Luxury tax | A brake on Bombardier in Canada

Bombardier is taking in more plane orders than it is delivering despite economic uncertainty, but the picture is different in Canada, where a new tax on luxury goods — like private jets — is chilling buyers, the company says .

Julien Arsenault
The Press

If the recovery efforts of the Quebec multinational are accelerating, it says 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. It entered into force on 1^er last September.

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

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

For the Trudeau government, it is a question of having the wealthiest contribute financially to the programs deployed during the COVID-19 pandemic. However, we see the thing differently among the builders of boat planes and manufacturers. They believe that this tax affects their competitiveness and that it could have a negative impact on their employees.

A still limited effect

Canada accounts for about 5% of Bombardier’s revenues, which stood at US6.1 billion last year. The impact of the luxury tax is not catastrophic, but that could change if the slowing global economy dampens 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,” said Mr. Martel in a conference call with media representatives.

An analysis published last May by the Parliamentary Budget Officer (PBO) concluded that the disadvantages of this luxury tax would outweigh the advantages. In five years, it would cause the sales of automobiles, ships and planes to drop by around 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 went about arriving at this estimate.

“This tax is counter-productive 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 following the introduction of this tax. »

Bombardier continues to hold its own for the moment. Sales elsewhere in the world offset the decline observed in Canada. The proof, the company won for 300 million US of new contracts during the months of July, August and September. As of September 30, its order book reached 15 billion US.

Financial analysts do not seem concerned. The luxury tax was not mentioned in the reports which were sent by the latter in the wake of the presentation of the quarterly results.

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