Bombardier investment launches Quebec into battle with aerospace giants: Don Pittis

In some ways it feels like throwing good money after bad.

The same day that Canada's leading transport manufacturer, Bombardier, announced $5 billion US in losses, Quebec taxpayers have invested more than $1billion of their own in the company.

And despite a backlash from many Quebecers who think there are better things to do with acool billion, the Quebec government may have made a smart investment in its future. But as Bombardier goes head to head with the world's biggest aircraft makers, there's no question it is a gamble.

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In the short term it is a certaintythat keeping Bombardier's aircraft development program alive will be good for Quebec's economy, specifically in terms of jobs.

"The government's stepping in because there's about 17,000 to 18,000Bombardier jobs in Quebec," says McGill University'sBombardier-watcher Karl Moore. "When you look at the tier-twosuppliers, there's probably about 40,000 people in Quebec who make their living from Bombardier."

Lots at stake

But as usual with such investments, if it were merely a question of a few years' worth ofjobs, there might be a cheaper wayto inject that money intothe Quebec economy. There is much more at stake.

Quebecand Canadian taxpayers have a long history of coming to Bombardier's rescue. In fact, it was the federal government under former prime minister Brian Mulroney thatfirst got the company into the airline business when the feds sold off money-losing Canadairto Bombardier at fire sale prices..

• Bombardier CSeries Jet - Why you have a stake in its success

Since then Bombardier has become a Quebec and Canadian industrial champion. Bombardier's water bombers, short takeoff and landing aircraft and business jets fly all overthe globe.

And in a world where everyone insists economic success depends upon research and high-tech innovation, Bombardier's foray into a whole new kind of aircraft has helped make Canada into a aerospace technology leader.

In conception and ambitionthe CSeries project has been a world-beater. Fuel efficient, quiet for a jet, the CSeries was build around the Pratt and Whitney PurePower engine that promises to cut noise in half compared to older engines. That's enough to make the noise disappear into background sounds of wind or city noise.

"I was there when it flew for the first time. It took off and we weren't looking at it," says IsabelleDostaler, aerospace and aviation specialist at Montreal's John Molson School of Business. "I just noticed it was in the air, but didn't hear anything."

No choice

In Dostaler's opinion, the Quebec government didn't have any choice. Bombardier and its CSeries project are too important to Quebec's and Canada's entire aviation industry.And while smaller companies now supply other firmsaround the world including the U.S. and European giantsBoeing and Airbus, Bombardier remains the local champion..

Without Bombardier and the CSeries,smaller players might begin to drift away.

Bombardier's attempt to lead the way in small airliner technology is a useful lesson in the challenges for governments that hope to encourage innovation. The process of building any technology from scratch is never a safe bet. You can't just add money and stir.

Well, you can, but there is no guarantee the products will be a success. That is why the aircraft industry has shrunk to a few large players, supported either directly or indirectly by government handouts.

In the case of Bombardier's CSeries, if everything had gone according to plan, the Canadian plane could have swept the world, filling a unique niche connecting smaller urban landing stripsto transcontinentalhub airports dominated by jumbo jets.

Stiff competition

The problem was, Bombardier's product schedule fell behind, says Dostaler. That two-year delaygave Airbus and Boeing a head start.

"The response by Boeing and Airbus was that they fitted existing aircraft with the new engine and created new versions of old models," says Dostaler. "And the problem is that Boeing and Airbus are selling a lot ofthese new aircraft."

She says the giant competitorshave sold about 6,000 of the new quieter and more efficient jets, whereas Bombardier has pre-sold only around 250. The fact that the company was signalling it was infinancial trouble didn't help.

Dostaler insists the Quebec taxpayers havea good chance of making their money back if Bombardiercan get the plane ready for certification,as it hopes,in 2016.

"The structure of this aircraft was designed for the engine, so it's like the perfect marriage," says Dostaler. "It appears that the performance they are expectingcould be even better than they thought initially."

This time the money the government has pumped into the CSeries has been in the form of an investment, a 49 per cent stake. That means it will continue to show up on the books as an asset. It also means that if Bombardier's new CSeries is a success, Quebecers will get half the profits.

It is a risk. Eventually the CSeries may go the way of the AvroArrowor that other thinly disguised government project,the supersonic Concorde, developed by British and French taxpayers before being withdrawn from service.

Investing in the CSeriescould bethrowing good money after bad. But sometimes investing a little more isthe only way of protecting aninvestment.

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