Feel the excitement! Another subsidy set for takeoff.
Jim Prentice pointed out that everyone gets subsidies. Who could object? Everyone wins!
ANDREW COYNE | July 16, 2008 |
You have to understand — Bombardier is not really in the aerospace business. It's in the subsidy business. Oh sure, it makes passenger aircraft, which it sells around the world. But its business is collecting subsidies. The aircraft are effectively loss leaders, sweeteners thrown in to keep the supply of government funds coming: with every subsidy you get a free airplane.
The governments deliver the cash, and Bombardier delivers — well, if governments didn't deliver the cash, they'd soon find out what Bombardier delivers. Any government that did not pony up for the Montreal-based manufacturer, employer of thousands of unionized workers in and around the city — and, in its day, regular and generous contributor to the federal Liberal party — could kiss goodbye to its electoral chances in Quebec.
So when it was announced the company would receive a further $350 million in federal support to produce its new C-Series line — on top of the $772 million the Canadian Taxpayers Federation calculates it has collected in federal grants and loans since 1982, and in addition to the $430 million the governments of Quebec and Northern Ireland will kick in to the same project — there was really no point in anyone kicking up a fuss. This is what Bombardier does. You might as well object to Coca-Cola making Coke.
Now, rigid ideologues, free-market purists and bewildered federal Conservatives might protest that it makes no sense to sell passenger aircraft (or anything else) for less than they cost to make. But that's the whole point of the subsidy. Bombardier would be the first to tell you that without the subsidy — sorry, without the "repayable loan," as it is known in the trade (to be distinguished from the non-repayable kind) — they could not possibly compete with the likes of Airbus, Boeing and Brazil's Embraer, all of whom are subsidized to the hilt.
Besides, as the ever pragmatic industry minister, Jim Prentice, pointed out, the federal government also provides support to other industries, like the $250-million fund recently announced for the auto sector. So even as the subsidy to Bombardier is luring investment away from cars and into aircraft manufacturing, the subsidy to Ford and General Motors is luring it back from aerospace and into making cars. What could be more balanced? Everybody wins!
When Bombardier says it could not compete without such assistance, it means it could not sell the planes at the same price as its rivals — not without losing money on each one. Doctrinaire right-wingers, free-market fundamentalists and trained economists say this leaves it caught in a logical fork: if the investment were worth making, it wouldn't need a subsidy. If it isn't, it shouldn't get one. But, as Bombardier and its many acolytes in the press are fond of pointing out, large aerospace contracts, with their decades-long timelines and multi-billion-dollar investment costs, are suspended somewhere in between the two possibilities. They're "risky."
And anyway, what am I doing calling this a subsidy? Didn't the president of the Aerospace Industries Association of Canada, Claude Lajeunesse, just write a piece in the Globe rejecting any notion that these were "corporate handouts"? Make no mistake, he wrote: "Governments invest in Canada's aerospace sector with an expectation of a return on investment. And Canada's aerospace sector delivers." And how! As a story in the Globe that same day noted, "Bombardier has to date repaid $123 million of a $142-million federal loan that it received in 1997 to develop its highly successful regional jet." Let's see: 11 years later, it is four-fifths of the way to "delivering" a zero per cent return on that investment — as the Globe went on, "among the top repayment rates for companies that received support under the former Technology Partnership Canada program." (That's true. Pratt & Whitney, for example, supplier of engines for the C-Series and recipient of more than $1 billion from the same program, has to date repaid only four per cent of it.)
But how can you count the cost at a time like this? Feel the excitement! After all, this is not the same C-Series as the one that was shelved a couple of years ago, having failed to find so much as a single buyer. This is a totally remodelled plane, made of super-light composite materials and using a revolutionary engine to deliver 20 per cent greater fuel efficiency than existing technologies. The company claims it could grab as much as half the worldwide market for such mid-size (100 to 149 seats) passenger craft over the next two decades, which it estimates at 6,300 planes. At $47 million apiece, that adds up to potential revenues of as much as $147 billion. What could possibly go wrong?