If Liberals bail out Bombardier, what relief awaits oilpatch?
As the oilpatch digests the makeup of the new Liberal cabinet, particularly those ministers most connected to the sector, Prime Minister Justin Trudeau’s recent remark that he won’t rule out federal aid to Bombardier is bound to raise measured skepticism in Calgary.
Should the federal government go down that runway and match the $1.3 billion promised to Bombardier by Quebec, it would make for a rather short honeymoon with the newly elected government in these parts, despite the welcome news Calgary — for the first time in more than 40 years — has a voice in the federal Liberal cabinet with the very capable Kent Hehr.
Giving money to Bombardier would constitute a ‘back-to-the-future’ moment many are quietly fretting about in Alberta; Ottawa bending to Quebec, again.
A quick poll of the oilpatch would find decidedly less angst about the new federal government compared to the sentiment around Alberta’s NDP government. That could all disappear in an instant were dollars to flow east in the form of a bailout.
Bombardier is hardly the contributor to the Canadian economy that the oilpatch is — even when you factor in its impact across the supply chain.
Broadly speaking, natural resources make up almost 25 per cent of Canada’s economy — with the energy responsible for 10 per cent of GDP. Bombardier, with revenue of $21.1 billion in 2014 — even with its order backlog — is far from having the same impact.
Contrast that with oilpatch revenues expected to be $91 billion this year — down 41 per cent from last year. In financial jargon, that’s a rather large delta; a big difference in what’s been a tough year.
The collapse in oil prices, persistent weakness in natural gas prices and the lack of access to new markets has led to the cancellation of 17 oilsands projects — with Royal Dutch Shell’s Carmon Creek the latest addition to the list after the company took a $2-billion writedown on that project. No small change.
All of this has been accompanied by more than 50,000 lost jobs in this province and that number doesn’t include the impact on manufacturing and fabrication businesses — the industry’s supply chain — across the country. Even Telus last week cited the oilpatch slowdown as a key reason for what it called a soft third quarter.
While much can be made of the oilpatch not keeping closer watch on its cost structure — average weekly wages rose at 56 per cent in the sector between 2004-14 compared with the 29 per cent average across the country according to ATB Financial’s chief economist, Todd Hirsch — the fact remains Alberta’s energy producers are price takers in this game, not price makers.
Bombardier on the other hand, has a number of factors within its control. You could say it is the architect of its own problems.
Let’s start with that archaic dual voting share structure — through which the family continues to control the company. A senior investment banker I worked with many years ago once characterized the dual-class share structure as being a private company with public money.
No wonder no other aerospace manufacturer was interested in striking a deal with the company to save its woefully behind and overbudget C-Series aircraft. It effectively seals off a public market avenue through which to solve its financial problems.
Magna finally let go of its dual class shares in 2010, which required a healthy payment to the Stronach Trust of $970 million. Yet despite that, the shares traded up and Magna shareholders were better off.
The same needs to happen with Bombardier — as well as the other family-controlled companies still in existence across the country. If Bombardier — or the other companies — is truly competitive in its sector it doesn’t need a family control block to ensure it can’t be bought out.
The dual-class shares artificially protect a company because shareholders outside the family circle don’t have a vote. Ultimately that raises questions about the accountability of the board and management to shareholders. If Bombardier had only one class of voting shares, the board of directors would be taking a harder look at management and likely making some tough decisions in light of what has not transpired with the C-Series project.
Bombardier is in the glue — by its own hand. The energy sector is not.
And yet we are not seeing a stream of energy executives going cap in hand asking for money from either the Alberta or federal government, even though it’s easier to make a case for granting some relief to the oilpatch than to Bombardier.
What the oilpatch is seeking is clarity and fairness in government policy — from the provincial royalty review and climate directives that will come from the climate change panel provincially and the decisions and commitments made at the Paris climate talks starting later this month.
It is also looking for meaningful progress on the issue of gaining access to tidewater. Trade statistics released last week showed China surpassed Canada as the largest trading partner of the United States, with 17.4 per cent of total trade compared with Canada’s 15.3 per cent.
Not only is this another sign of the growing importance of China on the world economic stage, it reinforces the importance of market diversification for the Canada’s oil and gas producers.
If this is truly a new era in Canadian politics, Trudeau and his Liberal cabinet must realize a $1.3-billion bailout to Bombardier would result in an aborted takeoff when it comes to convincing Albertans and the oilpatch that he understands the energy sector’s importance to the entire Canadian economy.
source: Yedlin: If Liberals bail out Bombardier, what relief awaits oilpatch? | Calgary Herald
As the oilpatch digests the makeup of the new Liberal cabinet, particularly those ministers most connected to the sector, Prime Minister Justin Trudeau’s recent remark that he won’t rule out federal aid to Bombardier is bound to raise measured skepticism in Calgary.
Should the federal government go down that runway and match the $1.3 billion promised to Bombardier by Quebec, it would make for a rather short honeymoon with the newly elected government in these parts, despite the welcome news Calgary — for the first time in more than 40 years — has a voice in the federal Liberal cabinet with the very capable Kent Hehr.
Giving money to Bombardier would constitute a ‘back-to-the-future’ moment many are quietly fretting about in Alberta; Ottawa bending to Quebec, again.
A quick poll of the oilpatch would find decidedly less angst about the new federal government compared to the sentiment around Alberta’s NDP government. That could all disappear in an instant were dollars to flow east in the form of a bailout.
Bombardier is hardly the contributor to the Canadian economy that the oilpatch is — even when you factor in its impact across the supply chain.
Broadly speaking, natural resources make up almost 25 per cent of Canada’s economy — with the energy responsible for 10 per cent of GDP. Bombardier, with revenue of $21.1 billion in 2014 — even with its order backlog — is far from having the same impact.
Contrast that with oilpatch revenues expected to be $91 billion this year — down 41 per cent from last year. In financial jargon, that’s a rather large delta; a big difference in what’s been a tough year.
The collapse in oil prices, persistent weakness in natural gas prices and the lack of access to new markets has led to the cancellation of 17 oilsands projects — with Royal Dutch Shell’s Carmon Creek the latest addition to the list after the company took a $2-billion writedown on that project. No small change.
All of this has been accompanied by more than 50,000 lost jobs in this province and that number doesn’t include the impact on manufacturing and fabrication businesses — the industry’s supply chain — across the country. Even Telus last week cited the oilpatch slowdown as a key reason for what it called a soft third quarter.
While much can be made of the oilpatch not keeping closer watch on its cost structure — average weekly wages rose at 56 per cent in the sector between 2004-14 compared with the 29 per cent average across the country according to ATB Financial’s chief economist, Todd Hirsch — the fact remains Alberta’s energy producers are price takers in this game, not price makers.
Bombardier on the other hand, has a number of factors within its control. You could say it is the architect of its own problems.
Let’s start with that archaic dual voting share structure — through which the family continues to control the company. A senior investment banker I worked with many years ago once characterized the dual-class share structure as being a private company with public money.
No wonder no other aerospace manufacturer was interested in striking a deal with the company to save its woefully behind and overbudget C-Series aircraft. It effectively seals off a public market avenue through which to solve its financial problems.
Magna finally let go of its dual class shares in 2010, which required a healthy payment to the Stronach Trust of $970 million. Yet despite that, the shares traded up and Magna shareholders were better off.
The same needs to happen with Bombardier — as well as the other family-controlled companies still in existence across the country. If Bombardier — or the other companies — is truly competitive in its sector it doesn’t need a family control block to ensure it can’t be bought out.
The dual-class shares artificially protect a company because shareholders outside the family circle don’t have a vote. Ultimately that raises questions about the accountability of the board and management to shareholders. If Bombardier had only one class of voting shares, the board of directors would be taking a harder look at management and likely making some tough decisions in light of what has not transpired with the C-Series project.
Bombardier is in the glue — by its own hand. The energy sector is not.
And yet we are not seeing a stream of energy executives going cap in hand asking for money from either the Alberta or federal government, even though it’s easier to make a case for granting some relief to the oilpatch than to Bombardier.
What the oilpatch is seeking is clarity and fairness in government policy — from the provincial royalty review and climate directives that will come from the climate change panel provincially and the decisions and commitments made at the Paris climate talks starting later this month.
It is also looking for meaningful progress on the issue of gaining access to tidewater. Trade statistics released last week showed China surpassed Canada as the largest trading partner of the United States, with 17.4 per cent of total trade compared with Canada’s 15.3 per cent.
Not only is this another sign of the growing importance of China on the world economic stage, it reinforces the importance of market diversification for the Canada’s oil and gas producers.
If this is truly a new era in Canadian politics, Trudeau and his Liberal cabinet must realize a $1.3-billion bailout to Bombardier would result in an aborted takeoff when it comes to convincing Albertans and the oilpatch that he understands the energy sector’s importance to the entire Canadian economy.
source: Yedlin: If Liberals bail out Bombardier, what relief awaits oilpatch? | Calgary Herald