Launch aid set to reignite battle with Brazilian rival

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Canada has more experience than most of the vagaries of aerospace trade wars. After several successful challenges of Brazil's Proex export financing for Embraer regional jets, the Ottawa government was stalemated in 2001 when its matching financing for Bombardier was declared an illegal subsidy by the World Trade Organisation (WTO).

While the two countries continue bilateral talks to settle their dispute, Canada appears poised to provide federal and provincial launch aid to Bombardier for its CSeries airliner. This risks reigniting the feud with Brazil, as the CSeries family will compete at its lower end with the Embraer 195. As the aircraft will also compete at its upper end with the smallest members of the Airbus A320 and Boeing 737 families, Canada also runs the risk of being drawn into the EU-US dispute over launch aid.

Bombardier is seeking C$700 million ($580 million) in launch aid – a third of the CSeries' C$2.1 billion development cost – and is in talks with the Canadian and UK governments, as well as the Canadian provinces of Ontario and Quebec. The company's plants in Montreal and Toronto are competing for final assembly, worth 2,500 jobs, while its Belfast plant is bidding for work packages that could include wing assembly, worth another 2,500 jobs.

Launch aid requires a different financing structure to Ottawa's existing mechanism for supporting industry research and development, Technology Partnerships Canada (TPC). "CSeries launch aid requires significantly larger dollars than there are in the TPC budget," says Peter Boag, Aerospace Industries Association of Canada president and chief executive. "We need another kind of mechanism, for once-in-a-generation programmes."

TPC was itself declared an illegal subsidy by the WTO in 1998 and was restructured to shift government support from product development to enabling technologies. The budget is around C$300 million a year, of which aerospace gets about half, but is coming under pressure, says Boag, with C$150 million to be taken out over the next five years as the government reallocates resources.

The most recent recipient of TPC financing was Bell Helicopter Textron Canada, which received C$230 million split equally between the Canadian federal and Quebec provincial governments to cover a third of the $700 million cost its Modular Affordable Product Line (MAPL) initiative. Although Bell is developing a family of new commercial helicopters under MAPL, the first of which is the already-launched Model 429, TPC says funding is not launch aid and is WTO-compliant.

Bombardier Aerospace president Pierre Beaudoin says agreements being negotiated with the Canadian and UK governments for the CSeries will be WTO-compliant. But Embraer is concerned about how the programme will be funded, and its adherence to international trade regulations. The Brazilian manufacturer says it is awaiting confirmation of the launch aid package "to adequately assess this issue of critical importance".

GRAHAM WARWICK/WASHINGTON DC