Boeing Gives Up on Fighter-Jet Deal With Canada

Boeing Co. said Friday it believes Canada will follow through on its threat and abandon plans to buy 18 F/A-18 Super Hornet aircraft in a $5.2 billion deal, in the latest fallout from heightened trade tensions between Ottawa and Washington.

Canadian Prime Minister Justin Trudeau warned in recent months it was prepared to cease doing business with Boeing, after the Chicago-based company filed a trade complaint with the U.S. Commerce Department alleging Montreal-based Bombardier Inc. unfairly benefited from state subsidies. After a probe, the Trump administration's Commerce Department sided with Boeing. It slapped tariffs totaling 300% on the Canadian plane maker's CSeries aircraft, which is Bombardier's attempt to compete in the 100- to 150-seat single-aisle market.

A spokeswoman for Canadian Defense Minister Harjit Sajjan said Friday the government would make an announcement about interim support for its air force "at the appropriate time," and that it was exploring was surplus aircraft from Australia among other options. Canada denied Bombardier benefited from government subsidies, calling Boeing's complaint "unjustifiable."

Boeing said it was giving up on a potential deal, unveiled over a year ago, to sell the Hornets after reading reports in local media that Canada was about to spurn Boeing and instead purchase used F-18 aircraft from Australia.

Canadian officials wanted the Hornets because, they said, the military's aging fleet posed challenges toward meeting Canada's commitments to the North Atlantic Treaty Organization, or NATO, and North American defense.

"Boeing respects the Canadian government's decision," said in a statement issued to The Wall Street Journal. "Although we will not have the opportunity to grow our supply base, industrial partnerships and jobs in Canada the way we would if Canada purchased new Super Hornets, we will continue to look to find productive ways to work together in the future."

With talks with Boeing at a standstill due to Bombardier tensions, Canada said in October it would explore the possibility of buying secondhand F-18 fighter aircraft to upgrade its fleet. Talks have since progressed to the point that a transaction is set to be completed next week, according to a person briefed on the matter in Australia.

Boeing added it remains committed to a "level playing field" in aerospace, and would continue to support measures that enhance "free and fair competition." Commerce Secretary Wilbur Ross has backed Boeing's push, saying that even though Canada is a close U.S. ally, it "must play by the rules" on aerospace trade.

The Boeing-Bombardier row is part of simmering trade tensions that have emerged this year between the U.S. and Canada, as President Donald Trump tries to put his "America First" stamp on trade policy.

Chief among differences are proposed U.S. changes to the North American Free Trade Agreement, which are aimed at reducing the U.S. trade deficits with Canada and Mexico. Canada's chief Nafta negotiator told Canadian lawmakers this week some of the U.S. proposals to address Trump administration concerns as "wholly unworkable."

And just this week, the U.S. International Trade Commission voted to confirm final tariffs of 20% or more on imports of Canadian softwood lumber, used in the production of houses.

After Commerce's tariff ruling on Bombardier, Airbus SE and Bombardier struck a deal in which the European plane maker would acquire a majority stake in the CSeries project, in an effort to sidestep the tariffs. Airbus plans to expand its jet production facilities in Alabama to build CSeries jets for U.S. buyers.

--Rob Taylor in Canberra, Australia, contributed to this article.

Write to Paul Vieira at paul.vieira@wsj.com and Doug Cameron at doug.cameron@wsj.com

(END) Dow Jones Newswires

December 08, 2017 16:27 ET (21:27 GMT)