Bombardier, Inc.: Do the Politics Favour a Federal Bailout?

Will Justin Trudeau be pressured to provide funding for Bombardier, Inc. (TSX:BBD.B)?

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While speaking to the Canadian Labour Congress on Tuesday, Prime Minister Justin Trudeau said that any Bombardier, Inc. (TSX:BBD.B) investment had to backed up by a strong business case and would not be based on politics.

It’s certainly the right thing to say. But if history is any guide, politics have a role to play. So, with that in mind, do the politics favour an investment by the feds in Bombardier?

Why Trudeau may be pressured to support Bombardier

In a guest op-ed for the Toronto Star, Unifor National president Jerry Dias made the case for an investment in Bombardier. He said long-term projects such as the CSeries often require government support, and that is what we’ve seen in many other countries.

Mr. Dias is not someone to be taken lightly. Unifor is Canada’s largest private sector union. It represents over 300,000 workers (i.e. voters) across the country, including nearly 5,000 workers at Bombardier.

Furthermore, Quebec was a key part of Mr. Trudeau’s victory in the recent election. The Liberal party won an impressive 40 out of 78 seats in the province (including in Mr. Trudeau’s riding), and if history is any guide, those seats could disappear in the next election.

Why the politics are against an investment

We all know that Conservatives are opposed to anything that smells like a bailout. That is to be expected. But the left-leaning Toronto Star recently wrote an editorial arguing against such an intervention.

This editorial looked like it belonged in the National Post. It argued against “corporate welfare” and said that “Canadian taxpayers” shouldn’t be asked to contribute funding. The Star rightly pointed out that Bombardier’s problems extend well beyond the CSeries, as the company first received taxpayer assistance back in the 1960s.

While Quebec was an important part of Mr. Trudeau’s victory, so was the GTA–the Liberals won all but three seats in the region. And even though Toronto isn’t exactly a Conservative stronghold, its citizens don’t seem to be in favour of a Bombardier bailout. After all, the company has been embarrassingly late in delivering streetcars to the city, forcing commuters to continue riding some very out-of-date vehicles.

If there’s any doubt about which way Torontonians lean, look no further than 2010, when the city’s voters elected Rob Ford as mayor. Mr. Ford’s campaign centred on ending government waste, and it was enough to win over voters, despite concerns about his character. During the campaign, Mr. Ford even criticized the city for awarding a subway contract to Bombardier, claiming that German rival Siemens would have delivered the same subways for $500 million less.

The verdict

There’s one other factor, one that probably makes the biggest difference: Mr. Trudeau’s biggest challenge comes from the Conservatives, not from the NDP. So, if he provides support money for Bombardier, he opens himself up to attack from the one party that has the best chance of unseating him.

For that reason, Bombardier will probably have to look elsewhere for funding. But then again, making political predictions isn’t easy. We’ll just have to wait and see.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Benjamin Sinclair has no position in any stocks mentioned.

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