No vaccination against vacillation

The Trudeau cabinet’s inexperience will end up costing Canadians dearly. Not because they’ll inevitably make the wrong decisions, but because of their vacillation before coming to them. Case in point: Bombardier Aerospace. The issue is whether the federal government should follow the Couillard government’s lead in propping up what analysts agree is a troubled investment. The NDP and the Bloc both favour a cash injection although neither has a clue of how much might be needed. Sad.

Theoretically the bailout money is there. Earlier this month United Technologies repaid more than $1B CDN in government loans made to subsidiary Pratt & Whitney to develop the geared turbofan engines used to power Bombardier’s C series. Although the loans were not due until 2030, they’ll be off the books by 2020. While UT never drew a direct connection, the inference was that Ottawa would have less of an excuse to say no to a Bombardier bailout.

We learned this week the Harper Tories had all but decided against staking the planebuilder to $1.3B CDN in bailout loans. Harper knew Canadians had been badly burned by the GM precedent. After the feds and Ontario propped up GM’s Canadian operation with $13.7B CDN in 2009, the automaker last August dumped a thousand jobs in its Oshawa plant. GM’s decision cost us an estimated $3.5B. Bombardier is Quebec’s GM, having moved production offshore to Mexico, Ireland and China. Despite that, the provincial Liberals pumped $1.3B CDN into a family-controlled company with no strings attached – a far cry from the restrictions and demands the Caisse de dêpot imposed on its investment in Bombardier Rail. Québec Inc., the closely entwined, incestuous circle of directorships heading this province’s largest corporations, was once its fortress. Now it’s Quebec’s economic prison.

Maxime Bernier, the Conservatives’ industry critic, has it exactly right when he says it’s a question of fairness. “Small business doesn’t have the means of paying lobbyists, so it’s always the big well-connected businesses that get [the bailouts], supposedly to create wealth.”

More proof of the Trudeau government’s incoherence: the pre-emptive announcement by Transport Minister Marc Garneau that Ottawa would not grant regional carrier Porter Airlines landing rights for commercial jets at its downtown Billy Bishop terminal. Despite polls showing Torontonians evenly split on the question, Garneau put a fork in any interest Porter may have had in buying the CSeries. If Ottawa can’t bring itself to believe in Bombardier, why should taxpayers? Garneau’s motivation appears to have been purely political — the Trudeau Grits had promised during the election campaign to ensure jets were not allowed at Billy Bishop. If so, it’s one of a diminishing number of election promises the Trudeau team has kept or will keep.

I believe the Canadian economy is in the early stages of a tectonic shift. There’s little doubt oil prices will recover — eventually and somewhat. The world consumes 97 billion barrels daily. Canadian oilsands production accounts for roughly two million — the estimated world overproduction cited as the reason we’re awash in cheap oil. Once the major Mexican, North Sea, North African and Middle Eastern producers have driven the U.S. shale and Canadian oilsands producers out of the market, prices will be allowed to recover, but not so much the sun starts to shine on capital-intensive fracking, deepwater drilling and oilsands expansion.

What’s this mean to Canadians?  Federal deficits and provincial austerity measures. A 65-cent loonie. Higher prices for almost everything, coupled with a pathological fear on the part of the Bank of Canada to raise interest rates because of the indebtedness of the average Canadian household. Unemployment is guaranteed to increase as gun-shy corporations hunker down. We don’t know the full extent of the exposure of Canada’s major banks and financial sector to resource extraction debt but you can bet the Seven Sisters will survive by cutting services and firing their little people. The Liberals will come under enormous pressure to counter that and I don’t think they have the balls to stare down the financial establishment. I hope I will be proven wrong but pharma has yet to develop a vacillation vaccine.

My advice to the PM and Finance Minister Bill Morneau: it’s either jump or be pushed, so pick your target and make the leap.

Projected against the backdrop of the faltering Canadian economy, a federal refusal to pump more cash into aerospace would not be out of line. The problem lies in this government’s inability to make those important linkages that demonstrate an overall understanding of how the Canadian economy works. Trudeau and company can get by on blaming their predecessors for betting the ranch on oil, but sooner or later they’ll have to present Canadians with a coherent, comprehensive plan that moves this nation past that. The Bombardier bailout — or refusal — should be a part of that bigger picture.

 

 

 

 

 

 

 

 

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