September 25 - Delta, Bombardier and Open Skies: Actions Speak Louder Than Words


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INDUSTRY ANALYSIS

 

Delta, Bombardier and Open Skies: Actions Speak Louder Than Words

 

By Kevin Mitchell 

Delta Air Lines has mastered the Washington art of saying one thing while simultaneously doing the exact opposite. The latest example in Delta’s long list has created a widening diplomatic and trade row with two of our closest allies, Canada and the United Kingdom, that has put at risk thousands of American manufacturing jobs.

Delta, along with its oligopoly partners American Airlines and United Airlines (BIG three), are nearing the three-year anniversary of their desperate political campaign to eliminate much-needed competitive choice offered by Emirates Airline, Etihad Airways and Qatar Airways (Gulf Carriers). To hear Delta’s CEO, Ed Bastian tell it, the Trump Administration must abandon our hugely successful 25-year-old bipartisan Open Skies policy in the name of protecting American jobs. In a slick 15 minute Delta video, Bastian passionately claims Delta is all about American jobs, and its battle against the Gulf Carriers is solely motivated by its laser-like focus on protecting them.

But, how does Mr. Bastian’s soaring patriotic rhetoric stand-up to Delta’s actions? Not at all. When it recently came time to purchase single-aisle aircraft, given Delta’s flag-waving, one would have expected a press release from Boeing’s sales department touting a job-creating order. Instead, the only document Boeing prepared was a trade complaint that prompted the Department of Commerce to commence an anti-dumping investigation.

When Delta had the opportunity to match its words with actions, it instead purchased 75 heavily subsidized Canadian-manufactured C Series 100 aircraft. It was a big deal in more than just monetary terms. As the Business Insider noted, “[w]ith the Delta order, Bombardier has not only found a US launch customer for the C Series, but it has the blockbuster deal it needed to validate the attractiveness of aircraft to other prospective buyers.” In fact, this deal was so important to the Canadian manufacturer, Delta received a sweetheart deal --  it allegedly paid just $19.6 million per plane for aircraft that should have cost $33 million each.  According to Boeing, that deal was too sweet under US trade law.  

This has put in motion an escalating diplomatic and trade firestorm threatening US jobs. Canadian Prime Minister Justin Trudeau has threatened that Canada will cease doing business with Boeing unless it drops its trade dumping complaint. At immediate risk is a roughly $5 billion order for 18 Super Hornet fighter jets manufactured by Boeing that Canada had been in talks to purchase, and thousands of American manufacturing jobs that order would create and support. UK Prime Minister Theresa May recently pledged her solidarity with the Canadians. The Boeing trade case puts at risk jobs in Northern Ireland where a factory makes parts for the CS100 aircraft.

How did Delta respond when called out for its hypocrisy of purportedly being a champion for America jobs but turning its back on Boeing by choosing to be the US launch customer of the Canadian manufactured C Series? In an Aviation Daily op-ed replying to one I wrote, Peter Carter, Delta’s Executive Vice President and Chief Legal Officer, dismissively labeled it as a spurious attack. Mr. Carter claimed Boeing was not a competitor for the order and is not a player in that segment of the market. Accordingly, it was a bogus argument to suggest Delta had turned its back on Boeing and American jobs. Clearly, Boeing sees things very differently. In testimony before the International Trade Commission in support of its complaint, Ray Conner, Vice Chairman of Boeing, testified “[w]e’re here today because the 100-150 seat market matters greatly to Boeing and Bombardier is very close to forcing us out of this altogether.”

It is not surprising Mr. Carter sees nothing wrong with Delta trying to have it both ways on the CS100 issue. That is standard operating procedure for Delta advocacy -- judge us by our words, not our actions. Delta did exactly the same thing when it recently purchased widebody aircraft. Champion of American manufacturing jobs? Not so much. In November 2014 did Delta purchase Boeing widebodies to replace retiring 747s and 767s? No. It ordered 25 Airbus A350-900s and 25 Airbus A330-900neos. Based on the US Department of Commerce’s jobs multiplier for aircraft purchases, had Delta ordered Boeing aircraft instead, that $14 billion purchase would have created or sustained over 80,000 American manufacturing jobs. Instead, Delta chose to give those jobs to European workers. Delta went even one step further. Mr. Bastian recently proudly proclaimed its new Rolls Royce-powered Airbus A350-900 is the flagship of its fleet.

Delta is certainly free to purchase whatever aircraft are most suitable for its fleet. Moreover, as corporate fiduciaries, its management has a duty to get the best possible fleet deals for its shareholders. But, must we continue to hear Delta’s soaring star and stripes, we are the champion of American workers rhetoric in the Open Skies/Gulf Carrier debate when, in fact, those fleet decisions show that simply is not true? Delta is leading the fight against Open Skies and Gulf Carriers access to the US for one reason and one reason alone – it despises competition, and the more competitive airlines such as the Gulf Carriers are, the more it despises them. Enough with the pretense that it is motivated by loyalty to American workers or anything other than Delta’s competitive self-interest.  

Speaking about Delta shareholders, there is a cost-effective pathway forward for them on the Gulf Carrier issue. Rather than continuing to throw millions of dollars a month into a failed political campaign, Delta should file an International Air Transportation Fair Competitive Practices Act (“IATFCPA”) complaint with the US Department of Transportation. Delta and Northwest Airlines, its corporate predecessor, consistently relied on the IATFCPA process in the past as a reliable and cost-effective process to quickly resolve concerns about the competitive practices of foreign carriers and their governments. If Delta’s legal case is as rock solid as it claims, and if the facts against the Gulf Carriers are as overwhelming and irrefutable as Delta alleges, an IATFCPA case should be a slam dunk victory. Why has Delta failed to muster up the courage to file an IATFCPA complaint? I think we know the answer. Actions speak louder than words.

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