The Canadian Government is to provide Bombardier with C$2 billion ($1.35 billion) in low-interest loans to help it beat rival Embraer to a $3 billion regional jet order from Air Wisconsin.
Air Wisconsin says a selection of either the Bombardier CRJ200 or Embraer ERJ-145XR is "imminent", with the United Express feeder planning to order 75 50-seat jets with options on another 75. Deliveries would start within six months and continue to 2004.
Bombardier originally asked Ottawa to guarantee loans of C$450 million to compete for the Air Wisconsin purchase. It claims the loans, worth about $2 million per aircraft, would equal Embraer's offer. The Quebec government is reported to be offering a further C$226 million guarantee.
A senior airline source says the difference in price "has become a significant point", adding that while the adjustment "is only a matter of a few percentage points, it makes a substantial difference to the cost of an $18-20 million aircraft".
Canada and Brazil have been fighting over aircraft subsidies for years, with the latter recently reprimanded by the World Trade Organisation (WTO) for illegally subsidising Embraer. The WTO in December granted Ottawa the right to impose C$2.4 billion worth of economic sanctions against Brasilia over seven years.
Canadian Industry Minister Brian Tobin says that it is retaliating against Brazil by supporting Bombardier after negotiations failed. He adds that Brazil has consistently refused to comply with the WTO ruling and its only choice is to respond with an unprecedented direct export subsidy.
Tobin accuses Embraer of unfairly increasing its share of the regional jet market from 35% to 53%. "Canada won the diplomatic and trade battle at the WTO, but we're losing the jobs battle. This is a way to stem the tide," he adds.
Embraer says Brazil changed its Proex subsidy programme to Proex II when the original programme was ruled illegal by the WTO. When Proex II was also found to be inconsistent, Brazil introduced Proex III late last year. "Under Proex III, Brazil reluctantly agreed to OECD [Organisation for Economic Development and Cooperation]-approved interest rates," says Embraer.
"If Canada is matching this, it has nothing to complain about. The truth is Embraer's list price is about $2 million below Bombardier's, because our labour is cheaper and the aircraft less expensive to operate," Embraer adds.