Mark Collins – Want to Bet Against Feds Bailing Out Bombardier?

Further to this post,

Bombardier a Penny Stock: TSX Listing?

BloombergBusiness reviews the situation:

Here Is Trudeau’s Six-Point Checklist for Bombardier’s Bailout

  • 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:

1. Viability 

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 [BUT CAN THAT PRICE BE PROFITABLE?] 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.”

2. Efficacy

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 [emphasis added]. 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…

6. Politics

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 [and then consider this likely future repercussion: “If Feds Bail Out Bombardier, Can Ontario Auto Sector be Far Behind?“].

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.

Ah, la politique du porc.  Plus an exquisite evisceration by Andrew Coyne:

Bombardier bailout just more of the same old

Mark Collins, a prolific Ottawa blogger, is a Fellow at the Canadian Global Affairs Institute; he tweets @Mark3Ds


4 thoughts on “Mark Collins – Want to Bet Against Feds Bailing Out Bombardier?”

  1. Big “Ouches!” here:

    “Guess how much you’ll be giving Bombardier
    More from William Watson

    Do the federal government and the Quebec government, which last fall committed $1.3 billion to Bombardier (a hefty $325 per income-tax-paying citizen), have special insight into the workings of airplane markets that justifies overruling the apparent verdict of world capital markets that the C-series will never fly financially?

    …If there were any chance of Bombardier recovering, wouldn’t some enterprising bank, billionaire or hedge fund be eager to take a (ahem) flyer on it?

    The governments will argue that Bombardier offers Canadians much more than financial benefits (which is a good thing since it’s offering precious few of those right now). We get pride from being a player in the world airplane market – though if our planes don’t actually sell, maybe the pride is reduced.

    We get the benefits of local control of the company – though if it’s run by cost-conscious capitalists, as we would want it to be, local preferences should be slight…

    Government may well have a role to play in providing foreign aid. But to world air travellers?”

    Mark Collins

  2. Lunacy–imagine what fighters built in Canada would cost (company as now is has never built such an aircraft)

    “John Ivison: Ottawa’s fighter jet dilemma might be exactly what ailing Bombardier needs”

    Just consider the shipbuilding mess:

    Mark Collins

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s