Boeing (NYSE:BA) was dealt a setback on Friday when the U.S. International Trade Commission ruled against it in a dispute with Canadian rival Bombardier (NASDAQOTH:BDRBF). But although the ruling creates complications for its commercial unit, it should also eliminate some potential headaches for the defense business.

Here's why the ruling might be the best possible outcome for Boeing in the long run.

What happened

The ITC on Jan. 26 voted 4-0 to block the Trump administration from placing a 292% tariff on Bombardier CSeries jets sold in the U.S. The decision reverses a Commerce Department ruling last year that found Bombardier had received unfair government subsidies, which allowed it to sell the planes at artificially low prices.

CSeries jets

Bombardier's CSeries jets, the planes at the center of a tariff dispute. Image source: Bombardier.

Caught in the middle was Delta Air Lines, which agreed to buy 75 CSeries planes and had called the tariff "absurd." Boeing could still appeal the ruling to the International Court of Trade in New York or ask the U.S. government to argue its case in front of the World Trade Organization, but success on appeal seems unlikely.

Defense breathes a sigh of relief

While the dispute focused on Boeing's commercial operations, its massive defense arm was already suffering due to the conflict. The Canadian government in December cancelled plans to buy 18 Boeing fighter jets, instead acquiring used fighters from Australia. More importantly, Canada's anger over the Bombardier protest led Boeing to go from a favorite to potentially not bidding on an upcoming $12 billion deal to modernize the Canadian Air Force's fleet of fighters.

Just last week, Boeing was notably absent when Canada hosted its first industry day for its proposed fighter purchase. Representatives pitching Lockheed Martin's F-35, the Eurofighter Typhoon, the Dassault Rafale, and Saab Gripen were all present at the meeting, which attracted more than 100 aircraft manufacturers and component suppliers.

Boeing had been among the favorites to win the deal because its F-18 Super Hornet is a more affordable alternative to the F-35, and Canadian defense officials tend to favor U.S.-built equipment so they can coordinate closely with their neighbor to the south. Even though Lockheed has made good progress bringing down the cost of the F-35, Canada's familiarity with operating the F-18 would make Boeing's fighter a strong contender even if all else were equal.

Boeing has said it is still weighing whether to bid on the Canada deal. Assuming the Bombardier dispute is now in the past, Boeing's odds of participating -- and winning -- are much higher today than they were last week.

There was also significant risk the dispute would have cost Boeing business in the United Kingdom. Bombardier is among the manufacturing employers in Northern Ireland, and Prime Minister Theresa May and other government officials had said the tariff dispute could jeopardize future business. Boeing has a massive presence selling and servicing Chinook and Globemaster transport aircraft, the Sentry radar plane, and a license-built version of the Apache Longbow attack helicopter, among other products.

A friend in Brazil

The CSeries dispute also pushed Bombardier closer to Boeing archrival Airbus, with Airbus taking a controlling stake in the commercial program and making arrangements to assemble the plane at its facilities in Alabama. That in turn caused Boeing to rekindle its on-again, off-again courtship of Embraer (NYSE:ERJ). There are considerable hurdles to Boeing's buying Embraer outright, but if this trade spat leads to the two companies finally solidifying a partnership and coordinating future production, the benefits for Boeing would far outweigh any lingering bitterness toward it from either Canada or customers like Delta.

On the commercial side, Embraer would give Boeing a true rival to the CSeries and allow its sales team to compete against Airbus with a matching range of jets large and small. A partnership with Embraer could also eventually help Boeing by affording it opportunities to shift some of its lower-margin manufacturing work to Brazil.

Defense would also be able to market a more complete line of products. As fellow Fool Rich Smith noted earlier this year, Embraer has enjoyed success selling a lower-cost propeller-driven ground attack fighter to U.S. allies, marketing the plane as a lower-cost alternative to the F-35 and F-18 for situations in which the latest and greatest gear is not required. Even short of a full acquisition, a combined Boeing and Embraer effort would offer more options suitable for a greater number of customers around the globe, which should help diversify Boeing and shield the defense unit from inevitable Washington budget battles.

The sky hasn't fallen

It's worth noting that shares of Boeing traded down less than 1% on Monday following the ITC ruling, an indication that the market did not consider the loss to be a crippling blow. Boeing's commercial-order book is still overflowing, especially for its narrow-body 737 jets that the CSeries would potentially threaten.

Boeing will survive a CSeries invasion, just as it will survive the fallout from what was arguably an ill-advised protest. Even with a loss, Boeing can still come out on top.

Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool recommends Embraer-Empresa Brasileira. The Motley Fool has a disclosure policy.