It’s time to ditch the aerospace dogma and admit the myth

In the beginning was the Avro Arrow. Limited in range, horrendously over budget, strategically obsolete before the first plane was built, the Arrow, made by the shambolic A.V. Roe Company of Canada, found not a single foreign buyer and was cancelled before its mounting costs could eat up the entire defence budget. Diefenbaker’s hand was on the knife, but the Liberals would have done the same, and said so.

Ah, but it was ours! A technological marvel, designed, engineered and built right here in Canada! Proof of C.D. Howe’s typically grandiose boast that “Canada can manufacture anything!” How can you count the costs of a dream? In the aftermath of its demise, it became popular wisdom that the Arrow was marked for death, not because it was too expensive, but because it was too good: the Americans, jealous of our prowess, somehow forced Dief to kill it.

So was born the myth of the Canadian aerospace industry, fuelled by a heady mix of techno-nationalism and public money, an industry with no particular raison d’être except the near-religious dogma that “Canada must be in aerospace.” (And why must Canada be in aerospace? Because that’s the kind of thing a country like Canada should be in.)

Certainly it had nothing to do with economics. The aerospace dogma has cost Canada billions in subsidies, and billions more in misallocated resources and lost output. After the Arrow there was the Challenger business jet, brainchild of Canadair, another of Howe’s postwar pets. Rescued by the government in 1976, the company ran up costs of $1.5 billion in a decade under public ownership attempting to launch the Challenger.

Desperate to unload it, the government wrote off its debts before selling it for a song to another Quebecbased manufacturer, Bombardier — a formula it was to repeat with the not-quiteas-catastrophically moneylosing De Havilland, first selling it to Boeing, then more or less paying Bombardier to take it off Boeing’s hands.

(“In the mid-1980s,” the historian Michael Bliss wrote in Northern Enterprise, his history of Canadian business, “the only profitable Canadian manufacturer of complete aircraft was Fantasy Sky Productions Incorporated of Kitchener, Ontario, maker of the Labatt Blue and other hot-air balloons.”)

So the Bombardier debacle has deep roots; the CSeries passenger jet, source of the company’s current woes, is the successor to the Arrow and Challenger. To the core techno-nationalist dogma — Canada must be in aerospace — has been added the foundational belief at the heart of all such fiascos: the fallacy of sunk costs, or “we’ve spent so much money, we can’t afford to stop.” Bombardier is the classic example of a company “too big to fail,” its thousands of employees effectively hostages: as they were only hired with subsidy, so the subsidy must be kept flowing, in perpetuity. Oh, and did I mention it was based in Quebec?

Yet the effort was always doomed. When the governments of Canada and Quebec agreed to plunge more than $3 billion into the company over the past two years they must have known it would trigger some sort of retaliatory trade action from Bombardier’s international rivals; if it had not been Boeing, it would surely have been Europe’s Airbus or Brazil’s Embraer. The 220-per-cent tariffs the U.S. Commerce Department ordered this week, subject to approval by the U.S. International Trade Commission, are surprising only in scale.

But politicians are not known for thinking much beyond the next news cycle, and the immediate problem was to help Bombardier, deep in debt and rapidly running out of cash, find a buyer for the C Series, fast. The Delta Air Lines sale in dispute, allegedly for US$19.6 million a plane (list price: $80 million; manufacturing cost: $33 million) would have been impossible without it. As, indeed, it may prove if the duties are upheld.

Yes, of course, Boeing is itself the recipient of massive amounts of government aid: US$14.4 billion in federal and state subsidies and US$73.7 billion in loans over the past 17 years, according to the Subsidy Tracker website. Yes, its case must still be heard by the ITC, and can be appealed. Yes, if the U.S. knew its own interests, it would never be brought: the aid Canadian governments provide to Bombardier is as much to the American airline industry, in the form of crazy-cheap planes. Everyone’s in the wrong here.

But that does not alter the fundamental dilemma before us, which is that Bombardier cannot compete in this league. Whether it could compete if other countries did not subsidize their aircraft manufacturers is an interesting theoretical question. But they do. That is only an argument for Canada doing likewise if you start from that same quasireligious premise that has proved so ruinous to date: that Canada must be in aerospace, whatever the cost.

Otherwise, it is apparent that at best — at best — all our subsidies can hope to do is match theirs. But, of course, we can’t possibly match theirs: we don’t have anything like as deep pockets as the U.S. or the EU. And if we try, we are only likely to provoke a trade war, of a kind we can’t possibly win. The $6-billion purchase of military jets the federal government is threatening to withhold from Boeing represents roughly five per cent of its annual sales.

Rather than escalate things further, potentially putting other sectors at risk — not to mention national unity: Quebec premier Philippe Couillard’s demand that “not one bolt, not one piece, not one plane from Boeing should enter Canada” will not play well in other parts of the country, where Boeing is a major employer — it is time we took stock. We have poured billions down this sinkhole, and all it has bought us is the right to go on pouring billions more. Faith-based economics be damned: Canada does not have to be in aerospace.

NOT ONE PLANE FROM BOEING SHOULD ENTER CANADA