Why the stakes are high at Bombardier’s strike-bound Thunder Bay plant
The globalization of the light rail industry, the changing nature of trade agreements and the arrival of a new chief executive officer at Bombardier Transportation have all changed the climate at the Thunder Bay rail plant.
The Thunder Bay plant that builds streetcars, subway cars and GO train coaches for the Toronto region has never been busier.
With $3 billion worth of orders in hand, the facility owned by Canada’s Bombardier Inc. had ramped up production, nearly doubling employment at the plant to 1,300 people since 2010.
And with a new Ontario government committed
to spending $29 billion for public transit, highways, roads, and bridges over the next 10 years, demand for the kind of light rail vehicles Bombardier makes seems destined to increase.
So, why is Bombardier Inc. willing to endure a strike to wring concessions from nearly 900 unionized workers at the Thunder Bay plant where the vehicles are made?
The answer may lie somewhere between the globalization of the light rail industry, the changing nature of trade agreements and the arrival of a new chief executive officer at Bombardier Transportation with a mandate to drive efficiencies.
“We’re deeply disappointed that our Unifor employees have made the decision to strike as from the onset of negotiations we’ve really been committed to reaching an agreement that’s both fair and reasonable and one that in the long run would provide well paid jobs,†Bombardier spokesperson Marc-Andre Lefebvre said earlier this week.
“Obviously, our positions are far apart,†Lefebvre added. “But we really want to make sure we get into a situation where we provide fair compensation for employees but maintain our operational costs at a level that are competitive.
“If we want to be able to bring more work to Thunder Bay we have to remain competitive,†he said.
The union representing the hourly workers said it saw no reason to give up hard fought gains. So, on Monday at 2 p.m,
they walked off the job.
For Unifor national president Jerry Dias it’s about drawing a line in the sand.
“There’s this incredible arrogance out there. Companies today, because of what we went through in 2008 and 2009, think people should just be happy to have a job,†Dias said. “So they come in and say I’m going to get rid of your pension plan, I’m going to get rid of your post-retirement benefits. There’s no rhyme or reason for Bombardier to say that.
“We’re saying we’re done.â€
This is the same union that made what outsiders would call concessions to the Big Three Detroit automakers in its last two contracts, agreeing to lower starting rates and lesser pension benefits for new hires.
But Dias said that was different. The auto industry was on the verge of collapse. General Motors was in bankruptcy court protection.
Without government aid and labour concessions, thousands of jobs could have been lost, he said. And the union was under pressure to match a two-tier wage systems its U.S. counterpart, the United Auto Workers, had agreed to south of the border, he said.
By Thursday, the strike in Thunder Bay was in its fourth day, with no talks in sight. A strike three years earlier over similar issues was settled within three days.
So, what’s different this time around?
Bombardier says it’s worried about increased competition from foreign-owned rivals for future business.
“We’re seeing competitors outside the country coming into Canada and bidding on new contracts,†Lefebvre noted.
“When you look at the levels of local content required Bombardier always meets and exceeds the levels of Canadian content that are necessary. But we may see in the future some competitors coming in at levels that are lower.â€
Canadian content requirements for manufacturers who want to bid on public transit contracts in Ontario is just 25 per cent, noted Martin Lavoie, a policy director with Canadian Manufacturers and Exporters.
In comparison, Quebec requires 60 per cent domestic content plus final assembly. The U.S. also requires 60 per cent local content and the Obama Administration has proposed raising that to 100 per cent in the future.
Between a rising Canadian dollar that has made exports less competitive, and tighter local content rules, Bombardier is facing a situation where it may have to invest more in its U.S. plants to meet those requirements, Lavoie said.
Meanwhile, trade agreements like the one Canada has signed with the European Union could allow foreign-owned competitors to more aggressively challenge `those local content rules, Lavoie said.
“What you could have is a European company like (Germany’s) Siemens or (France’s) Alstom say, ‘I’ll buy my suspension and brakes and this and that in Canada but I’ll make the cars in Mexico or the U.S.,†he said.
Canada could push back, Lavoie said. Most trade agreements allow exemptions for government financed infrastructure projects.
“But we don’t enforce them,†Lavoie said.
If the City of Toronto’s history of handling of the two current massive transit contracts awarded to Bombardier is any indication, the future bidding process will be fraught with controversy.
In 2006, under former Toronto Mayor David Miller, the city chose to bypass the public tendering process in order to award the contract for the next generation of subway cars to Bombardier.
German-owned Seimens objected. But the city went ahead with its sole-source plan.
Proponents argued the decision to favour Bombardier would create 750 jobs in Toronto and economically hard-hit Thunder Bay, while also generating $130 million in tax revenue for the Ontario and federal governments.
The deal for 234 new subway cars, at a cost or $710 million, went to Bombardier as planned.
A year later, in a bid to avoid a repeat of the controversy, the Toronto Transit Commission decided a $1.2 billion contract for 204 new streetcars would require 25 per cent Canadian content.
The level was set so that Bombardier’s rivals could bid, while the national economy still reaped some benefits.
Bombardier
won the streetcar deal anyway, two years later, because Siemens’ bid came in $500 million higher.
Montreal-based Bombardier, a Canadian manufacturing superstar, got into the mass transit business in 1974 after the oil crisis a year earlier forced the company to halve its snowmobile production.
To redeploy the company’s excess manufacturing capacity, Laurent Beaudoin acquired mass transit technology and applied Bombardier’s manufacturing know-how to building rolling stock.
The company won its first mass transit contract that year to build 423 cars for Montreal’s subway system.
Now, with $8.8 billion U.S. in global sales, Bombardier Transportation was the world’s third largest maker of railway equipment in 2013, after two Chinese firms, CNR Corp. and CSR Corp., according to European market research firm Xerfi Global.
Though better known for its aerospace division, rail transportation accounts for just over half of Bombardier’s $16.4 billion (U.S.) a year in global sales.
Still, in March 2013, faced with cost over-runs in its European division, Bombardier brought in Lutz Bertling, a Germany industry executive, to run the transportation business.
In an interview with Bloomberg in May, 2014, Bertling said his goal is to trim spending, and increase standardization.
He described a vision he called “OneBT,†where the same trains, made with the same components, can be designed and built in Germany, China or the U.S.
He’s not there yet.
In its latest quarter, revenue in the transportation division was $2.3 billion, up from $2.1 billion a year earlier, but earnings before interest and taxes were just 5 per cent of revenue, down from 6.7 per cent a year ago.
Still, the company won $8 billion worth of new light rail business in the first three month of this year, including deals to supply vehicles, components, depots and/or maintenance services in the U.K., Australia, South Africa and San Francisco.
An analyst who covers Bombardier said the strike at the Thunder Bay plant is a minor event for a global company of its size.
But for the workers, it’s a very different story.
At stake in the dispute are the company’s demands that newer employees go on a higher-risk defined contribution pension plan, and cuts to many future retirees’ medical and drug benefits, the union says.
But there’s another larger issue as well.
There’s about 18 months left on the Toronto Rocket subway contract. Bombardier says.
Absent any new deals, as many as 300 workers at the Thunder Bay plant could be out of job before the end of 2015, the union says.
“There has to be some kind of understanding that Canadians are going to work on Canadian funded projects before workers from another country,†Dias said
