Nov. 24, 2015, (c) Leeham Co. With the $1bn investment by the Province of Quebec in the Bombardier CSeries program, another example of government funding emerges in commercial aviation development.
Setting aside whether the investment might be challenged before the World Trade Organization—and whether this makes good business sense for Quebec—the move makes a mockery of the entire concept of avoiding government support.
It will well be remembered that more than a decade ago, Boeing challenged the government support Airbus received. Airbus filed a counter-complaint. Both sides were found to have violated WTO rules.
Even before that, Embraer and Bombardier filed complained about illegal subsidies relating to export credit financing. Both were found to be in violation.
(LNC acknowledges the complaints to the WTO are actually filed by the respective governments, but for all practical considerations, it’s the companies that are the drivers.)
China is open about the government support for the AVIC and COMAC ARJ21 and C919, with intentions to fund a wide-body C929 in the next decade.
Russia supplies state funding for development of the Irkut MC-21.
Bombardier received government aide from Northern Ireland and Canada for its CSeries before the latest funding scheme.
Neither Boeing nor Airbus has challenged China’s government funding of its commercial aerospace industry to the WTO. Airbus officials said neither they, nor did they expect Boeing, would file complaints about China. The reasons were obvious: Airbus and Boeing have too much at stake in China to risk pissing off the government.
An official of Embraer dodged the question whether he expected Brazil to file a complaint with the WTO over the latest BBD-government funding scheme. The funding isn’t expected to close until the first quarter, so no action would be likely until well after it is closed.
It wouldn’t matter.
Even though the WTO found Canada and Brazil in violation of the export financing support to BBD and EMB, neither country ever imposed penalties.
The WTO findings in the Airbus and Boeing complaints remain under appeal. No penalties can be imposed before decisions whether the appeals will be upheld or rejected.
Airbus and Boeing could also file complaints with the WTO over the Quebec funding. The CS300 is a direct competitor to the Airbus A319neo and the Boeing 737-7. It’s unlikely either will file a complaint, though.
Governments get involved in commercial aerospace development. It’s in their national interests to do so.
Quebec’s investment in BBD only proves the case once more.