`Shocking' Bombardier Pay Decried by Quebec After Public Aid

(Bloomberg) -- Bombardier Inc. should review the bonuses it awarded top executives after taxpayers helped underwrite the company's still-fragile recovery, Quebec Finance Minister Carlos Leitao said.

“People are shocked, and I'm shocked” at the compensation, Leitao told Quebec's TVA television network in an interview Friday. “I'm urging the board to rethink the compensation policy. I'm inviting them to review all this even before the next board meeting.”

Bombardier is sparking public anger after compensation for its six highest-paid executives jumped almost 50 percent last year to about $32.7 million, even as the maker of planes and trains received government aid and announced plans to cut more than 14,000 jobs. Quebec has invested $1 billion in Bombardier's C Series jetliner program, which entered service more than two years late and billions of dollars over budget.

“A 50 percent pay raise is pretty excessive,” said John Stephenson, chief executive officer of Stephenson & Co. Capital Management, who sold his Bombardier holdings earlier this year. “It's an issue when you are at the public trough and the public really isn't getting their money's worth. It stretches credibility. It's a continuation of the theme of entitlement.”

Absent a “shareholder revolt,” Bombardier investors probably won't be able to claw back the executive bonuses, Stephenson said.

Bombardier didn't immediately respond to a request for comment. Compensation practices “are aligned with Bombardier's performance in light of applicable circumstances and reflect competitive market practices,” the manufacturer said in a filing.

CEO Pay

The company's widely traded Class B shares fell 1.4 percent to C$2.06 at 3:10 p.m. in Toronto. The stock advanced 62 percent last year, more than tripling the gain of Canada's benchmark S&P/TSX Composite Index. Last year's increase followed a 68 percent plunge in 2015, the year the company hired Alain Bellemare as CEO.

Bellemare, who's spearheading a five-year turnaround plan, saw his compensation climb 48 percent to $9.5 million, including a $2.4 million bonus. Executive Chairman Pierre Beaudoin, whose family controls the company via a majority of the multiple voting shares, made $5.3 million -- a 37 percent increase.

Under Bellemare's watch, Bombardier landed a critical lifeline for the C Series with a $5.6 billion order from Delta Air Lines Inc. last year. The airline's CEO, Ed Bastian, cited Quebec's support as a key reason behind his decision to buy at least 75 of the jets. Bombardier also won a major order from Air Canada.

Leitao, who said Bombardier occupies a “special place in the Quebec psyche,” said the company's turnaround is underway but not yet complete. Bombardier forecasts that the C Series program won't become cash-flow neutral before 2020.

“Let's wait until we congratulate ourselves over this success,” he said. “The company is trying to restructure itself, very well, but it's shocking to see such bonuses.”

Federal Aid

Last month, Canada's federal government agreed to provide C$372.5 million ($280 million) in support for the C Series and the Global 7000 business jet program after more than a year of discussions. The federal assistance gave Bombardier an additional cushion, while falling far short of the $1 billion in aid the company had initially sought.

News of the Bombardier executive pay increases has generated considerable media coverage in Quebec, with many commentators criticizing what they called the unfairness of the bonuses in light of taxpayer support.

“All you can say is that it insults people.” Dave Chartrand, Quebec Coordinator at the International Association of Machinists and Aerospace Workers, which represents Bombardier employees, said in an interview with Ici Radio-Canada television.

Besides Quebec's investment in the C Series, Bombardier also received a $1.5 billion cash injection from Caisse de Depot et Placement du Quebec, the provincially owned pension fund manager.

“The optics aren't great, to put it mildly,” said Dan Fong, an analyst at Veritas Investment Research Corp. in Toronto, who says investors should sell Bombardier. “If there was any other government support being contemplated in the next year or so, that's probably going to be reconsidered in light of what's in the filing.”

To contact the reporter on this story: Frederic Tomesco in Montreal at tomesco@bloomberg.net.

To contact the editors responsible for this story: Brendan Case at bcase4@bloomberg.net, Stephen Wicary