Yahoo Finance What the Liberals’ Bombardier ‘loan’ will really cost taxpayers
Albertans are irked because the federal Liberals are saving jobs at Bombardier while phasing out oilsands operations.
In Quebec, the money is dismissed as “too little, too late.”
Over in Brazil, a formal complaint is launched to the WTO, stating that a cash infusion to Bombardier affects the international competitiveness of the sector.
Who could’ve predicted that the federal government’s $372.5 million bailout — sorry, “loan” — to the Montreal-based manufacturer was a bad idea?
Actually, anyone. And they wouldn’t need to look back very far. The federal government has a history of sinking the country’s money into flailing corporations at the taxpayers’ expense.
Let’s look at the Bombardier case. In 2008, the Harper government gave it a $350 million loan to launch its CSeries passenger jet. It wasn’t really a loan, because that implies it would be paid back. But when something is positioned as a loan, it is counted as an asset instead of an addition to the deficit tally.
In 2016, Bombardier received another US$1-billion investment for the CSeries from the Quebec government. In exchange, the province would receive a 49.5 per cent stake in the company. Bombardier also struck a US$1.5 billion deal with Caisse de depot, offering the pension fund manager a 30 per cent stake in its railway division.
This cash injection was in spite of Bombardier’s announcement earlier in 2016 that it was cutting 7,000 jobs over two years. Oh, and also that it lost US$5.34 billion in 2015, including US$677-million in the fourth quarter.
Are federal loans to Bombardier a case of throwing good money after bad? Based on past deals, yes.
In June 2009, the federal and Ontario governments poured US$13.7 billion into two flailing American corporations: General Motors and Chrysler. Of the massive infusion of Canadian taxpayer cash, $10.8 billion went to GM and $2.9 to Chrysler.
It didn’t go well. Then-finance minister Jim Flaherty congratulated Chrysler Group LLC in May 2011 for repaying US$1.7 billion, plus US$250-million in interest. In July, the Canadian government and the province of Ontario sold their 1.7 per cent stake in Chrysler to Fiat for US$125 million, and received an additional $15 million from the U.S. treasury. And that’s about it. Canada lost $810 million on the Chrysler deal.
But that’s still small change compared to what it lost on the GM deal.
Of the original $10.8 million loan to General Motors, the federal government recouped about $2.8 billion from GM and wrote off $6.6 billion in 2010. At the time, it still owned GM shares worth around $5.2 billion in May. In an attempt to balance the federal budget, an astoundingly ill-timed decision to sell off all remaining shares to Goldman Sachs was made in April 2015. It left Canadian taxpayers $3.5 billion short of breaking even on the auto bailout.
Brazil’s Embraer has a point. Canada’s recent track record shows that what bailouts do is anchor unprofitable businesses to the detriment of savvier competitors.
