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Bombardier’s flight risk

CEO Pierre Beaudoin on the benefits of taking big chances, and why Canada suffers from a crisis of confidence


 

Christine Muschi

Even with a handful of test flights completed, it’s still too early to call Bombardier Inc.’s new CSeries jet a success. The $3.4-billion program is months behind schedule. Airlines have placed firm orders for just 177 of the 100- to 149-seat planes, about half the number Bombardier has set as its target. And the company is competing directly with industry heavyweights Boeing Co. and Airbus SAS for the first time in its history.

Yet CEO Pierre Beaudoin doesn’t seem like a worried man. In fact, he says a decision not to go ahead with the CSeries would have been a bigger gamble for the Montreal-based manufacturer of planes and trains. “The recipe to being successful is to make sure you stay in front and invest in your future,” Beaudoin says. “Of course, it comes with risk, but if you don’t take risks in business you don’t go anywhere.”

Bombardier’s appetite for flying into the unknown is an increasingly rare trait in Canada, which is often criticized for a lack of competitiveness. The productivity of Canadian businesses and their workers—a measure of how much work they can do—has trailed the U.S. since the 1980s and ranks in the bottom half of OECD countries. But while Beaudoin says there’s clearly more to be done, he stresses that Canadian firms still enjoy a number of key competitive advantages, like a proximity to major markets, a highly educated workforce and generally business-friendly governments. “The one thing that concerns me is how much we’re focused on what doesn’t work,” he says. “I think we have a better chance if we emphasize what we do well.”

Beaudoin says being based in Canada means Bombardier, with 80 production and engineering sites in 26 countries, can be both a North American and European company at the same time (thanks in part to Quebec’s language and culture). That proved useful when developing the CSeries since the U.S. and Europe also happen to be two of the world’s biggest commercial aviation markets.

“The big airplane manufacturers want to build bigger and bigger airplanes,” Beaudoin says. “But that’s not necessarily what people want.” Hence, Bombardier is betting that airlines and their customers are more interested in smaller, fuel-efficient planes that can fly more frequently between a larger number of cities. Building a presence in Asia, where commercial air travel is growing quickly, was also seen as key to the CSeries’ long-term success. Bombardier partnered with China’s Shenyang Aircraft Corp. to build the CSeries’ fuselage—a move that may have helped land a deal with a Chinese leasing company for 30 of the planes.

Bombardier has, historically, benefited from significant government support as a major employer in an important high-tech industry. Ottawa has officially pledged $350 million in support for the CSeries alone, while another $118 million is being put up by Quebec. While that has drawn the ire of taxpayer groups, Beaudoin says it’s becoming increasingly difficult to determine where corporate interests begin and government interests end in today’s global economy. That’s particularly the case in Asia, where state-backed companies are more common. “In the aerospace business, particularly commercial airplanes, very often you will see an Airbus or Boeing deal in conjunction with a state visit,” he says. “And that’s [becoming] a reality for many enterprises. Countries are becoming promoters of what’s being done well inside their borders. That’s something Canada’s government has recognized.”

Where Canada needs to improve, Beaudoin says, is in its efforts to build a more highly skilled workforce. Despite a recent report from TD Economics that downplayed talk of a “skills gap,” Beaudoin says it’s something that needs attention. “We try to learn from our other plants in the world,” he says. “One of the advantages that we see in Europe is these very well-developed apprentice programs—especially in Germany and the U.K. We need to put an emphasis on developing these trade schools again.”

Canadians could also benefit from believing in themselves a little more. Beaudoin says that, by far, the toughest critics of the CSeries—and indeed of Bombardier—are at home. “I’m biased, but this is an airplane that can rival the best of the best,” he says. “Not many companies in the world can say that—only Boeing, Airbus and Bombardier. And one of those is in Canada.”


 

Bombardier’s flight risk

  1. The Avro Arrow does us harm to this day…..it damaged our national psyche tremendously and I don’t know if we’ll ever recover.

    • It wasn’t the Arrow, it was the government of the day!

      • Yes, it was Diefenbaker….a Con.

        13,000 plus …laid off in one day.

        Many of them had to leave Canada to work at NASA

  2. The interesting Canadian twist is that a more or less positive article about a Canadian success story is titled “Flight Risk”, and the comments immediately try to twist it into some kind of anti-Harper rant.

  3. A negative-sounding headline on a very Bullish story – as JJJ said – plus one of the Globe and Mail’s typical periodic “All Quotes from Shorts, None from Longs” stories – bad journalism in the extreme – and another massive Bear Raid on Bombardier stock perpetrated by the Bay Street Cronies.

    Everybody anywhere near Bombardier, the Stock, knows the truth by now:

    *** The stock has consistently, for over a year now, been over 97 percent Long, only 3 percent Short, sometimes as little as 2 percent Short.

    *** But those holding virtually all the Short position are some very deep-pocketed Banks and Funds, which are still able to BUY naive or corrupt reporters whenever they feel like it.

    *** For the most part, these are the exact same Bay Street Cronies who went very, very Short the Yen about a year ago. They tied their Yen Short of the Ages bets – at the typical 80-to-1 leverage (which brought down LTCM and MF Global, among a long stream of others) – to various other positions via proprietary trading algorithms: Kill Gold! Kill NOK! Kill AUD! Kill Loonie! – plus – VERY significant – big Shorts in the US versions of virtually every dual-listed Norwegian-US, Australian-US, and Canadian-US stock/ADR.

    In many cases, including the US versions of Bombardier’s stock, these Crony banks and funds hold virtually every last Short share.
    These Shorts are now a big, big problem as the USD weakens, the Yen may finally be strengthening, Gold is at last getting a bid, and both the Oil and Gold stocks are doing quite well.

    Bombardier’s US stocks are a dilemma for them in a very strange way, as they are not marginable to US holders and therefore legally CANNOT be Shorted. That is CANNOT. This doesn’t seem to have prevented the Cronies from somehow some way holding them under a ton of bricks. Again, possibly very ILLEGALLY.

    But we digress.

    Also note that:

    *** Bombardier has been negatively Pairs Traded against Darling ERJ by a totally different group of Cronies, which we believe is led by JPM. THIS particular bit of dirty silliness was badly shaken when ERJ posted a loss last earnings report, while Bombardier posted very decent earnings. How much of the Pairs Trade is still there, we have no idea.

    *** But the Big Truth in Bombardier’s stock is purely a matter of the most basic valuation. Although it is clearly the most innovative company in its group, both on the aircraft and the train side – the Tesla of Air and Trains, if you will – Bombardier has been “granted” a Valuation so much lower than its nearest peers, it is now glaringly absurd.

    *** At Boeing’s P/E, Bombardier would already be trading over 7.

    *** Granted Airbus or Darling ERJ’s absurd P/Es, Bombardier would already be trading over 11.

    And that is just in 2013 terms. 2014 and beyond should be much, much stronger years for Bombardier than this year was, as it was marked by restructuring.

    The Short side knows this, too. And that Deep-Pocketed and Malicious as they are, they can’t stop the Bombardier juggernaut forever.

    • I’m sorry, Venerability, but your post is way out in left field. You obviously know very little about aviation. BBD is banking on the CSeries since the CRJ line is withering on the vine. The CSeries is up against 3 airframe players dominant in their segments… Airbus and Boeing vs the CS300 and Embraer vs the CS100. Furthermore, there is a secondary opponent who is a goliath in three critical areas… engines, maintenance and finance/leasing and maintenance. If you had bothered to actually learn about this industry dynamic you would realize just how incredibly risky the CSeries gamble is.

  4. The Avro Arrow? Let me think; was I even born then? Umm, no. It was definitely a blow to the Canadian aviation industry but a lot has happened since then and not all of it bad, as Bombardier has shown several times. Bully for them for taking the risk they are taking with this aircraft, and trying to fill a niche they see as important and growing, just as they did when they “invented” the regional jet with the CRJ.

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