Montreal Economic Institute Warns Of Consequences Of Possible Tax On Bombardier Airplanes

If the US Department of Commerce rules this week in favor of Boeing, which wants a tax of up to 80% imposed on Bombardier's C Series planes, the consequences would be serious for the Quebec company, and for the industry more generally, according to the Montreal Economic Institute.

"Boeing alleges that Bombardier is subsidized by the governments of Quebec and Canada, which has allowed it to sell C Series planes to Delta at a loss. If an 80% tax is added onto the price of these aircraft sold in the United States, they will become much more expensive and Bombardier will have a very hard time selling them," explains Mathieu Bédard, Economist at the MEI.

The scope of this conflict shows once again the harmful effects of a subsidy race in the aeronautics industry. Indeed, companies are spending resources on lobbying efforts in order to obtain financial assistance or to throw up roadblocks for their competitors, instead of investing in their planes and services. At the same time, taxpayers—including other companies—must gamble on the success of subsidized airplanes, whether they want to or not.

"We also have to wonder if the other countries where Bombardier has sold C Series planes will follow suit. Imagine if a country like China, which has an enormous tax base, decided to take inspiration from the assistance recently granted by Ottawa to the Canadian industry, and provided similar help to its own aeronautics sector. Or consider Russia, where a substantial number of workers are employed by this sector," adds Mathieu Bédard.

Clearly, Canada, whose economy is relatively small, cannot come out ahead in a subsidy race or a ramping up of protectionist measures. A large portion of the 55,724 jobs in aerospace manufacturing would be at risk. It is important instead to send a clear message that government interventions will be limited from now on.

"The current tug of war between Bombardier and Boeing, which itself benefits from the generosity of American taxpayers, shows that Canada has a strong interest in proposing a new international agreement, like those that have been signed in the past, in order to avoid a ruinous subsidy race in the aeronautics sector and disputes like the one we're witnessing at the moment," adds Michel Kelly-Gagnon, President and CEO of the MEI.

(Source: Montreal Economic Institute. Image from file)

FMI: www.iedm.org