The year the deal went off the rails
Early in 2015, the TTC realized Bombardier couldn’t fulfil its $1B streetcar order. That’s when it sued
A cold snap hit Toronto in January 2015. On two separate days at least 25 of the TTC’s aging streetcars, or more than a tenth of the fleet, were forced out of commission. The vehicles’ pneumatic brakes and doors seized up, and some couldn’t make it out of the garage. Others broke down in the middle of the street, blocking the streetcars behind them and stranding passengers in plunging temperatures.
Throughout the deep freeze, the new Bombardier streetcars ran without incident on the Spadina line. But there were only three of them.
It was the beginning of what would be a very bad year.
By the end of 2015, the wheels would fall off the TTC’s $1-billion order for 204 ultra-modern, low-floor streetcars. At the start of the year, Bombardier had delivered less than a tenth the number of vehicles it was supposed to. In the coming months problems that plagued the initial car builds would persist and multiply, prompting a fed-up TTC to sue the company for millions in damages. The two sides are still negotiating.
Production after the two-month strike in the summer of 2014 at the company’s Thunder Bay plant “did not go well,” reported Stephen Lam, head of the TTC’s streetcar department, in an internal email obtained by the Star through a freedom of information request.
In May 2015, the next car in line was held back after it leaked during a water test, suffered electrical control problems, and a door panel had to be replaced. TTC engineers reported that one of the vehicle’s five body segments alone had more than 60 defects.
“I think they were in a tailspin. They kept chasing false solutions. I don’t think they properly got to the bottom of root cause. So they kept tackling the symptom rather than the cause,” said TTC CEO Andy Byford in an interview with the Star. “They kept on telling us that schedules are being managed and they are putting in place resources, human resources and material resources, to improve the plan . . . (but) they didn’t materialize.”
Byford went public, detailing Bombardier’s struggles to produce quality parts to the media. And then he jumped on a plane.
On Tuesday, June 23, 2015, Byford and TTC board chair Councillor Josh Colle flew to Thunder Bay for a reality check.
Byford wanted to see the shop floor for himself. He also wanted Bombardier to know that its customer was not happy. The TTC was supposed to have 50 new streetcars. It had six in service.
As Byford and Colle walked the production line, Byford dropped off to chat with workers.
“Do you think you can stick to the schedule? Have you got enough tools? Do you understand the time frames that we need these streetcars?” he asked.
“On the whole, the workers were very positive… but in some cases they confided there were problems with parts and the quality of build on arrival at Thunder Bay.”
After a presentation from Bombardier engineers, Byford and Colle felt reassured that the company understood the gravity of the delays. It had undergone a managerial transformation and was committed to catching errors on the production line early. Plus, Bombardier pledged to ramp up and build four vehicles a month.
Byford returned feeling more confident, but two days later, Bombardier revised the schedule downward.
“I felt humiliated,” Byford said in an interview with the Star. “I felt we had been completely let down.”
Minutes of meetings between Metrolinx and Bombardier that were filed as part of the legal dispute over Metrolinx’s long delayed vehicle order capture Bombardier executives speaking bluntly about their factories’ capabilities.
Martin Allen, Bombardier’s new vice-president of operations for the Americas, opened a meeting on Oct. 15, 2015, “by acknowledging that BT’s (Bombardier Transportation’s) biggest past issue was their inability to produced (sic) quality cabs, trucks, and underframes” in its plant in Sahagun, Mexico.
But he said changes had been made. In 2014, “there were parts laying all over the place and the production line was not moving in Sahagun. Now there is a notable improvement ... like day and night,” Allen said.
Six months later, Allen was gone and his replacement, François Minville, admitted the problems were not solved. He delivered this message to Metrolinx during an April 21, 2016, meeting.
“Thunder Bay and Sahagun do not currently have the ability to produce, consistently repeat processes and ensure quality; therefore the end product has not been predictable.”
It was a remarkable admission. Minville, who came from Bombardier’s aerospace division, continued, saying he “was not impressed with the existing technical processes and systems” and that the teams in charge of designing the manufacturing processes at both plants were weaker than expected.
He admitted it would “take a considerable amount of time and effort” to improve production, but he expected to have a plan by the end of the week.
By Oct. 16, 2015, when 67 new streetcars should have been operational, just10 were on the streets. The delivery schedule had been adjusted downward again, but the TTC no longer believed Bombardier could meet even its revised targets.
“Given Bombardier’s failure to meet past commitments, the TTC has no confidence in its latest schedule,” the agency said in a public statement.
TTC board members voted to pursue damages against Bombardier. The contract allows the agency to claim up to 5 per cent of the $1-billion contract for late delivery, or $50 mil- lion, money the TTC hopes to use to offset the $34.1-million it is spending to overhaul and refurbish some old streetcars while it waits for the new fleet.
And still old problems persisted while new ones emerged well into 2016.
Early in 2016, Byford learned that parts that the company had stockpiled and intended to use to speed up production were “out of tolerance” — that is, they did not fit. Most had to be scrapped.
“I was at my most apoplectic,” Byford said in an interview. “I almost hit the roof when I heard that because that was their great get-out-ofjail card.”
In an email to Raymond Bachant, president of Bombardier’s Americas division, dated Saturday, April 2, 2016, Byford fumed:
“I have received briefing after briefing and assurance upon assurance that the quality issues that have dogged this project have been identified and overcome. We have been told about revised manufacturing practices, improved . . . procedures and we have seen a veritable merrygo-round of project managers, each of whom (we were assured) was the person to sort out the problems.”
Bachant replied, agreeing to supply a revised delivery schedule by the middle of the week.
Days later, Bachant was let go. No one from Bombardier called Byford to let him know.
When the Toronto contract was signed in 2009, Bombardier had built more than 400 of the low-floor Flexity light rail vehicles (LRVs) for transit systems around the world, and it had never run into the problems that were turning up in Canada.
“We thought we were buying a de- rivative of a proven product. And that’s important. It wasn’t a leap into the unknown,” Byford said.
When the bids were submitted by Siemens and Bombardier, Bombardier came in at a shocking two-thirds the price of the competition.
“Bombardier was $500 million cheaper; that’s a huge amount of money,” said a former senior TTC official, who spoke on background. “People were very surprised at the gap because Siemens had done a big push, they wanted to get a foothold in North America.”
“The real shocker wasn’t that Bombardier’s bid was so low, but that Siemens’ was so high,” the former official said. “Maybe the people in senior offices (at Siemens) were squeamish about the risks. I don’t know.”
David Miller, mayor at the time, recalls it differently. “We were obviously very incredibly happy about the price of the Bombardier bid,” he said in a recent interview. As to whether Siemens was high or Bombardier was low, he said the specifics are hard to be exact about after eight years. “But, broad brush, Bombardier was well under the price we expected.”
In a recent interview, Ann Macdonald, Bombardier’s vice-president of sales, called the bid “very competitive.
“It was dead on when we look at what was asked for, the type of product it entailed. . . .We were definitely competitive on that one, but not to the point where we think we underbid.”
Bombardier Transportation’s European division was called out for underbidding on a 2011 contract to replace obsolete signaling in the London Underground.
In March 2016, the London Assembly issued a report replete with withering criticism of Bombardier’s “shameful” performance in replacing the obsolete signaling in the London Underground, which led to a $1.4-billion cost overrun. The report says the company “duped” the transit agency about its expertise and “by significantly underbidding the competition on price,” in order to win a contract it could not fulfill. “This is nothing short of a disaster for London,” it said.
Bombardier’s TTC bid was kept low largely because the Mexican plant allowed for lower labour costs, even though the company eventually had to aggressively fix the problems.
One former Bombardier executive explains it like this: “If you shift production of parts of these trains (back) to Canada, it would be so much more expensive. So Canadian taxpayers would pay more if the trains were made in Canada. The viability of Bombardier in North America depends on Mexican factories.”
Throughout 2015, Bombardier was in serious financial trouble.
Alain Bellemare, the new CEO, would later admit publicly that the company was on the verge of bankruptcy and had a serious cash-flow problem.
In six-and-a-half years, during the tenure of former CEO Pierre Beaudoin, the son of the man who ran Bombardier for decades, Bombardier went from $1.4 billion annual income to a $1.6-billion loss. Beaudoin, who had been groomed to run the company that is controlled by his family, moved out of the CEO’s office in February to become executive chairman.
As Christmas 2015 approached, the company received more than $3.3 billion in investment. The Quebec government invested $1.3 billion in the CSeries passenger jet program; and from the Caisse de Dépôt, the province’s public pension plan, $2 billion for the transportation division.
The money wasn’t a handout but provided assurance to investors and signaled customers of the CSeries that they would get their planes.
“It’s an investment. It gives us assurances that the headquarters will stay for 20 years in Montreal,” Quebec Premier Philippe Couillard said. “The aeronautics industry in Quebec, for Montreal, is just as important as the automobile industry in Ontario.”
A month later, after the Caisse de Dépôt investment, Couillard immediately called on the federal government to do the same.
“There’s no way, no way, that the federal government should not invest in Bombardier, in the CSeries,” he said. “If the auto industry has been supported by taxpayer money, which is fine, then the aeronautical industry in Montreal needs also to be supported.”
But Ottawa took more than a year to announce its contribution — a $372.5-million loan — only a fraction of the support offered by Quebec.
Asked how the TTC contract troubles figured into the federal government’s decision to provide a loan, Innovation Minister Navdeep Bains sent a statement by email that did not mention the TTC, but emphasized that the loan was meant to help the aerospace division. “Aerospace is an important sector in the Canadian economy,” the statement says. “The support for Bombardier’s aerospace business will help secure thousands of high-quality jobs for Canadians across the country.”
Bombardier has long been a lightning rod for public scrutiny of government subsidies. Last year, economist Mark Milke tried to put a number to the full extent of the government support Bombardier has benefitted from over the years.
He was told by Industry Canada that the company had received $1.3 billion in loans since 1966 and had repaid $584.6 million. But Milke suspected the number was incomplete and filed an access to information request. His tally, which includes the amounts given to companies Bombardier had subsequently acquired, such as deHavilland, totals $4.1 billion when adjusted for inflation.
Bombardier takes issue with that number, saying that Milke “has adopted an ideological positioning when it comes to government support of the aerospace industry in general and to Bombardier in particular.”
In a statement to the Star, a company spokesman said that since the acquisitions of Canadair in 1986 and de Havilland in 1992, the company has received total funding of $586 million from the federal, Quebec and Ontario governments.
“Bigger numbers we see in the different media include amounts that precede Bombardier’s acquisitions,” the statement reads. “Those funds supported the creation of the Challenger Regional Jet, the Global Express business jet and the Q400. We have reimbursed over $741million of this original contribution (126 per cent). These numbers are validated by Industry Canada.”
Bombardier, which estimates that the company and its employees generate $17 billion in taxes and other government revenue, has not received “substantial government support for its train segment.”
By early 2016, the shakeup in the CEO’s office would ripple through the transportation division as the German president, Lutz Bertling, was replaced and Benoît Brossoit took over the Americas division. Ending the Toronto streetcar delays would be job one.
“I think they (Bombardier) were in a tailspin. They kept chasing false solutions. I don’t think they properly got to the bottom of root cause. So they kept tackling the symptom rather than the cause.” TTC CEO ANDY BYFORD IN A 2015 INTERVIEW