BUSINESS

Bombardier takes flight

PATRICIA BEST September 1 1986
BUSINESS

Bombardier takes flight

PATRICIA BEST September 1 1986

Bombardier takes flight

It was a second chance to make privatization palatable. On Aug. 13 Minister of State for Privatization Barbara McDougall stepped out of a gruelling 91½-hour cabinet meeting in Ottawa and announced that the government had approved the sale of Crown-owned aerospace manufacturer Canadair Ltd. of Montreal. Then, last week a smiling and sunburned McDougall confirmed rumors that snowmobile and subway car maker Bombardier Inc., also of Montreal, had bought the company.

Afterward, McDougall and Bombardier president Laurent Beaudoin boarded a Canadair Challenger executive jet to Montreal. Onboard, they toasted the sale with champagne. McDougall told Maclean’s: “To put it crassly, doing a deal is fun. And sure, there was a little edge of tension around how it was going to go. But it was positive tension.”

The successful conclusion of four months of intensive negotiations to sell the second of the major Crown corporations for sale was McDougall’s first test as privatization minister. For the past two years, as the minister of state for finance, she led the Tory government’s frontline defence during Canada’s most serious banking crisis. Now, she is charged with fulfilling the Conservatives’ 1984 election undertaking to reduce government involvement in the private sector. Named to the job on June 30, McDougall went over the bids for Canadair “line by line and asking questions about every number,” said a member of the privatization secretariat.

In a complicated sale agreement, Bombardier will pay a net cash price to the government of $205 million—a fraction of the $2.2 billion Ottawa has spent on developing the company during the past 10 years. Said McDougall: “No sale could recoup the billions spent on Canadair.” The sale, which does not provide job guarantees but does include safeguards ensuring that Bombardier will continue to invest in research and development, was gener-

ally welcomed by labor and business groups. Labor leaders representing Canadair’s 4,600 employees endorsed the sale publicly. That reaction contrasted sharply with the sale of Toronto-based de Havilland Aircraft of Canada Ltd. last December to U.S.-owned Boeing Co. The transaction attracted

criticism from political opponents, nationalists and labor leaders because of Boeing’s foreign ownership and the bargain price which it paid.

Still, some of the rival bidders for Canadair have expressed bitterness at losing. Several sources close to the losing companies told Maclean’s that they believed Bombardier was the government’s choice from the outset. Paul Marshall, president of Canada Development Investment Corp., the government holding company that owned the firm, told industry associates that none of the six formal bids was sufficiently informative. Marshall, who did most of the work on the sale, asked only two to elaborate on their original

offers. A source close to a consortium that included Fleet Aerospace Corp. of St. Catharines, Ont., said: “The original bids were superficial, yes, but the notion was that the details would be negotiated at a later date. But we were never invited back. It was a deeply flawed process.”

For its part, Bombardier is taking a calculated risk in acquiring the aerospace firm, according to many observers. The aerospace business is a highstakes industry with lucrative contracts but also with stiff competition from international giants. Former Canadair chief executive Gilbert Bennett said that Canada is one of the few Western countries that does not provide a guaranteed market for domestically produced aircraft. He added: “If Ottawa has decided to begin providing the kind of support the industry needs, then it is a good deal for Bombardier.” Otherwise, he said, “Bombardier bought a bad deal.”

Bombardier’s strength lies in its aggressive international marketing skills—evident in the success the company has had in selling subway cars to cities in the United States. The cars, designed by Kawasaki Heavy Industries Ltd. of Japan, are manufactured under licence by Bombardier. Beaudoin says that Bombardier has made a strategic decision to buy technology rather than to develop its own. The purchase of Canadair fits into that strategy.

But some observers say that Bombardier also wanted Canadair because its purchase might help to win a hotly contested $1.7-billion, 20-year maintenance contract for Canada’s CF-18 aircraft. A clause in the Canadair purchase agreement, inserted by Bombardier, guarantees a one-per-cent royalty payment to the federal government if Bombardier wins the work.

With the sale of Canadair, there are only two Crown companies currently up for sale. They are Teleglobe Canada and Eldorado Nuclear Ltd., both owned by CDIC. Marshall indicated last week that there are numerous potential buyers for both of the profitable corporations. But before those and others not yet officially for sale—such as Air Canada—can be sold, Marshall said, “there are some very major policy decisions that the government must make.” For her part, McDougall said that she is not in any hurry. She said she is willing to wait for the right market conditions before selling off another Crown corporation. It is a signal from the Conservatives that privatization must go ahead—but not at any political cost.

PATRICIA BEST

MARC CLARK

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