Canada has scrapped plans to buy 18 Boeing jets and made clear the company had little chance of winning a much larger contract unless it dropped a trade challenge against Canadian planemaker Bombardier.
The announcement marks a new low in relations between Canada's government and Boeing.
It casts into doubt the future of defence cooperation with the US aerospace company, which says it supports more than 17,500 jobs in Canada.
Ottawa announced last year it wanted to buy the Boeing jets as a stopgap measure while Canada runs a competition for 88 jets to replace its ageing 77 CF-18s fighters.
Instead Ottawa will buy a second-hand fleet of 18 Australian F-18s, the same planes Canada already operates. The value of the deal will be around C$500m.
In a clear reference to Boeing, Carla Qualtrough, public works and procurement minister, said that "bidders responsible for harming Canada's economic interests will be at a distinct disadvantage" compared to other companies participating in the competition for the 88 jets.
Reuters reported last week that Canada would walk away from the 18 Boeing jets after Boeing opened a trade challenge against Bombardier, accusing Bombardier of dumping airliners on the American market.
Qualtrough said the competition would be open and no companies would be excluded.
Innovation Minister Navdeep Bains did not respond directly when asked at the news conference whether Boeing could improve its chances of winning the order for 88 jets by bowing to a Canadian government demand to drop the trade challenge.
Bains and other ministers said they wanted to deal with "a trusted partner". In recent months, Canadian officials have said they do not consider Boeing a trusted partner.
In a statement, Boeing said it would decide at the appropriate time whether to take part in the competition.
Rival Lockheed Martin issued a statement describing itself as "a trusted partner".
If Boeing is excluded, other potential winners include Dassault Aviation and Airbus.