EDC

EDC helps make Bombardier fly

National Post
October 18, 2002

Loans to aircraft maker, Nortel distort their sectors.

(Excerpt)

Montreal — Bombardier Inc. and Nortel Networks
Corp. did not become multibillion-dollar global leaders just by making
cutting-edge products: They also gave many of their biggest customers a
helping hand in buying them.

It is a practice called vendor financing, the act of lending or
securing financing so your customers can afford to buy your wares. As
long as everyone pays, the system works.

But in the case of companies, the practice has fuelled concerns
financing was so easy to get – thanks partly to the Export Development
Canada – that it distorted the economics of their industries.

For example, EDC provided several Bombardier customers with billions of
dollars in loan guarantees to help buy regional jets, largely in
response to similar action by Brazil to backstop sales by its domestic
planemaker Empresa Brasileira de Aeronautica SA.

But the spectacle of billion-dollar penalties and trade wars has masked
another important debate: whether either planemaker could have sold
nearly as many jets without government help.

“Are taxpayers stepping in and financing what could have been losses on
some of these deals?” said Canaccord Capital analyst Bob Fay. “It’s
highly unlikely Air Wisconsin [a Bombardier customer that received a
US$1.5-billion loan guarantee from Canada] would have been able to
order such a large number of aircraft on [its] own.”

The financing also poses problems for such earlier Bombardier customers
as Skywest and Atlantic Coast, which did not get the same favourable
terms but compete with Air Wisconsin as feeders to the United Airlines
network. They find themselves battling a competitor in better financial
shape thanks to government aid, and could ask Bombardier for
compensation.

“The worst thing is government financing usually comes late in the
game,” Mr. Fay said. “The government is financing the lower half of the
credit chain, usually because those are the guys who had trouble
getting money. You end up creating overcapacity.”

 

Categories: EDC, Export Credit, News

Tagged as:

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s