The government of Quebec seems willing to invest another $200 million in Airbus Canada Limited Partnership (SCAC) to support the future of the Airbus A220 program. Although not officially confirmed, Canadian media Le Journal de Montreal and La Presse report that the capital increase in the joint venture with Airbus is done. The extra investment is politically sensitive in Quebec. Quebec government willing to invest in Airbus A220.
According to Le Journal de Montreal, Airbus has been in discussion with the Quebec government for many months about how it can benefit from the government’s financial support package for the aviation industry. Last July, the provincial and federal governments provided C$685 million to Canadian OEMs like Pratt & Whitney Canada, Bell Textron Canada, and CAE.
Airbus would welcome government support and earmark it for the A220 program. The airframer plans to ramp up the production rates to six per month this year and to fourteen per month in 2025 at both the Mirabel (Canada) and Mobile (US) production sites. Higher rates should help improve the A220’s business case, which is still loss-making.
Additional funding from Canada could also be directed to the development of the stretched A220-500, for which there is growing interest with airlines. Chief Commercial Officer Christian Scherer repeated last week during a media briefing that Airbus has no imminent plans to launch the -500, although he indicated earlier that it eventually will. The -500 would eat into A320neo territory.
Additional investment by the Quebec government would benefit Airbus Canada and could bring more Canadian jobs. Although recent new order announcements from Qantas and Aviation Capital Group bring the A220 program closer to profitability, there is no guarantee that Quebec will recoup its investments. Le Journal de Montreal quotes Quebec Prime Minister Francois Legault as saying two years ago: “We can’t make sure that this division will ever make a profit, so we’re not going to reinvest a cent in this division.”
Quebec has already invested $1.4 billion in the CSeries
Quebec invested in the program when it was still known as the Bombardier CSeries. Through Investissement Quebec (IQ), it contributed $117 million in 2008 when the program was launched and took a 38 percent share. The development of the CSeries almost brought Bombardier on its knees in 2015, after which the government threw another $1.3 billion lifeline to save the company in 2016, bringing IQ’s share to 49.5 percent. The Canadian government invested close to $500 million in the aircraft.
In October 2017, Bombardier reduced its percent share by selling 50.01 percent in the CSeries to Airbus, retaining 31 percent itself with IQ retaining nineteen percent. The sale required Bombardier to continue funding the program and pay a maximum of $350 million in cash shortfalls in the first year after the transaction and a maximum of another $350 million in years two and three. IQ interests would be redeemable from 2023. In July 2018, Airbus renamed the CSeries the A220. By then, IQ’s share had diminished to 16.44 percent.
After Bombardier decided to exit the commercial aviation market, it sold a 75 percent share in SCAC for $1 to Airbus in February 2020, without the European OEM having to make any investments. Investissement Quebec increased its share to 25 percent for no cash consideration. Airbus got the call right to purchase all renaming IQ shares no later than January 1, 2026.
“We have consolidated the government’s position in the partnership while respecting our commitment not to reinvest in the program”, Legault said in a media statement. In the same statement, Minister of Economy and Innovation, Pierre Fitzgibbon, said: “This agreement is excellent news for Québec and its aerospace industry. The A220 partnership is now well established and will continue to grow in Québec. The agreement will allow Bombardier to improve its financial situation and Airbus to increase its presence and footprint in Québec. It’s a win-win situation for both the private partners and the industry.”
Quebec Minister of Economy and Innovation, Pierre Fitzgibbon. (Airbus)
It is the same Fitzgibbon that according to Le Journal de Montreal strongly favors a $200 million capital increase on the condition that IQ’s stake is redeemable a year later in 2027. By investing in the A220 program, Quebec will maintain its 25 percent share. Not investing would dilute its position.
This already has happened. In a March 2020 report, Quebec’s Economic Development Fund (FDE) notes that amendments of the original agreement in 2017 and 2020 have diluted IQ’s $1.3 billion investment made in 2016. This resulted in a $745 million write-off. Taking other changes and the impact of the Covid-crisis on the aviation industry into account, the Fund said that IQ’s fair investment value was estimated to be between $204 and $231 million. After recording a $292 million impairment charge as ‘other expenses’, IQ’s investment in the A220 program has no longer any value.
This is noted by the Canadian Taxpayers Federation, which states that lessons should be learned from the past. It says that Airbus should have no problem with sourcing the C$200 million on the capital markets instead of leaning on taxpayers’ money from the citizens of Quebec. Also in parliament, there is opposition to another investment in the A220, which according to the Parti Quebecois has not proved its profitability yet.
From your text above;
“…Investissement increased its share to 25 percent for no cash…”
–> You meant Investissement “Quebec”.
Really superb article by the way, thanks!!
Eric Tremblay
(Now on retirement – after 35 years of svc for the G of C)