Bombardier, Airbus and a Marriage Made In Regulatory Heaven

Bombardier, Airbus and a Marriage Made In Regulatory Heaven
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Apparently, sometimes crony capitalism is win-win-win-lose. The Canadian aerospace giant Bombardier may get a chance to play in the U.S. market under the regulatory radar. The European mega-giant Airbus has picked up ownership of a leading single-aisle plane. Mobile, Alabama gets a job boost at its Airbus plant. And Canadian taxpayers get to pay for the party.

In a marriage made in regulatory heaven, Bombardier and rival Airbus announced that the European consortium was acquiring a 50.1 percent stake in the Canadian company’s CSeries program, which faces the prospect of 300 percent duties in the United States as the result of an anti-dumping finding by the U.S. International Trade Commission. In return for control, Airbus is paying zero dollars and zero cents, and taking on zero debt. Advantage Airbus.

In a move sure to be labelled tariff-jumping by rival Boeing, the new partnership will move some production of the CSeries jet to an Airbus factory in Alabama to serve U.S. customers. Advantage Mobile.

While Airbus and Bombardier claim the partnership was not motivated by the trade dispute with Boeing, Bombardier CEO Alain Bellemare told reporters that “assembly in the U.S. can resolve the (tariff) issue because it then becomes a domestic product.” Advantage Bombardier.

Although Airbus is bringing no cash to the table, it will provide the division with procurement, sales and marketing and customer support expertise. The European company’s non-existent cash investment comes to a billion dollars less than was anted up by the taxpayers of Quebec, Canada’s second-largest province.  Bombardier will now own approximately 31 per cent, while Quebec will own 19 per cent, down from its original 49.5 percent stake.

Disadvantage Canadian taxpayers.

It looks as though Canadians have been taken for a ride (or a flight) by Bombardier, but they should be getting used to it. The federal and Quebec governments have poured billions into Bombardier. They got their first thank-you last year when the Montreal-based firm laid off 7000 employees.

Another “loser” in the deal is Boeing, which sought the anti-dumping action against Bombardier’s CSeries after the company’s bargain-basement sale of 75 jets to Delta Airlines. But Boeing too is no stranger to the taxpayer trough. In fact, the Export-Import Bank is sometimes referred to as ‘Boeing’s Bank.’ Strictly speaking, as Boeing points out, it receives no funding from Ex-Im. Instead, the export promotion agency provides funding to foreign customers that contract with Boeing – a distinction without a real difference.

A study released two years ago by the non-profit organization Good Jobs First showed that over the previous 15 years, Boeing was one of five triple dippers – companies that received funds from three sources: state subsidies, as well as federal grants and tax credits, and federal loans, loan guarantees and bailout assistance. At $13.4 billion, Boeing had received far more state and local subsidies than any other company. No wonder Bombardier had to get help from across the Atlantic. Taxpayers in Canada, with one-tenth the GDP of the United States, simply couldn’t keep up.

But what have these huge subsidies actually bought for Americans?  The aerospace giant has been pruning staff for over a year, sharply cutting jobs in its home base of Seattle and in South Carolina.

Even worse than the direct dollar cost of government largesse are the indirect costs, to both Americans and Canadians: Corporate welfarism distorts investment, shifting capital in the markets based not on value but on government favoritism. It prompts more investor capital to go to big companies with a foot in the government door, starving start-ups. It encourages businesses to invest in lobbying government rather than developing new products. And it undermines the process of creative destruction that drives wealth generation. Rather than national champions, government largesse seems to create national cash guzzlers.

At least one government may have learned a lesson, at least temporarily and at least in regard to one company. While Bombardier is looking for additional investors, the Quebec government, known for a commitment to dirigiste policies, essentially responded ‘thanks, but no thanks’, ruling out more aid for the company.

But Airbus CEO Tom Enders couldn’t be happier, calling the deal “win-win for everybody.”

Except the people of Canada.

Allan Golombek is a Senior Director at the White House Writers Group. 

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