Here’s an idea for Bombardier: Let it fail

If Quebec’s economy minister Jacques Daoust followed through on his promise (and there’s no reason to think he didn’t), within minutes of Prime Minister Justin Trudeau announcing his new cabinet on Wednesday, Daoust commenced the latest shakedown of federal taxpayers on behalf of Bombardier. Quebec has already gambled $1 billion of its own money on a partnership with Bombardier to develop its struggling CSeries jet. Now both the province and the company expect the new gang in Ottawa to match that “investment.” It’s an important early test of Trudeau’s economic policies: Resist the bailout request, and he’ll go a long way to silencing critics who’ve claimed he can’t be trusted with the nation’s finances; cave to Bombardier’s demands, and his new government will be born into the original sin of corporate welfare.

It’s fitting Trudeau is being tested by Bombardier. No company has been so adept at extracting taxpayer cash as it stumbled from one era of mismanagement to another. Over the years, Bombardier has received roughly $1 billion in federal support, from governments of all political stripes, including the last Conservative one. So here’s some advice for the new PM. How about trying something entirely new: let Bombardier face failure.

But wait, what about all the terrible, awful things we’ve been told would happen if Bombardier collapsed? The funny thing is, we’ve heard the threats so often, we simply take them for granted without putting them to the test.

Counterpoint: Why Quebec’s billion-dollar loan isn’t so risky

Let’s start with the main reason given for propping up this failing business: jobs. In Quebec alone, Bombardier directly employs 18,000 workers. Those aren’t just any old jobs either, the line goes, but “high paying” jobs that would disappear were it not for public aid. That’s a big and scary number, no question. And nobody relishes the idea of people being laid off. But there’s little to suggest it would be the economic crisis Bombardier’s supporters suggest.

For one thing Alberta, a province with a population half that of Quebec, has seen 35,000 oil patch jobs disappear so far this year. Those too are high paying jobs, among the highest paying in the country. Yet far from facing economic Armageddon, Alberta’s economy has remained surprisingly resilient. Yes, it is in recession, and yes, the government is now going into debt. But where jobs have been slashed in oil and gas, they’ve been made up for in other sectors. Alberta has actually outpaced the rest of the country in employment growth since oil prices collapsed in 2014.

It helps that Alberta’s labour market is far more diversified by industry than most people believe, meaning it is able to adapt more quickly to shocks like the oil crash. In fact, University of Calgary economist Trevor Tombe has shown that Alberta has the least concentrated job market of any province. Quebec is at the other end of the spectrum—only Newfoundland is more concentrated—and, not surprisingly, aerospace manufacturing is one of the key sectors where the province’s job market is overly exposed. Propping up Bombardier with more government money only serves to reinforce the province’s dependence on the industry for jobs, hindering its ability to adjust to structural changes in the economy.

It’s also worth remembering that when other big and important companies have failed, the economy has bounced back. At its peak, the tech giant Nortel employed 18,000 people in Ottawa alone. When it collapsed, it hammered the city. Some former workers were forced to move away for work. Others stayed, however, and either found work at new tech upstarts or launched businesses of their own, ushering in a tech revival in the city. In the same way a forest fire clears away the old, tangled brush to allow for new growth, Bombardier’s demise could be exactly what’s needed to spark a much-needed spirit of entrepreneurialism in Quebec.

That is, if it dies. Those desperate to keep shovelling more taxpayer money into Bombardier might also be surprised by what would happen were it left to fend for itself. If the CSeries is as cutting-edge as the company and analysts say, Bombardier should have no trouble finding a ready partner on its own. Indeed, last month it was revealed that its French rival, Airbus, had been in talks to take a stake in the project. Those talks ended, however, for the same reason Bombardier always has trouble raising private capital—the company’s dual class share structure, which cements control firmly in the hands of descendants of company founder Joseph-Armand Bombardier.

In other words, Quebec and federal taxpayers are being asked to pony up to protect the financial well-being of the family, which, incidentally, received approximately $150 million in dividend payments from Bombardier over the last decade, even as the company has yet to repay all the money its borrowed from the federal government in the past. There’s an obvious economic incentive for Bombardier’s controlling shareholders to do what it takes to ensure its survival. 

Without government support, Bombardier may not survive. Or cut loose, it might survive and, with a different ownership structure, thrive. But we’re long past the point when this company’s fate—and this family’s fortunes—should be dependent on the generosity of taxpayers. Trudeau would be doing both taxpayers and Bombardier a favour by saying “No.”