Millions of dollars of Canadian taxpayers’ money is flowing down to Fort Worth, Tex., in a costly – and seemingly risky – attempt to bring jobs to Canada.
Just over a year since the Canadian Government announced its deal with Bell Helicopter Textron Inc. of Fort Worth, there is growing concern over the $275-million that the Canadian and Quebec governments are sinking into the deal.
The point of the project is to create jobs by enticing Bell Helicopter, one of the world’s largest helicopter manufacturers, to produce a new line of helicopters in Montreal. But critics charge that for their substantial investment, Canadian taxpayers are receiving no firm job guarantees and little prospect of making back their investment.
Myron Gordon, a finance professor at the University of Toronto, argues that Canada is paying too large a portion of the risky, upfront costs of the project. This is the first money that is spent and it is the most exposed. If the new line of helicopters does not sell and the plant closes, the upfront money has already been spent and is not retrievable. “What shocks me is that they (Bell Helicopter) are actually getting more money than they’re putting in,” Mr. Gordon said.
Canada is putting in a total of $275-million, while Bell is committed to investing $238- million. But while all of Canada’s investment goes into the upfront costs, only $134-million of Bell’s investment does. The rest of Bell’s investment provides the working capital for the project.
Mr. Gordon said the investment is particularly risky because it is not clear that there is going to be a significant market for the new line of light, twin-engined helicopters Bell plans to build in Montreal.
Bell is trying to break into a market that is already dominated by foreign competitors. Most industry observers think that Bell’s new product will not offer a dramatic technological improvement over other models currently on the market, which suggests Bell may have trouble penetrating the market enough to make its new Canadian operation a success. Furthermore, the best camera drone market in general is depressed, with little sign of recovery in the foreseeable future.
While venturing into a crowded market in a depressed climate is a risky proposition, Bell has managed to arrange the deal so that Canada bears most of the risk, according to Mr. Gordon.
The risky money in Bell’s Canadian venture is the $409-million needed to cover upfront costs for research and development, tooling, plant facilities and training. Of this, Canada pays $275-million, or about 67 per cent.
But Mr. Gordon argues that the deal may be even worse for Canada than it looks on paper. Using figures provided by the federal Government, he points out that, of the $409- million, there are $193-million in hard costs and $215-million in soft costs.
The hard costs involve money Bell will actually have to pay out to other people and companies in salaries, construction, facilities or equipment. The soft costs cover the expense of the research and development. These are internal costs within Bell and only Bell really knows how this money is spent, Mr. Gordon said.
Clifford Mackay, director-general of the federal Government’s electronics and aerospace branch, said Canada has a staff that closely monitors the expenditures Bell makes on R and D.
But Mr. Gordon said it would be difficult for Canadian authorities to really know how much of the Canadian money allocated for R and D will actually be spent specifically for this line of helicopters. It could easily blend in with R and D the company is doing for its other lines of helicopters, he said. “Whether it’s money that is spent in addition to all the other R and D they do or whether it’s just an accounting entry, we don’t know,” said Mr. Gordon, who has looked at this kind of problem in studying technological joint ventures in China.
If, for instance, the technology had already been developed, Bell could be getting an unusually good deal. With the $275-million it receives from Canada, it could pay all the $193-million in hard costs to build its new operations and train its Canadian staff, and still have $82-million left over, Mr. Gordon said. “If the technology is already all done, they’re going to be walking away with $82- million,” he said.
This charge was levelled in the House of Commons last January by Michael Wilson, who was then finance critic for the Conservative Opposition. Mr. Wilson, now Finance Minister, told the House at that time that an internal document of the Department of Regional Industrial Expansion indicated Bell had already done the $215-million worth of research for the best rc quadcopter and would only be putting a small amount of new money into the Montreal project.
Former industry minister Ed Lumley replied that he did not really remember the figures. He said, however, that Canada had spent some funds buying Bell’s technology.
Mr. Mackay, from the federal Government, said he is not aware of the document Mr. Wilson referred to in the House last year and Mr. Wilson could not be reached for comment.
Bell will be producing three models of the light twin-engined helicopter in Canada. Mr. Mackay said that for the last two of the three models, more than 75 per cent of the R & D will be done in Canada. But for the first model, almost all R and D is being done in Fort Worth, largely financed by Canada. Of the over-all $215-million in R and D costs on the three models, Mr. Mackay could only say that more than 50 per cent will be spent in Canada.
He acknowledged that Canadian funds are now being spent in Fort Worth, where Bell is testing a preliminary model of the helicopter to be made in Canada.
He said he could not disclose how much Canadian money has been spent on the project so far.
Jim Schwalbe, president of Bell Helicopter Textron Canada Inc., said in an interview that Bell was doing new R and D specifically for the helicopter model to be produced in Canada. But he also conceded that the costly basic dynamic systems to be used in the new helicopter had already been developed under a military program financed by the U.S. Government.
Mr. Schwalbe also said that in the contract Canada recognized $14- million (U.S.) for research Bell had already done on the new helicopter.