Sunday, February 21, 2016

Saving Bombardier

          By Brian Orlotti

Canadian flag carrier Air Canada, in a move facilitated by the Federal and Quebec governments, has signed a letter of intent to purchase up to 75 new C-Series commercial aircraft from imploding aerospace giant Bombardier Inc. The deal comes on the heels of a series of disasters for the company, culminating in an appeal from Bombardier management to the Federal government for financial aid.

Going up. Perhaps... The first of the Bombardier  C-Series, takes off on its maiden test flight at the Bombardier facility in Mirabel, PQ on September 16th, 2013. As outlined in the November 21st, 2015 iPolitics post, "Mr. Trudeau’s Bombardier problem,"  the situation has been a topic of discussion in the Liberal caucus since transport minister Marc Garneau put the kibosh on the sale of Bombardier jets to Toronto Island based Porter Airlines last November.  Photo c/o Canadian Press /Ryan Remiorz.

Bombardier's hunger for Canadian taxpayer funds carries no small amount of irony,  given the company's zeal for exporting Canadian taxpayers' jobs under the oft-repeated mantra of cost-cutting.

The Air Canada/Bombardier deal is essentially an out-of court settlement to a lawsuit filed by the Quebec government against Air Canada last year. As outlined in the February 18th, 2016 Canadian Press article, "Quebec getting heat for dropping lawsuit against Air Canada in C-Series deal," the Quebec government had accused Air Canada of violating the Air Canada Public Participation Act (which requires Air Canada's maintenance work to be done in specific Quebec locations) by moving some heavy maintenance work to companies in the US, Singapore, Israel and Ireland.  Air Canada appealed to the Supreme Court, but lost.

As part of the C-Series deal, Air Canada and the Quebec Government have agreed to end their litigation and Air Canada has pledged to perform heavy maintenance on the C-Series in Quebec for the next 20 years.

In exchange, the Federal government has agreed to remove the Quebec maintenance requirements from the Air Canada Act. The 25% foreign ownership limit and the requirement that Air Canada’s headquarters be located in Montreal will stand, however.

Bombardier isn't just having trouble with its airplanes. Shown above are Bombardier streetcars in Toronto, ON., which haven't been arriving to replace the existing Toronto Transit Commission (TTC) inventory of worn out streetcars as fast as the City of Toronto would have liked. As outlined in the March 4th, 2013 Canadian Press article, "Bombardier sued over alleged train defects in Germany," at least one other Bombardier client has resorted to the courts for satisfaction. Photo c/o David Donnelly/CBC.

Oddly enough, both transport minister Marc Garneau and Air Canada CEO Calin Rovinescu have publicly denied that there was any Federal government pressure to make the C-series purchase.

But the Quebec lawsuit is but one of many woes plaguing Bombardier:

  • The failure of the C-Series regional jets. Originally marketed as having quieter engines, lighter air-frames and better fuel economy than other aircraft, the program now faces disaster. The C-Series' competitive advantage has vanished due to both the large drop in global oil prices as well as stiff competition from titans like Boeing and Airbus. Bombardier has received no new C-Series orders since 2014 and customers who ordered aircraft in 2009 still await delivery. As outlined in the February 17th, 2016 Globe and Mail post, "Bombardier gets lifeline as Air Canada places order for C Series jets," the new Air Canada order may not provide much reprieve, especially after factoring in industry rumours that Air Canada will be given a 60% discount on each aircraft, paying just $30Mln USD ($41.3Mln CDN) of the $72.4Mln USD ($99.7Mln CDN) list price.
  • An impending $50Mln CDN lawsuit from the City of Toronto against Bombardier over shoddy workmanship and unfulfilled deliveries of the cities' new streetcars. As outlined in the October 28th, 2015 CBC News post, "TTC to sue Bombardier over delayed streetcars," the company has been struggling in this area as well. 

It's worth noting that there is simply not enough money in the Federal coffers to fund every worthy cause and choices will certainly need to be made in the lead up to the next Federal budget. As outlined in the February 21st, 2016 CTV news post, "Notley asks for oilsands aid as feds mull Bombardier bailout," Alberta is also asking for assistance. Screen shot c/o CTV.

As the Justin Trudeau government ponders whether to load even more taxpayer billions onto Bombardier's sinking ship, perhaps it should heed the lessons of the auto industry downturn of 2009. In that year, the Canadian government bailed out both Chrysler and General Motors by purchasing $13.7Bln CDN of preferred shares in the flat-lining auto makers.

In April 2015, the former Harper government sold its remaining shares. As outlined in the April 7th, 2015 Globe and Mail article, "Canadian taxpayers lose $3.5-billion on 2009 bailout of auto firms," that investment didn't work out so well.

As governments kept feeding billions to withering dinosaurs, the industry's true rebirth came from elsewhere.

In 2010, Tesla Motors (in partnership with Toyota) purchased the defunct NUMMI auto assembly plant in Fremont, California. Reborn as 'The Tesla Factory,' this facility now produces electric vehicles like the Tesla Model S sedan and the Tesla Model X SUV. The Tesla Factory employs over 3,000 workers and has produced 33,117 vehicles as of late 2015. Tesla Motors innovative ascension continues, with the company opening a factory in the Netherlands 2013 and preparing to open a plant in China later this year.

The Tesla Factory in Freemont, CA. According to the company website, "the Tesla Factory in Fremont, California is one of the world’s most advanced automotive factories, containing 5.3 million square feet of manufacturing and office space." Photo c/o Tesla.

However, the jewel in Tesla's crown will be the so-called 'Gigafactory 1' currently being built near Reno, Nevada. Begun in 2014 (in partnership with Panasonic) and scheduled to begin operations this year, this $5Bln USD ($6.88Bln CDN) facility will produce lithium-ion batteries for electric vehicles as well as Tesla's Powerwall home battery system. Gigafactory 1 is expected to employ 6,500 workers.

The true lesson of the 2009 auto industry downturn is that genuine innovation, growth and jobs come from supporting innovative new companies and not squandering billions of taxpayer dollars into defunct, fossilized old enterprises.The US government stands to make far more return from its investment in Tesla Motors than the Canadian government did for its support of GM and Chrysler.

Rather than shoveling even more mountains of cash into the maw of the Bombardier clan, perhaps the Trudeau government should focus on helping the 7,000 soon-to-be-unemployed workers and their families, both in the short and long term. It could also more aggressively support innovative new companies that could offer new jobs for these discarded men and women.

MIT Aeronautics and Astronautics department head Jaime Peraire interviews SpaceX and Tesla CEO/founder Elon Musk on October 24th, 2014, at the final session of the AeroAstro 1914-2014 Centennial Symposium. Musk talked about electric aircraft. Screen shot c/o Every Ashley Dove - Jay Video.

As the son of a manufacturing worker whose job was exported to Mexico some 17 years ago (he worked for American Standard, which moved a number of facilities from Canada to Mexico around that time), the author has seen first hand the effects of such mass layoffs as are expected to occur at Bombardier.

While the government of seventeen years ago showed not a flicker of concern as it blundered through an earlier round of private sector layoffs, the current Justin Trudeau government has an opportunity to make a difference by aiding the unfortunate and cutting off old enterprises that are past their best-before date.

Brian Orlotti.
Trudeau could make his own contribution towards the 'Just Society' as his father did long ago.

Brian Orlotti is a network operations centre analyst at Shomi, a Canadian provider of on-demand internet streaming media and a regular contributor to the Commercial Space blog.


  1. Good article. I also recommend John Ivison's article in the National Post on February 12th in which he makes clear that Dassault are more than willing to let Bombardier build Rafale fighters under license. This would have all kinds of knock-on bonuses; it saves Bombardier, the Feds spend almost all of those defence dollars in Canada instead of pouring it into yet another Lockheed boondoggle, it revitalizes Canada's air defence industry, and it solves the whole "what fighter do we buy?" problem. I know people are sick of hearing about the Arrow, but the fact is, Canada used to build its own fighters and successfully exported them to the world (CF-100). Since Avro was torpedoed we have stumbled from one ridiculous bail-out to the next. In the last 60 years our government has bought and sold De Havilland, Avro, Canadair, some Boeing assets and some McDonnell assets all of which then ended up in the big Bombardier pile which is in trouble yet again. We've settled for 30 year old F-18s, utterly useless F-5s which ended up stored in hangars, deathtrap Lockheed F-104s, and mostly useless Voodoos. At what point do we try building something here again? Or do we just bank the farm on saving the C-Series and buying the F-35, which people who actually work at Lockheed say will never perform to specifications?


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