luxury tax |  A brake on Bombardier in Canada

luxury tax | A brake on Bombardier in Canada

Bombardier is accepting more plane orders than it delivers despite economic uncertainty, but the picture is different in Canada, where a new tax on luxury items such as private jets is freezing buyers, the company says. .

Posted at 8:00 am

Julien Arsenault

Julien Arsenault
Press

If the recovery efforts of the Quebec multinational are accelerating, he says that it did not take long to feel, in the market where it is established, the effects of the measure announced last spring by the Trudeau government. Entered into force on 1Ahem last september.

The information has not been widely released, but Bombardier President and CEO Eric Martel released the mood of buyers in the country on Thursday, on the sidelines of the presentation of the results of the third quarter ended on the 30th. of September.

We typically sell a certain number of devices in Canada. We have seen a slowdown. It’s disappointing. This is what we expected from the beginning.

Éric Martel, President and CEO of Bombardier

In the budget submitted last spring, Ottawa unveiled a tax on cars and aircraft over $100,000, as well as yachts costing more than $250,000. The rate varies between 10 and 20%. This should raise about 605 million in five years, according to budget estimates.

For the Trudeau government, it is about the richest contributing financially to the programs deployed during the COVID-19 pandemic. However, we see things differently between shipbuilders and aircraft manufacturers. They believe that this tax affects their competitiveness and that it could have a negative impact on their employees.

An effect still limited

Canada accounts for about 5% of Bombardier’s revenue, which totaled $6.1 billion last year. The impact of the luxury tax is not catastrophic, but that could change if a slowing global economy reduces demand for private jets around the world.

“We will see in the near future what is the real advantage of this tax and what is its disadvantage,” Mr. Martel said in a conference call with media representatives.


PHOTO PHILIPPE BOIVIN, LA PRESSE ARCHIVES

Éric Martel, President and CEO of Bombardier

An analysis published last May by the Parliamentary Budget Officer (PBO) concluded that the downsides of this luxury tax would outweigh the upsides. In five years, it would cause sales of cars, ships, and planes to drop by about 3 billion. The study anticipates “a change in behavior” among consumers.

At the Aerospace Industries Association of Canada (AIAC), it is argued that the Trudeau government’s new tax could cost up to 1,000 jobs in the sector. However, the group did not explain how it arrived at this estimate.

“This tax is counterproductive and will put Canada at a disadvantage compared to our trading partners,” association president and CEO Mike Mueller said in a statement. Some of our members have informed us of canceled orders after the introduction of this tax. »

Bombardier continues to defend itself for the time being. Sales in other parts of the world offset the decline seen in Canada. The test, the company won by 300 million dollars of new contracts during the months of July, August and September. As of September 30, its order book reached US$15 billion.

Financial analysts don’t seem worried. The luxury tax was not mentioned in the reports sent by the latter on the occasion of the presentation of the quarterly results.

“At the current rate of delivery, we estimate that Bombardier’s order book is equivalent to more than two years of production,” said Cameron Doerksen of National Bank Financial.

More information

  • US$6.2 billion
    Bombardier long-term debt as of September 30. It’s down about $875 million since the start of the year.

    BOMBING


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