A sales lesson for Tories

MARY JANIGAN December 16 1985

A sales lesson for Tories

MARY JANIGAN December 16 1985

A sales lesson for Tories


The announcement led to a week-long political debate studded with acrimony and contradictory assertions. In Ottawa the Conservative government hailed the sale of de Havilland Aircraft of Canada Ltd. to Boeing Co. of Seattle as a major benefit both to the federal treasury and to the frail Canadian aerospace industry. “We have taken the only sensible and realistic course,” declared Treasury Board president Robert de Cotret. But nationalists and members of the opposition parties described the purchase of the Crown corporation by the giant U.S aircraft company as a sellout of Canadian technology—at a bargainbasement price. “What we have really given to Boeing is a $l-billion Christmas bonus,” said Liberal Leader John Turner. And as the controversy dominated the Commons last week, it was clear that the Conservatives faced a tough and divisive battle over their plans to sell more Crown corporations.

The Tories first declared their decision to sell or shut down some of the $77-billion worth of Crown corporations in October, 1984. The list includes 57 parent corporations with 134 wholly owned subsidiaries and investments in another 126 companies. Still, they receive about $8 billion annually in government support. And the process of privatization has been more complex and slower than the Tories expected.

The government has sold most of its 47-per-cent stake in the Canada Development Corp., a holding company set up by Ottawa in 1971, for $264 million. But it has managed to sell only three corporations: de Havilland, the ammunition maker Canadian Arsenals Ltd., sold last week to The SNC Group of Montreal for $92 million, and Northern Transportation Co. Ltd., a marine transport service sold to two Inuit-controlled companies last July for $27 million. Three more corporations—Canadair Ltd., Eldorado Nuclear Ltd. and Teleglobe Canada—are still awaiting bids. And all remaining firms, such as Petro-Canada and the Canadian National Railway Co., are under scrutiny.

The de Havilland agreement says that Boeing will pay $90 million in

cash and $65 million in a deferred payment which will be reduced by $1 million for every $5 million of new work ordered in Canada. Boeing will also put $50 million into modification of the Toronto facilities over five years —and contribute $60 million to the development of a 50-seat stretched version of the 36-seat Dash-8.

For his part, Paul Marshall, president of the Canada Development Investment Corp., the Crown holding company for de Havilland, pointed out that the sale to Boeing was unanimously approved by the businessmen who sit on the CDIC board of directors, the CDic’s financial advisers, as well as a select cabinet committee with its own advisers,

Salomon Brothers Inc. of New York. Since 1982 Ottawa had put $700 million into the company. De Cotret said last week that de Havilland lost $55 million in the first nine months of this year and that it would have lost another $200 million next year.

But Liberal and New Democratic Party MPs charged that with more time the company might have made money. Liberal MP Robert Kaplan declared that the company was sold just as the taxpayers’ money was having results: 70 Dash-8s have been sold since 1980, and buyers have options to purchase 50 more. NDP Leader Ed Broadbent added that taxpayers would sweeten the sale with $60 million in tax breaks and grants. He also estimated that in the next 15 years Ottawa will pay up to $30 million to cover Boeing’s increased insurance and liability costs.

In Toronto, where de Havilland employs 4,500 people, opposition parties

in the provincial legislature were granted an emergency debate on the sale. One of the concerns in Toronto and Ottawa was the buyer’s U.S. origins. Said Turner: “Why did the government give away about $1 billion worth of high technology in the aerospace industry and do so in such a way as to give control to an American company?” Other MPs charged that Industry Minister Sinclair Stevens, who led the sales effort, did not aid a bid led by a Canadian consortium, Rimgate Holdings Ltd. of Toronto, which included Versatile Corp. of Vancouver and Fokker BV of the Netherlands. “They made very little effort to encourage or help a Canadian bid,” said Rimgate president Ian McDougall. But CDic’s Marshall described Rimgate’s bid as “blue-sky promises.” He said that he went out of his way to help, but their bid was “disappointing.”

The controversy highlighted the difficulties that Ottawa faces in selling Crown firms. But the Conservatives are 2 committed to their cam-

0 paign. “We believe that

1 a commercially oriented I company is more effi' cient in the private secli tor than in the public

sector,” de Cotret told Maclean's. As well, federal officials say they are encouraged by the British experience: since 1979 Conservative Prime Minister Margaret Thatcher has successfully sold all or part of her government’s interest in 15 major corporations, including British Telecom and Jaguar PLC.

In fact, in the May budget the Tories declared that they would shut or sell all Crown corporations that did not fulfil a public-policy purpose. They

have closed six companies, including the Canadian Sports Pool Corp. Two others, including Canagrex, a company incorporated in 1983 to promote agricultural exports, are in the final stages of dissolution. Last May, Ottawa created a special ministerial task force on Crown corporations that includes de Cotret, Stevens, Energy Minister Pat Carney and Minister of State for Finance Barbara McDougall. In September it created a special 10-member

“privatization secretariat” at the Treasury Board.

Officials from each department are now working with that secretariat to examine Crown corporations that are under the direction of their respective ministers. The secretariat studies the financial and policy implications and send its recommendations to the ministerial task force. If they decide that a firm can be sold or dissolved, then the

ministers consult with departments affected by the sale: Labor Minister William McKnight was contacted about the de Havilland sale, and Communications Minister Marcel Masse is involved in the Teleglobe sale. Their recommendations are forwarded to Prime Minister Brian Mulroney and cabinet.

The most sensitive of the prospective sales involves Teleglobe, the sole provider of non-U.S. international communications services to and from Can-

ada. There are many possible buyers, largely because the firm is a consistent money-maker. In the first nine months of the year it showed a profit of $42.5 million on revenues of $495 million. But the policy implications are major ones: the issues include how much foreign ownership the government should allow and whether Teleglobe’s monopoly should be continued. The committee must also decide how the firm

should be regulated and what rate of return the regulator should allow.

The lack of resolution of those policy questions has slowed the sale. The 11 companies that have submitted bids for Teleglobe have been forced to base them partly on a set of 10 “reasonable assumptions” published by Stevens and Masse last August. Cabinet is now deciding if those assumptions should be made firm conditions of sale. Said Gordon Kaiser, a Toronto lawyer who is representing one bidder: “The bottom line is that you are dealing with a monopoly service—and the acquisition can have a substantial effect on consumer rates.”

Senior Treasury Board officials told Maclean’s that every Crown corporation—with the exception of some obvious public policy vehicles like Air Canada—is under examination. De Cotret estimates that in the next year Ottawa will identify at least 10 more candidates for sale. Some, like Via Rail Canada Inc., may be impossible to sell because they consistently lose money. Others, like Petro-Canada, could be sold through a public share offering.

For his part, Marshall, who took the dollar-a-year job of selling off the Crown corporations in October, 1984, says that he hopes to sell both Teleglobe and the aircraft manufacturer Canadair before he returns to his job as president of Westmin Resources Ltd. of Calgary in late February. Pierre Des Marais, chairman of the executive committee of the Montreal Urban Community, will replace him. Five companies have shown an interest in Montreal-based Canadair, which manufactures the Challenger corporate jet. But the prospect of selling Eldorado, the uranium mining and processing firm, is not as promising. Still, eight companies are considering making a bid, even though the firm lost $28.3 million in the first nine months of the year and carries a $600-million debt.

Canadair is now a money-maker—it showed a profit of $12.1 million in the first nine months of this year—but only because the government wrote off a 1982 loss of $1.4 billion. Its sale will likely draw the same criticism—that it is being sold just when taxpayers could expect to reap a reward—as the de Havilland deal. And the sale of Eldorado is almost certain to raise charges that the government is selling a vital national resource. De Cotret told Maclean’s last week that the underlying principle of every sale should be: “It is always a good deal for Canada.” The problem for the Tories will be to convince voters that each sale is, in fact, a good deal.