As you may have heard, the government of Quebec a few weeks back announced that they were going to “invest” $1.3 billion into struggling aerospace and transportation company Bombardier in an attempt to rescue the company’s drastically over-budget and behind-schedule next-gen CSeries airplane.
The announcement came in the aftermath of an “earnings” report which was even more devastating for Bombardier than pessimistic financial analysts had projected.
At the time, Quebec’s government publicly called on the federal government to match their “investment”, openly stating that the fate of the CSeries program is in doubt without a further infusion of cash.
From the outside, Bombardier looks like a company in freefall, missing deadlines and running over-budget on even routine projects like Toronto’s long-delayed streetcar series. The delays and technical issues have been so numerous that the TTC’s CEO Andy Byford is now publicly musing about suing the company and permanently barring it from winning any future TTC contracts. (73 streetcars were originally projected to be in use by the end of 2015; currently the TTC has a mere 10 on the streets.)
The CSeries program that the Quebec government is desperately trying to save is producing a plane which is years behind schedule, and the company has only received firm orders for 243 units. One potential customer, Porter Airlines, looks less likely than ever to be a buyer after last night’s announcement by Transportation Minister Marc Garneau that the new Liberal government will not be granting the airline permission to fly jet planes out of Toronto’s island-based Billy Bishop Airport (and major kudos to NoJetsTO for a well-organized and victorious campaign!); Porter had previously put in an order for a dozen of the CSeries planes conditional on their Billy Bishop proposal’s approval.
Bombardier also announced that it was entirely cancelling its Learjet 85 program, a decision which contributed heavily to $4.9 billion USD loss posted in their third-quarter “earnings” report. And the fact that Quebec’s infusion of cash only covers about half the shortfall the CSeries program is projected to incur, Scotiabank is now projecting that Bombardier will need to go back to the government for more money within the next eighteen months.
All of which makes the Quebec government’s choice of the word “investment” smell kinda fishy.
The press wasn’t buying it – headlines typically trumpet the deal as “government aid”, or, more straightforwardly, as a “bailout” – which is exactly what it is.
But it seems that the government itself is conceiving of the cash giveaway as an investment. They are, to be fair, gaining a 49.5% stake in the CSeries program for their troubles, and at least from their public pronouncements, they seem to expect to turn a profit on the deal. Quebec Minister of the Economy Jacques Doust, calling on his federal counterparts to join in on the “investment”, said: “We are going to ask them to support the aerospace industry in Quebec the same way they backed the auto industry in Ontario when times were difficult…This will be a profitable transaction for everybody.”
As the CBC’s Neil MacDonald points out, however, in the end the government lost about 25% of their “investment” in the struggling auto manufacturers, making this a very strange example indeed to be invoking. And of course, even at the time, nobody – in the press or in the real world – thought of that “investment” as anything other than a bailout.
Now, I’m not saying that there’s no case to be made for bailing out Bombardier – for instance, the company employs tens of thousands of skilled workers who would be hard-pressed to find jobs in the industry anywhere in Canada if Bombardier went under, and one could argue that those are jobs worth saving, even if it costs the government money.
But that isn’t the argument the Quebec government is making, nor is it the framing that Prime Minister Trudeau used when discussing the issue in a speech before the Canadian Labour Congress:
“There’s no question that high-value manufacturing is going to be an extremely important part of Canada for years to come. Aerospace is a great example of that, as is the auto sector and others,” Trudeau told the gathering.
“How we can best invest and support that kind of manufacturing needs to be done responsibly and with our eyes open, and not just based on emotion or politics or symbols,” he said.
“There has to be a strong business case. We’re going to make sure that decision is taken based on what is in the best interest of Canadians, writ large.”
There’s that word “invest” again – despite the heavy dollops of skepticism about whether or not Bombardier has a “strong business case”, Trudeau is talking about this in terms of investments and profitability, when history and experience tells us that massive cash infusions into failing corporations don’t tend to pay off very well.
And make no mistake, this language matters. Bombardier’s downturn comes at a time when Canada’s dollar has plummeted, energy prices are in the basement, our housing market is in a big ol’ bubble, and our economy is barely sputtering along.
At this rate, it might not be too long before the government is talking about “investing” in one or more of our major banks. And as I’ve discussed before in my post “As Canada’s economy slides into recession, how safe are the big banks?“, bailing out the banks would be a big mistake when we have so many better options:
There are constructive alternatives to the bubble-enabling behaviour the US political class engaged in [after the 2008 financial crisis]. We could consider nationalizing our banking industry and running it on a not-for-profit basis, for instance, or regulating it so heavily that reckless behaviour like the real estate bubble-blowing it’s been perpetrating would be impossible. We could break up the big banks entirely, and in the process diminish their influence on our political process. We could let them fail and bail out their customers instead. There’s any number of outcomes of a bank collapse that don’t involve an increased concentration of wealth and power in the hands of banks, and some are obviously much more viable than others.
The point is, these are complicated questions that need careful thought and study. If activists are forced to formulate a strategy in the midst of a banking crisis, their prospects of success will be much lower than if they come into that crisis prepared with a well-thought-through plan.
We know the banks are gonna be in trouble sooner or later. The time to start making that plan is now.
But the thing is, before we can even have that discussion, we have to move our official discourse past this ridiculous notion that throwing billions of government dollars at rapidly collapsing corporate entities somehow constitutes an “investment”.
Fallacy Friday is a weekly discussion of logical inconsistencies, definitional ambiguities, and other unreasonableness in news coverage. You can reach me at email@example.com or leave a comment below.