Officials at Bombardier are trying hard to paint this week's split-decision in the battle for control of the world regional jet market as a major victory. The company landed a deal to sell 25 of its new 70-seat regional jets to American Airlines' regional carrier, American Eagle, for $700-million (U.S.). But it watched in dismay as its arch-rival, the Brazilian firm Embraer, hauled in an even larger catch, selling 42 of its smaller, 50-seat planes to the same airline.

You have to hand it to American. By splitting the contract in two, it keeps both firms hungry. And a hungry aerospace manufacturer, in today's overcrowded international market, is one that is inclined to sell its planes at a discount. That can't be good news for Bombardier. The list price on its own contender in the 50-seat market comes in at about one-third more than Embraer's offering, even before the haggling starts. The Bombardier plane may fly farther and faster, but as the American Eagle deal shows, prices matter.

So even though Bombardier more or less invented the regional jet market, and still holds more than 40 per cent market share, it cannot take anything for granted. Being first to produce a 50-seat jet has not protected it from Embraer's advances; neither is its pioneering entry in the 70-seat market guaranteed of success. Not in a business where success as often as not is a factor, not of technological superiority or lower costs, but of the depths of the government wallet behind each firm.

Bombardier was quick to complain that Embraer had taken advantage of illegal export subsidies to scoop the deal. "We will not take on projects that do not meet our commercial requirements," sniffed Robert Brown, president of Bombardier's aerospace group. "I think it's very hard for people to meet certain pricing requirements and remain profitable." Funny, that's just what Embraer says about Bombardier. The two firms are each preparing to take the other before the World Trade Organization, on charges of subsidizing their exports: just as Bombardier accuses Embraer of subsidizing sales of its 50-seaters, so Embraer in turn points to the $87- million that Bombardier received from the federal government to develop the 70-seat jet.

Naturally, each country denies that it is subsidizing anything. Brazil's ProEx program, a Brazilian official explains, is not an export subsidy: it is merely a means of equalizing the interest rates paid by Brazilian firms and their competitors abroad. As for the funds advanced under Canada's Technology Partnerships program, they are not export subsidies either: they are for research and development. And in any case they are not subsidies: they are, says the director of the program, "contingently repayable contributions." Contingently, indeed. Bombardier officials get very wounded at the suggestion that they were in any way the recipient of a handout. The $87- million is, they say, repayable out of future sales. How repayable? As far as anyone can tell, given the unwillingness of either the company or the government to disclose the full terms of the deal, the government does not begin to be repaid until the 200th plane is sold. Only if sales hit the 400 mark, a towering achievement, does the government get its money back -- which is to say, it earns a zero per cent rate of return.

Of course, whether or not the taxpayer makes money on the deal is largely beside the point. The subsidy to Bombardier -- for subsidy it is -- would not be any less harmful if the company sold 4000 of the planes. Indeed it would be rather worse in its effects. When the government spills cash on a hopeless case that quickly goes belly up, the damage to the economy ends there. But when the effect of the subsidy is rather to expand the subsidized sector, then the distortion of economic activity is all the greater. And the more planes that the Canadian aerospace sector can sell, the larger it grows and the more people it employs, the greater is its leverage in demanding more subsidies.

Every dollar that is given to Bombardier to develop 70-seat jets is a dollar that is denied to competing products, firms and industries; every dollar in sales or investment diverted towards it in this way is a dollar that might have gone to a firm that could compete without such aid. The willingness of other countries to subsidize their own aerospace firms to the hilt does nothing to mitigate this: it only makes the case for subsidy that much more futile.

There is no manifest economic destiny that requires Canada to be a world aerospace power. Aside from Bombardier's shareholders, the only obvious winner from our eagerness to subsidize our way into the big leagues is American Airlines.