Bombardier’s appetite for subsidies
BOMBARDIER MAY SEEM LIKE AN AEROSPACE FIRM, BUT ITS CORE BUSINESS IS SECURING PUBLIC FUNDS
Isee the lib-left jackal pack in the media and opposition have decided to make a big “to-do” out of Bombardier paying its managers what they’re worth.
Columnists have fulminated, questions have been asked in Parliament, demonstrators have filled the streets over the company’s decision to set aside a small portion of the nearly $3.7 billion it has recently received in various forms of government assistance as a reward for the current occupants of its executive suite.
And sure, on the surface, at first blush, it’s easy to say that, at a time when the company is laying off thousands of workers, raising the compensation for senior executives by an average of 50 per cent looks a little — what’s the word — unselfish? Giving? Generous to a fault?
Kudos to our prime minister, Justin Trudeau, then, for pointing out that this is simply the market at work.
“We respect the free market and the choices that companies will make,” he reminded reporters the other day, while touring an autoparts factory in support of a federal subsidy program.
This was, after all, Bombardier’s money, from the moment the responsible minister let go of the cheque, and if Bombardier should choose to award, say, $5 million of it to Pierre Beaudoin, executive chairman, that is none of our affair. That is a decision for the company’s board of directors, among them Pierre Beaudoin, Laurent Beaudoin (his father), André Bombardier (Laurent’s brother in law), Jean-Louis Fontaine (another brother in law), and Joanne Bissonnette (his niece).
At any rate, the company has since bowed to pressure and agreed to defer the increases; Beaudoin has even asked that his be rolled back.
Which is a shame, because there’s an important principle at stake.
The company’s critics, obsessed as they are with short-term results in place of long-term vision, may wish to focus on such outdated metrics as the $981-million loss the company reported in 2016, declining revenues, or a share price that remains not far off its historic lows.
Others might dwell on the failure to deliver promised streetcars on time, or bribery scandals overseas, or the problems with the C-Series passenger jet, years late and billions over budget.
But this is to misunderstand the company’s core business.
As explained in a note to shareholders from the chair of the company’s compensation committee, “in 2016, Bombardier and its leadership team delivered high quality results … As part of its strategic roadmap, Bombardier successfully de-risked the business. By closing transactions with the (Caisse de depot et placement du Quebec) and the Government of Québec, Bombardier secured liquidity to execute its turnaround plan.”
The “transactions” in question, so instrumental in “de-risking” the company, were the provision of US$1.5 billion and US$1 billion in public funds — in exchange for Bombardier assets, to be sure, but with the government or its agencies on the other side of the table, rather than, say, banks or other private creditors with their own capital at risk.
And that’s not counting the work of Bombardier’s leadership team in securing, earlier this year, a $375-million “repayable loan” from the government of Canada.
So you see: the money the suits were paid was money they themselves raised — the sweat of their own expense accounts, fruit of countless arduous meetings with ministers and their chiefs of staff, often over inferior glasses of Sauvignon Blanc.
Don’t they deserve a cut — if not as a performance bonus, then as a kind of commission?
In the latter case, what is more, they were able to secure the liquidity without offering any concession in return. For this, credit goes to the hardball negotiating strategy of Bombardier execs, who refused to accept the bailout the federal government was urging upon them until the very last moment.
“What’s secured already is actually more than we require,” Bombardier VP Rob Dewar even went so far as to announce at one point.
The federal money, he said, is “really just an extra bonus that would be helpful but is very clearly not required.”
As I have tried without success to impress upon readers, Bombardier is only notionally in the aerospace or urban transit industry. In reality, it is in the subsidy business. Company executives long ago spotted an unmet market opportunity as recipients of last resort for governments desperate to splash out funds “creating jobs” in “high-tech” or “value-added” sectors.
The willingness of politicians to hand over the cash constitutes a demand for subsidy-seeking; Bombardier is only supplying the demand.
Bombardier planes may not find many buyers, but that’s not what it’s selling. It is selling the making of planes, or more particularly conspicuous government support for the making of planes, or perhaps just the idea of making planes.
Granted, the subsidy offers important benefits to the recipient, as well as the provider, allowing Bombardier to maintain its losses at the appropriate level — not so much as to seem an obviously hopeless case, not so little as to seem unnecessary — while continuing to attract capital from other industries and firms with unfair advantages in the form of marketable products, intelligent business plans, competent management and so on.
And yet, for all Bombardier’s unrivalled history of success in what is now a highly competitive subsidy industry, the mob demands we punish its executives — not by refusing to provide regular infusions of cash, but by insisting that no part of it go to management. Well, where’s the incentive in that?
The precedent is appalling.
If we are to forbid failing corporations from rewarding their executives with multimillion-dollar bonuses for laying off staff, tanking their share price and running their companies into the ground, we will make it impossible for them to attract top talent.