G/SCM/Q2/CAN/68  
 
25 April 2017  
(17-2249) Page: 1/5 
Committee on Subsidies and Countervailing Measures  Original: English  
 
SUBSIDIES  
REPLIES TO QUESTIONS POSED BY BRAZIL1 TO CANADA  
PURSUANT TO ARTICLE 25.8 OF THE SCM AGREEMENT  
The following communication, dated 24 April 2017 , is being ci rculated at the request of the 
Delegation of Canada .   
 
_______________  
 
 
Question 1  
 
The Canadian Federal Government provided Bombardier with CAN$ 350 million in launch 
aid for the development of the C -Serie s from 2008 to 2015 (see, 
e.g., WT/TPR/M/246/Add.1 at 212; G/SCM/Q2/CAN/66). The Government of Quebec 
provided Bom bardier with an addition al CAN$  118 million in launch aid (see 
G/SCM/Q2/CAN/62 at 3; G/SCM/Q2/CAN/52 at 7 -8). Bombardier obtained the launch 
aid from the Canadian Federal Government and the Government of Quebec rather than 
from the commercial market. Did the Canadian Federal Gove rnment and the Government 
of Quebec provide taxpayer -funded aid to a private company because the same amount 
of aid on the same terms was not available from commercial sources? Why did 
Bombardier select the use of public funds rather than a commercial sour ce of financing?  
 
Reply  
 
In 2008, the Government of Canada agreed to provide two repayable contributions for a total of up 
to $350 million to Bombardier for the specific purpose of undertaking research and development 
for the C -Series program and for relat ed strategic technologies and processes. In 2008, the 
Government of Québec also announced that it would provide, through Investissement Québec, a 
repayable contribution of up to $117 million to Bombardier for r esearch and development for 
the C-Series progr am.   
 
These programs supported innovation and research and development and were not designed to 
replace commercial financing. Both governments expect to receive an appropriate rate of return on 
their contributions. The detailed terms of these repayable co ntributions are business confidential 
information.  
 
Question 2  
 
The Canadian Federal Government and the Government of Quebec (including 
Investissement Quebec) have made minor adjustments to the terms of the launch aid 
agreements with Bombardier since they  were originally signed. What is the nature of 
these minor adjustments and do such adjustments change the repayment terms or 
conditions or otherwise affect the overall value of the launch aid?  
 
Reply  
 
Minor amendments were made to the Government of Canada 's two repayable contribution 
agreements (mentioned in question 1 above) to allow the Government of Québec to invest in the 
                                                
1 G/SCM/Q2/CAN/67.  G/SCM/Q2/CAN/68  
 
- 2 - 
 
  C-Series Aircraft Limited Partnership. Investissement Québec has also made minor amendments to 
its repayable contribution agreement i n order to take into account the arrival of the new C -Series 
Limited Partnership into the corporate landscape. These amendments did  not change the 
repayment terms and conditions or the overall value of the original contribution agreements.  
 
Recently, f urther to the Government of Canada 's 7 February 2017 announcement that it was 
providing repayable contributions to Bombardier ( http://news.gc.ca/web/article -
en.do?nid=1186219 ), amendments were mad e to the two C -Series repayable contribution 
agreements, increasing the overall contribution to the C Series. Repayments were adjusted due to 
the additional funding. There were no other changes to the conditions of the funding.  
 
Question 3  
 
The Canadian Fe deral Government provides funding through the Strategic Aerospace 
and Defense Initiative ( "SADI ") and Technology Partnerships Canada ( "TPC"). Did SADI 
or the TPC provide funding or other support to Bombardier or any of its suppliers for the 
C-Series? If so , when was this funding provided and in what amounts?  
 
Reply  
 
No funding or other support was made to Bombardier for the C -Series under the Strategic 
Aerospace and Defence Initiative or Technology Partnerships Canada. With respect to Bombardier 's 
supplier s, the Government of Canada does not track the identity of suppliers to companies that 
receive funding under either program.  
 
For transparency purposes, the Government of Canada publishes semi -annual status reports for 
SADI and TPC online and they include  a list of all current and past recipients. Links to the most 
recent reports are found below.  
Strategic Aerospace and Defence Initiative:  https://www.ic.gc.ca/eic/site/ito -
oti.nsf/eng/ 00942.html   
Technology Partnership Canada: http://ito.ic.gc.ca/eic/site/ito -oti.nsf/eng/00943.html  
 
Question 4  
 
In February 2016, Bombardier received $1.5 billion from the Quebec 's Caisse de Dépôt 
et Placement du Québec ( "CDPQ ") in exchange for an interest in Bombardier 's 
transportation assets, which were placed in a new company – Bombardier 
Transportation (Investment) UK Ltd ( "BT Holdco "). Under the applicable law (An Act 
Respecting t he Caisse de Dépôt et Placement du Québec), CDPQ is a mandatary of the 
Quebec government, whose property belongs to the Quebec government and whose 
mission includes "contributing to Quebec 's economic development ". CDPQ 's funds will 
not be used by BT Holdco , which is the entity in which CDPQ acquired an ownership 
interest. Rather, according to its press release, Bombardier intends to use the CDPQ 
funds for "general corporate purposes ". Given that (a) applicable law provides that 
CDPQ is an instrumentality of  the Quebec government, (b) all property of CDPQ, 
including investment interests, belongs to the Quebec government, and (c) none of the 
$1.5 billion was directed to support BT Holdco, the company in which CDPQ actually 
invested and from which it is presuma bly seeking a return, please confirm whether the 
Canadian Federal government or the Quebec government know how Bombardier is using 
the $1.5 billion in funds, including whether such funds were made available to support, 
directly or indirectly, Bombardier 's C-Series program.  
 
Reply  
 
The Caisse de Dépôt et Placement du Québec, or CDPQ, acts in its own name and binds only itself. 
The CDPQ 's mission is "to receive moneys on deposit as provided by law and manage them with a 
view to achieving optimal return on cap ital within the framework of depositors ' investment policies 
while at the same time contributing to Qué bec's economic development " (s. 4.1 An Act respecting 
the Caisse de dépôt et placement du Québec ). CDPQ 's decisions to invest and the parameters of 
CDPQ 's investments are determined based on its investment policy and are not subject to approval 
by the Government of Québec.  G/SCM/Q2/CAN/68  
 
- 3 - 
 
  The CDPQ is one of the largest institutional fund managers in North America and the leading 
private equity investor in Canada. The spe cific terms of the private equity investments made by 
the CDPQ are business confidential information.  
 
Question 5  
 
In its press release announcing the Bombardier 's agreement with CDPQ, Bombardier 
reported:  
 
"After a thorough review process, including an in itial public offering and a competitive 
international auction process for the private placement of a minority stake, the Board of 
Directors of Bombardier determined the transaction announced today, contemplating 
the sale of 30% of Bombardier Transportation  to CDPQ, is the most attractive option. " 
 
Bombardier engaged in "a competitive international auction process " to identify funding 
available in the commercial market. Instead of obtaining funding from the commercial 
market through this auction process, Bom bardier agreed to an investment on more 
favorable terms offered by CDPQ as "the most attractive option ". Why did CDPQ provide 
this investment on terms more favorable than available in the commercial market?  
 
Reply  
 
The CDPQ acts in its own name and binds o nly itself. The CDPQ 's mission is "to receive moneys on 
deposit as provided by law and manage them with a view to achieving optimal return on capital 
within the framework of depositors ' investment policies while at the same time contributing to 
Québec 's economic development " (s. 4.1 An Act respecting the Caisse de dépôt et placement du 
Québec ). CDPQ 's decisions to invest and the parameters of CDPQ 's investments are determined 
based on its investment policy and are not subject to approval by the Government o f Québec.  
 
It is also important to note that the equity investment proposal from CDPQ was being pursued and 
evaluated as part of – not an alternative to – the competitive international auction process for the 
private placement of a minority stake in Bombar dier Transportation (BT). Bombardier and its 
advisers planned and conducted investor outreach; a large number of potential investors – both 
Canadian and foreign – were contacted. A number of potential investors, including CDPQ, 
submitted non -binding expres sions of interest with regard to the potential equity investment.   
 
Question 6  
 
In October 2015, Bombardier entered a memorandum of understanding with the 
Government of Quebec for the provision of a $1.0 billion equity investment, with the 
proceeds "used entirely for cash flow purposes of the C Series aircraft program. " 
Bombardier and the Government of Quebec entered a definitive agreement for the 
equity investment on 23 June 2016. The Government of Quebec made a payment of 
$500 million on 30 June 2016 an d is scheduled to make a second  payment of $500 
million on 1 September 2016. Why is the Government of Quebec providing the 
investment rather than commercial investors?  
 
Reply  
 
With regard to the new C -Series Limited Partnership, the Government of Québec inv ests on terms 
consistent with those of a private investor and, accordingly, expects to obtain an appropriate rate 
of return from this investment.  
 
Question 7  
 
Bombardier 's agreement with the Government of Quebec includes the issuance of 
warrants exercisab le by the Government of Quebec to acquire up to 100 million shares 
of Bombardier at an exercise price of $1.72 (CAN$ 2.21). When exercised, the 
Government of Quebec will provide up to $172 million in additional funds to Bombardier. 
Is the Government of Que bec required to exercise these warrants at the exercise price? 
Is it possible for the Government of Quebec to exercise the warrants at a share price 
below the trigger price?  G/SCM/Q2/CAN/68  
 
- 4 - 
 
  Reply  
 
Bombardier issued 100  million stock purchase warrants with a five -year expi ration date to the 
Government of Québec. Each warrant will entitle the Government of Québec to purchase one 
class B share of Bombardier at the unit price of US $1.72 (C$2.21).  
 
The warrants do not represent an obligation for the Government of Québec to pr ovide additional 
funding. Rather, they are an opportunity for the Government of Québec to become a shareholder 
in Bombardier at a pre -determined price. There is no obligation to exercise the rights granted 
under the warrants, but if they are exercised, it will be at the unit price of US $1.72 (C$2.21).  
 
Question 8  
 
Why has Canada not notified the CAN$ 468 million in  launch aid subsidies, the 
$2.5 billion in Quebec subsidies, and other support to Bombardier for the C -Series to the 
WTO Committee on Subsidies under Article 25 of the SCM Agreement?  
 
Reply  
 
Canada 's subsidy notification to the WTO is prepared in accordance with the obligations outlined in 
Article 25 of the ASCM. In particular, Canada notifies support that (i) fall within the definition of 
Article 1 of the ASCM and (ii) are specific within the meaning of Article 2 of the ASCM. No such 
support has been provided to Bombardier.   
 
Question 9  
 
The Canadian federal government is considering making an additional equity infusion in 
the C -Series program o f $1 billion. What is the status of this additional support?  
 
Reply  
 
The Government of Canada is not considering making such an investment.  
 
Question 10  
 
Bombardier has now succeeded in making sales to, for example, Air Canada in the 
Canadian market and De lta in the U.S. market. Bombardier has also conceded that the 
pricing of these sales, together with sales to Air Baltic, w ill require it to record a 
$500  million "onerous contract " charge in its financial statements. Bombardier claims 
that this loss is nor mal for the early sales of a new aircraft. Did Bombardier take similar 
charges in any of its previous aircraft programs? Why was a similar charge not required 
in relation to all of the prior sales of the C -Series, including its sales to Lufthansa, the 
launch customer?  
 
Reply  
 
In its second quarter financial statements for 2016 , Bombardier booked a $490 million special 
charge related to the early production of the C -Series program. As a publicly traded company, 
Bombardier records this charge in order to comp ly with International Financial Reporting 
Standards (IFRS).  
 
Among aircraft manufacturers, recording charges during early production of large -scale aircraft 
development programs is not uncommon. This is the result of a normal production learning curve 
while the company becomes more efficient over time and as volume increases. For instance, the 
Airbus Group, whose financial statements also comply with IFRS, disclosed in its 2014 annual 
report that it recorded € 627 million of contract losses related to the A350 XWB program.  
 
Question 11  
 
The Parliament of Canada has recently amended the Air Canada Public Participation Act 
to allow Air Canada greater flexibility as to where maintenance work is done. During 
testimony to the Senate Committee, Air Canada threate ned to walk away from the C -G/SCM/Q2/CAN/68  
 
- 5 - 
 
  Series purchase if the legislation was not passed. Press reports indicate that Air 
Canada 's purchase of the C -Series was contingent on the Parliament changing the 
legislation and on the Government of Quebec dropping a related la wsuit. Can you 
provide information on what agreement or d iscussions occurred between Air  Canada and 
the Government of Canada leading up to the introductions of the legislative 
amendments? Can you provide information on what agreement or discussions occurre d 
between Air Canada and the Government of Quebec in relation to termination of the 
lawsuit? Did the Canadian Federal Government or the Government of Quebec provide 
any other commitments or provide any other incentives, including export financing, to 
Bomba rdier 's customers?  
 
Reply  
 
For some time, federal officials have been considering the policy challenges presented by the 
provisions of the Air Canada Public Participation Act (ACPPA) related to aircraft maintenance 
facilities.  The ACPPA and its provisions were adopted during a specific time of Air Canada 's 
privatization, almost 30 years ago. The air sector has evolved significantly since that time, 
resulting in questions about the appropriateness of the Act 's provisions that put more limitations 
on Air Cana da than on its domestic and international competitors.  
 
The ACPPA had been subject to litigation involving Air Canada and the Government of Québec, 
regarding the closure of an Air Canada maintenance facility in the Montreal area. The agreement to 
end the l awsuit is between Air Canada and the Government of Québec and the terms of the 
agreement are business confidential information.  
 
The federal government thereafter addressed the policy challenges noted above through 
amendments to the ACPPA. In the context o f these legislative amendments, neither the Canadian 
Federal Government nor the Government of Québec made any commitments or provided any 
incentives, including export financing, to Bombardier 's customers.  
 
As a general point not related to the ACPPA, Expo rt Development Canada (EDC), as Canada 's 
export credit agency, can provide financing solutions for Bombardier 's customers, consistent with 
the terms and conditions of the Aircraft Sector Understanding (ASU). EDC 's export financing 
transactions are notified  to all ASU Participants and the OECD Secretariat, in accordance with the 
transparency obligations of the ASU.  
 
Question 12  
 
On 25 April 2016, the Premier of Quebec stated that the Delta sale happened because of 
the investment in Bombardier by the Governme nt of Quebec, stating that "[i]f you ask 
Bombardier … they will acknowledge that it 's because we (the government) were there 
that this transaction happened ". Is this statement a public recognition that subsidies 
provided by the Government of Canada have di storted international competition in the 
aviation sector, in particular for the sales to Air Canada, Air Baltic and Delta? Did the 
Government of Quebec provide any formal or informal guarantees or other commitments 
to Delta or any other Bombardier customer s regarding its investment in Bombardier?  
 
Reply  
 
The answer to the first question is no. The statement by the Premier of Québec is not such a 
recognition.  
 
With respect to the new C -Series Limited Partnership, the Government of Québec participates on 
terms consistent with those of a private investor and, accordingly, expects to obtain an 
appropriate rate of return from its investment.  
 
Moreover, the Government of Québec has not provided any formal or informal guarantees or other 
commitments to Bombardier customers regarding its investment in the C -Series Aircraft Limited 
Partnership.  
 
 
__________