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Report on Business Bombardier raises questions about ‘commercial viability’ of Thunder Bay plant

A Metrolinx LRV under construction at Bombardier's Thunder Bay plant.

HO/The Canadian Press

Bombardier Inc. is raising concerns about the “commercial viability” of its Thunder Bay railcar plant should it not secure new work, even as the Ontario and federal governments took turns blaming each other for impending job losses at the facility.

Bombardier said the 550 jobs, or half the plant’s work force, would be lost beginning in November as contracts with its two biggest customers − Ontario’s Metrolinx and the Toronto Transit Commission − come to an end this year.

Bombardier said in a statement Wednesday that it “remain[ed] hopeful that we can secure new work to ensure the [plant’s] commercial viability.”

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News of the cuts led to suggestions that a proposed 36-car order from Metrolinx for its GoTransit system could help show Bombardier the plant should be kept alive. But the deal is not complete, with Bombardier asking for a sizable price increase, according to two sources from Metrolinx.

And the province’s desire to take delivery of the cars gradually makes it a drop in the bucket − effectively too little, too late, says the union that represents workers at the plant.

“We’re building those cars at a rate of one car every two working days," Dominic Pasqualino, the head of the Unifor union at Bombardier’s Thunder Bay plant, said Wednesday. “The idea of 36 more Go trains at the rate we’re working now is 72 working days. That’s not going to carry us. We need a bigger order. We need an order 10 times that amount,” he said.

Premier Doug Ford seemed to characterize the 36-car Metrolinx order as a done deal. “As soon as I found out there might be a layoff, we put our money where our mouth is,” he told reporters at a briefing in Saskatoon, where he’s attending a conference of provincial and territorial premiers. “We put $130-million, immediately, into this plant. We have the potential to keep this plant going for years.”

Ontario’s Economic Development and Job Creation Minister Vic Fedeli said Wednesday that there’s more money on the horizon: The province is on the verge of a $28.5-billion transit plan, he said, and he urged the federal government to commit its share − up to 40 per cent − before the October general election.

“We’re committed to this $28.5-billion in transit, we’re committed to [what] we’re negotiating right now to the additional Go Transit cars, and we’re saying to Bombardier, continue with these discussions with Metrolinx and continue to work to a viable solution to protect those jobs in Thunder Bay,” Mr. Fedeli said in an interview.

Yet the ordering of “rolling stock,” or railcars, for a new transit project is typically timed so they are delivered relatively close to its opening, not years in advance, and not before the money is approved.

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Federal Employment Minister Patty Hajdu, who also represents the riding of Thunder Bay-Superior North, said Ontario still needs to submit an application and details for its $28.5-billion transit plan in order to secure federal funding. “If you don’t get the process started, then nothing happens. And in fact, that’s what we’re seeing right now. So we see chaos, confusion and paralyzation.”

“The idea that they would be able to continue to produce cars without an order is ludicrous," she added. "And anybody in business would understand that there’s no ability for a company to just on spec produce vehicles or any kinds of product without understanding who and where their customer is.”

The Metrolinx and TTC contracts have been fraught with problems – including missed deadlines, late deliveries and defective products. In December, 2017, Metrolinx cut in half a $770-million deal with Bombardier, reducing the number of vehicles to 76 from 182, and brought in Bombardier competitor Alstom SA as a supplier. The next year, the majority of the streetcars delivered to the TTC were sent back to the plant for repairs.

Bombardier said in a statement Wednesday that it has been in talks with Metrolinx over the past three weeks about the possibility of making those 36 cars, but no contract has been signed. “We appreciate the provincial government support and look forward to a successful outcome in the very near future,” Bombardier said.

Sources within Metrolinx, granted anonymity by The Globe and Mail because they were not authorized to speak publicly about the talks, said that Bombardier was seeking a 35-per-cent premium over previous pricing for the vehicles.

Metrolinx CEO Phil Verster, who would not comment on the negotiations, including how each vehicle might be priced, said the agency was looking to pay a fair cost. “We are doing everything possible to encourage Bombardier to do the work at a reasonable market price,” he said in a phone interview Wednesday.

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Bombardier spokesman Eric Prud’Homme said the company would not discuss contract negotiations in a public sphere, but said the 35-per-cent figure was not true. He also said the additional vehicles would have “more content” than the ones previously ordered.

Mr. Prud’Homme said that in general, changes in the exchange rate over time can cause changes in pricing, and the economics of a smaller order would naturally yield a higher price than a larger one. “When you have an order, at the end of it, there are two options: continuity, where you keep the plant open and can add more vehicles, or discontinuity, which means your supply chains are shut down and you need to start over again. There’s a question of volume: If you’re talking about an order of 1,000 cars, versus 100, or 36, anybody should understand that because there are fixed costs, the cost will not be the same.”

“Right now, we are in discontinuity,” he said. “We’ve had those conversations with the government since last fall, so this is a flag that’s been raised a long time ago.”

Meanwhile, Bombardier owes the TTC 38 more streetcars from the 204-vehicle order scheduled to wrap up at year end. TTC spokesman Stuart Green said that the agency had put a request for information out to the market late in 2017 to see what companies could supply 60 to 100 new streetcars. The responses included one from Bombardier.

He said that it was too early to know when the agency would make a formal purchase recommendation to its governance board. Mr. Green acknowledged that Bombardier’s production and reliability issues have caused problems for the TTC and its riders. But he also said that has to be weighed against the fact that the company appears likely to meet its ultimate deadline, and that it may be more efficient to continue an existing contract rather than sign one with a new supplier.

Bombardier said it has spent more than $20-million to double its delivery rate to the TTC and it is “fully committed” to fulfill the 204-car order by the end of the year. “The Thunder Bay Plant has increased its performance significantly since 2016, and the vehicles they are producing are safe, comfortable and reliable.”

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As for the potential Metrolinx order, Mr. Pasqualino of Unifor says the province wants to take delivery of the 36 cars much more slowly than the current pace of production. “They don’t want a car every two days, they want this to stretch out for three years. If you’ve got 36 cars and three years to do it, you’re talking a car a month." Barbara Mottram, spokesperson for Transportation Minister Caroline Mulroney, declined to comment on the timetable, saying the contract is still being negotiated.

Bombardier also said U.S. “Buy American” rules on local content for infrastructure – the threshold is now 65 per cent and is increasing to 70 per cent – are a factor in the layoffs. “A company like Bombardier has no choice but to have an American manufacturing footprint and supply chain. Therefore, we cannot fully leverage our Canadian manufacturing footprint and expertise.”

Canada’s premiers used their annual meeting in Saskatoon on Wednesday to call on Prime Minister Justin Trudeau to lobby the United States for changes to Buy American rules.

“We are very concerned about the trade barriers with the United States. We had a concrete example yesterday with the layoffs at Bombardier,” Quebec Premier François Legault told reporters, speaking in French. He said companies like Bombardier are finding it easier to relocate factories to the U.S. to satisfy Buy American provisions.

With reports from Justin Giovannetti

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