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17 October 2017

Steve McGuire is Professor of Business and Public Policy and Head of the School of Business, Management and Economics at the University of Sussex. He is a Fellow of the UKTPO.

Bombardier has found an elegant solution to its trade problems with the United States: sell a controlling stake in the programme to a company with deeper pockets to defend itself – and with a US production base immune, by definition, from US tariffs.

The agreement between Bombardier and Airbus Industrie will see the Canadian company cede control of the C-Series programme to the European company.  Airbus takes 50.1% of the programme, while Bombardier owns 30%.  Finally, the Quebec provincial government retains an interest of 19.9% and a way to ensure that Quebec taxpayers interests are better defended.  That Airbus seemed to put up no cash for its stake says a lot about the urgent need of Bombardier to put some boundaries around its exposure to the programme and the trade dispute.

From the UK’s perspective, the deal provides some assurance of the 4,000 jobs in Northern Ireland that, directly or indirectly, depend on wing-making work for the C-Series.  Airbus will provide marketing and financing heft, as well as a US base for final assembly.  Airbus’ facility in Mobile Alabama has been operating for two years and is a boon to employment in that southern US state.  Though a second final assembly plant in Quebec will still operate, it would seem likely that the Mobile facility will come to be the favoured location; it effectively jumps any tariff wall the Trump Administration might raise.  Mobile already makes the smallest member of Airbus’ aircraft family, the single-aisle A320, so presumably, the re-tooling required would be minimal.

Questions will undoubtedly be asked about Airbus’ potential capture of the value of this project, given that the Canadian government offered significant financial support to Bombardier.  If the C-series does recover in the marketplace, the principal beneficiary will be Airbus.  Similar observations can be made about Northern Ireland.  British government support has been key to retaining jobs in Belfast, but for how long?  It won’t go unnoticed that the UK’s civilian aircraft industry is now largely owned by a company that, post-Brexit, will be a foreign company. Airbus’ commitment to UK production and Research and development (R&D) work was questioned after the referendum and the company has made it clear that it wants as frictionless as possible trade with the EU. 

In its recent White Paper, the Government promised a tight integration of its industrial strategy with its trade strategy.  Canada wanted to do the same thing with Bombardier: give special support to a company employing lots of skilled workers as a demonstration of the ability of Canada to do more than trade commodities.  The UK isn’t Canada but, post-Brexit, it will face the challenges of all smaller, open economies, namely how to reconcile government support for industry with advocacy and acceptance of open international markets.

See also: Bombardier turns to Europe in turbulent US trade row, BBC

Disclaimer:

The opinions expressed in this blog are those of the author alone and do not necessarily represent the opinions of the University of Sussex or UK Trade Policy Observatory. 

One Comment

  • Sagesse says:

    “It won’t go unnoticed that the UK’s civilian aircraft industry is now largely owned by a company that, post-Brexit, will be a foreign company.”
    Bombardier was Canadian, Airbus is essentially Franco-German despite being a public company. In what way is the UK civil airframe industry (not aeroengine obviously) not already foreign?
    The government should of course never have let BAe to sell its 20% of the former Airbus subsidiary of what was then EADS (EADS renamed itself after its main subsidiary). Airbus’s commitment to the UK has been questioned ever since then, Brexit doesn’t alas represent a step change.

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