Stiff U.S. duties imposed on Bombardier’s C-series jet sparked retaliation threats from Britain and Canada’s Quebec province last week. We expect this will continue to play out until the final decision is made by the U.S. International Trade Commission (ITC) in February 2018.

Beyond the headlines of the proposed 220% tariff lies the fundamental question about the impact on the wider supply chain. In a nutshell, the picture is complex:

  1. the UK government has a number of multi-million dollar contracts with Boeing in the defense sector. The Prime Minister’s office indicated that many of these deals may now be reviewed.
  2. the second complication is the supply chain. Within Northern Ireland, alongside the 4,500 direct employees of Bombardier, thousands more jobs in the supply chain are dependent on C-series deals.
  3. Boeing is a major employer in the UK, directly employing 2,200 people, half of its European headcount. It counts a further 16,500 jobs within its UK supply chain operations.

Inter-dependent relationships mean complexity is inevitable and supply chain exposures and long production timescales make decision-making highly uncertain. This episode highlights the importance of a diverse customer base for UK suppliers and it could subsequently drive an uptick in Aerospace & Defense M&A activity as suppliers integrate horizontally to negate the dependency on a small customer base, or vertically in order to manage systematic risk.