The case for subsidizing Bombardier used to be a simple one. Despite the inevitable charges of federal favouritism toward Quebec, successive governments in Ottawa always concluded that the benefits of such aid in jobs, taxes and technology development would pay off in the end.
As a rising player in the 1980s and 1990s, Bombardier was Canada’s best candidate for “national champion” status as many countries around the world came to see the aerospace industry as their best bet for moving up the industrial food chain into advanced manufacturing.
For all the flak Liberal and Conservative governments took outside Quebec, none ever regretted helping the company, which went from once making Ski-Doos to becoming the world’s third-largest civil aircraft maker.
The tables have turned since Bombardier began a relentless downward slide a few years ago, forcing it to undertake the sale of everything except its business-jet division. There is no longer much, if any, upside for taxpayers as the company struggles to get through yet another crisis.
That likely will not stop the Quebec government, which still sees Bombardier as the linchpin of the province’s aerospace industry, from stepping up to the plate. Premier François Legault said as much last week after the company announced it was laying off 2,500 workers, including 1,500 in Quebec, in the face of a pandemic-related drop in demand for private jets.
Prime Minister Justin Trudeau’s government, however, has been reticent to commit to helping Bombardier now – despite growing calls from Quebec’s aerospace industry for a sector-wide aid package on par with the bailouts Ottawa offered to automakers during the last recession. While Ottawa last week announced the purchase of two Challenger 650s for the Armed Forces, in a deal worth $105-million, that won’t replace more than a fraction of the lost orders Bombardier’s business-jet division is expected to suffer through the economic downturn.
As a result, Quebec government officials have sought to increase public pressure on Ottawa to act fast to help the company. “We are not going to let this swath of economy suffer. There’s no question of that,” Quebec Economy Minister Pierre Fitzgibbon told the Journal de Montréal last week. “That’s the message I sent to the federal government.”
Mr. Fitzgibbon’s comment came the same day that his boss revealed the Quebec government now considers its US$1-billion investment in Bombardier’s C-Series aircraft program – which has since been sold to Europe’s Airbus SA – to be worthless. In its March budget, Quebec wrote off more than half of the investment, after the European aerospace giant disclosed that it did not expect to break even on the 100- to 150-seat jet for several years.
And that was before COVID-19 decimated the global airline industry, sapping demand for commercial aircraft in what could prove to be a years-long downturn. The Quebec plant where Airbus assembles most C-Series – rebaptized A220s – risks suffering the consequences.
Mr. Legault indicated that any new aid for Bombardier, which will be reduced to a single division if the proposed sale of its railcar unit to France’s Alstom SA is completed, would come with strict conditions related to executive pay and dividends. While Bombardier has not paid a quarterly dividend since 2014, it has come under fire for handsomely rewarding its executives even as the company posted massive losses and fell to penny-stock status.
Bombardier’s recent proxy circular indicated that the former chief executive Alain Bellemare, who resigned in February after five years in the job, was awarded a US$12.35-million severance package, US$3.5-million of which was linked to the sale of the rail unit to Alstom. Four other top executives are eligible for bonuses of between US$1.2-million and US$1.5-million if they remain with the company until the sale. Mr. Legault called Mr. Bellemare’s package “odious.”
In a report last week, governance experts Glass Lewis said the members of the Bombardier board’s compensation committee, chaired by former Citigroup CEO Vikram Pandit, “may not be effectively serving shareholders." It said it considered both Mr. Bellemare’s severance and the “single-trigger cash benefits” offered to remaining executives “to be excessive.”
The rich pay packages, as well as the Bombardier-Beaudoin family’s repeated refusal to abolish the company’s dual-class share structure, make it much harder for Ottawa to justify helping the company now. Bombardier’s future as a single-business manufacturer of private jets remains very much in doubt. The company’s annual revenues topped US$20-billion in 2014, but will fall to US$5-billion or less once the rail division’s sale to Alstom is completed.
Bombardier’s subordinated-voting shares have traded below $1 per share since February and the stock no longer meets official eligibility requirements to be included in the S&P/TSX index. Being bumped from the index would reduce the potential pool of investors that are able or willing to hold Bombardier’s shares since many funds refuse to buy stocks outside the index.
“We are aware of the guidelines for index inclusion, but we cannot speculate,” Bombardier spokeswoman Jessica McDonald said.
Speculate, however, is about all investors can do with respect to Bombardier. This is not a company you would want any government to bet on yet again.
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