- Canada weighing aid request from struggling aerospace firm
- Past auto funding, present politics tilt scale toward approval
Prime Minister Justin Trudeau will have a hard time saying no to Bombardier Inc.’s request for aid to complete the troubled C Series aircraft because of the company’s deep political and economic roots in Canada.
The Montreal-based plane and train maker -- which reports fourth-quarter earnings next week -- is strained by the $5.4 billion development program that’s now more than two years late and at least $2 billion over budget. Quebec Premier Philippe Couillard has already offered $1 billion and said the federal government should make a similar commitment.
Here are six things former officials and analysts say Trudeau is looking at:
Does the C Series have a bright future? Bombardier’s 243 firm orders lag a target of 300 by the time deliveries begin in the first half of this year, and the last firm sale was in September 2014. Yet data compiled by Bloomberg show the backlog for the narrow-body type of aircraft with which the C Series competes is much larger than for bigger planes -- a sign of healthier demand.
The model can sell with the right price to lure orders away from rivals such as Boeing Co. that may offer discounts on their smaller aircraft, George Ferguson, senior air transport analyst at Bloomberg Intelligence, said this week. “They built a nice product,” he said. “The problem is it’s really hard to break into that business,” and “they would like to put some money on the balance sheet so they can wait out the market here and get a bunch of sales.”
Why hasn’t past aid worked? Canada contributed C$350 million ($250 million) to the C Series in 2008, and the federal export development bank has provided about C$8.5 billion in financing to Bombardier’s customers. Trudeau’s officials must review why past assistance hasn’t brought the project to life, said David Moloney, a researcher at Western University’s Ivey business school in London, Ontario and a former senior government official in the 2008 review. “These kinds of things have to be done to be able to look the minister in the eye and say ‘This is a good idea’,’’ he said by telephone last week, adding he doesn’t have a view on what to do this time.
Bombardier now has Canada’s top corporate research budget at C$2 billion, more than double that of struggling smartphone-maker BlackBerry Ltd., according to Research Infosource Inc. It also has about 24,000 employees in Canada, according to a government estimate, and officials briefing Trudeau after his Oct. 19 election described Bombardier as an “anchor’’ company.
Montreal -- Quebec’s largest city -- is home to 212 aerospace companies and about 42,000 workers, according to the Aero Montreal lobby group. Quebec-based aerospace companies had combined revenue of C$11.7 billion in 2011, the most recent year for which figures are available, with exports making up about 80 percent of the total, Aero Montreal data show.
Aerospace is supported by state funding elsewhere. Officials briefing Trudeau said it “is often seen as a ‘pay to play’ industry,” and the C Series will compete with aircraft made by Airbus Group SE, Boeing and Embraer SA. Sergio Marchi, a former Liberal trade minister and Canadian ambassador to the World Trade Organization, cited a past dispute with Brazil’s support for Embraer as an example of the risks to Canada of not backing Bombardier. “We need to find creative ways to sustain our global players, because other governments did,” he said in an interview last week.
There are concerns with the way the company is run. Bombardier is controlled by its namesake family through shares with extra voting rights, and officials familiar with the government’s plans have said the company’s current governance structure is a barrier to federal aid. The Ivey school’s Moloney said other conditions may emerge based on the kind of financing offered. For example, taking equity in the project would raise more questions about ownership and profit-sharing than a loan.
Whether aid comes or not, investors are leery. The company’s widely held shares dipped below C$1 for the first time in 25 years last month and closed at 78 Canadian cents Thursday in Toronto.
Trudeau is from Bombardier’s hometown and 40 of his 184 Liberal lawmakers are from Quebec, Canada’s second-most populous province. Spurning Bombardier means the prime minister would have to explain why one of Quebec’s biggest employers can’t have a fraction of the C$9.15 billion bailout offered to Ontario’s General Motors Co. and Chrysler factories in 2009. That precedent gives the government “no choice,” Fred Lazar, an economics professor who studies aerospace at York University in Toronto, said by phone last week.
Tyler Chamberlin, a professor at the University of Ottawa’s Telfer business school, agrees it would be very difficult for Trudeau to turn Bombardier down. “If Canada is to remain in the aerospace industry, much like for the auto sector, then it must accept and understand that it will require government support,” he said.