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”

Bloomberg Businessweek (North America) - - Contents - The bot­tom line Bom­bardier’s C Se­ries fam­ily of larger jets is two years late and $2 bil­lion over bud­get, strain­ing the com­pany’s fi­nances.

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

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