SATURDAY, FEBRUARY 22, 2020 | THEGLOBEANDMAIL O B7
Quebec and in Canada.”
In reality, the company also considered selling
the luxury jet business and received an offer from
Rhode Island–based Textron, owner of rival busi-
ness-jet maker Cessna, according to two sources
who spoke to The Globe. Bombardier opted to sell
the train unit instead, in part due to the sensitivity
of being seen to abandon an eastern Canadian aero-
space footprint built over decades.
And so, nearly 50 years after making the leap
from snowmobiles to mass transit to diversify its
revenue base, Bombardier has ended its foray into
diversification. No longer will it be able to count on
train contracts to counter the ups and downs of
business jet sales.
“The good news is that the financial danger link-
ed to their debt disappears” by selling the train unit,
says Mehran Ebrahimi, an aerospace specialist at
the University of Quebec at Montreal. “The bad is
that they’re left with only one card in their hand,
and it’s vulnerable to an uncertain future.”
Bombardier’s aerospace ambitions began in
1986, when it bought money-losing Canadair from
the federalgovernment. The country’s nascent
aerospace industry had suffered under the neglect
of foreign owners, and Ottawa was desperate to put
Canadair, whose Canso seaplanes played a key role
in helping the allies win the Second World War, in
safe hands. It sweetened the pot for Bombardier,
agreeing to protect against any net losses for four
years.
What then CEO Laurent Beau-
doin, the son-in-law of the com-
pany’s founder, got was a collec-
tion of assets that included not
only the Challenger business jet,
but also the CL-215 water bomber,
military surveillance drones, and
a servicing and parts operations.
Bombardier made the most of the
new workforce and engineering
expertise, and deepened its mili-
tary expertise in the process, ex-
panding with the takeovers of
U.K.-based Shorts Brothers and
de Havilland (in both cases with
government help), and Kansas-
based Learjet, a maker of light air-
craft geared to business travellers.
Backed by repayable federal money, Bombardier
parlayed the Challenger into the Canadair Regional
Jet (CRJ) and launched the country into commercial
aircraft manufacturing in the 1990s. Small and nar-
row, with seating for 50 to 100, Bombardier sold
nearly 2,000 CRJs; they are widely considered to be
the company’s biggest export success.
As oil prices rose and the economics of selling
small jets weighed on orders in the early 2000s,
Bombardier developed the larger C Series, staking
its future on a jet program that cost US$7-billion.
The massive borrowing it required nearly bankrupt-
ed the company and would eventually force it to sell
the train business.
The C Series is now known as the Airbus A220 af-
ter Bombardier ceded control of the program to the
European giant in 2017. Since Mr. Bellemare took
over, Bombardier has also sold its Q400 turboprop
unit, its aviation training business and big chunks of
its former aerostructures parts-making division,
among other assets.
Now, Bombardier’s sole focus will be the one
business it believes it does best: building and selling
luxury private jets under the Learjet, Challenger
and Global brands, with prices that start at US$9.9-
million and top out at US$75-million. “With Bom-
bardier’s [biggest-sized] Global series jets, you’re
selling to rock stars and top corporations. With
trains, you’re selling to urban procurement manag-
ers,” says Richard Aboulafia of aerospace consultan-
cy Teal Group. “Your pricing and profit expectations
are completely different.”
Armed with a strong portfolio of planes and a
pool of buyers drawn to new products, Bombardier
is bullish about its prospects. The company’s order
backlog was worth US$14.4-billion at the end of De-
cember, and it has been beefing up its service and
maintenance capability to drive more revenue.
But it’s a crowded, flat market in a relatively small
sector. Total billings for new business jets amounted
to about US$20-billion in 2019, according to theGeneral Aviation Manufacturers Association (GA-
MA). Competing for that business are seven plane
makers with 35 to 40 models between them, chasing
809 sales last year. Many of those sales depended on
the whims of the superwealthy.
“It’s a ridiculously disaggregated business, and it
is screaming for consolidation,” says Rolland Vin-
cent, a former Bombardier executive who now
works as director of Jetnet IQ, a Texas-based market
intelligence service for business aviation. “Margins
can be skinny, volumes are low. It’s a classic case for
[rationalization], especially if we see a downturn.
And we will see a downturn.”
Business aviation also has an image problem. As
concerns over climate change grow, flight-shaming
has hit the secret world of luxury travel. And that’s
doesn’t bode well for sales, says industry consultant
Brian Foley. “Whereas criticism of corporate exec-
utives flying off into the sunset in their private jets
had always been a crowd favourite to stick it to ‘theman,’ adding the environmental card now brings a
nuclear option to activists’ arsenal,” Mr. Foley wrote
recently in Forbes.
Bombardier is opting for money in the bank in
deciding to keep its business jet unit. The franchise
had an adjusted EBIT (earning before interest and
tax) margin of 7 per cent last year (higher than
some other rivals but less than industry leader Gulf-
stream). It enjoys a strong market position, with a
17.6 per cent share of unit deliveries in 2019, GAMA
figures show. The company was second behind Gulf-
stream in total billings, with US$5.7-billion.
But it’s exceedingly difficult to sell a US$70-mil-
lion Global jet to a customer when your stock price
is $1.50 per share, says a former Bombardier exec-
utive who spoke freely on condition he not be iden-
tified by name. Wealthy individuals buying these
aircraft want a relationship with a healthy manu-
facturer, he adds. That makes it imperative for Bom-
bardier to resolve any perceived existential threats,
especially when it’s asking for multimillion-dollar
deposits.
The company also has to plan for future product
investments or risk eroding the business. In that
sense, repairing the balance sheet was a necessary
step as the company gears up to redesign its aging
mid-sized Challenger line, says a senior executive
involved in the Alstom deal.
Refreshing its product line is essential in a mar-
ket that is stable but has barely grown over the past
decade. The historical correlation between luxury
jet sales and U.S. corporate profits appears to be
cracked. Companies have posted strong earnings in
recent years, but private jet sales haven’t followed.
BOMBARDIER, B8Alain Bellemare, president and
CEO of Bombardier, speaks at a
news briefing in Pointe-Claire,
Que., in November, 2017. The
Bombardier/Beaudoin family
that controls the company has
continued to back Mr. Bellemare
despite his near-complete
dismantling of the company to
shore up its balance sheet.
CHRISTINNEMUSCHI/REUTERSBOTTOMHALFOFTHEBUSINESSJETSEGMENTVS.TOPHALF
20 (MARKET VALUE IN 2020 $BILLIONS)151050BOTTOM HALF (<$26 MILLION)
TOP HALF (>$26 MILLION)'03-'08 CAGR:
19.7% BOTTOM
15.3% TOP'10-'17:
2.3% BOTTOM
-0.6% TOP'08-'10:
-56.8% BOTTOM
3.5% TOP1989199119931995199719992001200320052007200920112013201520172018AIRPLANEUNITSSHIPPEDANDBILLINGS2019GULFSTREAM
147UNITSBOMBARDIER
142UNITSEMBRAER
109UNITSDASSAULT
40UNITSTEXTRON
600UNITSTOTAL BILLINGS
$7.9BILLIONTOTAL BILLINGS
$5.7BILLIONTOTAL
BILLINGS$1.9BILLIONTOTAL
BILLINGS$1.5BILLIONTOTAL BILLINGS
$3.7BILLIONREPORTONBUSINESS|“WE’RESTILLTHE
HEARTOFTHEAEROSPACE
INDUSTRYINQUEBEC
ANDINCANADA.”