September 29, 2017

Analysis: Engine tariff dispute could drag on while Pratt fulfills contract

East Hartford-based Pratt & Whitney likely will feel some fallout from the U.S. Commerce Department's plan to impose a tariff on aircraft sales by Canada's Bombardier, analysts said Wednesday.

But it may not affect Pratt's existing engine contracts for Bombardier's C Series planes, in part because lengthy appeals are anticipated, the analysts said.

The U.S. Commerce Department on Tuesday announced it would slap a 220 percent import tariff on Canadian-built Bombardier planes. The move follows a complaint by the Boeing Co. that Bombardier receives government subsidies that allowed it to submit a lower bid on a Delta Air Lines contract.

Pratt's new geared turbofan engines power the Bombardier planes, and Delta in 2016 agreed to buy up to 250 engines. The value of the contract to Pratt wasn't disclosed, but the full deal should bring in more than $1.5 billion, minus incentives and discounts.

Mark A. Bobbi, who owns MB Strategy Consulting and is a principal analyst for IHS Research & Analysis Group, said Bombardier "will surely challenge" the import tax through the U.S. International Trade Commission and the World Trade Organization.

If the tariff is allowed, Bobbi said, it "absolutely" could hurt Pratt's future business.

But the Delta engine contract deliveries at the center of the dispute will begin "well before final chapter in this battle," he said.

Bobbi added that Pratt's military business could benefit from the dispute. If the issue sours the relationship between Canada and Boeing, he said, the Canadian government might drop plans to buy Boeing's F/A-18 Super Hornet jet fighter to modernize its air force.

Canadian officials in 2016 said they were inclined to buy the GE Aviation-powered Boeing plane rather than Lockheed Martin's F-35 Joint Strike Fighter, powered by Pratt engines, due to the F-35's rising cost.

"Look for Canada to go back to the F-35," Bobbi said.

Ray Jaworowski, senior aerospace analyst with Newtown-based Forecast International, also said the import tax "would severely impact the U.S. market for the C Series, and consequently, the U.S. market for" geared turbofan engines.

Jaworowski added, however, that there is still "a ways to go in the regulatory process."

The tariff cannot be finalized until a ruling by the U.S. International Trade Commission slated for February 2018, he said.

Additionally, Jaworowski said, Bombardier and Canada both have additional options to appeal even further.

A Pratt official declined Wednesday to comment.

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