Feds announce $372.5M in loans to Bombardier

The federal government said Tuesday it will provide $372.5 million

MONTREAL — The federal government said Tuesday it will provide $372.5 million in repayable loans to Bombardier, a move that elicited criticism over concerns that the company was being unfairly subsidized.

The money would be handed out in instalments over four years to support the Global 7000 and CSeries aircraft projects, the government said.

Most of the loans would go to the Global 7000 business aircraft program, which is scheduled to go into commercial service next year. The rest would go to the CSeries passenger jet, which was mired in delays and cost overruns prior to entering commercial service last year.

Several federal cabinet ministers made the announcement Tuesday evening at a Bombardier facility in Montreal.

“The CSeries is an extraordinary plane,” Transport Minister Marc Garneau told a news conference.

“It started out on a piece of paper and then became the best plane in the world in its class. This is something we should all be proud about.”

Last year, Bombardier (TSX:BBD.B) received a US$1-billion investment for the CSeries passenger jet program from the Quebec government in exchange for a 49.5-per-cent stake. The company also sold a 30 per cent stake in its railway division to pension fund manager Caisse de depot for US$1.5 billion.

Bombardier had also been appealing to Ottawa for US$1 billion in assistance since late 2015.

“When Bombardier came to ask the government, they had particular needs,” Garneau said when asked why Ottawa hadn’t agreed to the US$1 billion request.

“The situation has evolved — evolved in the sense that the Quebec government has since invested and so has the Caisse de Depot. There was an increase in the orders with Air Canada and Delta. The company has restructured in an important way.”

Bombardier CEO Alain Bellemare welcomed the federal help.

“To have the federal government commit to research and development, to programs that are currently in place, is important and sends a strong signal to Bombardier and to the other players in the aerospace industry that the federal government is there to support this industry,” Bellemare said.

From a fiscal perspective, providing loans to Bombardier allows Ottawa to offer assistance without hurting the fiscal balance, as they would be recorded on the balance sheet as an asset.

Nonetheless, the support drew swift condemnation.

“This government started out with some encouraging talk about ‘value for taxpayers,’ but it’s now the same old approach of giving big taxpayer subsidies to powerful corporate interests,” Aaron Wudrick, federal director for the Canadian Taxpayers’ Federation, said in a statement issued within minutes of the announcement.

The support for the Montreal-based manufacturer could also have repercussions abroad.

Brazil has said it would launch a trade challenge against Canada before the World Trade Organization over financial support for Bombardier, which competes with Brazilian-based Embraer. Bombardier has said such a move would be without merit.

Brazil has complained about US$2.5 billion in investments in Bombardier, including money to “ensure the viability of the new CSeries aircraft and its placing on the market at artificially reduced prices.”

In December, Prime Minister Justin Trudeau said he was hopeful a deal with Bombardier could be reached before the spring federal budget, adding that all countries, including Brazil, help their aerospace sectors.

Trudeau’s international trade minister, Francois-Philippe Champagne, had one message for any country considering a trade challenge: bring it on.

“I am very much prepared to fight for what we are doing tonight,” he said.

Bellemare added: “This is the best plane in its class, so people are finding ways to come after us. We’ll find ways to compete successfully.”

Bombardier has announced job cuts totalling 14,500 positions over the last two years in an effort to regain its financial footing.

As of late November, the company received at least 360 firm orders for the CSeries jets.

“Our liquidity position is very secure,” Bellemare said. “We can now think to the future.”

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