Harper's Threat to Canada's High Tech Crown Jewel

Ask most Canadians to name Canada's biggest technology success story and they'll probably be hard pressed to come up with an answer.  Blackberry? No, that's out. Hmmm.

The answer, for the time being at least, is Bombardier, the world's third largest civil aircraft manufacturer.  Sure, when you board WestJet or Air Canada you'll probably be on a Boeing or Airbus but Bombardier has been growing steadily, ambitiously developing its own mid-size C series jetliner.

Like the Big Two - Boeing and Airbus - Bombardier's development of the C series has been anything but smooth. There have been delays and cost issues, the sort of problems routinely absorbed by the competition but harder to manage for the smaller, cash-strapped Bombardier.

Now, according to Aviation Week's Kevin Michaels, the C series threatens Bombardier's survival. Bombardier's options are limited and, as Michaels notes, could hinge on whether Canadians give Stephen Harper the boot.

The first option is to sell assets. The most obvious asset is its $10 billion transportation business. Bombardier previously tried and failed to sell a minority stake of this division. Instead, it could sell the entire business and become a pure aerospace company. This might raise more than $5 billion that could see the manufacturer through the difficult period ahead and help it pay down debt. This would also address the market’s perception that Bombardier’s very survival is at risk. What about another asset—the aerostructures business? This makes sense strategically, but the value of this unit is tied to the C Series, and it won’t bring in enough capital to fund the company’s war chest. Better to sell it after the C Series program is stabilized. Finally, there might still be a buyer for the commercial aircraft business—perhaps Comac or another deep-pocketed Asian aerospace OEM such as Mitsubishi or Avic. This could bring not only capital but also much-needed customers.

Bombardier’s second option is to stop the bleeding and shut down the C Series. This option will not be cheap, as Bombardier would need to pay back suppliers for development costs, adding up to $1 billion or more. It would face customer ire, penalties and severely damaged credibility. And the move would deal an emotional blow to Canada in the wake of other high-technology failures.

Finally, there is a third option: government intervention. The interesting twist here is that that support may be tied to next week’s Canadian federal elections. Justin Trudeau’s Liberal Party has a narrow lead in recent polls, and his base of support is in Ontario and Quebec. If he wins, he may feel compelled to pay back voters, given Bombardier’s footprint in both provinces.

What about Stephen Harper’s Conservatives? If they win a majority government, it could doom federal aid, as Harper’s base of support in western Canada wouldn’t stand for a bailout of eastern interests.