RichardAboulafia.com 

:: April 2013 Letter ::

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Dear Fellow Free Trade Fans,

If The Devil appears on earth, he probably won’t be sporting a red tail and a pitchfork. Rather, he will appear to be quite adorable, even cuddly. Perhaps like Porter Airline’s raccoon logo. That’s the conclusion I drew after Porter’s CSeries conditional order earlier this month. It’s a lot like any other jet order, with the minor caveat that, if executed, it opens the gates of hell and permits Satan’s minions to wreak havoc on Earth. Thus, a new type has joined the jet order lexicon; we now have Firm, Option, and Faustian.

The order was far from straightforward. In order for the deal for 12 firm and 18 option CS100s to go ahead, Toronto must open its downtown Billy Bishop airport to jet service (right now; it’s just props). This requires a 1,100 foot runway extension, which is specifically banned by the 1983 Tripartite Agreement between the Toronto Port Authority, the city of Toronto and Ottawa. Local political reaction was furious; Pam McConnell, the Toronto City councillor whose ward is closest to the expansion, said the announcement “demonstrates a breathtaking level of arrogance and disregard for the Toronto residents.”

Yet my problem with this deal isn’t local airport noise concerns. It’s about free trade. Permit me to remind you of my favorite legal document, the WTO’s Agreement on Trade in Civil Aircraft (ATCA). You can find it here at www.wto.org/english/docs_e/legal_e/air-79_e.pdf. This document allows US carriers to buy Airbuses and European carriers to buy Boeings (as both do). ATCA has enabled tremendous growth in jetliner trade and has therefore tremendously improved jetliner competitiveness. I call your attention to the following clause: “4.4 Signatories agree to avoid attaching inducements of any kind to the sale or purchase of civil aircraft from any particular source which would create discrimination against suppliers from any Signatory.” (Emphasis added.) This deal, if executed, is a naked violation of ATCA by our masked bushy-tailed pal. And yes, Canada, you signed this document (www.wto.org/english/tratop_e/civair_e/civair_map_e.htm).

While condemning the parties involved here for a neglect of trade rules, I’d also like to praise them. Porter has created a very impressive niche business despite heavy competition from the big guys (Air Canada and Westjet). In keeping with Toronto’s locavore traditions, everything about Porter is local; they operate Dash 8Q-400s built in Downsview and they serve delicious Toronto-brewed Steam Whistle beer, brewed in a former Canadian Pacific railway roundhouse. Adding jets will make this marvelous airline even more appealing, particularly for Canadian snowbirds heading to Florida or the Caribbean.

Of course, Porter’s service also makes Toronto easier to access. Oft underrated (“It’s New York, if it were run by the Swiss”), Toronto is actually one of the most stylish and charming destinations in the world. Flying on Porter (they’re the only airline with a significant pattern of service at Billy Bishop), you arrive on a small island and walk over to a 400 foot ferry ride that takes you directly downtown. You can walk to your hotel or to a wide variety of lovely markets, restaurants, and museums.

I’ll also praise the CSeries, which appears to be a very good design. If Bombardier had the wherewithal to sell it, the CSeries might be doing rather well. But Bombardier does not. After five years of trying, the CSeries order book is stuck at a dismal 148 orders (Airbus and Boeing’s next generation single aisles, of course, have racked up about 3,500 orders). Ottawa, we have failure to launch. CSeries execution is also a major concern; the recent service entry delay to mid 2014 will be followed by another (we’re expecting a 2015 EIS).

As a result of this commercial failure, the Canadian Government, which has supported the CSeries, is effectively vulnerable to a kind of blackmail. “Give us Billy Bishop jet airport access and we’ll help save the national jet,” the devilish raccoon appears to be saying. There’s no proof of a clear quid pro quo here, but the optics to the rest of the world point to an ATCA violation. This may be the first time in history that an airline demanded an offset from its home government for buying a jet built in its home country. This maneuver may have been in the works for some time; Aviation Week editor Joe Anselmo saw a CSeries model in Porter livery back in 2010.

The problem is that moves like this create a precedent. The precedent, in this case, is favoritism, which is basically the same as protectionism, only with a happy face. An ATCA violation could easily metastasize. If this deal goes ahead as planned, fast forward a few years. Imagine a Chinese airline (with a cute giant panda logo) demanding airport access, or some other favor, in exchange for a C919 order. Imagine a Russian airline (with a cute bear cub logo) doing the same thing, in exchange for an MS-21 order. This would free up European and US carriers to pull equally foolish antics. Free trade in aviation would be under siege…from an army of furry airline spokesanimals.

There is a way around this, a way forward that will keep our raccoon pal from turning Satanic while still giving Bombardier and Porter what they want. If the Canadian Government chooses to approve Porter’s terms, opening Billy Bishop and paving the way for a firm CSeries buy, it needs to issue a statement along the following lines: “We are opening this airport to jets. Not just to the CSeries, but to any jet with similar noise and other operating characteristics regardless of where that jet is built. And not just to Porter, but to any airline, as long as they operate an approved jet.”

To approve the CSeries/runway expansion deal and not issue this statement, or to not de-link the airport expansion and the CSeries order, is an appalling breach of international trade rules. Of course, that statement, or that de-linkage, would also imply that more airlines may start service to Billy Bishop, which would further enrage the local opposition. That makes this entire deal extremely problematic.

Back on the military side of the aircraft industry, we have a defense budget now (sort of), so Teal April aircraft report updates include the F-35. We’ve also updated the Business Aircraft overview, and the F-15, Eurofighter, Mirage 2000 and EC 135 reports. Have a good month.

Yours, ‘Til My September Visit To Toronto (Yep, I’ll Fly There On Porter),
Richard Aboulafia
 

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  ~  Last updated on January 08, 2006