The Canadian government’s pledge to significantly ramp up defence spending in response to pressure from the United States has put a familiar company back in the spotlight in a way that critics say comes with no shortage of irony.

Seven years ago, Quebec-based transportation giant Bombardier Inc. was on the verge of bankruptcy amid cost overruns for its vaunted C-Series passenger plane. It was already in the public’s crosshairs after paying executives large bonuses despite laying off thousands of workers and seeking a bailout from the federal government, the latest in a long string of government support measures over the years,

including heavy infusions of cash from Quebec. But in the past few years, after offloading the C-Series to Airbus SA, Bombardier has staged a dramatic resurgence, fuelled by the success of its world-leading business jet division. Shares are up more than 30-fold since late 2020, soaring to around $230 after bottoming at less than $8. And the company’s market cap has surged above $23 billion.

Now, with Ottawa considering replacing part of its $19-billion commitment to purchase F-35 fighter jets from the U.S. with Saab AB’s Gripen fighter, Bombardier has emerged as a potential joint venture partner that could manufacture the Swedish-designed planes here in Canada.  Such an arrangement has been touted as having the potential to bring as many as 10,000 jobs to Canada.

Bombardier is a natural choice given that it is one of the relatively few designers, builders and servicers of large planes around the world, but its history of balance sheet issues is raising red flags for some.

Carol Liao, a law professor and corporate governance specialist at the University of British Columbia, said past issues with Bombardier centred around debt, bailouts and its governance structure: More than 80 years after its founding as a small snowmobile company in rural Quebec, Bombardier is still controlled by the extended family of Joseph-Armand Bombardier.

“Those issues don’t disappear simply because the company is now pivoting toward defence,” Liao said.

Bombardier is thriving today because of its Challenger and Global business jets, but after its latest restructuring in 2022 it also created a defence division. Since then, it has forged a number of partnerships with industry players — including Saab — to modify and adapt Bombardier’s aircraft for “specialized mission” uses such as airborne surveillance and border and maritime patrol.

Recent inroads include a deal with the German armed forces to develop next-generation signal intelligence for airborne surveillance, and the U.S. Army’s selection of Bombardier’s Global 6500 aircraft for its High Accuracy Detection and Exploitation System, or HADES program.

Defence made a small relative contribution to the $8.7 billion in revenue Bombardier generated last year, with the bulk coming from the business jet and services divisions. However, the company is projecting that revenue from the higher-margin defence unit will climb to between $1 billion and $1.5 billion by 2030.

Chief executive Eric Martel recently said that Bombardier aircraft are ideally suited for modifications to meet the most demanding missions because of their track record of reliability, range and ability to operate at high altitudes. Bombardier did not respond to a request to discuss its ambitions and challenges in the defence arena.

The Quebec company is already working with Saab on the GlobalEye surveillance plane, combining its Bombardier Global 6000/6500 series aircraft with Saab’s radar. If Canada were to agree to buy more planes from Saab, including the Gripen fighter jet, it could potentially sweeten the deal and bring even more manufacturing and jobs to Canada.

Richard Aboulafia, a Washington, D.C.-based aircraft industry analyst and consultant, said Bombardier appears to have turned a corner with its special mission planes. But further inroads into defence aren’t a slam dunk.

“They’ve been doing really well … but how do you go from that to being a real defence producer?” he said, noting that Saab and France’s Dassault Aviation SA are off to a running start and new defence platform producers are ramping up in countries such as South Korea, Turkey and India.

“That’s a challenge — and an opportunity.” The Canadian government holds a very powerful card in determining how things play out, he said, because Saab won’t bring Gripen fighter jet production to Canada without a purchase agreement.

“It’s a Swedish plane, built in Sweden for the Swedish Air Force and for export customers,” he said, adding that Saab can continue to build the jets at home and simply export them, keeping a larger share of the jobs and profits. South Africa and Thailand, for example, are Gripen customers but don’t build the jets in their home markets, while Brazil buys and also builds the fighter planes.

“(For Canada), it has to be a decision to purchase the Gripen either instead of or in addition to the F-35,” he said.

Prime Minister Mark Carney , who has ordered a review of the F-35 jet purchases from the U.S., stopped at Bombardier’s corporate headquarters in Dorval, Que., during his election campaign last spring and pledged to “support made-in-Canada defence procurement, while also helping our industries and businesses reach new markets around the world.”

His first budget as prime minister this month earmarked about $80 billion in new spending for the Canadian Armed Forces over five years.

Carney and his government could find the prospect of boosting national security, reducing reliance on the U.S., and creating more

jobs in Canada a powerful combination to justify backing Bombardier once again.

“(Support for Bombardier) used to be about jobs, and most importantly, it was Quebec jobs,” said Aboulafia. “But that argument has shifted because of this change in U.S. foreign policy and I think … the national security argument is a lot more solid than the economic policy argument.”

Canada has bet big before on Bombardier in the past, with federal and provincial governments pouring more than a combined $4 billion into the company since 1996, according to Montreal-based public policy think tank MEI. This notably included the ill-fated attempt to take on the two major players — Boeing Co. and Airbus Group Inc. — by designing and producing commercial jets.

Few in Canada forget the missteps of the Bombardier’s C-Series commercial jetliner program, which, in its waning days took another $372.5 million from the federal government on top of more than $1 billion from Quebec.

Nicknamed the “whisper jet” for its innovative engineering, it wowed the industry as promised when the program was launched in the summer of 2008. However, as its rollout fell years behind schedule, costs blew past estimates by more

than $2 billion — and initial sales were much slower than expected.

By 2018, with accumulating losses and the program burning about $1 billion a year, Bombardier had little choice but to sell a controlling stake in the C-Series commercial jet to Airbus for $1. The program, renamed the A220, prospered under new ownership, with net orders climbing 64 per cent in the first two years. Bombardier sold the rest of its stake to Airbus in 2020.

The experience left the Quebec company with a mountain of debt and the need to sell of a string of assets under less than ideal conditions. Sales after the C-Series failure included Bombardier’s trains unit, service and support centres for its CRJ series regional jet program, its turboprop line, and a large aerostructures business.

In a 2021 newsletter, Aboulafia summed up the impact of the gamble on the C-Series commercial jet this way:

“The net effect of developing this jet on Bombardier’s other units wasn’t pretty. In fact, it was rather like throwing a velociraptor into a bunny farm,” he wrote.

Brian Gibson, a former senior executive at the Ontario Teachers’ Pension Plan, was equally blunt.

“They basically ran out of money and destroyed their balance sheet trying to get it done,” he said.

Gibson was the point person on a proposed balance sheet restructuring of Bombardier in 2003. The pension fund reportedly offered to inject more than $1 billion, but the solution was rejected because the Bombardier and Beaudoin families that control the transportation company through special voting shares refused to wind down that structure, Gibson said.

He was surprised to see other Canadian institutional investors take stakes in Bombardier after the Teachers’ proposed refinancing was rejected, given the distaste among institutional investors for exactly this type of dual-class structure that is seen to concentrate decision-making power during periods of major financial risk, complicate board oversight and reduce shareholder accountability.

“They temporarily might have done okay, but all that equity got destroyed,” he said, when Bombardier handed the controlling stake in the C-Series to Airbus.

A key complaint is that Bombardier’s ambitions have too often outstripped its ability to finance them, said Gibson. For that reason alone, partnering with a European company such as Saab makes sense.

“They do know how to manufacture airplanes, and they’ve got a supply chain,” he said. “It would be quite a challenge to produce an entire fighter jet, but partnering with a company and helping them design (and build the jets) … probably makes good sense.”

Bombardier’s past stumbles suggest that if there is government money or even guarantees allocated to the company, it will be closely monitored, with the possibility that past governance concerns over issues such as executive compensation will re-emerge.

One sharp critic of Bombardier’s from the dying days of the C-Series, particularly its constant draw on government and therefore taxpayer dollars, now has a key role with the government deciding its fate: Foreign Affairs Minister Anita Anand.

The year before she was elected as a member of Parliament in 2019, Anand, a lawyer and academic whose previous portfolios included treasury and national defence, wrote an opinion piece sharply criticizing the corporate structure that gave the Bombardier and Beaudoin families 60 per cent voting control while holding an economic interest in the company of just 15 per cent.

“A federal bailout would place perhaps a billion or more taxpayer dollars in the hands of family that is insulated from governance accountability because of the corporate structure that it has chosen,” she wrote at the time, adding that the lack of accountability had demonstrably not been good for the company in the preceding years.

“Why should Canadian taxpayers be on the hook for Bombardier’s poor corporate governance?”

This time around, if the federal government pours its dollars and defence dreams into Bombardier, investors and taxpayers will be watching not only what Bombardier builds, but how they govern themselves while doing it, said Liao, the UBC law professor.

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Aboulafia added that the government would arguably be taking an even bigger gamble on the company’s fortunes on a defence deal.

“Military market dynamics involve much less risk (for companies). Cost overruns and indeed program cancellation risks are borne by governments, not civil market customers,” he said.

This is also a good reason to pursue arrangements where Bombardier would take a back seat when it comes to design and simply build fighter jets — as seems to be contemplated for a prospective joint venture with Saab. In other words, smaller swings for a company whose earlier big gambles haven’t paid off.

“There’s really no risk associated with merely setting up a production line and building someone else’s aircraft,” Aboulafia said. “Most risk is in design and testing and integration.”