Bombardier: A 'no brainer' investment or a 'house built on quicksand'?

With the announcement that Bombardier will be cutting 7,000 jobs over the next two years while facing declining revenues, the spotlight is now on the federal government and whether it will heed the aerospace company's plea for more money.

Plane maker cutting jobs even as Air Canada to purchase 45 of the new CSeries jets

Alain Bellemare, right, president and CEO of Bombardier Inc., and Calin Rovinescu, president and CEO of Air Canada, sit in the cockpit of a Bombardier CSeries. Bombardier, which has a deal to sell Air Canada 45 CSeries jets, announced Wednesday it will eliminate 7,000 positions over two years. (Paul Chiasson/Canadian Press)

With the announcement that Bombardier will be cutting 7,000 jobs over the next two years as it faces declining revenues and a net loss, the spotlight is now firmly on the federal government and whether it will heed the aerospace company's plea for more money.

But where some analysts see the Montreal-based firm, with its 64,000 global workforce, as a prudent investment in an important Canadian industry, others believe it may be time for Ottawa to turn off the government money tap.

"My feeling is it comes down to a question. Do you want to see Canada involved in these industries? And if you do, if you want want to see your country having a presence in these industries, then you're going to have to support them," said Tyler Chamberlin, an associate professor at University of Ottawa's Telfer School of Management.

At a time where there's so much volatility in the resource sector, government contributions in a capital intensive company like Bombardier "whatever form they may be, loans or grants, are a no-brainer," Chamberlin said.

(Natalie Holdway/CBC)
It is not just the company itself that is at risk, he said, but the network of smaller suppliers that produce parts and bits and pieces. 

Along with the layoffs, Bombardier also announced Wednesday that it lost $5.34 billion US for 2015, including a $677-million US  loss in the fourth quarter.

But that news was somewhat tempered by the revelation of a letter of intent from Air Canada to purchase 45 of the company's new CSeries jets, with options for an additional 30 planes. Bombardier has said that order would be worth about $3.8 billion.

"It does suggest that they're heading in the right direction," Chamberlin said. "Now, that being said, they're still going ahead with layoffs of 7,000 people, which suggests they have very significant problems that aren't solved immediately by these orders."

(Natalie Holdway/CBC)

How much the aerospace company is seeking from the federal government is unclear, but it's believed to be something similar to the $1.3 billion that was recently pledged by Quebec.

Navdeep Bains, Canada's minister of innovation, science and economic development, said Wednesday that "such an important decision will only be made after due diligence, careful consideration and a strong business case."

A decision like that could take months, says David Moloney, the former assistant deputy minister for Industry Canada who worked on the Bombardier file in 2008 when Ottawa gave $350 million in loans for CSeries-related research and development.

Government officials, Moloney said, will be looking into such factors as whether there is a market for the CSeries, who else is in the market, is the company capable of the construction phase, is there a reliable and capable supply chain in place and does Bombardier have the engineering, sales, manufacturing and executive leadership to pull this off. 

'Latest and greatest'

Karl Moore, associate professor at McGill University's Desautels Faculty of Management, praised the CSeries as the "latest and greatest" in terms of superior technology, fuel efficiency and comfort.

"This is a great product where there's a big need in the market place," he said.

He also said that government funding for Bombardier should not be viewed as a handout, but as the kind of appropriate government support to match what other governments do for their own aerospace industries around the world. 

"In this industry, when you look at their global competitors, they're all being subsidized," Moore said.

Bombardier has been a "reasonably good investment", he added, and has paid back much of its government funding and generated thousands of jobs and tax revenue from both the company and its employees.

"Bombardier's been a very good thing for Canada to have, so it's worth it to us as Canadians giving some of our tax money to them."

A Bombardier CSeries jet sits in a Montreal hanger. (Paul Chiasson/Canadian Press)

On the other hand, Aaron Wudrick, federal director of the Canadian Taxpayers Federation, says the return on investment has not been worth it, and that over the last 50 years, Bombardier has received more than $2 billion in government assistance, with only $543 million of it having been repaid. 

"Bombardier is a house built on quicksand, demanding taxpayers stand around and hold it up forever. Not sustainable," he tweeted. 

For its part, Bombardier CEO Alain Bellemare told the Canadian Press yesterday that it has generated more than $15 billion in government tax revenue since the mid-1980s.

'How long do we keep doing this?'

Wudrick later told CBC News the government should be looking at ways of helping people affected by job losses, but that doesn't mean handing  money over repeatedly to the same company.

"We've been doing it for 50 years. Quebec just gave  them a billion dollars and they turn around and fire 7,000 people. I just don't understand how people can conclude the next best step is to give them even more."

"Suppose we do give them whatever they want today, who is to say this won't happen again in five to 10 years," he said. "How long do we keep doing this?"

(Natalie Holdway/CBC)

That other countries subsidize their aerospace companies is not justification for Canada to pour money into Bombardier, Wudrick argued, especially since Ottawa alone can't compete with the U.S. or Europe on this front.

"It comes down to the question of why do we assume we have to be in this business. There are a lot of different industries that we're in. And when you bore right down to it, there is no real economic reason why. It's just that some people feel that aerospace is a prestigious industry, or that it's somehow different from other industries. 

While the potential job losses would be regrettable, Wudrick pointed out that other struggling companies aren't receiving government aid.

(Natalie Holdway/CBC)
"Alberta just lost 100,000 jobs last year. I didn't see anybody stand up and suggest that the solution was to find every company and business that fired those workers and  pay to keep their employees."

Conservative MP Maxime Bernier, critic for innovation, science and economic development, said that direct subsidies to Bombardier is not the real solution.

"Instead of giving subsidies to Bombardier or other businesses I think we must have a policy that will be fair for every business. So stop direct subsidising businesses, and lower taxes to all businesses."
 

With files from The Canadian Press

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