The long Bombardier melodrama may finally nearing an end. And none too soon.
The company is slowly melting away. If you haven’t noticed, Bombardier has been running a garage sale of its assets for some time now, desperately trying to raise cash to pay off debts incurred to pay for a series of bad corporate decisions.
- Downsview airport land and buildings: Sold.
- Q400 Turboprop Aircraft. Sold.
- CRJ Regional Jet. Sold.
- Aerostructure Business in Northern Ireland and Morocco. Sold.
- Flight Training Business. Sold.
- Majority Stake in C Series Aircraft. Sold (for $1).
Now comes the latest sale, of the company’s remaining minority stake in the C Series, rechristened as the Airbus A220. Under Airbus’s steady hands, the plane is starting to rack up sales but its cash-short partner (Bombardier) doesn’t have the funds available to invest more to to ramp up production for the aircraft, which is sure to be a money-maker in a few years’ time. So Bombardier has bailed out of the A220 partnership in return for US$591-million.
And yet despite all these asset sales, in a process that looks very much like a desperate homeowner burning the furniture to keep warm in winter, the fire sales have not been enough. A much-diminished Bombardier can’t even support its two remaining businesses, an aviation unit making business jets and the transportation unit that makes trains and mass transit systems.
One of them will have to go. In fact, Bombardier is said to be in talks with possible buyers of both. What will be left will be a much smaller company and hopefully one that won’t be making any more headlines, except in the business pages. Never a good thing when a business ends up being front page news.
The problem with Bombardier is that it was always more of a wannabe success than a real success. Canadians loved the story of the scrappy inventor from rural Quebec starting off making snowmobiles and his heirs turning the firm into a multinational making jet aircraft, water-bombers, subway trains etc.
Much of that growth came through opportunistic buying of companies nobody else wanted — Canadair in Montreal, de Havilland in Toronto, Short Brothers in Belfast, Adtranz in Germany — usually combined with Bombardier management’s unparalleled ability to extract money from governments desperate to maintain jobs and get under-performing assets off their books.
Yet seldom during its history, did Bombardier really manage to turn these disparate, individual assets into a cohesive, consistently profitable company. Maybe it’s the problem of always looking for a bargain. The whole never ended up being greater than the sum of its parts.
Bombardier did manage to stretch the Canadair Challenger business jet into a passenger aircraft and create a whole class of regional aircraft. But like RIM’s invention of the Blackberry, one product was not enough to build a company with long-term success.
Bombardier always managed to promise more than it could actually deliver. It wasn’t enough to bet the future of its commercial aviation business on the brand-new C Series, it did so at the same time that it was developing a new Global 7500 business jet and the smaller Learjet 85. The C Series was 2 ½ years late and way over budget. The Global Express was also late. And the Learjet 85 had to be dropped entirely.
Back on earth, the company has been no better in its transportation unit, consistently angering clients at Toronto Transit Commission, Swiss Railways, Deutsche Bahn and New York’s Metropolitan Transportation Authority for delivering rolling stock that was late and full of bugs. Great to land the contracts and have an impressive order backlog but if you can’t deliver the merchandise, maybe you’re in the wrong business.
READ MORE: Don’t cry for Bombardier
Where was management all this time? The Beaudoin-Bombardier family, who had read too many fawning profiles of their achievements over the years and clearly believed them, stayed on in management for much too long. And when Pierre Beaudoin finally relinquished the job of CEO, he was replaced by Alain Bellemare, who seemed to spend more time designing his own generous pay package than in actually trying to turn around the company.
In the meantime, Bombardier has continued to shrink. Its market capitalization is now about $3.7-billion, about half as much as BRP, its former recreational vehicle division. Dollarama, which runs dollar stores, is worth three times as much while aircraft simulator maker CAE is worth $10.7-billion. So let’s stop talking about Bombardier as a “multinational” or a transport “giant.” It’s really more of a minnow in corporate terms.
If Bombardier never succeeded in becoming more than the sum of the parts, the actual parts aren’t so bad, especially in the right hands. Like the snowmobile business, which has thrived as an independent company, the A220 will do fine run by Airbus, which already has 3,300 jobs working on the plane in Quebec. And if Mitsubishi wants to make Montreal a centre for its regional jet business, why not?
And if Bombardier’s train business ends up with Alstom, it may also thrive. And the Canadian footprint is small, with a mass transit in Quebec and another in Ontario, both operating at less than capacity. The business jet subsidiary should also do fine, whether it’s run independently or as part of a US firm like Textron.
Quebec taxpayers will nonetheless feel the pain. The province, which remains a minority partner with Airbus in the A220 will be forced to take a $600-million loss on the $1.3-billion it sunk into the program just four years ago. A good lesson for Quebec politicians to be wary of sinking scarce funds into risky ventures.
But please don’t cry for Bombardier’s demise. We live in a capitalist system and as a company, it was a capitalist failure.
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