Bombardier is considering shifting assembly work on the C Series jet to the U.S.
Bombardier may move C Series work to U.S.
From Saturday's Globe and Mail
MONTREAL As Bombardier Inc. gets set to launch its new C Series airliner, the company is once again sparring with governments over financial aid.
The Montreal-based company is considering shifting major assembly work related to the new jet from Canada – and perhaps Northern Ireland – to the U.S., Pierre Beaudoin, the president of Bombardier Aerospace, said yesterday.
The U.S. option – intended to counter higher currency costs in Canada and Britain – throws into question the financial commitments made two years ago by Canada, Quebec and Britain. Under terms of those agreements, up to 2,500 jobs were to be linked to C Series work in the Montreal area, and another 2,000 in Belfast, Northern Ireland.
Federal Industry Minister Jim Prentice said in an interview yesterday that the terms of the initial agreement will have to be modified if there are major production shifts out of the country.
“The original term sheet dealt with the issue of Canadian content and any government of Canada partnership would be contingent on adherence to the original term sheet,” he said.
Ottawa has asked for more details from Bombardier about its revamped C Series program and the new “cost elements” will have to be closely examined as well, he said.
The promises of financial aid were made on the basis of Bombardier's undertakings to do cockpit and final assembly at Bombardier facilities in the Montreal area and wing assembly at its Belfast unit.
U.S. aviation consultant Richard Aboulafia warned that Bombardier's move may end up triggering a fierce competition between political jurisdictions vying for the cutting-edge aerospace work.
“It's going to be the usual ‘may-the-highest-bidder-win' moment,” he said. “You have the spectre of states and provinces falling over themselves to subsidize.”
Mr. Beaudoin said yesterday that Bombardier has no choice but to seek the lowest-cost locations for production of the 110-to-130-seat aircraft, and the Canadian and British currencies have soared in valued against the U.S. dollar.
The company – which has facilities south of the border – is already exploring possible U.S. locations, he said.
As a major exporter, Bombardier is at a disadvantage because its revenues are in U.S. currency but its production costs are mostly in Canadian and British currencies, he said on a conference call after the company won approval from its board to formally market the new plane to airlines.
“We're evaluating the best way to protect our business plan,” he said.
The board is expected to decide before the end of the year whether to go ahead with a formal launch of the plane, which has a list price starting at $40-million.
Mr. Beaudoin stressed that the Montreal-area and Belfast locations remain Bombardier's preferred choices for the assembly work.
He also said the $2.1-billion (U.S.) development costs for the C Series have risen to $2.5-billion, with an additional $700-million in capital costs, for a total of $3.2-billion.
The Quebec, Canadian and British governments agreed to provide one-third of the total development cost, while Bombardier kicked in another third and partner suppliers provided the remaining third. Ottawa pledged $260-million, Quebec offered $110-million and $340-million was to come from Britain.
Adam Taylor, national research director of the Canadian Taxpayers Federation, said in an interview that Bombardier's apparent flip-flopping is another example of the failure of subsidies to the private sector.
He called the company's moves an attempt to push “the provincial and federal governments to pony up more aid to Bombardier.”