February 19, 2016 / 9:49 PM / 2 years ago

Canada likely to aid struggling Bombardier: government sources

OTTAWA (Reuters) - Canada will likely offer up to $1 billion in aid to ailing plane maker Bombardier Inc BBDb.TO, according to senior government sources, though some in the ruling Liberal Party want to see the company make tough concessions around control.

A Bombardier aircraft is displayed at the Singapore Airshow at Changi Exhibition Center February 18, 2016. REUTERS/Edgar Su

The federal government is under enormous pressure from the province of Quebec, which last year invested $1 billion in the firm’s CSeries passenger jet for a nearly 50 percent stake in the project.

Bombardier acts as the center of the aerospace industry in Quebec. Although the CSeries is billions of dollars over budget and years late, not helping the firm would cost the Liberals support there.

“It is very, very likely the government will step in but the details still need to worked out,” said one person with knowledge of the file.

Bombardier wants the federal government to follow the example of Quebec and take a stake in the CSeries, though it is not clear how big.

In public, federal cabinet ministers have stressed the importance of the aerospace sector, with Treasury Board Minister Scott Brison saying on Friday the Liberals would continue to invest in the industry.

But sources say Ottawa is concerned about Bombardiers’s dual class share structure, which gives the Bombardier-Beaudoin family a roughly 54 percent voting stake.

Amid vocal criticism of Bombardier’s management some Liberals have suggested the company could dilute or even scrap the dual class structure, thereby making it more accountable to investors. Bombardier has hitherto rejected this idea and there is no guarantee the firm would change its mind under pressure from Ottawa, setting up a potential standoff.

“The Quebec government got a bad deal with its investment in the CSeries,” said one senior Liberal, citing the lack of concessions it obtained.

Quebec’s 40-strong Liberal caucus has privately told the office of Prime Minister Justin Trudeau that it is vitally important the aerospace sector be protected, according to two party sources, one of which said he knew the government would back Bombardier.

But Liberals are also cautious about a backlash elsewhere.

The right-leaning Canadian Taxpayers Federation says Bombardier and De Havilland - which Bombardier bought in 1992 - have already received more than C$2.2 billion ($1.60 billion) in government loans and contributions since 1966, adjusted for inflation.

Another potential challenge is the energy-producing western province of Saskatchewan, hard hit by slumping crude prices, and already unhappy with Quebec over its resistance to a pipeline that would take oil from the west to the Atlantic.

Bombardier on Wednesday announced it would cut its workforce by 7,000, including 2,830 positions in Canada.

“If the federal government is considering a $1 billion bailout to address 2,830 Canadian job losses at Bombardier, what about the tens of thousands of job losses in Canada’s energy sector?” Saskatchewan Premier Brad Wall said in a Facebook post.

The risk of exacerbating long-standing tensions between the West and Quebec means Ottawa needs to show it wrung concessions from Bombardier, said a Liberal legislator from outside Quebec.

“In negotiations like these both sides make compromises, they offer something up. What is Brad Wall going to say if he sees we handed over the money and didn’t get very much in return?” said the legislator.

Whether or not to aid Bombardier is formally a decision for Innovation Minister Navdeep Bains. Bains and other ministers hailed Air Canada’s announcement this week that it is looking at buying up to 75 CSeries jets.

Despite the breakthrough, orders for the CSeries trail far behind those for similar-sized airliners produced by Boeing Co BA.N and Airbus Group SE AIR.PA.

($1 = 1.3767 Canadian dollars)

Editing by Jeffrey Hodgson and Tom Brown

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