Quebec makes high-risk bet with $1-billion Bombardier investment

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Quebec has announced it will cut a billion-dollar (U.S.) cheque to become partners with Bombardier in its struggling C series program – a move that came on the same day the company posted a $4.9-billion third-quarter loss, including a $3.2-billion writedown on the C series.

The deal, which will give the province a 49.5-per-cent stake in the program, was designed with a single political goal in mind: to make sure the C Series plane gets off the ground and employs tens of thousands of Quebeckers for years to come. The government repeatedly referred to the deal as an investment, but a direct return will be years down the road and may never come.

"What's more risky, doing it or not doing it?" said Jacques Daoust, Minister of the Economy and Innovation, who announced the deal Thursday alongside Bombardier CEO Alain Bellemare. "These are not the first faltering steps of the program. They're about to go into production and Bombardier needs liquidity. This is 40,000 jobs, with average salaries double the Quebec average. We can't just let the industry go."

Mr. Couillard said the deal came with guarantees that the head office for the joint venture, along with engineering and manufacturing activities, will remain in Quebec.

Quebec has long had an emotional attachment to the plane maker, as well as a financial one. The company has been heavily subsidized by the Canadian and Quebec governments, with the C series alone receiving more than $800-million in loans by governments before Thursday's billion-dollar announcement. The program is over budget, long delayed and up against competition from global giants Boeing and Airbus Group.

Opposition leaders accused Quebec Premier Philippe Couillard of being a lousy negotiator and overpaying for the highest-risk slice of the company's business – the fledgling C Series passenger jet that is almost complete testing. They said the province should have put the $1-billionin Bombardier to benefit more from the parent company's more successful ventures in trains and private jets. (The province does get 200 million in parent company stock options that should be profitable if the company recovers.)

"The Premier is a pitiful negotiator," said Pierre Karl Péladeau, the media baron turned Parti Québécois leader. "They are taking all the risk with almost no chance of return."

Mr. Couillard drew a parallel with the bailout that the auto sector received from the Canadian and Ontario governments. "Aerospace for Quebec and Montreal is as important as the auto industry for Ontario," he told reporters at the National Assembly. The Premier called the bailout a "vote of confidence" in Bombardier and the new airliner.

And more money could be on the way – this time from federal coffers.

The incoming federal Liberal government says it will render a decision on an outstanding request from Bombardier for a further $350-million in federal assistance after taking power next week.

"We are in the process of being briefed on the file, are following it closely and a decision‎ will be made once the government is sworn in on Nov. 4," said Liberal spokesman Dan Lauzon.

Bombardier approached the now-defeated Conservative government earlier this year, seeking a repayable loan of about $350-million to help it operate while it was working on its C Series jet.

Warren Lovely, the head of public-sector research at National Bank Financial, noted, "Quebec's investment is in some ways similar to a joint federal-Ontario investment in the auto sector during the financial crisis, where a public-sector commitment protected a strategic industry during a period of instability and transition."

Ontario and the federal government invested $13.7-billion in Chrysler and General Motors to keep them afloat in 2009, but it recouped only about $10.2-billion.

The federal lobbyists registry shows Bombardier's CEO, Mr. Bellemare, was pressing Ottawa on financial support in the lead-up to the federal election call this summer – and even during the writ period.

Records show Mr. Bellemare talked to Bill Hawkins, principal secretary in the Prime Minister's Office, on July 29, as well as Lawrence Hanson, an assistant deputy minister at Industry Canada, and François Desmarais, the department's director of policy. He also talked to Mr. Hanson three weeks into the writ period, on Aug. 24.

Asked Thursday why he approached these federal officials in the summer, Mr. Bellemare said his company had been talking with both the Quebec and federal governments and others "in terms of exploring opportunities to help us with the challenges on the C Series and also especially on the development costs."

Mr. Bellemare said the federal election ended up delaying the matter, but added Bombardier "will continue to explore potential options and potential partnerships. We will do that both on the train side and on the aerospace side."

In 2008, Ottawa extended a $350-million repayable loan to Bombardier to help with the development of the C Series jet. It's not known how or when Bombardier will repay that money.

News of the Quebec investment comes as the Couillard government faces increasing pressure for its attempts to put a lid on spending. All week, unionized public-sector workers, including most of the province's teachers, have been on rotating strikes after negotiations hit an impasse.

Mr. Daoust, the Economy Minister, was asked about the apparent conflict: "In your balance sheet, Bombardier is an investment, it will be profitable. If you look at expenses and salary, you never see that money again. Nothing against teachers."

Louise Chabot, president of the Centrale des syndicats du Québec, which represents a large portion of the province's teachers, said Mr. Daoust's words betrayed a lot about the Liberal government's philosophy: Public services like education are portrayed as a burden, while business subsidies are seen as vital to the future.

Daniel Boyer, president of the Quebec Federation of Labour, welcomed the investment but said if there's money for Bombardier, there should be money for public-sector workers, too.

"We want this government to stop its austerity program and relaunch the economy with investment," Mr. Boyer said.

Mr. Daoust said public-sector wages come directly from taxes paid by Bombardier and its employees. He added he is confident the government won't be tapped again for additional cash. "You can never predict the future, but the agreement states we will not contribute more than we are," he said.

Editor's note: An earlier online version incorrectly stated the province gets $200-million in parent company stock options. In fact, the province gets 200 million.