Bombardier’s C Series can’t quite take off
▶ The regional jet maker is having trouble selling bigger planes ▶ With thousands of jobs at stake, “for Quebec, it’s too big to fail”
Pierre Beaudoin was just 40 days into his job as chief executive officer of Bombardier in 2008 when he approved its biggest undertaking ever—a family of transcontinental jets that would compete directly with aircraft from giants Boeing and Airbus. Beaudoin was so confident his fuelefficient, 108- to 160-seat C Series planes would be a hit, he refused to offer large-volume discounts to win big potential customers like American Airlines or United Airlines for the plane’s launch. “Yes, it costs more money, but we have an exceptional aircraft,” Beaudoin told analysts last year.
Exceptional may not be good enough. The C Series’ first delivery is two years behind schedule and $2 billion over budget, while orders have stalled. That’s left Bombardier burning cash, sent its shares into penny stock territory, and forced the company to seek as much as $1 billion in Canadian government aid to stay afloat.
With an initial budget of $3.3 billion, the C Series was Bombardier’s
A flawed initial strategy “excluded them going after a massive customer with a large order that would have given them the credibility they needed.” —— Ernie Arvai, Airinsight
biggest bet since it got into the smallplane business via the 1986 purchase of Canadair from Canada’s government. The C Series, made from lightweight composite parts, promised to consume 20 percent less fuel than rivals’ airplanes, cutting operating costs by 15 percent. It also represented a shift upmarket for Bombardier, which had previously competed primarily against Brazilian regional jet maker Embraer.
Some former executives say there were internal disagreements over how to manage the transformation. Gary Scott, who oversaw the launch of the C Series as Bombardier’s commercial aircraft president until his departure in 2011, says it was crucial early on to get some big-name airlines or low-cost carriers on its order book to show momentum. He likens it to taking precise “rifle shots” at key airline targets. But he says that when the sales team argued that Bombardier needed to be more competitive on price and service, upper management disagreed, saying the C Series was worth a premium. Another former executive says the disputed price gap was often as little as $2 million on a plane that lists for as much as $82 million.
“When we looked at what it was going to take to make a few more rifle shots,” Scott says, “the company wasn’t willing at that point, and apparently since.” Beaudoin, now Bombardier’s executive chairman, declined to comment.
Another misstep may have been casting too wide a net for early sales, some former employees say. In a 2012 interview, Chet Fuller, then Bombardier’s chief commercial salesman, vowed to secure 40 different customers on all continents. “That initial strategy of building a geographically dispersed customer base excluded them going after a massive customer with a large order that would have given them the credibility they needed,” says Ernie Arvai, a partner at consultant Airinsight. “To me that was their big failure.”
Making matters worse, development of the C Series began at the start of the financial crisis, and just as the planes are nearing delivery this year, oil prices have tumbled—reducing the appeal of fuel-efficient aircraft.
Bombardier has won only 243 orders for the jet—none in the last 16 months. Of the 14 customers for the plane as of late January, only two— Deutsche Lufthansa and Korean Air Lines— rank among the world’s biggest carriers. By contrast, Airbus had 4,471 orders at the end of December for its fuelefficient A320neo jet, which got under way two years later than the C Series.
Still, Bombardier may get a receptive ear from Canada’s government. The Montreal-based-based company employs 17,750 peopleple in Quebec and contributes C$6.5 .5 billion ($4.7 billion) annuallyly to the province’s economy; y; Quebec’s government has already eady pledged $1 billion in aid. “Bombardier is viewed like a big American bank—for Quebec, it’s too big to fail,” Arvairvai says. And the company representsepresents the kind of value-addedded manufacturing the new government of Prime Ministerster Justin Trudeau wants to promoteromote as Canada tries to diversifyversify its resource-based economy.nomy.
Any Canadian federalderal cash injection would buy y Bombardier time while several carriers, including Delta Air Lines s and United, consider new aircraft aft orders. “At the right price, it is quite a competitive airplane,” Deltaa CEO Richard Anderson told analystsysts in January. “We are taking a very ry serious look at it.” Bombardier certainly seems to be listening: Fred Cromer, the company’s current president for commercial aircraft, indicated in December that it would become more aggressive on price to win big orders. �Scott Deveau and Frederic Tomesco