A sweet deal

Bombardier's corporate welfare.

Last February, in a speech to the Montreal Board of Trade, Paul Tellier, CEO of transportation giant Bombardier, claimed that the free market was just a “theoretical model” with little applicability to his company. His was a world in which government support, rather than entrepreneurial risk and reward, formed the basis for success.

Chief among Tellier's concerns in his speech was Export Development Canada, a federal lending agency charged with facilitating Canadian exports. Bombardier is one of EDC's biggest beneficiaries, but rather than being grateful, Tellier wanted more. He demanded that EDC increase its lending capacity to better serve Bombardier. He wanted loan limits removed so Bombardier could get a bigger share of the pie. He wanted EDC to sell some of its existing Bombardier-based loans to make room for new ones. Earlier, he had successfully demanded changes to the secretive Canada Account, which is administered by EDC but controlled by the federal cabinet. In short, Tellier expects the government of Canada to be his company's own private line of credit.

That might seem like a lot to ask, but it's really just another day at the office for a Bombardier CEO, as Montreal journalist Peter Hadekel makes clear in his new book, Silent Partners: Taxpayers and the Bankrolling of Bombardier (Key Porter, $37.95). Hadekel's offering is a readable and — to a fault — balanced examination of how Bombardier has managed to insert itself deeper into the political calculations of this country than any other firm. Nearly everyone, it seems, loves Bombardier. Quebec governments love the company because it's a local star; Ottawa because it's avowedly federalist; bureaucrats because its success proves they can pick winners. Taxpayers, though, may have second thoughts.

Certainly Bombardier has sold a lot of planes and trains, and deserves credit for developing the regional jet. But the endless stream of public handouts and benefits requires closer examination. How successful can a company really be if it requires perpetual government hand-holding?

As Hadekel's book details, Bombardier's very evolution beyond its early snowmobile roots was based on political opportunism. In 1974, it was the surprise winner of a competition to build new subway cars for the Montreal Métro. The only other competitor delivered a lower bid but had the misfortune to be based in the English suburbs of Montreal. In circumstances that presage the infamous CF-18 jet-fighter maintenance contract, Bombardier won the deal by getting Quiet Revolution politicians to focus not on costs, but on its French-Canadian roots.

Making Hadekel's book particularly timely is the fact that governments are once again preparing to lavish taxpayer support on Bombardier. The company, currently facing something of a financial crisis, is mulling the development of a new 110-seat airliner. But nothing will happen without government assistance. Tellier is thus conducting an international subsidy auction in which he expects governments to ante up at least a third of the estimated $2 billion in development costs. There is no reason to expect Canadian politicians will be stingy.

If anything, Hadekel's determination to be fair undermines the outrage his subject naturally engenders. He raises his most pressing points not as statements, but as questions: “Did disproportionate aid to one company undermine public confidence in the fairness and equity of the government?” he asks. “If aircraft loans had really become so profitable, why did Bombardier have to do business with the taxpayer's bank?” Hadekel's sympathies are clear, but he often underplays his best material. Two moments stand out.

First is Bombardier public-relations adviser Yvon Turcot's discussion of the 1986 CF-18 contract. Bombardier's success at bending the Mulroney government into giving it the work over a cheaper and technically superior bid based in Winnipeg has become part of Canadian political legend. It is frequently cited as the moment of conception for the western-based Reform party.

At the time, Bombardier warned of grim tidings if it did not win the deal. Today, Turcot admits that was all hot air. “I don't think it was a good thing that we won that contract…First, it was not very profitable. Next, it turned practically the whole of English Canada against Bombardier in a permanent kind of way,” he tells the author. “All things considered, we probably would have been better off if we'd lost it.” It's a remarkable perspective. And it suggests that much of Bombardier's current brinkmanship (in other words, the subsidy auction) is overdone.

The other buried highlight is a short interview with Fred Bennett, until 1997 the director of financial and economic analysis at Industry Canada. A buyout and new pursuits in academia have loosened the lips of this former bureaucrat, who was once in charge of determining corporate eligibility for public funding. When it came to Bombardier, Bennett says he was told “to manage those numbers” in order to guarantee approval whether the subsidy made sense or not. Given the ongoing sponsorship inquiry in Ottawa, such a revelation should be considered scandalous.

Bombardier could be a great business story. As Hadekel makes plain enough, however, the real story has little to do with entrepreneurship. Rather it is a story of political access and control — where nothing gets built without taxpayer help, every profit begins with a subsidy, and government exists as a kind of friendly genie eager to do the bidding of one blessed company.