(This column originally appeared on the Huffington Post blog on December 7, 2015)
In late October, Quebec Economy Minister Jacques Daoust announced that the Quebec government would be “investing” $1.3 billion in taxpayer money in Bombardier’s beleaguered C Series aircraft line, and promptly turned around to prod the new Trudeau government in Ottawa to pony up a similar contribution. In response, the new prime minister insisted that any help for Bombardier would not be based on “emotion or politics or symbols” but rather on a “strong business case.”
For the moment, let’s leave aside the obvious point that companies which can substantively demonstrate a strong business case are rarely short of private sector investors. Let us also ignore that crawling to governments cap-in-hand is the corporate equivalent of a student hitting up their parents for a loan because their bad credit or dim prospects has left them non grata with real banks. For now, let’s just consider the business case. If Trudeau means what he says, it will be a welcome development for taxpayers, since the last month in Bombardier-related news reads like a veritable checklist of reasons Bombardier looks like a terrible business investment.
First, Mitsubishi of Japan and Commercial Aircraft Corporation of China debuted new jets which will compete directly with the C Series. It’s true these companies also receive generous state support – but just as with Airbus in Europe, Boeing in the United States, or Bombardier’s chief rival, Brazil’s Embraer, in every case these are countries with far greater resources at their disposal. Trying to keep up with these giants in a tax dollars subsidy war is like being at an art auction going up against much wealthier bidders: even if you somehow end up winning the auction, you’ve probably grossly overpaid for the object you were bidding on.
Then came news from Transport Minister Marc Garneau that the Trudeau government was ending any hopes of a runway extension at Billy Bishop Toronto City Airport. The problem is that Porter Airlines, which uses Billy Bishop as its hub, was actually interested in buying some C Series planes – on the condition that the runway extension proceeded. Killing the runway likely also kills this order, which would have been badly-needed business for Bombardier.
Next, the awkwardness of the Caisse de dépôt et placement du Québec – the province’s public pension fund – taking a one-third, $1.5 billion stake in Bombardier’s train and transit division. When pressed as to why the Caisse did not instead invest in the C Series, which had been prominently twisting in the public wind for weeks, its CEO Michael Sabia observed that the Caisse “did not at any time consider” investing in the C Series. When pressed as to why not, Mr. Sabia simply stated that the Caisse “liked the company. The train company.”
On November 23, Scotiabank cut its rating on Bombardier to “sector underperform” and described the C Series as a program “whose viability is very questionable.” Ouch.
The next day, Bombardier executives, having refused the request of the Toronto Transit Commission to publicly explain delays for the TTC’s streetcar order, were in New York to assure investors that the future was bright for the company, but stock dropped more than 3 per cent on the day. Worse still, by pledging to cut costs by transferring some work to Mexico and Morocco, they managed to set tongues wagging in Quebec that Bombardier was taking taxpayer cash only to turn around and outsource the very workforce it was implying would be saved.
No private sector investor could canvass the totality of the above and conclude there’s a “strong business case” for investing in Bombardier – which is precisely why they won’t put their own skin into Bombardier’s tottering game. The Trudeau government would well to follow suit, keep their word on requiring a strong business case and keep taxpayers’ skin out as well.
