is in place and we have a policy that then comes in. Why does it suddenly raise its head now when obviously it would have been an issue five years ago?
Sir Michael Arthur
Mr Shannon, as we have been saying all along, this has not been a political case; it has been a legal and factual case. When we brought the case, it was not to the US Government; it was to the independent International Trade Commission, and that is where the case lies now.
Jim Shannon
Rather than finding a way forward with Bombardier, you decided to move it on to a different strata. Would that be right?
Sir Michael Arthur
Sorry?
Jim Shannon
Rather than come to an accommodation with Bombardier or try to solve this problem, you took it to a different level. That is where we are coming to, which means you did not discuss it with Bombardier.
Sir Michael Arthur
As I said earlier, we have been trying to find a way out of this short of going to court but it did not succeed, so we have taken the action that we have taken.
Matthew Knowles
May I return to the timing as well? You raised the timing. The timing of the case, as Steve alluded to earlier, related to the behaviour of Bombardier. The sale was the spur for the case, so it would not have happened five years ago. The sale happened this year.
Sir Michael Arthur
The way out of this is for Bombardier to continue doing what it is doing but to do it in accordance with the rules of the road. If it complied, we would have no further case. That does not stop it making aeroplanes in Belfast, and we would be delighted to be competing on a level playing field. As I said earlier, we positively welcome that because it makes us sharper.
Jim Shannon
I have friends like you in Bombardier who are having a very difficult time. Is it not a fact that Boeing cannot match Bombardier C Series planes and that you do not have the capacity, the expertise or the ability? Back home, we use this saying of “green cheese”; in other words, if we cannot have it, you cannot have it either. Is that not what this is all about? That is how many of us see it. Forgive us for being so direct here but that is how I see it: green cheese.
Matthew Knowles
For us, the issue is all around compliance with trade law. We want a level playing field where we can all compete together. The C Series has around 300 orders, more or less, while the Airbus and Boeing competitor aircraft have 9,000 orders. The market has not warmed to this aircraft and that is the major challenge for Bombardier; it is not this trade case.
Jim Shannon
Bombardier feels that there is a market for its product and it will move forward. I am reminded, Mr Chairman, of the biblical story of David and Goliath. You know that story. I think everybody in this room knows that story. In this case, we have Boeing, the Goliath of the airplane manufacturing world, which stands on top of the hill, beats its chest and shouts down at poor David—Bombardier—lifting five small stones out of a brook. We all know the outcome of that: Goliath was slain and David won. In this case, I would suggest to you—through you, Mr Chairman—that Bombardier and David are looking good for a victory in this one, because I think your attitude to Bombardier has been disgraceful. Can I ask you this? Would you object in any way to the transfer of some of the manufacture of the C Series plane to Alabama? I just want to get your thoughts, in advance, on what you might do next year.
Sir Michael Arthur
I have two answers there. First, on the Goliath analogy, we are the world’s biggest aerospace company and we do not feel that that is anything to be ashamed about. We just happen to be a very successful global company. I do not feel embarrassed about being Goliath in that context.
Jim Shannon
Sorry, Sir Michael, with respect, the analogy I gave you about Goliath is about right and wrong. Right prevailed over wrong. That is where the David and Goliath analogy comes in, if you did not understand what I was telling you earlier.
Sir Michael Arthur
Big is not a sin.
Matthew Knowles
I would say that the ITC will determine who is right and who is wrong in all of this, none of us.
Jim Shannon
Many of us in this room know what is right and what is wrong, but I asked you the question about Alabama.
Sir Michael Arthur
It is an issue for Bombardier, if it goes with Airbus, as to the partnership they work out and how they do it. The simple facts of the law are that any whole plane or part of a plane that is imported falls under the rules that we are talking about, these WTO and ITC rules. That will depend on the nature of the activity that they decide to transfer. That is completely a decision for Bombardier.
Jim Shannon
Will Boeing make any objections to the transfer of manufacture of C Series planes to Alabama?
Sir Michael Arthur
We have made clear that, if it is trying to sell either the whole plane or part of a plane at a dumped price, this challenge applies.
Jim Shannon
I understand that it is looking at 50%‑plus manufacture of the C Series in Alabama. Is that something that Boeing would object to?
Sir Michael Arthur
It is not our business. That is Bombardier’s business.
Jim Shannon
If it comes up, it will not be Boeing telling the Government to object in any way to that for whatever reasons, contrived or otherwise, that there may be.
Sir Michael Arthur
I do not think we have a role to play in that. That would be a decision by Bombardier.
Jim Shannon
There are solutions to this and obviously we have tried to find a solution.
Matthew Knowles
The decision that Bombardier would or would not take in terms of developing an assembly line in Alabama is, as Michael said, entirely for it to decide upon. The International Trade Commission will make a determination on whether any other tariffs apply to parts of aircraft. Certainly, the case in front of it at the moment covers whole and parts of aircraft.
Nigel Mills
Sir Michael, you have referred a few times to Bombardier selling these planes at absurdly low prices. I think that is the reference in the written evidence. Can you perhaps just talk us through what Boeing’s understanding is of the price and the deal between Bombardier and Delta, and how that compared to the market value of the C Series?
Sir Michael Arthur
I do not want to go too far into the details of this before the courts, because this is obviously a legal issue, but our submissions in there are in the public domain and the courts will make their judgments on whether our numbers are right or not. In broad terms, we estimate that—this is just our own way of calculating this—after the non-recurring costs have been done, the recurring cost for the plane in question is in the low $30 million per aeroplane. We believe that, working from the public sources that we have, the sale was in the region of $20 million or less, so significantly below cost price. The details of that will be adjudicated by the court soon. Its preliminary findings have not dissented from what I have just said to you.
Nigel Mills
You refer to the selling price in other markets.
Sir Michael Arthur
This is about one sale in the United States market. That is why we have gone to the ITC; it is a US market.
Nigel Mills
Your written evidence said that Bombardier sold it at an absurdly low price, below cost and much less than in other markets. I was wondering what you thought it was selling it for in other markets.
Sir Michael Arthur
One of the other markets we know is Canada. We believe that the $20 million or less figure that I mentioned to you is below what it sold at in Canada.
Nigel Mills
Have you made a complaint in Canada? Presumably you would be entitled to. You try to sell planes to Air Canada or whoever else.
Steven Gillard
To be absolutely clear, the issue here in terms of dumping is the fact that it is being sold into the US market, as well as being below cost price, at a price that is significantly different to the price at which it has been sold in other markets.
Nigel Mills
That is what I was trying to establish: what is the price at which it is being sold in other markets and that it is significantly below?
Matthew Knowles
The list price of the CS100 is $79.5 million, and the CS300 is $89.5 million.
Nigel Mills
How often do you sell planes at your list price? Is that regular?
Matthew Knowles
Rarely.
Nigel Mills
I did not think it would be regular. Can you talk us through what a deal for a plane looks like? I hear talk of wet leases and all that other stuff. Presumably it is very rarely a cash sale at a list price.
Sir Michael Arthur
It is a very complex negotiation. Matt, do you want to give a bit of flavour? You have been in the industry for a long time.
Matthew Knowles
None of us are in the sales department of the commercial aeroplane side of the business, so we would not take a punt at the details of all of that. Is there a specific area you would like us to explore?
Nigel Mills
I was just wondering, because you state in your evidence that the basis of the claim is selling below cost and being different to other markets. I was just trying to work out how robust those claims are.
Matthew Knowles
On that point, one of the things that we talk about is the long‑term average cost of an aircraft. We will always develop an aircraft programme to ensure its profitability, due to our responsibility to our shareholders, employees, suppliers and other stakeholders. The company will launch a programme when it knows it will be able to achieve a profitable outcome on that long-term average sale price. The issue with the C Series is that the sale of these aircraft, in the case in question, is at such a low price that they could not possibly make a profit on the programme. Bombardier booked a charge on the sale of these aircraft in its accounts to Delta, and then that money was made good through public finance.
Nigel Mills
To an extent, it is fair to say that you do not know the details of this deal to know how much is paid up front, how much is paid over the life of a plane or whatever else.
Matthew Knowles
That is the decision for the ITC. We have submitted our evidence, Bombardier have a similar opportunity to put its case across, and then the ITC will decide.
Steven Gillard
If we can also offer our evidence that will be submitted to the ITC, there will essentially be a public domain version of that and we would be very happy to share that with the Committee at the earliest possible opportunity. That will contain a lot of the detail around these arguments.
Nigel Mills
That sounds useful. We have already had confirmed that Boeing regularly, or most of the time, sells below list price. I think you said that, Mr Knowles.
Matthew Knowles
List price, not cost price, yes.
Nigel Mills
Do you ever sell below cost price?
Matthew Knowles
No. It is illegal.
Nigel Mills
Is it illegal? You have a few bits of spare kit lying around, and you want to sell them and make some money on them. It is not actually illegal, is it?
Matthew Knowles
We normally talk about long-term average cost price. That is what we are talking about here. If you sell the first aircraft in a development programme that has cost billions to set up, you could argue that you would not sell that first aircraft for billions to make that up. You would look at the long-term average cost price of the aircraft, and that is what we are looking at here.
Sir Michael Arthur
The reason why the industry and the WTO have these rules is because, for the long-term health of employment and companies, you need to have sustainable sales. If you are constantly selling below long-term average cost, it is just a market failure and it is not fair on the taxpayer to have to keep supporting that. That is the reason for the rules.
Nigel Mills
I understand the reason for the rules; I am just trying to explore the reason for your claim here. Mr Knowles, you made some slightly pejorative remarks about no one liking this Bombardier plane.
Matthew Knowles
No, all I said is that the market has not warmed to it.
Nigel Mills
That is pretty much the same thing as I said, isn’t it? You appear to have just said that, commercially, in the early sales, you cannot sell at full cost, in effect. Is that not a bit inconsistent when you are basically saying this is an early sale for this plane?
Matthew Knowles
No, you have to have the confidence that the market is out there to make the programme profitable. That is part of the decision to launch a programme in the first place.
Nigel Mills
It is not unusual, commercially, to sell some early versions at a decent price to get them in the market so that everyone can see what a wonderful product you have, is it?
Matthew Knowles
Absolutely. That is a standard practice; selling below the price of the cost of production is not.
Nigel Mills
That is your commercial decision.
Sir Michael Arthur
This is what the ITC has to adjudicate upon when it looks at this. We are delighted to compete against Bombardier globally, if it can make and sell the plane according to the rules of the road—I would be absolutely delighted—just not if it is dumped.
Nigel Mills
Have you made complaints anywhere else in the world where Bombardier has sold these planes?
Sir Michael Arthur
To my knowledge, no.
Matthew Knowles
It arises from this behaviour in the US market.
Nigel Mills
You would be entitled to make those claims in any market where you saw any of your competitors selling something that you thought was below long-term average cost.
Sir Michael Arthur
That is true, but I do not think we have seen it other than in this case in the United States earlier this year.
Nigel Mills
The other sales have all been fine. It just comes back to whether you fancied having a try in the US. That is quite a critical consideration.
Matthew Knowles
It is worth pointing out that this kind of mechanism, or a similar type of mechanism, exists in most developed economies. It is just in this case that the behaviour took place in the United States. It is an independent body with appointees from previous Administrations. It is a legal, not political, body.
Nigel Mills
I accept that, but it is interesting that Embraer has chosen to go for a WTO claim, which is presumably more general.
Matthew Knowles
Brazil has chosen to do that. Only countries can go to the WTO.
Nigel Mills
It is strange that it has chosen to go down a more general line, whereas you have chosen to try to use the US’s own trade powers for a product that competes globally.
Sir Michael Arthur
The US Government could join. That is for the US Government, not for Boeing.
Matthew Knowles
It is about different behaviours as well. The WTO case, as I understand it, that Brazil has brought is on subsidies; our case is more on the activities in the US market. The ITC is the appropriate body to go to for that particular behaviour.
Nigel Mills
To move quickly on, is it the Canadian alleged subsidies that you are principally worried about, the UK and Northern Irish alleged subsidies, or both? What is the scale of this?
Sir Michael Arthur
It is the net effect that leads to the dumping that we have talked about earlier. That is the issue. In terms of net effect, as a matter of fact, the UK subsidies were significantly lower than the Canadian subsidies. The Canadian subsidies, as I recall, came in two parts: central government and regional government.
Nigel Mills
The main UK subsidies were a repayable loan, weren’t they?
Matthew Knowles
The repayable investment that you mentioned is the same mechanism that the WTO found inconsistent with its rules as regards to Airbus.
Nigel Mills
Has Boeing ever received any repayable loans from any US or other national or state governments?
Sir Michael Arthur
For a decade, there have been challenges against Boeing just as we have had challenges against Airbus in the WTO cases. Several times now, the WTO has ruled on this and has ruled that we are compliant with everything. We have been through that process.
Matthew Knowles
There is one single case for one part of support that is still under appeal. We could not give you a final comment on that one single case, but in all the other cases Boeing has complied with the law or the WTO rulings.
Nigel Mills
Have you ever received any repayable aid subsidy to help you develop a new product?
Matthew Knowles
That is where we go back to the case at the beginning of all this. It is around compliance with trade law. Whenever support like this is received from one company or another, it is about making sure that that is done in compliance with the rules that we have all agreed to.
Nigel Mills
Would you agree that it is compliant for states to offer repayable funds to enable a company to develop a new product?
Matthew Knowles
If compliant with the law, yes.
Nigel Mills
Boeing has received that sort of help in the past and presumably would currently take it if it was offered.
Matthew Knowles
That is what the WTO rulings in our favour have looked at.
Nigel Mills
In principle, Boeing accepts that receiving repayable funds to help you produce a new product line is not in contravention of the WTO.
Sir Michael Arthur
If it is in compliance with the WTO rules, yes.
Nigel Mills
You accept it as a principle. The question I am really trying to understand is: is this is a Canadian issue that you are worried about with Northern Ireland and the Bombardier plant just being caught in the crossfire? Are you actually really concerned about what the UK has done?
Sir Michael Arthur
It is hard for us to comment on two different Governments. In our case to the court, we have mentioned both Governments but I mentioned just now that the volume of support in Canada is significantly higher than the volume of support in the United Kingdom.
Nigel Mills
I just have one last question. Has Boeing ever been found against WTO? Have you ever received any aid that contravened the rules?
Sir Michael Arthur
We can go back to the decade-long hearings and provide you with a summary, if you like. Airbus alleged billions of dollars of support that we are supposed to have had and we have alleged the same against Airbus, and the WTO ruled that almost all of ours that it claimed was not the case and that we were exempted from that. For a small proportion, it deemed that we needed to take remedial action—pay back or commercialise it; I can give you the details—and we have done that. That is the point: on further appeal, we are now deemed to have complied with everything it required us to do. It wanted us to take remedial action on a small proportion of what Airbus accused us of, which we have done. We maintain, the other way around, that Airbus has not taken the remedial action that the WTO called for, and that is the ruling that we are all waiting for quite soon.
Nigel Mills
It makes the whole industry sound like some sort of childish spat that you use the WTO to arbitrate. It is a bit like, “Please, teacher, he punched me first,” and, “No, he punched me first”.
Sir Michael Arthur
As in all spats, one needs rules of the road. The WTO is the global rule‑maker in this context.
Matthew Knowles
We have all signed up to those rules so it is important that we all comply with them.
Mr Campbell
Matthew, you used the term that the industry had not warmed to the C Series.
Matthew Knowles
The market, yes.
Mr Campbell
Sir Michael, you said that the sale price of the C Series was significantly below—dumping, as you call it—in the industry. I suppose many people would say that, if those two things were both accurate, why would Airbus come into the picture? That is another competitor of yours. My question, I suppose, is on the previous numbers that you gave in terms of your order book on the 737s and your ramping up of productivity. Could you just run those figures by me again?
Matthew Knowles
Sure. We have recently increased production on the 737 to 47 aircraft a month and we plan to go up to 52 and then to 57 on that aircraft.
Mr Campbell
If we look ahead to the 52, at one point do you think you would ramp up to that?
Matthew Knowles
Towards the end of the decade, I believe.
Mr Campbell
In two years’ time.
Matthew Knowles
Yes.