Trudeau Says Rivals Fear CSeries as Brazil Mulls WTO Move

Canada has insisted it plays by international trade rules after Brazil warned it may challenge government funding to Bombardier, a move that would revive a two-decades-old dispute between the countries.

Bombardier is locked in competition with Brazil's Embraer for narrow-body jet sales. Brazil has said that government financing gives Bombardier an unfair advantage.

Brazilian Foreign Minister said it could move against Canada at the WTO over USD$1 billion in funding that Bombardier received from the Canadian province of Quebec for its CSeries aircraft.

Canadian Prime Minister Justin Trudeau brushed off the suggestion, telling reporters "there is no country in the world that doesn't heavily subsidise its aerospace sector."

"I can understand that our competitors are rightly worried about how great the CSeries plane is," he said in Calgary.

The Brazilian minister responded in a statement on Friday evening that Trudeau's comments were revealing.

"It's telling that the Canadian Prime Minister admits the Canadian government heavily subsidises Bombardier," Serra said.

Embraer estimates that Bombardier received a total of USD$3.5 billion in state support, he noted. Embraer imports equipment from Canada to build aircraft and the subsidies hurt trade flows, he said.

Brazil and Canada have locked horns repeatedly at the WTO over the past 20 years over state support for Embraer and Bombardier.

Ottawa is also considering whether to match Quebec's investment in the CSeries.

Embraer's concerns boiled over in April when Bombardier won a deal to provide 75 CSeries to Delta Air Lines, beating Embraer's E190 family of jets with what many industry watchers saw as an aggressive bid.

Some industry insiders have estimated that discounts as high as 75 percent might have been offered to reboot the CSeries with the order, matching some of the most aggressive pricing in the market.

Embraer complained at the time that it was "not competing with a private enterprise anymore."

A Bombardier executive said that Embraer was likely worried about competition from the 110-150 seat CSeries, which has 325 firm orders and made its first scheduled commercial flight on Friday.

"They have seen our airplane go through the certification process and now enter into service. There is certainly a lot more competition and they are probably concerned about what the CSeries means for their business," said Ross Mitchell, a vice president of commercial operations for Bombardier.

Embraer has 272 firm orders for its 100-130 seat next-generation E-Jets. Its E190-E2 is scheduled to enter service in 2018 while the E195-E2 is expected to begin commercial flights in 2019.

Embraer has asked the Brazilian government to monitor any funding Ottawa gives Bombardier, an Embraer spokesman said, adding that the plane maker was "capable of competing against any companies, but not against the government of Canada."

Quebec's equity stake in the CSeries, first agreed to in 2015, is more difficult to challenge than a straight export subsidy arrangement, said trade lawyer Mark Warner at MAAW Law in Toronto.

Quebec government spokeswoman Melissa Turgeon said in an email that the province has analysed these questions. "We know we are respecting international trade rules," she said.

However, Embraer could raise questions about Delta buying CSeries jets at heavily discounted prices, especially since Bombardier had not signed a single deal for the plane in more than a year before those with Delta and Air Canada in 2016.

Brazil's threat of a challenge could scare away potential customers who see risks to future funding for Bombardier from Canadian governments.

"Most people don't like messy situations," Warner said.

Competition between Bombardier and Embraer is expected to intensify as carriers such as American Airlines retire their E190s in the next few years and could consider small narrow-bodies to fill mainline routes.

Air Canada has ordered 45 CSeries aircraft to replace its E190s.