Bombardier Should Win Business With Skill, Not Through Political Pull

The future of Canada’s largest transportation company could well be decided by how it responds to a decision of a Canadian public-sector agency to award a $989 million contract to German-based Siemens. Rather than see the decision as a slap in the face, Bombardier should recognize it as a kick in the rear – one that could prompt the Montreal-based company to embrace the free market rather than compete on the basis of crony capitalism.

Bombardier’s initial reaction to Via Rail’s decision to award the contract to a German company over the corporate favorite son was not encouraging. The company called the decision “astonishing” given that the trains will “pass through Canada’s national capital and Quebec’s provincial capital.” Citing a foregone opportunity to ensure “maximum local benefits and the use of Canadian high technology,” what is truly astonishing is Bombardier’s reaction to the decision by a government-owned rail system to seek the best possible supplier to meet the needs of its customers. If anything demonstrates the pitfalls of dirigiste economic planning, it is the angry reaction of a spoiled corporate child to seeing a silver spoon not being placed in its mouth.

Canadian Transport Minister Marc Garneau made it clear that Bombardier, and any other Canadian company that thinks it has a natural right to government business, should think again.  Garneau, a former astronaut who recognizes that the world is becoming a smaller place, made it clear that the ultimate choice would be made by the agency whose charge it is to please the customers.

It isn’t surprising that Bombardier should feel upended by this market-based attitude.  The transportation company has sought and received rents from Canadian governments for decades, and come to see corporate welfare as the due owed a Canadian company. Billions of dollars in taxpayer largesse has allowed Bombardier to win contracts, including a recent $1 billion favorable-terms loan from the Canadian government. As independent analyst Mark Milne has pointed out, the subsidies have been massive. One Canadian government department alone has dropped over a billion dollars in the company’s lap over the past half-century. 

If government’s goal has been to shield jobs, its open vault has failed to do the trick. Just two years ago, Bombardier handed out pink slips to 7,000 employees – even as senior company executives saw their compensation rise by nearly 50 percent.

As a manufacturer based in a mid-sized market, Bombardier should recognize the downside of governments rewarding their favored friends. The company has already decided to focus on transit systems and corporate jets, and away from commercial jets – a decision that is understandable in light of the pay-to-play nature of the global commercial jet market. Too often unable to play because of an inability to pay as much as Boeing and Airbus, Bombardier should applaud any sign of newfound openness in government procurement decisions.

The Via Rail decision is the second straight setback on home turf for the Canadian company, which last February lost out to France’s Alston SA in a bid to make trains for an automated system for Montreal’s public transit system. Instead of licking its wounds, Bombardier should be preparing for fresh battles, by addressing the weaknesses revealed by the decision of two Canadian government transportation providers to turn beyond the country’s borders. In particular, Bombardier has made a bad reputation for itself due to its failure to meet delivery schedules. Via Rail said its decision to go with a European company was largely based on its need for on-time delivery, a weakness that has drawn Bombardier much criticism, especially for its inability to meet a promised schedule for delivery for a Toronto light-rail project. Last year, it was blocked from bidding on a New York subway-car contract because of past delays. Rather than seeing this as an illustration of the long-term liability of being cloistered, Bombardier has continued to double down on Canadian economic nationalism as a security blanket.

Ironically, the same week that Bombardier lost a Canadian contract, it also notched wins in contract bidding in New Jersey and China. The lesson here may be that Bombardier has by and large a good reputation for meeting the needs of transit clients, and should avoid watering it down by trying to live off the state.

Proverbially, a bird in the hand is worth two in the bush. Economically, however, it makes more sense to hunt for birds all over the world rather than become comfortable with the offerings available in a private local preserve.