Financial Times Weekend 22-23Feb2020

14 ★ FT Weekend 22 February/23 February 2020

COMPANIES. WEEK IN REVIEW

“The business of making and selling

aeroplanes is not for the

fainthearted... In deciding to build a

new airliner, a manufacturer is literally

betting the company.” The opening

lines ofThe Sporty Game, John

Newhouse’s history of the commercial

aerospace industry, were written in

1982 when Boeing, McDonnell Douglas,

and Airbus Industrie were battling for

dominance of the skies.

Nearly 40 years later, Bombardier

has proved the truth of his words. It’s

attempt to move into passenger jets left

it with huge debt and forced a fire sale

of assets that this week culminated in

the decision to sell its $8bn a year train

manufacturing business to Alstom of

France. Just over a week ago, the group

sold the last of its interest in the C

Series small single aisle jet programme.

The disposals have left the group

focused on business aviation, still

employing 18,000 people and with

$7bn revenues. But it is a shadow of the

global industrial champion spanning

trains, trams, regional jets, turboprops

and aircraft wing manufacture that

boasted a workforce of up to 70,000.

In hindsight, it is easy to spot the

mistakes. Bombardier, which had

grown rapidly through state-sponsored

acquisitions, underestimated the

challenges of developing a new

generation aircraft. As a family-

controlled company that had long

relied on government financial support

to take risks, there must have been a

sense of complacency about potential

failure. There was arrogance too in the

company’s refusal to woo initial

customers with the heavy discounts

that are normal for a first-of-its-kind

aircraft. But most fatally, Bombardier

failed to recognise the inevitable

reaction of Boeing and Airbus to a jet

that came close to competing with

the smallest of their aircraft.

Bitter enemies in all other respects,

the duopolists were aligned in their

determination to ensure Bombardier

could never get close to challenging

their hold on the passenger jet market.

Both ruthlessly undercut the C Series

by offering bargain basement prices on

their smallest aircraft, leaving

Bombardier struggling to clinch orders.

State of the art features and new

technology should have given it an

advantage. Dubbed the Whisperjet due

to its far quieter operation, the C Series

used innovative materials and systems

to cut weight, fuel use and emissions

and offer greater passenger comfort.

Yet, while Bombardier defined it as a

regional jet — a market not addressed

by Boeing or Airbus — it was obvious

that the C Series could eventually be

used more efficiently over a long

enough range to start challenging the

incumbents’ smallest aircraft.

That sealed Bombardier’s fate. Just as

it appeared most of the programme

risk had been overcome — and after

Bombardier had absorbed billions in

extra costs, along with public bailouts

—it was forced to sell control of the C

Series to Airbus for $ 1 in 2017. Boeing,

stung by Delta’s decision to buy the jet,

had pushed it into Airbus’ grasp by

convincing Washington to slap punitive

tariffs on the aircraft.

Since Airbus took control, orders

have surged. But Bombardier exited

the programme this month, leaving

Airbus to reap the benefits.

Bombardier’s failure should be a lesson

for those who think new technologies

provide an opportunity to break the

Boeing-Airbus duopoly. Some think

they can transform commercial

aviation with electric or hybrid aircraft.

But if they ever come close, it may not

be the technology deciding their fate.

[email protected]

The shot for the

sky that brought

Bombardier low

Boeing and

Airbus

ruthlessly

undercut

the C Series,

leaving

Bombardier

struggling to

clinch

orders

When Luca de Meo was offered a job

at Volkswagen, the Italian executive

spoke almost no German. After

studying at night, he was able to

address the carmaker’s main board

members in their mother tongue

within months of taking the post.

Such cultural dexterity will be

critical when the car executive, who

speaks five languages including

French, moves to Renault as boss in

the summer — a job requiring the

deftest political touch and a sharp

business acumen.

This week the Paris-based

carmaker suffered the indignity of

having its debt downgraded to junk

status by rating agency Moody’s after

it reported profits were almost wiped

out last year. Rival rating agency S&P

put the company on “credit watch

negative”, meaning it could also drop

the group’s debt to junk from

investment grade.

The downgrade highlights the

challenges Mr de Meo will face when

he takes charge at a company where

morale is at rock bottom and

relations with its largest shareholder,

the French state, can complicate

decisions. Last year, Paris derailed

merger talks with Italy’s FCA.

“He is taking the job from hell,”

said one industry figure.

The French group faces crises on

multiple fronts with sales stagnating,

the threat of crippling EU fines over

CO2 emissions targets and a

relationship with partner Nissan that

has been strained to breaking point

in the wake of the arrest of former

alliance chairman Carlos Ghosn.

“He is the perfect example of what

we need at Renault,” said the group’s

chairman Jean-Dominique Senard.

“We need engagement, a dynamic

management style and we need a very

strong guy in marketing and vision of

the brand.”

During interviews for the job, which

were conducted mainly in French, Mr

de Meo showed “intellectual honesty”

about the challenges facing the

business, and took the role despite the

“personal risk”, Mr Senard added.

But in spite of working in several

roles across a notoriously difficult

environment at Volkswagen, Mr de

Meo has never faced a test like the one

waiting for him in Paris.

Although his experience in

branding and marketing is essential to

fix many of Renault’s problems, he

will also need to learn to wield the

financial axe. Renault has launched a

€2bn cost-saving programme but the

company may require deeper cuts to

its bloated industrial footprint.

He also lacks an engineering

background, something that was once

seen as essential in a car boss. Renault

argues that its new head of

engineering, well-regarded former PSA

executive Gilles le Borgne, will help

balance Mr de Meo’s skillset.

However, this sharply dressed 53-

year-old is at least returning to a

business he once knew well, stepping

back in time to rejoin a company he

worked at two decades ago.

His road trip of the industry since

then has taken in a period at Toyota,

spells running the Lancia and Alfa

Romeo brands, the leadership of Fiat,

then a move to Volkswagen, where he

was a senior director at Audi and, most

recently, headed the German

company’s Spanish subsidiary Seat.

Although he never mastered

Japanese (he tried and gave up) while

working at Toyota, his experience at

the group may help his cause in

developing closer links with Renault’s

combative bedfellow Nissan.

“He is a cultural sponge,” said one

person who worked closely with him at

Seat. “When you are capable of dealing

with so many cultures, it’s not so

different to add one more.”

His natural consensual management

style and attention to detail may also

help him when dealing with Nissan,

where the Japanese corporate skill of

nemawashi, softening up team

members and superiors to new plans

before official meetings to help them

run smoothly, is prized.

Ahead of key meetings, former Seat

colleagues say he reads everything,

asking questions and garnering a wide

body of opinion before coming to

decisions. “He prefers dialogue to

dictatorship,” said a former colleague.

That would mark a distinctive

contrast to Mr Ghosn, who favoured a

more autocratic leadership style and

previously said that the company

could not be governed by “consensus”.

Yet Mr de Meo’s collegiate approach,

he often uses humour in meetings to

make his points and get his way, may

prove essential to mend relations

with Nissan. His easy-going manner

— he has been known to send

WhatsApp messages or emails filled

with emojis for light relief — also hides

a tenacious core.

It is this drive that helped him

revitalise Seat, where he boosted sales

and profits after the introduction of a

new wave of sport utility vehicles.

Ultimately, Mr de Meo’s ability to

defuse the tensions — political,

diplomatic, and commercial — that

face the carmaker will cement or

destroy his image as a team player and

turnround maestro. As one VW insider

recalls: “Going to war is always his last

option.”Peter Campbell

Culturally dextrous de Meo takes on Renault ‘job from hell’

Thegroup

had its debt

cut to junk

by Moody’s

after it

reported

profits were

almost

wiped out

last year

Luca de Meo, known for his

consensual style, is taking charge at

a company where morale is at rock

bottom and ties with Paris can

complicate decisions— Pau Barrena/AFP

UBStapsHamers

3 UBSappointed ING boss Ralph Hamers, pictured,

chief executive in a move that elevates the Dutch-

man to one of the most powerful roles in finance.

Mr Hamers, 53, will take over at Switzerland’s larg-

est bank on November 1 from Sergio Ermotti, who

has spent almost nine years turning round UBS after

it was bailed out during the financial crisis.

Mr Hamers’ appoint-

ment comes less than a

month after rival

Credit Suisse replaced

its chief executive Tid-

jane Thiam amid a spy-

ing scandal.

3 H S B C i s t o cu t

about 35,000 jobs as

part of a downsizing of

i t s o p e r a t i o n s i n

Europe and the US. The London-based bank said it

aimed to cut annual costs by $4.5bn and shed $100bn

of assets adjusted for risk by the end of 2022.

Noel Quinn, interim chief executive, hailed the

overhaul as one of the “deepest restructurings” in the

bank’s 155-year history and said it would allow the

lender to capture high-growth opportunities in Asia.

3 Glencore’s chief took a swipe at BP, dismissing the

oil major’s plan to cut its greenhouse gas emissions to

net zero by 2050 as “wishy-washy”. Commenting on

BP’s recent announcement, Ivan Glasenberg said

2050 was a “long way” off and Glencore preferred to

be “precise and factual” when talking about meas-

ures to reduce its own carbon footprint.

His remarks came as the miner and commodities

trader, which is also the biggest exporter of thermal

AirFrance-KLM said that it

expected flight cancellations

and low demand to bring a

€150m-€200m hit to earnings

Manchester City’s two-year ban

from the Champions League

tournament for alleged breaches of

football’s so-called financial fair

play rules has left the English

Premier League champions reeling

this week.

The extraordinary sanction has

also sparked a debate over

European football’s regulatory

model, the future of which is set to

be challenged when the club

appeals its sanction to the Court of

Arbitration for Sport, considered

the final arbiter of global sports

disputes.

FFP regulations are complex,

but are intended to ensure that

teams break even or, at most,

have €30m of losses over three

seasons.

Some spending is considered

exempt, such as on stadiums,

youth academies and on women’s

teams. This is because the rules are

designed to limit overspending

on players, rather than the club

itself.

Uefa, European football’s

governing body, considers the

regime a success, arguing that

continental clubs have made a

combined profit of €600m in 2017,

compared with combined losses of

€1.7bn in 2011 when they were first

introduced.

But how have the rules affected

the action on the pitch?

While there is evidence that FFP

has helped restrain ever bigger

spending on players among clubs,

in terms of performances, inequality

remains rife in football.

Murad Ahmed

coal, forecast a 30 per cent reduction in its absolute

Scope 3 emissions — including those produced by its

customers — over the next 15 years.

Andrew Grant, of the Carbon Tracker Initiative,

said of Glencore’s move: “Something is better

than nothing. But this is a projection rather than

target. So to what extent will this actually change

the way Glencore runs its business? That’s not

terribly clear.”

3 A host of big companies cut earnings forecasts

this past week and warned of the impact of the

coronavirus epidemic.

Foxconn, the Apple supplier, expected annual

sales to suffer from disruption to manufacturing

in China.

Maersksaid that its earnings this year would

be hit as the largest container shipping

company warned of a “very, very weak February and

weak March”.

Pin An, the Chinese insurer, warned of a decline in

its life business — an example of the effect on services

that involve face-to-face interaction.

Air France-KLMsaid it expected flight cancella-

tions and low demand to bring a €150m-€200m hit

to earnings.

Accorexpected a revenue hit of at least €5m in

China, where 200 of its 370 hotels remain closed.

Meanwhile, smartphone users in China down-

loaded a record number ofgamesand other apps as

Covid-19 confined tens of millions of people to their

homes, in a boost to the $150bn games industry.

More than 222m downloads were made in China

through Apple’s online store in the week starting

February 2, according to data by analytics provider

AppAnnie. Average weekly downloads of apps dur-

ing the first two weeks of February rose 40 per cent

compared with the average for the whole of 2019, the

statistics showed.

BEST OF

BUSINESS



   

Arsenal

Liverpool

Man United

Season: – – –*

   

Chelsea

Liverpool

Arsenal

Man City

Man United

Chelsea

Arsenal

Liverpool

Man City

Man United



   

*Latest data available. Wage data not available for all teams in the – season Sources: Companies House; FT research FT visual journalism: John Burn-Murdoch; Chris Campbell; Patrick Mathurin

Points per game as a multiple of league median

(log scale)

Wages as a multiple of league median (log scale)

During the Premier League’s inaugural

season, clubs were fairly tightly clustered

in terms of points per game and wages

Manchester United won

the league with  points,

collecting on average 

times more points per

game than rivals, while

spending just under two

times the average wage bill

Uefa’s FFP sought to address inequality

within the league caused by bankruptcies,

billionaire owners and lucrative TV deals

For the – season, the spread

between clubs remained dispersed, with

the performance of top clubs improving

While wages have

pulled back slightly

for the top teams,

their bill is still more

than two times the

league median

Man City and Man United

spent more than three

times as much on wages

than the league average

Performance gap of Premier League clubs

Average points per game v wage bill

35,

Number of HSBC

jobs to go in US

and European

downsizing

30 %

Glencore’s

projected cut in

absolute Scope 3

emissions by 2035

The Top Line

Peggy

Hollinger

Luca de Meo

Incoming Renault boss

Corporate

person in

the news

Under the hoodUefa’s ban on Man City does not change football’s inequality

Financial fair play regulations, which came into force in 2013, have capped clubs’ spending but not led to a level playing field

FEBRUARY 22 2020 Section:Companies Time: 21/2/2020 - 18: 04 User: cathy.pryor Page Name: CONEWS2, Part,Page,Edition: LON, 14 , 1