The Quebec government has been giving a masterclass on austerity to Canada's other provincial governments lately, but when it comes to corporate welfare, the ruling Liberals remain just as willing saviours for local companies as they have ever been.
The latest politician to promise taxpayer dollars in exchange for questionable returns is Jacques Daoust, Quebec's Economy Minister. With Bombardier changing CEOs and announcing moves to take pressure off its challenged balance sheet, Mr. Daoust told reporters Wednesday, "We have money available to finance Bombardier customers. If Bombardier needs that money for its liquidity, we can work with them on that."
It should be depressing for taxpayers to see their elected representatives jump so quickly to open the vaults for select corporations while overall Canadian competitiveness remains chronically weak. Study after study has questioned what real economic benefit corporate welfare delivers when governments could be more effective by lowering taxes overall, cutting red tape or otherwise creating compelling business conditions to foster investment.
Granted, sluggish jobs growth since the Great Recession has vexed many a lawmaker. But at some point we have to ask whether corporate welfare improves our economy or just delays the inevitable decline in output and employment by chronic aid recipients.
Take the case of small aircraft engine maker Pratt & Whitney Canada. The Montreal-area-based firm had 7,300 employees in Canada seven years ago. When Ottawa ponied up a $300-million "repayable contribution" in December of 2010, it was down to 6,200. Four years later, this past December, Ottawa came through with another $300-million – and Pratt was down to 6,000 employees. What is the message here? That Pratt will cut itself down to profitability with the help of government money, taking jobs with it? Or is there an implied threat that without taxpayer assistance, the cuts would be even worse?
Government bailouts in Canada and the U.S. may have saved General Motors and Chrysler, but there's no certainty that Canada's shaky auto sector can fend off a continued decline in production and job numbers if the country can't be more cost-competitive with Mexico or elsewhere. No bailout will solve that issue in the long-term.
That brings us back to Bombardier, a recipient of much past direct and indirect government aid. The company faces several challenges, aside from its balance sheet. Its rail business is a low-margin venture that perennially falls short of earnings targets. Its airliner business has been challenged since the market for small regional jets dried up last decade thanks to rising oil prices and rationalization of airlines.
Its big bet is on a high-risk C-Series, which it hopes will command the niche market for planes larger than 100-seat regional jets and smaller than transcontinental airliners with 150 or more seats. The C Series is late, over budget, below target for orders, and lacking in demand from first-tier airlines. Plus, aerospace giants Airbus and Boeing have been making the Montreal company's life challenging by talking down the new C Series, revamping their smallest airliners and offering enticing discounts to airlines to consider their larger planes instead. Bombardier has no business left in the defence market – a rarity for aerospace firms, which usually prop up cyclical weakness with military orders – and has had mixed success developing new planes lately. Bombardier has done virtually no M&A in a decade, something it is now open to considering.
In short, Bombardier has a strategy and competitiveness problem that handouts won't fix. There's no doubt it would be traumatic for the local economy if Bombardier fell on even worse times. But surely there must be better options than for governments to again run and fetch the bailout bucket.
Sean Silcoff