Ottawa is right to hesitate on Bombardier
Here’s the big question about taxpayer aid to Bombardier: In the end, who are we really helping by investing public money in the struggling transportation giant?
Are we bailing out the company itself? Or are we propping up the family that owns it through a dual-class share structure that entrenches their control?
The question has come to the fore once again after Bombardier reported disappointing quarterly results on Wednesday and announced it will lay off 7,000 workers – about 10 per cent of its global labour force – over the next couple of years.
Chief executive Alain Bellemare reiterated that federal government aid is essential to the future of the company’s flagship C Series passenger jet.
There was some good news for that program as Air Canada signed a letter of intent to purchase 45 of the new CS300 passenger jets, with options to buy 30 more. While it’s not yet a firm order, this was the first sign of interest in the C Series by a major carrier in well over a year.
Air Canada officials said they love the fuel-efficient jet, which has dragged down Bombardier for years with development delays, triggering a $3.2-billion writedown last fall.
News of the agreement, as well as the cost-cutting measures, sparked a 20 per cent rally in Bombardier’s beaten-down shares.
But while he called the tentative deal with Air Canada a “landmark” moment and a “turning point,” Bellemare said the federal government must follow in the footsteps of the province and invest in the C Series program.
The aircraft will need another $2 billion US in cash before the break-even point can be reached in the next few years, he said.
The provincial government has already kicked in $1 billion US for the C Series through Investissement Québec and another $1.5 billion US to Bombardier’s rail unit through the Caisse de dépôt et placement du Québec.
All of that is designed to shore up the balance sheet and buy more time for the company to secure orders for the plane.
For the federal government, it’s more than a business decision, it’s a highly political one given the importance of the aerospace industry in Quebec.
You have to admit that it takes some brass to ask taxpayers for more money when you are letting thousands of employees go. About half the 7,000 layoffs will be in Canada with a third in Quebec, according to some estimates.
And it’s not as if the feds aren’t already invested. Back in 2005, the Liberal government of the day consented to $350 million in aid for the C Series.
Last October, the Globe & Mail reported that since 1966, Bombardier had repaid only $543 million of the $1.3 billion in loans it has received over the years from Industry Canada.
Whether the Trudeau government will get on board once again is a matter of conjecture. But at least Ottawa is asking the right questions.
Reports say Economic Development Minister Navdeep Bains will look closely at corporate governance. The issue is simple enough: why should the founding family continue to exercise control when a series of management debacles has nearly crashed the company?
While the Bombardier-Beaudoin family is less involved than before, Pierre Beaudoin remains in a key position as executive chairman. Eight of the 14 directors are independent but the family continues to exercise plenty of power.
It holds 10 votes to every one for ordinary shareholders and thus holds majority control with a minority of the shares.
The interests of the company and the family might be synonymous in the minds of some. But investors who’ve watched their capital nearly disappear after buying Bombardier stock might disagree.
They see dual-class shares as protecting the ownership group from the threat of a hostile takeover and depriving shareholders of the premium they might otherwise get from a takeover bid in a free marketplace.
Last year, the Caisse de dépôt pushed unsuccessfully for a reduction in the family’s voting power as a condition for investing in new equity.
True, some progress has been made. The Caisse won board representation in Bombardier Transportation and the Quebec government also got a seat at the table when it purchased its 49.5 per cent interest in the C Series partnership formed last fall.
But at some point, management and ownership have to be accountable for the mistakes they’ve made. They can’t keep getting a free pass.