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Cablegate: Goc Subsidy to Bombardier Likely

This record is a partial extract of the original cable. The full text of the original cable is not available.

201318Z Dec 04

UNCLAS SECTION 01 OF 02 OTTAWA 003407

SIPDIS

STATE FOR WHA/CAN (BREESE AND HOLST) EB/TPP/BTA/EWH:
(MATTHEWMAN)

STATE PASS USTR FOR SAGE CHANDLER

USDOC FOR 4320/OFFICE OF NAFTA; 3134/OIO/WESTERN
HEMISPHERE; ITA/FRED ELLIOTT

SENSITIVE

E.O. 12958: N/A
TAGS: EIND ETRD CA WTO NAFTA
SUBJECT: GOC SUBSIDY TO BOMBARDIER LIKELY

REF: State 262292

1. (SBU) Summary: There is strong political pressure
on the GoC to find a way to support Bombardier,
especially given its current financial troubles.
However, decisions on how or when to come up with money
are likely to be made at the political level, leaving
officials scrambling to find a funding mechanism. End
Summary.

2. Post made reftel points to a range of GoC officials
at Industry Canada and International Trade Canada, as
well as to the executive director of Technology
Partnerships Canada (TPC) and parliamentary officials.

3. (SBU) TPC Executive Director Tom Wright told us
that Bombardier had not made a formal application for
TPC funding, and that it was not clear that TPC would
necessarily be the mechanism to provide launch aid.
(Comment: TPC is under review in the GoC at the moment
and has attracted media criticism for a repayment rate
of less than 3% on $2 billion in disbursements over the
last eight years. End comment) Econ officer also
eventually reached Ron Watkins, Director General for
the Aerospace and Automotive branch of Industry Canada.
Watkins said that no decision was imminent, and that
the GoC would not decide on its policy on launch aid
until Bombardier had actually decided whether or not to
go ahead with the launch of the C-series. He also
groused that press reporting on the issue, especially
about sources and amounts, had been largely inaccurate.
The press has reported that anywhere from $300-$380
billion CAD has been earmarked for Bombardier out of a
proposed aerospace industry aid package. Almost
immediately after that conversation, however, Industry
Minister David Emerson told reporters that he plans to
seek cabinet authority for financial aid for
Bombardier, as part of a package of more than $1
billion in aid for the Canadian aerospace sector.

4. (SBU) A contact in the House of Commons told us
December 16 that the Cabinet Committee had already
discussed the issue but had not made any solid
decision, and that the issue of WTO/NAFTA obligations
had come up during those discussions.

5. (SBU) One MP commented to us that regional politics
are likely to increase pressure on the government to
support Bombardier. The separatist Bloc Quebecois has
argued that Ontario has received almost a billion
dollars in subsidies in the last few years - notably to
induce Ford to maintain operations and build a new
plant in the region - while Quebec companies have
allegedly been left out in the cold. Quebec regional
interests explain the prominent role that Transport
Minister Jean Lapierre has played in public discussion
of the issue; ordinarily Transport would have no role
in such a decision. In the meantime, Bombardier,
despite its financial troubles, has reportedly hired a
lobbying firm in Ottawa and is pushing hard for
funding.

6. (SBU) Comment: Bombardier's current quest for
funds is the latest round in the long history of its
entanglement in Canadian regional politics. Ever since
the Mulroney government handed a $1.4 billion contract
to service the CF-18 fighter jet to Bombardier in the
late 1980s (over a British-owned company based in
Winnipeg), the Montreal-based company has been a symbol
for Western Canadians of Quebec's "spoiled child"
status with Ottawa. Bombardier, one of the flagships
of Quebec Inc., has also enjoyed and depended on
subsidies from the provincial government.

7. (SBU) The company has fallen on tough times in
recent years, letting go thousands of workers in the
worldwide aerospace and airline downturn since 9/11.
(The surprise resignation of CEO Paul Tellier last week
drew attention to its shaky financial condition and
furthered battered stock prices.) All players -- from
trade unions, to opposition parties to employers groups
- have demanded that the Liberal government in Quebec
find whatever it takes to compete with offers made by
Northern Ireland or U.S. states, to ensure that final
assembly of Bombardier's next generation of jets will
be in Montreal. On Dec. 3, Quebec Opposition leader
Bernard Landry argued that the reluctance of the
Canadian government to help Bombardier compete in
international markets was a reason to have an
independent Quebec and that an independent Quebec would
have no such reticence. The Province of Quebec
subsequently announced a package of up to $700 million
in loan guarantees for Bombardier's current production.
Support goes beyond Quebec, however; Buzz Hargrove,
head of the Canadian auto workers' union, has called
for joint financing by Ottawa and the provinces for the
C-series, citing the success of European support for
Airbus and commenting that "we need to learn the same
lesson."

8. (SBU) Quebec officials have told us that they are
pushing for the GoC to take on funding for Bombardier
as a federal issue. Ontario has reportedly just made
an offer to support Bombardier production in the
province, for which the mayor of Toronto has been
actively lobbying. Bombardier is rumored to have
received offers from three U.S. states as well; Quebec
may be seeking to avoid a bidding war.

(SBU) Post will continue to monitor developments
closely. Our discussions suggest that federal funding
of some kind for Bombardier is likely and that the
decision is essentially out of the hands of Industry
Canada officials; timing and amounts are likely to be
decided at the Cabinet level, leaving officials with
the task of finding the right channel for funding.

Cellucci

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