The effort to save Bombardier from its self-inflicted wounds was always going to be a messy and expensive affair. But no one said it had to be obscene too. It's obscene because the investors who will benefit most from the government-sponsored bailout programs – some in place, some to come – are the Bombardier and Beaudoin family members who remain in control of the company in spite of their epic management sins.
This is called rewarding bad behaviour, the equivalent of handing a BMW to your reckless son after he drove the Buick into a wall.
On Wednesday, Bombardier's new passenger jet, the C Series, scored a rare victory when Air Canada dropped its long aversion to the plane and signed a letter of intent for 45 aircraft, with options for another 30. If the orders are confirmed – there is no guarantee they will be – the slow-selling, overbudget jet will score a much-needed credibility boost and spare Bombardier's Montreal-area assembly lines from echo chamber status.
Air Canada is a stock exchange company and is obligated to adopt the best value-creating strategies for all its shareholders. Maybe the efficient C Series is now deemed the perfect machine for Air Canada's short- and medium-haul routes (a role now ably fulfilled by the airline's Brazilian-made Embraer jets), and maybe the discount to the list price, which was not disclosed, was irresistible. Still, you can bet that Air Canada was on the receiving end of the best persuasive powers of the federal and Quebec governments.
Even as Air Canada revealed its intention to buy the jets, Quebec agreed to drop a lawsuit against Air Canada in exchange for the airline's agreement to conduct maintenance on the C Series planes in Quebec. Sheer coincidence, to be sure.
Aerospace and defence companies all over the world enjoy special treatment by their governments. In exchange for goodies such as subsidies, tax breaks, cheap financing and lavish orders, these companies create high-paying manufacturing and engineering jobs that are often the pride and joy of national research and development efforts.
And so it is with Bombardier, but somewhere along the line, the largesse turned into an apparently bottomless-pit rescue effort for the C Series without the Bombardier and Beaudoin families being forced to forfeit, or even dilute, their commanding position in the company they created. The extended family controls Bombardier through their A shares, which come with 10 votes apiece. The subordinate B shares, the ones that trade on the stock exchange, come with a mere one vote.
In 2008, shortly after the C Series was officially launched, (against the advice of a former chief executive officer, Paul Tellier), Bombardier negotiated a $350-million loan from Stephen Harper's Conservative government to help cover the plane's R&D costs. The Quebec and British governments stumped up small fortunes too.
So far, so good, and not many taxpayers complained, because national champions need to be supported to ensure they remain national champions. But the C Series became a bridge too far for Bombardier. Under former CEO Pierre Beaudoin, the son of Laurent Beaudoin, who is the son-in-law of Bombardier founder Joseph-Armand Bombardier, the company's aerospace division lurched from one crisis to another.
The executives vastly underestimated the competitive response of Airbus and Boeing, which did not take kindly to the Canadian upstart eating into their market. They made the mistake of launching another ambitious program – the Learjet 85 business jet – at the same time as the C Series (the Learjet program was recently mothballed). They reportedly refused to offer attractive discounts on the C Series to fill up the order book.
The result was horrendous cash burn, a collapsed share price, few sales – there are only 243 confirmed C Series orders – a two-year delay on the aircraft's commercial launch date and a project that has gone more than $2-billion (U.S.) over budget. But never mind, because the feds and Quebec would come to the rescue.
The Quebec government pumped $1-billion into the C series project while the province's pension fund manger, the Caisse de dépôt et placement du Québec, invested $1.5-billion into Bombardier Transportation in exchange for a 30-per-cent stake in the Berlin-based train division. On Wednesday, Bombardier CEO Alain Bellemare, who replaced the hapless Pierre Beaudoin last year, reiterated his appeal for help from Ottawa. "A partnership with the federal government into the [C Series] is very important to us," he said.
The feds will probably comply, even if they go to great pains to spin any bailout as a commercial proposition that is in the taxpayers' best interest. But no sacrifice is being demanded of the Bombardier-Beaudoin family. Pierre Beaudoin may not be CEO any longer but he got a sweet consolation prize – executive chairman. The family retains its voting control of the company and is loath to relinquish it, even though its blocking position makes a strategic partnership with another aerospace company somewhere between impossible and difficult. Who wants to get into bed with a family that has veto power over everything?
Bombardier is going through a bizarre metamorphosis. It's on its way to becoming, in effect, a ward of the state under the control of a private family. It's a clever trick that should never have been allowed to happen. If Bombardier wants another dollop of taxpayer loot, which it does, the family that oversaw the massive value destruction should be invited to step aside.
Eric Reguly