Tuesday, April 26, 2016

Ownership and the Long Term: The Case for Bombardier and the C Series

If there is one thing on which every mainstream commentator on the Canadian economy and Canadian politics has agreed over the past year, it's that Bombardier’s dual share structure, which allows the Beaudoin family to control the fortunes of the company even though they hold a minority of its equity, is bad for the other shareholders, and bad for Canada. The near-universal consensus* has been that the federal government should make any investment in Bombardier’s fortunes contingent on the company abandoning its dual share structure, and treating all shares equally.

Intuitively it all makes sense. Equal has to be good, right? And Bombardier’s other shareholders probably would have benefited in the short term if the company had, for example, sold off its train division last year, or sold the C series to Airbus. (Both sorts of deals were said to be on the table.)

But what about the long term? Where would the shareholders be? Where would Canada be? Without its biggest contributor to R&D, for one thing. Bombardier’s investment in research and development totals about $2 billion a year—one sixth of all R&D spending in the entire country. Canada would also be without its only big league player in the aerospace industry. And Canada would be without a company that is making a larger contribution to greening the world economy than almost any other corporation in the country; the appeal of the C series is very largely that it uses far, far less jet fuel than the average plane today—and less than its new competitors from Airbus and Boeing and Embraer too.

For the fact is that, without the dual share structure which has enabled Bombardier to remain in family hands, Bombardier in all likelihood wouldn’t be in Canadian hands at all. When its share price kept falling and falling in 2015 until the company’s shares were selling for bargain basement prices, a Chinese company would surely have snapped up not just the rail division, but the entire company. Or Airbus or Boeing would have done so, simply to kill the competition. Or a takeover specialist such as Carl Icahn would have orchestrated a buyout.

For Bombardier shareholders like me, who are in it for the long term, it’s a very, very good thing that the company has remained in family hands, and that they have taken the long view. Have there been mistakes? Sure? Is the C series late and over-budget? Sure. Those things are true of virtually every major project that any ambitious company takes on. But the company seems to have a great management team in place now, and—most importantly—they have succeeded in developing an absolutely superb plane. Before long they will again come to be acknowledged as a company responsible for some of Canada’s greatest technology and manufacturing successes.

If Canadians really do want the country’s economy to be about more than resources, this is a company we do not want to die. And if people everywhere want air travel to be more environmentally friendly, we should be grateful that Boeing or Airbus hasn’t been able to drive Bombardier and its C series out of business.
*The only places I've seen any other views expressed have been posted a few comments on sites such as stockhouse.com, and of course in Bombardier's own statements

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