Bombardier: Here we go again!

January 17, 20204 Comments

A while ago I did some research on private corporations donating money to the current Federal government. Not surprising, Bombardier and SNC Lavalin were disproportionately contributing to the current government parties funding.

The SNC scandal has been covered enough.

But yesterday’s Bombardier announcement was yet again a chilling reminder that, when a government paints a rosy picture of creating jobs by handing over our tax dollars to a corporation, we need to question the math. We need to do some hard-nosed analysis of the rosy outlook provided. Especially when the math involves some political contribution dollars in the background. As Ayn Rand once said “I do not care to be admired by anyone’s heart. Only by someone’s head”.

Bombardier is eliminating 14,500 jobs around the world by the end of next year. Not creating jobs. Its creating unemployment. This, after the executives increased their own compensation by 50% – a nice raise thanks to receiving our $1 Billion dollar “loan”. A “loan” given on the false promise of job growth. How viable is our return of capital on this loan? Would you have loaned your own money to these people if you had a choice? Well, you did!

I do not care to be admired by anyone’s heart. Only by someone’s head

Here we go again

Somebody called into my BNN show yesterday and asked if the stock may become worth picking up at some point. Here’s the clip. The viewer asked if we might expect another bailout. Will you and I once again be forced to throw good money after bad? Thankfully, the current government is now a minority power, and would be hard pressed to convince the opposition to waste more of our money on this dog.  The math has never added up, and the investment potential was never there. As a Portfolio Manager, had I invested your money in such an obvious loser, you would question my due diligence process. Had I been wined and dined by the company before I bought the stock for your portfolio (in a similar manner to a political contribution), you might be tempted to sue me for breach of fiduciary duty. But I guess its OK for the government to get away with this type of behavior.  I tend to avoid stocks closely tied to a government twice charged with ethical violations.

BBD has been bailed out by past governments. But the most recent one was done at a time when the case was even more obviously against making such a decision. The chart shows us the breakdown is pretty definitive for this stock – its down some 80% over the past year. The company is yet again struggling to remain intact.  Now that’s some wise use of our tax dollars, don’t you think?  Bottom line: Stocks receiving corporate welfare are not an ideal setup for your personal investment dollars, at least the ones you can control. I continue to avoid this type of situation.

 

 

Globe & Mail article on ETF ideas featuring Keith Richards, Brooke Thackray, Jon Vialoux – click here

Bloomberg/BNN MarketCall Tonight full episode with Keith Richards – click here

4 Comments

  • Good article on Bombardier but it not something we didn’t already know. You have a national audience and should use your position to blast our politicians ,call them out, embarrass them.
    Use some John Oliver language that will get their attention. This company has never and never will
    make a profit. It is just a piggy bank for the controlling family. Get nasty.

    Reply
  • For certain industries, you need initial government backing or it will never get done.
    By not investing in new industries a country risks always being a purchaser of foreign technologies instead of developing and eventually selling their tech to other countries.

    Instead of a government giving loans to local companies, which are never repaid, a better approach would be for a government to take an equity position in the company with VOTING shares. The board should then be staffed with government appointed directors in proportion to their ownership.

    By taking ownership, you can take control. This way jobs can stay in the country and not be outsourced. Technology goals are set.

    In the case of Bombardier, you would not do something so stupid like give a huge share of your company away to Airbus for FREE. What are they teaching in MBA school these days?

    Many countries do this and then eventually sell their equity ownership back to the private sector once an industry is mature.

    The root cause is “Canada is a great inventor but a stupid business man.”
    Too much short-term thinking and selling out later for a quick buck.

    Another case in point, remember TSX TIPS? We invented this and now ETFs do the same by other firms in other countries. Why are we not ETF leaders?

    Reply
    • Robert–totally onside with you here.
      Interestingly–the Left likes to moan about Harper. But he was no Liberal Arts drama teacher. He’s got a full masters degree in economics. He know how to make economic decisions. Not how to pass interpretive dance and face-painting class.
      To that point: when Harper bailed GM out in the Great Recession of 2008 – he negotiated for Canada to receive shares in the Company. Well, the company turned around, and Harper closed a tidy profit for Canadian taxpayers. Let me repeat…a profit!!!!
      Contrast and compare to the heart-out, brain-free guy we have now – who hands out money with no viable and realistic plan for return of capital, let alone profit or economic growth. The economy will take care of itself, you see. Indeed, we are seeing how that’s been working in Canada of late. For a laugh look up an old video of him trying to explain the basic economic concept of deficit versus surplus. He was prepared by his team before the talk to try & make him appear knowledgeable, but still stumbled over explaining the concept. They don’t teach that stuff in drama class.

      Reply

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