by Thomas Walkom
Score another win for Donald Trump’s high-handed version of protectionism. Monday’s decision by
Montreal-based Bombardier to give away control over its much-vaunted C Series jet virtually guarantees that the U.S. will get the lion’s share of any new jobs created.
It also threatens to saddle taxpayers in Quebec and the rest of Canada with a good chunk of the $6-billion debt Bombardier incurred developing the jet.
How did Canada’s most important state-subsidized, high-tech company get into this mess? The long answer is complicated and involves corporate incompetence as well as the geopolitics of the global aerospace industry.
The short answer is the election of America First advocate Trump as U.S. president.
The latest chapter of this ongoing saga began in April when American aerospace giant Boeing formally complained to the U.S. Commerce Department about Bombardier’s proposed sale of 125 C Series jets to Delta Air Lines.
Charging that the project had been improperly subsidized by the Canadian and Quebec governments, Boeing asked that an 80-per-cent tariff be slapped on any C Series plane entering the U.S.
The Trump administration was more than agreeable. It imposed a preliminary tariff of 300 per cent, thereby making the Canadian-manufactured jet virtually unsalable in the lucrative U.S. market.
That posed a real problem.
Bombardier’s solution was quite simple. It was to move production of planes intended for the U.S. market to a plant in Alabama.
That non-union plant is owned by the European aerospace giant Airbus.
For Airbus, the arrangement is sweet. In return for letting Bombardier use its Alabama plant, it gets a little more than 50 per cent of the C Series project for free. It doesn’t have to pony up a cent. Nor does it have to absorb any of Bombardier’s sizable $8.7-billion debt, much of which was incurred developing the C Series.
For Bombardier too, this is a good deal. By moving assembly from Canada to the U.S., it avoids the 300-per-cent tariff and keeps the Delta sale alive. As well, it gets to locate its American production in a so-called right-to-work state that promises cheap wages and is vehemently anti-union.
While it no longer controls the C Series, Bombardier does get to keep a 31-per-cent stake in the project for at least 7.5 years.
And it can take advantage of Airbus’ global reach to market the jet.
I am not sure that this is such a good deal for Quebec. Its 49.5-per-cent stake in the project, for which it paid $1.25 billion, has been whittled down to a little more than 19 per cent.
Ottawa has sunk less into Bombardier. Its latest contribution to the C Series bailout was a $372.5-million loan – which it might get back. Bombardier has repaid roughly one half of the $1.3 billion in federal loans it and its predecessor companies were given between 1996 and 2008.
But the Airbus deal effectively marks another failure in Canada’s long-running efforts to nurture a homegrown aerospace industry. It seems we are not big enough to go it alone.
Economic benefits? The International Association of Machinists and Aerospace Workers, which
represents Bombardier’s Montreal plant, says it is pleased that the roughly 2,000 people working on the C Series there are to keep their jobs.
But the question of where new jobs might go remains unresolved.
Certainly, Alabama will get any new jobs involved in the manufacture of jets for the U.S. market. State Gov. Kay Ivey has already issued a press release welcoming them. But where will the project’s new owner, Airbus, locate production for other markets?
It could choose Bombardier’s unionized plant in Montreal and win the eternal gratitude of Prime
Minister Justin Trudeau.
Or it could choose its cheaper, non-union plant in Alabama and score points with protectionist Trump who, whether you like him or not, is still the most powerful man in the world.
Thomas Walkom appears Monday, Wednesday and Friday.
Copyright 2017-Torstar Syndication Services