News reports say the federal government is getting to crunch time on whether or not to lend or give C which isn’t clear yet C $1 billion to Bombardier Inc., that is having trouble selling its new C-series aircraft.
This will be the latest in a long type of federal cheques made out to the company.
If $1 billion is simply too big several to get your mind around, think of it this way. You will find 35 million Canadians. So $1 billion is roughly $28.60 per person. Each and every one people stands to “contribute” $28.60 to Bombardier. Of course, not everybody pays.
Though you will find 27 million filers of income-tax returns, a bit more than nine million don’t actually pay any tax, which leaves 18 million who do. Divide $1 billion among 18 million and that provides you with – or gives Bombardier thanks to you – $55.55. Each and every income-tax-paying Canadian will contribute $55.55 to Bombardier, when the company’s request for money is honoured.
As I write, Bombardier shares are selling for 81 cents each. Together with your $55.55 that the federal government is weighing giving to Bombardier, you could buy 69 shares of Bombardier stock. Which may you rather have right now? $55.55 or 69 shares of Bombardier stock?
Unfortunately for Bombardier and it is existing shareholders, countless investors happen to be creating the stock. Though Fifteen years ago it was priced at $26, it’s been downhill almost since.
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How come? Mainly because the company has spent tonnes of cash developing a new airplane that, as it happens, very little airlines want to buy. The probabilities it will be profitable in the near future are therefore very slim. Having a company’s shares means owning title to the profits. But who wants title to profits that look like they will be negative for the following many years?
Do the federal government and also the Quebec government, which last fall committed $1.3 billion to Bombardier (a hefty $325 per income-tax-paying citizen), have special understanding of the workings of airplane markets that justifies overruling the apparent verdict of world capital markets the C-series will never fly financially?
Markets can be wrong, as Hollywood movies, recently The large Short, keep telling us. But the movies, including The Big Short, also keep telling us capitalists are greedy, ruthless and daring. If there were any chance of Bombardier recovering, wouldn’t some enterprising bank, billionaire or hedge fund be eager to have a (ahem) flyer onto it?
The governments will reason that Bombardier offers Canadians a lot more than financial benefits (which is a positive thing since it’s offering precious few of those at this time). We obtain pride from being a player on the planet airplane market – though if our planes don’t actually sell, most likely the pride is reduced.
We obtain the advantages of local control of the organization – though if it’s run by cost-conscious capitalists, once we want so that it is, local preferences should be slight. We obtain “externalities” from technological spillovers – though Bombardier has in the past sued to help keep researchers from learning the information on how or whether it pays back government loans, so it presumably keeps its industrial secrets at least as close to its chest.
And, finally, we save money on employment insurance payouts to the thousands of employees if it goes belly up – though firstly, it isn’t clear Bombardier would cease operations if it got purchased, and secondly, employment insurance benefits really are a one-time cost, unlike corporate welfare, the gift we keep on giving.
Investment gurus are always pushing the “strategic” view. Taking the main issue, the vista from 35,000 feet so to speak, for $55.55 a head we Canadian taxpayers get to keep selling airliners baffled.
Government may well have a role to experience in providing foreign aid. But help to the world’s air travellers?
William Watson teaches economics at McGill University.
