With sinking stock share, slumping sales and competition as stiff as ever from Airbus and Boeing, the future will remain a challenge for Canadian Bombardier.
MONTREAL — The horizon is not bright for Bombardier these days. Sales of its new C Series jetliner have failed to take off and its share price is sinking, despite a multi-billion dollar government cash injection.
All of a sudden, the Canadian manufacturer’s dream — going head to head with the Airbus A320 and Boeing 737, the workhorses of the aviation market, in its first foray outside business and regional passenger aircraft — is turning into a nightmare.
The first completely new aircraft design in the 100- to 150-seat category in more than 25 years was supposed to offer significant fuel savings over its rivals. But a two-year delay in its development allowed both Airbus and Boeing to freshen their respective lineups with the launch of the A320neo and 737 Max, which are similar to their old planes but with new fuel-saving engines. (The first neo rolled off the assembly line in January, while Boeing expects to deliver its first Max in late 2017.)
Bombardier is expected to make the first delivery of its C Series to Lufthansa subsidiary Swiss in the coming months. But it can no longer boast of 20% fuel savings over competitors. At best, Bombardier has acknowledged, the C Series is 10% more fuel efficient than the neo or Max.
Meanwhile, development costs have soared to $5.4 billion, nearly double the amount Bombardier had budgeted.
The C Series “was an attractive purchase when oil cost $120 a barrel, but at $29, the argument for fuel savings falls apart,” Mehran Ebrahimi, an aeronautics professor at the University of Quebec in Montreal told AFP.
But the fact remains that the C Series is “incredibly quiet,” which is a welcome design improvement for people who live near an airport, commented Isabelle Dostaler, another aviation expert at Concordia University in Montreal.
Ebrahimi noted that Airbus and Boeing are trying to undercut Bombardier and hold onto their duopoly in this segment by offering deep discounts on their new jetliners. And it appears to be working. Airbus has received 4,500 orders for its neo, while Bombardier has received no new orders for its C Series since September 2014, after landing 243 orders during its development stage.
Keeping Bombardier in Canada
Faced with these difficulties, Bombardier asked for and received $2.5 billion from the government of Quebec province, where it is based, to get its C Series program off the ground, giving up a 49.5% stake in the C Series program and 30% of its rail unit in exchange.
Since receiving the cash injection, Bombardier’s stock has fallen 40% to a record low of 72 cents (Canadian) before bouncing back slightly to close Friday in Toronto at 81 cents.
The company has also asked Ottawa to contribute, but Prime Minister Justin Trudeau’s Liberals have reportedly been hesitant to give public funds to a family-controlled firm. (Heirs of founder Joseph-Armand Bombardier hold a small stake in the company but control its board through a majority of voting shares.)
“Has the Bombardier family taken such good decisions over the past decade? Not really,” Dostaler said. “Just because you have a blood tie doesn’t necessarily mean you share your grandfather’s business acumen,” she said of Pierre Beaudoin, grandson of Joseph-Armand Bombardier.
Beaudoin stepped aside as CEO last year, and was replaced by outsider Alain Bellemare, who once worked for Pratt & Whitney — the supplier of engines for the new C Series. Beaudoin meanwhile took on a new role as executive chairman of the board.
“The problem wasn’t Mr. Beaudoin,” Ebrahimi said. “The problem is a lack of strategy for Canada’s aeronautics sector,” which remains underfinanced compared to rivals that receive generous outlays of public funds.
“Take out the (Canadian nationalist) Beaudoin family, and with the Canadian dollar at a recent low, you risk having this Canadian corporate icon being picked up by a foreign buyer at a bargain.”
Bombardier started off building snowmobiles in 1942 and grew into a multinational with rail and aircraft divisions. It has 70,000 employees worldwide, including 24,000 in Canada. It will release its 2015 financial results Wednesday.
By Jacques Lemieux
Copyright Agence France-Presse, 2016