OTTAWA – Shortly after Justin Trudeau takes power, he will face an early, major test on whether to bail out Bombardier.
The prime minister-designate will have to confront what could be a billion-dollar decision in Quebec, his home province and a region where his Liberals made significant gains in last month’s election.
The Quebec government, which committed $1 billion to help Bombardier (TSX:BBD.B) complete its delayed and costly commercial jet program, wants Trudeau to pitch in. The struggling airplane and train manufacturer employs thousands in the province.
Trudeau’s decision whether to help one of Quebec’s “crown jewels” will loom as he’s sworn in Wednesday, the same day he introduces his cabinet.
“There’s going to be unbelievable pressure on this government — unbelievable pressure to do something for Bombardier,” said Ian Lee, an economics professor at Carleton University’s Sprott School of Business.
“Of course, nobody wants to see yet another crown jewel go down.”
On Monday, Quebec Economy Minister Jacques Daoust applied more pressure, saying he would ask the new Liberal government for a “significant” financial contribution for Bombardier.
Daoust, a provincial Liberal, noted that he thought Ottawa made the right decision a few years ago when it joined the Ontario government in helping that province’s automotive industry.
“And the aerospace industry here is just as important,” he said.
“It would be normal if there was a federal contribution to share the risk.”
Media reports have suggested Quebec wants between $350 million and $1 billion from Ottawa, but Daoust refused to say Monday how much he would be looking for.
The Trudeau government is poised to create controversy regardless of its decision, particularly with other Canadian industries and companies facing cash crunches of their own.
Saskatchewan Premier Brad Wall tweeted a link Monday to a news story about Quebec’s Bombardier request and noted that Western Canada’s troubled energy sector hadn’t asked for a bailout despite the stress of low oil prices.
Wall wrote that the energy industry just wants to move its products to tidewater.
Bombardier, meanwhile, already has outstanding federal loans.
“Since 1966, Bombardier received $1.3 billion in repayable contributions and has repaid $543 million as of Dec. 31, 2014,” Industry Canada spokeswoman Stefanie Power wrote in an email.
When asked about Bombardier, a spokesman for the Liberals said in an email that the party is focused on the government’s transition.
“We are following the issue closely and a decision will be made after (Wednesday),” Dan Lauzon wrote.
The federal government’s eventual decision is expected to send a signal on how Trudeau plans to approach industrial policy and the provinces, said Tyler Chamberlin, an associate professor at the University of Ottawa.
He expects Trudeau to toss a lifeline to Bombardier because the incoming prime minister has been vocal about his desire to work more closely with the provinces.
Chamberlin, however, cautioned that the Liberals should be careful to avoid making any hasty decisions.
“It’s just sort of catching them before they can really get their feet underneath them,” said Chamberlin, who works at the Telfer School of Management.
“The Liberals are so fresh, I mean heck they’re not even really the government quite yet, are they?”
Factoring in the tricky political implications of the decision, Lee predicted that it’s very likely the government will provide some kind of relief for Bombardier.
But from an economic perspective Lee warned that injecting public cash into the company would probably be a bad move.
“I think any government — I don’t care what party they’re from — should walk very, very carefully into this,” said Lee, who believes Ottawa should only provide the funds if the company changes the decision makers at the top.
He said Bombardier faces internal challenges of being led by officials who overreached, guiding the company beyond its comfort zone of making smaller regional jets.
With the bigger, CSeries commercial jets, it will find itself competing at a new level with massive global players like Airbus and Boeing, he added.
“It’s unfortunate but that’s what happens on what I like to call the Serengeti of capitalism,” Lee said of Bombardier’s CSeries challenge.
“On the Serengeti, the big, hungry, lean lions eat the weaker animals. That’s just the way it is.”