Business·Analysis

Bombardier investment launches Quebec into battle with aerospace giants: Don Pittis

For now, Quebec's billion-dollar stake in Bombardier will preserve tens of thousands of aerospace jobs. The province is betting taxpayers' money on a head-to-head battle with aircraft giants Airbus and Boeing. Don Pittis examines what's at stake.

Is challenging Boeing and Airbus a savvy investment or a waste of taxpayer cash?

Fred Cromer, president of Bombardier Commercial Aircraft, presents Swiss Airline's new Bombardier CS100 aircraft. But delays in readying the CSeries for passenger service allowed giant competitors Boeing and Airbus to get a head start in selling into the same niche. (Reuters)

In some ways it feels like throwing good money after bad. 

The same day that Canada's leading transport manufacturer, Bombardier, announced $5 billion US in losses, Quebec taxpayers have invested more than $1 billion of their own in the company.

And despite a backlash from many Quebecers who think there are better things to do with a cool billion, the Quebec government may have made a smart investment in its future. But as Bombardier goes head to head with the world's biggest aircraft makers, there's no question it is a gamble.

In the short term it is a certainty that keeping Bombardier's aircraft development program alive will be good for Quebec's economy, specifically in terms of jobs. 

"The government's stepping in because there's about 17,000 to 18,000 Bombardier jobs in Quebec," says McGill University's Bombardier-watcher Karl Moore. "When you look at the tier-two suppliers, there's probably about 40,000 people in Quebec who make their living from Bombardier."

Lots at stake

But as usual with such investments, if it were merely a question of a few years' worth of  jobs, there might be a cheaper way to inject that money into the Quebec economy. There is much more at stake. 

Quebec and Canadian taxpayers have a long history of coming to Bombardier's rescue. In fact, it was the federal government under former prime minister Brian Mulroney that first got the company into the airline business when the feds sold off money-losing Canadair to Bombardier at fire sale prices.. 

Since then Bombardier has become a Quebec and Canadian industrial champion. Bombardier's water bombers, short takeoff and landing aircraft and business jets fly all over the globe. 

And in a world where everyone insists economic success depends upon research and high-tech innovation, Bombardier's foray into a whole new kind of aircraft has helped make Canada into a aerospace technology leader.

In conception and ambition the CSeries project has been a world-beater. Fuel efficient, quiet for a jet, the CSeries was build around the Pratt and Whitney PurePower engine that promises to cut noise in half compared to older engines. That's enough to make the noise disappear into background sounds of wind or city noise.

"I was there when it flew for the first time. It took off and we weren't looking at it," says Isabelle Dostaler, aerospace and aviation specialist at Montreal's John Molson School of Business. "I just noticed it was in the air, but didn't hear anything."

No choice

In Dostaler's opinion, the Quebec government didn't have any choice. Bombardier and its CSeries project are too important to Quebec's and Canada's entire aviation industry. And while smaller companies now supply other firms around the world including the U.S. and European giants Boeing and Airbus, Bombardier remains the local champion..

Without Bombardier and the CSeries, smaller players might begin to drift away.

Bombardier's attempt to lead the way in small airliner technology is a useful lesson in the challenges for governments that hope to encourage innovation. The process of building any technology from scratch is never a safe bet. You can't just add money and stir.

Well, you can, but there is no guarantee the products will be a success. That is why the aircraft industry has shrunk to a few large players, supported either directly or indirectly by government handouts. 

In the case of Bombardier's CSeries, if everything had gone according to plan, the Canadian plane could have swept the world, filling a unique niche connecting smaller urban landing strips to transcontinental hub airports dominated by jumbo jets. 

Stiff competition

The problem was, Bombardier's product schedule fell behind, says Dostaler. That two-year delay gave Airbus and Boeing a head start.

"The response by Boeing and Airbus was that they fitted existing aircraft with the new engine and created new versions of old models," says Dostaler. "And the problem is that Boeing and Airbus are selling a lot of these new aircraft."

She says the giant competitors have sold about 6,000 of the new quieter and more efficient jets, whereas Bombardier has pre-sold only around 250. The fact that the company was signalling it was in financial trouble didn't help.

Dostaler insists the Quebec taxpayers have a good chance of making their money back if Bombardier can get the plane ready for certification, as it hopes, in 2016.

"The structure of this aircraft was designed for the engine, so it's like the perfect marriage," says Dostaler. "It appears that the performance they are expecting could be even better than they thought initially."

This time the money the government has pumped into the CSeries has been in the form of an investment, a 49 per cent stake. That means it will continue to show up on the books as an asset. It also means that if Bombardier's new CSeries is a success, Quebecers will get half the profits.

It is a risk. Eventually the CSeries may go the way of the Avro Arrow or that other thinly disguised government project, the supersonic Concorde, developed by British and French taxpayers before being withdrawn from service.

Investing in the CSeries could be throwing good money after bad. But sometimes investing a little more is the only way of protecting an investment.

Follow Don on Twitter @don_pittis

More analysis by Don Pittis

About the Author

Don Pittis

Business columnist

Don Pittis was a forest firefighter, and a ranger in Canada's High Arctic islands. After moving into journalism, he was principal business reporter for Radio Television Hong Kong before the handover to China. He has produced and reported for the CBC in Saskatchewan and Toronto and the BBC in London. He is currently senior producer at CBC's business unit.

Comments

To encourage thoughtful and respectful conversations, first and last names will appear with each submission to CBC/Radio-Canada's online communities (except in children and youth-oriented communities). Pseudonyms will no longer be permitted.

By submitting a comment, you accept that CBC has the right to reproduce and publish that comment in whole or in part, in any manner CBC chooses. Please note that CBC does not endorse the opinions expressed in comments. Comments on this story are moderated according to our Submission Guidelines. Comments are welcome while open. We reserve the right to close comments at any time.