Bombardier: Too Big to Fail?

In response to Boeing’s complaint that Bombardier sold their CS100 regional jets at unfairly low prices, the United States Department of Commerce has moved to impose a nearly 300 per cent tariff on the transaction. Specifically, the proposed tariff is comprised of a 219 per cent countervailing subsidy duty and 80 per cent anti-dumping duty. If implemented, the measure will quadruple the cost of Bombardier’s aircrafts, likely pushing the company out of the U.S. market. The final decision to confirm the proposed tariff lies with the International Trade Commission and is expected in February 2018.

In 2016, Bombardier secured a multibillion-dollar deal with Delta Air Lines for the purchase of 75 CS100 aircrafts. However, Boeing claims that these 100-seater jets were unfairly subsidized allowing Bombardier to sell its products below cost.

This claim is not necessarily false; the Canadian government has been subsidizing Bombardier for decades. Most recently, the company received a $375-million loan from the Liberal federal government, $1 billion from the government of Quebec, and a $350-million loan from the previous Harper administration. Boeing asserts that these government contributions have allowed Bombardier to sell their aircrafts to Delta for approximately $13 million below the manufacturing price.

This raises a critical question: is it prudent for Canada and Quebec to financially subsidize a company that appears to be inefficient and one that must sell its products at a loss? Is Bombardier too big to fail?

As of 2014, Bombardier employed 64, 800 Canadians and contributed $28 billion to Canada’s GDP per year. If government subsidies were to end, the company would risk collapse and numerous jobs would be on the line. This would in turn raise government costs of welfare assistance, and could trigger thorny political issues given that Bombardier is based out of Quebec. It appears that yes, Bombardier is too big to fail.

That said, the question of whether Quebec should receive preferential treatment from the federal government should also be raised. Where other provinces, such as Alberta, have also experienced job losses in recent years, why should Bombardier continue to receive subsidies?

The answer lies in fundamental differences between the oil and aerospace industries. Oil is a non-renewable resource that is slowly being replaced by alternatives, such as the electric motor. On the other hand, a well-run and efficient aerospace industry generates opportunities for innovation in Canada, and can act as a productivity multiplier.

If Bombardier is indeed too big to fail, and the governments of Canada and Quebec continue their support, they need to change their strategy with the company. Firstly, they need to attach strict conditions to their subsidies. As Max Fawcett stated in a Walrus article, the first condition must be that the company changes its dual-class structure. This would allow shareholders to have a say in who runs the company, and reduce the Bombardier family’s control. Second, the government should demand that a higher proportion of subsidies are invested in research and development. This would ensure that taxpayers’ money goes towards spurring technological innovation to push the company forward, rather than acting as a comfort blanket to keep the company afloat.

Most importantly, the proposed duties on Bombardier’s CS100 aircrafts are another stark reminder that Canada needs to diversify its exports as the U.S. erects protectionist walls. The U.S. appears to be succeeding in squeezing Canada out of the soft-wood lumber market, and with the ongoing renegotiation of NAFTA it is more important than ever for Canada to focus its resources on increasing innovation and broadening its export markets.