//
you're reading...
Aeropolitics, Bombardier, Commercial Airliners, Regional Aircraft

SUMMARY: Bombardier’s rise to become the 3rd largest Commercial Aircraft manufacturer in the world, was due to 4 acquisitions between 1986 and 1992 (1986-Canadair, 1989-Shorts Brothers, 1990-Learjet and 1992-de Havilland), with all but one using billions of Canadian and UK taxpayers money and lots of political help (aka cronyism) to make it happen. The story behind the acquisition headlines, with their give away low acquisition costs, billions in written off aircraft programs, state subsidies and hidden airports that were later sold at big profits, all kept from public eyes. Bombardier’s current product line is 30+ years old, with the 1980’s Challenger CL-600 business jet (now Challenger 650 still in production) from which a family of CRJ regional jet airliners came from, while the early 1980’s 37 passenger DHC-8 is still produced as the 90 passenger Q400. The CSeries is Bombardier first new commercial airliner since it entered the aerospace industry 30 years ago in 6 short years. Contrary to Bombardier’s PR BS, Bombardier is definitely NOT an innovator, just excellent at low risk, low development programs that just stretched existing aircraft, like 12 passenger Challenger CL-600 business jet into the 104 passenger CRJ1000 and the DHC-8-100 into the high density 90 passenger Q400. Attached to the bottom of this article is an paper entitled “The Rise and Fall of Bombardier” and how Bombardier REALLY become an Aerospace power house. The CSeries program is still suffering, Air Canada was enticed to buy by Quebec dropping a long disputed lawsuit against Air Canada and Ottawa offered changes to some legislation, only last weak Air Canada threatened to walk away from the deal as Ottawa had not moved on the legislative changes, and even stated the obvious that “there are other alternatives other than the CSeries”, proving it bought not because it was an aircraft it had to have or needed, but because it was politically coerced to make a deal in crony capitalist Quebec, where politicians and big business are all in bed together to screw Canadian taxpayers, and enrich a few. Meanwhile, the 75 x CS100 Delta Air Lines deal was good for an order WIN, yet the deal is expected to lose $525 million ($7 million per aircraft), and is nothing but a money LOSER deal. Is this the ONLY way Bombardier can sell the CSeries ? through political coercian or selling below cost ? if so then the game will be over soon for the program. But why is the stock up from February’s $0.77 a share ? business deliveries will be off by 25% this year, the Q400 is down to 42 orders in backlog and dying while the CRJ line has 86 in backlog (with 23 x CRJ1000 questionable) and dying as well, high end Global business jet demand is down, while the CSeries even with the Delta and Air Canada deals has only 330 orders (with +25% of existing orders HIGHLY questionable) after 8 years of sales effort ? and with all existing orders currently at a loss, loses are expected well into 2021. Bombardier the world’s only plane and train manufacturer can’t deliver trains on time ! so NO reason to be optimistic, other than the fact Bombardier looks set to DUMP the Cseries program on naive Canadian taxpayers for $2.0 billion for a 2/3 ownership, and raise another $1.0 billion in new stock offering for the new partnership called CSeries Aircraft Limited Partnership (CSALP). Bombardier failed to find a buyer last fall for the CSeries, but now thanks to crony capitalism in Canada, Canadian taxpayers have been suckered into owning the program that NO other aerospace company wanted 9 months ago. Bombardier will get the program off its books and collect $3.0 billion in new capital after writing off $3.2 billion in the CSeries program in 2015. Now the program will be a Canadian government program, and will draw fire from the WTO and the US for state aid, illegal and prohibited subsidies and price dumping, the saga is just beginning and no light at the end of the tunnel for the CSeries.

To my regular readers, I apologize for not writing in the past 6 weeks, been busy with several airline projects in the developing world, but I am back and still not seeing anything positive about the CSeries.

Let’s see if Farnborough International Airshow (June 11-17) has anything new from Bombardier, other than the announcement of a politically coerced Air Canada order for 45 x CS300’s, if its such a “game changer” there has to be more than 330 firm orders (+25% HIGHLY questionable) after 8 years, NO ? IF they cannot confirm any new orders, one really needs to look at the program long term viability, so far all orders are at a loss, and with a maximum of 315 deliveries by the end of 2020, that takes the cash burning program into 2021.

This is truly a case of the “emperor having no clothes”, but everyone is afraid to say it. Bombardier was willing to sell the program to any OEM last fall, Airbus’s chief salesman Mr. Leahy said that Bombardier offered it to Bombardier for “a song” meaning “peanuts” and “almost for free ! as long as it was built in Montreal ! The sad thing is Bombardier knows it is a disaster, why would they sell it last year 2 months before Canadian Type Certification, $5.3 billion investment and 8 years of hard work ? oh they know its a loser program, not the aircraft its the market dynamics, wrong market (100-150 seats) at the wrong time (see graph below), as the segment is being abandoned by airlines (the customer) and the customer knows best what they want !

The customer does know best, 330 CSeries orders (+25% IFFY) while Airbus has 4,586 orders for its single aisle aircraft (58 x A319neo, 3,385 x A320neo and 1,125 x A321neo) and as of today 7 deliveries, while Boeing has 2,831 orders for its single aisle aircraft (60 x B737Max7’s, 1,1716 x Max8/Max200’s and 659 x Max9’s), yes the customer knows best only 118 A310neo’s and B737Max7’s which are both in the small 100-150 seat segment out of 7,399 total neo/Max orders, or 1.6% of their single aisle orders.

Says novels about what airlines WANT and NEED, and that is 150-240 seat single aisle aircraft as that is where 98.4% of Airbus and Boeing single aisle aircraft orders come from. Bombardier is 100% stuck in the BLACK HOLE (100-150 seat segment), where at best we shall see 140 deliveries per year between Airbus. Boeing, Embraer and Boeing, no one will make money there, but Airbus and Boeing have other segments and their widebody airliners, and Embraer has the E175E2 in the future, while Bombardier’s Q400 and CRJ lines now have 24 months of production and are dying a slow death, with NO FUTURE.

Selling below cost (e.g. Delta Air Lines deal) or using political coercion (Air Canada deal) to get the national airline of Canada to buy is not a good selling point for any aircraft, sounds like something out of Russia, but sadly it is Canada, where I don’t do any work and don’t want to, they all believe they are experts here but the state of the aviation industry in innovation, competitiveness is years behind the Europe and the Americans, from large airlines, low cost and regional airlines to business aviation, too many aviation dinosaurs live and work here and mediocrity is the new normal in Canadian aviation.

The recent complaining by Bombardier that rivals are too critical of its CSeries and the big, bold move the company made in its “game changing aircraft”, caught my attention, as Bombardier today seriously thinks it is an innovator that took a big risk, and wants the industry to acknowledge that fact.

Yet nothing could be farther from the truth, as Bombardier till the CSeries has never certified a new commercial aircraft, and the company contrary to public misinformation, has been taking the low risk route for 30 years and stretching and stretching the Challenger business jet and the DHC-8’s for years until they could be stretched no more, it was simple development until the CSeries was launched, but then it was just the first to apply the new PW1000G engines to an airframe, as it had its own CSeries on hold waiting for a new power plant.

Nothing really new and exciting on the CSeries, fly by wire and composites were used by the A320 since the mid-1980’s so why do they want to be vindicated and want rivals to refrain from criticizing innovative projects ?

Yes, Canadian cronyism allowed Bombardier to get the certified Canadair business jet and the de Havilland DHC-8 programs for a mere $210 million and both of those programs are still in production today, with over 4,000 aircraft delivered worth $70-$90 billion in sales since 1986, thanks to the cozy relationship of politicians, mainly former PM Jean Chretian and Brian Mulroney with the Bombardier family, to create a Quebecois industrial giant on the backs of Canadian taxpayers before the 1990’s independence referendum.

The referendum barely failed but it did create a Quebec based business elite that would counter the anglophone business elite in the province through massive corruption which came to light last year in the Charbonneau Commission, yes Quebec is Canada’s Sicily, a cess pool of corruption at the highest levels, all the way to ex-Deputy Premier Nathalie Normandeau !

———————————————————————————————————————————————————————————————

BOM-2222BOM 3333BOM111Perimeter

Bombardier bought Canadair in 1986 (left – Challenger business jet), in 1989 Bombardier buys Shorts Brothers (2nd from left – Shorts 360), in 1990 Bombardier buys Learjet (3rd from left – Learjet 70) and in 1992 Bombardier buys de Havilland (far right – DHC-8-300). The acquisitions made Bombardier the 3rd largest commercial aircraft manufacturer in the world in 6 short years.

Total price for all 4 acquisitions was just $US 291 million (average exchange rate for the year deal done was used), but in 3 of the deals governments (Canadian and UK) made deals with Bombardier, highly “questionable” deals. The Canadian government under Prime Minister Brian Mulroney, was involved in 2 of the deals, Canadair and de Havilland, total price was JUST $C220 million, but with government R&D write offs of certified aircraft , subsidies, equity injections totaling $US+1.5 billion at Canadair and $US +1.1 billion at de Havilland, questions have to be asked.

Bombardier got the CL-600 Challenger business jet and the DHC-8 regional turboprop, good deal ? yes for Bombardier bad deal for Canadian taxpayers. Both aircraft in production today, with over 4,000+ delivered since 1986 worth $US 60 to $US 80 billion in revenue in the past 30 years, and Canadians got what ?? sadly, everything is confidential, the Canadian Government will disclose its support for Bombardier, STATE SECRET, as they surely violated WTO and global trade agreements and want to keep a lid on it.

The Shorts deal was priced at $US 51 million, but Bombardier received $US 1.3 billion in write downs and cash injections from the UK government, wow ?

In all, Bombardier benefited from $US 3.9 billion from public money on these 4 acquisitions, $US 2.6 billion from the Canadian taxpayers has made Bombardier what it is today.

With the Quebec and Canadian government looking to become 2/3 owners in the new CSeries Aircraft Limited Partnership (CSALP), after “investing” (aka throwing away) $2.0 billion for the honor that NO competitor wanted last year when Bombardier was desperate to sell the program. Now all state aid, subsidies and dumping prices will be investigated by the WTO, the US Government, as Airbus and Embraer will take action against Canada’s government involvement and you can bet Boeing will urge the same from its government. The CSALP is a scam on Canadians to help Bombardier, the program will fail, but Bombardier will be in the clear and we naive and too trusting of our crony politicians get burned again and again by our Government in bed with Bombardier. 

The CSeries is a state program, with state subsidies which allow dumping prices, and the CSeries will have many issues to face, including possible US retaliation with to protect Boeing for illegal Canadian state aid to Bombardier.

———————————————————————————————————————————————————————————————–

This will be covered below, and a full length report is available at the bottom that my dear friend Peter Hartmann and I researched and compiled to document how Canadian CRONYISM created Bombardier’s Aerospace business between 1986 and 1992, taking it from zero aerospace activity to becoming the 3rd largest commercial aircraft manufacturer in 6 short years through 4 acquisitions.

Now back to Bombardier’s claims of being “innovative”, the company has been very good at stretching aircraft like the 12 seat Canadair Challenger business jet into the 50 passenger CRJ-100/200 (PHOTO below-left), 70 passenger CRJ-700/705, 80 passenger CRJ-900 to the 104 passenger CRJ-1000 (PHOTO below-right)

crj-1918231crj1000-performance

The same applied to the 37 passenger DHC-100/200 (PHOT-below left) to the 50 passenger DHC-8-Q300 to the 78 passenger Q400 (PHOTO-below right), stretching aircraft that were designed and certified by Canadair and de Havilland in the early 1980’s is NOT innovative, it is NOT a risky under taking and is NOT pushing the envelope of providing maximum value. Bombardier took the easy route on all commercial aircraft until the CSeries, its 1st totally new commercial aircraft since the company entered the aerospace industry in 1986.

provincial2368623

In fact, Bombardier has been taking a low risk, low innovation, simple development route since 1986 when it bough Canadair from the Canadian Government and entered the Aerospace industry.

This low risk low innovation strategy is the main reason Bombardier’s DHC-8 program was cancelled and why the Q400 and the CRJ line today struggle to be competitive with the ATR-72-600 and the Embraer E175/190 line as both products outsell the Bombardier’s products by a wide margin.

In fact, today, the Q400 and the CRJ line are near their end with the Q400 down to 44 orders in backlog (18 months of production based on 2015 production rate of 29 units) and the CRJ line is down to 86 orders in backlog (24 months of production based on 2015 production of 44 units).

I would highly question the 23 remaining 104 passenger CRJ-1000 orders, as that aircraft has been a “disaster” in the low demand 100-150 seat market segment with only 46 deliveries in 6 years, and a $264 million write down in 2015 due to low demand. The CRJ-1000’s poor sales should have been a wake up call for Bombardier that the 100-150 seat market segment is disaster for manufacturers, as the Airbus A318 failed in that segment after only 81 deliveries and the Boeing B737-600 failed after only 69 deliveries.

The Graph below shows that the 100-150 seat market is going to be the demise of the CSeries program eventually, low demand and low margins will kill it. The market has moved to bigger aircraft. The Bombardier forecast of 7,000 deliveries in this segment is pure fantasy, as 350 deliveries in this segment a year has never happened and never will, pure fantasy, peak was 1991 with 330 deliveries and last year 53 ! by 4 OEM’s, says it all. Numbers do not lie but manufacturers do, this one says it all, and its shows why the CSeries WILL FAIL, because the demand is not there and the margins are low to negative, that simple.

BOM 100-150 seat makt

The CSeries is a good aircraft (though still unproven), but innovation is exaggerated, it has fly by wire and composites all of which were on the A320 in the mid 1980’s, or 30 years ago, it has the latest flight deck, integrated avionics and engines that all competitors have today

cseries-delat-air-lines

As for the use of the new generation PW1000G family engine, the company was first, not because it was innovative, but it had its BRJX program on hold after finding out that the economics needed were not being met by the CFM 56 engine and Bombardier was waiting for a new engine for its stalled CSeries program and therefore it was the first to jump on it.

Airbus and Boeing were looking to develop a new A320/B737 replacement, but decided the new PW1000G engine and the new CFM Leap engine would give the A320/B737’s new life through 15-20% better economics through more fuel efficient engines and aerodynamic improvements.

Now, Bombardier has been check mated from above by Airbus and Boeing with their A320neo and B737Max lines and Embraer from the bottom with its E2 line, all offering fuel efficiency and better seat economics than Bombardier due to low acquisition costs due high volume production rates , fuel efficient engines and added seats through better ergonomics of cabins and thinner seats.

To today Bombardier has NO competitive advantage vis-à-vis the competition, and cannot get the required premium for the CSeries it had hoped for, and must now compete on price and delivery which it cannot due to higher production costs and a slow production ramp up to only 10 CSeries per month by 2020, at best.

cseries-chart-big

Presently, Bombardier is 100% “stuck” in the 100-150 passenger segment, and it is the only one that has to carve out an existence in this declining segment, where competition is fierce, and pricing is +60% off, especially in 2016 when sales are very low and Airbus and Boeing are fiercly competing on every possible deal. The recent, 100 x B737Max200 order is a case in point, low price won the day at an airline operating +/- 36 x A320’s with 99 on order.

The 100 to 150 passenger segment peaked in 1991 with 330 deliveries and only 53 deliveries in 2015 by 4 manufacturers (Airbus, Boeing, Bombardier and Embraer), yet Bombardier’s CSeries (CS100 and CS300) are in this segment which has to raise concern for their future for anyone following this industry. Bombardier has forecast 7,200 new aircraft in this segment over 20 years ? this is total fantasy as the market has never reached 360 units per year, and it never will, it is all lies that only industry insiders catch.

Bombardier has been blinded by delusional visions for its CSeries, marketing myopia has lead the company to the point of financial disaster, as the CSeries still has only 330 firm orders, with 50-80 still highly questionable. The sales it has so far have ALL been done at prices below cost, most recent the Delta Air Lines deal was done at a price of $22 million per CS100, when cost is around $29 million, for a $7 million loss per unit, which equates to a loss of $525 million on 75 aircraft, how long can a highly leveraged company keep that up ? not long for sure.

The Air Canada deal was a coerced deal, as Quebec dropped a lawsuit against Air Canada and Ottawa promised legislative changes that Air Canada wanted, it was NOT about the fact they really needed the CSeries. In fact, only last week, Air Canad threatened to walk away from the deal if Ottawa did not make the promised legislative changes. Air Canada’s EVP Kevin Howlett said “there are other alternatives other than CSeries”, says it ALL, Air Canada could take the Cseries or leave it, no big deal, just give us the legislative promises you promised us for signing the LOI for 45 x CS300’s. This is political interference (aka coercion) on behalf of Bombardier, that deal was politically orchestrated, no one can say it was a commercial deal ! So, this is how they sell the CSeries ? below cost or use politicians to twist arms ?

They do not want to accept the fact they are playing out of their league, taking on Airbus and Boeing with higher production costs, small product family, lack of financials to compete with a product that is in a very poor segment where demand has shifted to bigger aircraft.

The 100-150 seat market is only 1.5% of Airbus and Boeing’s single aisle A320neo and B737Max sales today, while 98.5% of their single aisle sales are in the 150-240 seat segment, that says it all for those with critical reasoning skills.

I have people writing to me that the CSeries will stimulate new demand ? yet they have no idea of how the market works, it is not a consumer product like an Apple iPad that can stimulate demand, commercial airliners are bought by airlines because of their size, economics, price, support to meet certain market demands.

Presently, airlines are not very interested in 100 to 150 passenger aircraft, the trend is for bigger aircraft, with better unit seat costs, and that is why the segment is in decline, and traffic growth plus airport congestions in Asia is driving demand for bigger aircraft, not smaller aircraft. Delta was a rare example of a US Major airline operating small jets on its own (110 passenger B717-200’s).

————————————————

Let’s be clear on what is meant by cronyism or crony capitalism, as this is the story of the rise of Bombardier in Aerospace, and is not only limited to third world countries, where cronyism is a big part of their lack of economic progress. Let’s look at what it is:

  1. Where powerful private sector interests shape content of laws and regulations, like devising market restrictions, tolerating monopolies/duopolies and cartels.
  2. Few small powerful companies use their influence to manipulate legal, political and regulatory institutions, like tax systems, labour regulations, marketing boards, etc.
  3. Few companies benefit at the expense of the vast majority, to obstruct reforms, win government contracts based on political connections and bribes (e.g. Quebec today), in short “state capture” exists and has played a huge role in the rise of Bombardier and other Canadian companies (e.g. SNC Lavalin, etc.).

Cronyism is a two way street where the politicians and “favored” company “win” rewards. Economist call this “rent seeking” capitalism, (aka bribes, string pulling, “old boys club”, etc.). Most sadly it is legal but unfair and certain industries that require government contracts or permissions are a big part of this “patronage economies”.

The big “rent seeking” industries are:

  • Casinos
  • Utilities and telecoms
  • Natural resource extraction (oil, gas, mining, etc.)
  • Defense and aerospace
  • Utilities and telecoms
  • Infrastructure, ports, airports, construction

So, let’s move on to Bombardier’s rise in Aerospace and how cronyism propelled the company into the #3 commercial aircraft manufacturer position in 6 short years (1986 to 1992), thanks to the Canadian and UK taxpayers.

———————————————–

I will quickly go through this, while the more detailed report “The Rise and Fall of Bombardier” is attached for those wanting more information.

In 1976 the Canadian Government bought Canadair from General Dynamics, at a time the Quebec government was looking to create local industrial champions for a hoped for independent Quebec, and Quebecois politicians in the Federal Government were recruited.

The CL-600 Challenger program was started in 1977, from what was the LearStar 600 from Learjet (a company eventually bought by Bombardier in 1990). The program was an initial disaster, as the Lycoming engines did not meet specification for fuel burn, and the CL-600 struggled with new orders and existing “soft” orders threatening cancellations.

The Canadian Government put in $100 million in 1977 under the condition that Canadair produce 50 firm orders. This is where TAG (Switzerland) came in, with orders to meet the condition, and since then till January this year TAG has had the exclusive dealership for Bombardier in the Middle East, AND for its loyalty in saving the Challenger program, received royalties of $1.0 million per CL-600/601/604/605 Challenger produced until this January, when the exclusive dealership was cancelled after 35+ years and probably $+1.0 billion in royalties (1,025+ Challengers and 1,885 CRJ’s delivered as of April, 2016.

In 1977, Jean Chretian then a young Finance Minister, by his own admission hide from the Canadian Government letters of comfort and other financial support vehicles to keep Canadair alive, all the time keeping it secret from parliament, government and the public.

SEE the 1980 film on the Challenger program and Mr. Jean Chretian’s admission of hiding the funding for the Challenger at:

                                                                                http://www.nfb.ca/film/challenger_an_industrial_romance/

The state aid given to Canadair amounted to $200 million in equity in 1982 plus $1.35 billion loan guarantee to certify the Challenger CL-600.

In 1983, another $240 million in equity was given by Ottawa, and in 1984 another $310 million in equity again and the government wrote off the $1.35 billion in developing the CL-600/601 Challenger.

——————————————–

In 1986, the government in Quebec was looking for a national champion, and Canada’s Prime Minister Brian Mulroney orchestrated a $C 120 million acquisition of Canadair, after taxpayers injected $C 700 million into Canadair in equity and writing off the $C1.35 billion in CL-600 development costs.

So, Bombardier thanks to cronyism in Canada and especially in Quebec, got a great deal in Canadair, after taxpayers paid out $C2.05 billion they gave away Canadair for $C 120 million (6% of the investment in Canadair since 1982), total highway robbery ! Bombardier got the Challenger program, which by 1986 was selling well and went on to sell over 1,025 today plus 1,885 CRJ regional airliners (CRJ-100/200/700/705/900/1000) as of April, 2016.

The CRJ line is as discussed earlier just a stretch of the Challenger business jet that seated a maximum of 12, and the last stretch was the poor selling 104 passenger CRJ-1000.

So the Challenger program alone has produced over 2,900+ aircraft (Challengers and CR’s), probably $+60 billion in sales !  and we taxpayers got what ? zip.

The Canadian government was not yet done in rewarding Bombardier for “investing” into Canadair, to close the deal Mr. Bombardier wanted the $C1.4 billion over 20 years, CF-18 fighter maintenance program that was won by Bristol Aerospace in Winnipeg, but Quebecois PM Brian Mulroney “gave” that contract to Bombardier on “national interest” grounds to sweeten the deal.

But Bombardier was not yet done screwing Canadian taxpayers on the Canadair deal, oh no, they got Cartierville Airport (Montreal) in the deal, which 2 years later Bombardier Immobilier Ltee developed the 460 acre Canadair plant and airfield into a residential housing estate of 8,000 homes and an 9.0 million square foot 18 hole golf course and Bombardier moved all production to Mirabel Airport (Montreal), with an estimated value for the airport real estate pegged at around $C 1.0 billion !

Man are we Canadians suckers ! do you see how cronyism makes the rich richer off the average Canadian taxpayer ?

So on the Canadair deal, Bombardier paid $C120 million, but got the Challenger program and the CRJ programs, with revenues of $+60 billion and still both are in production today, they got $1.4 billion in the CF-18 maintenance program and $1.0 billion for Cartierville, for $C 120 million.

This deal was the first of 4 aerospace acquisitions between 1986 and 1992, 3 of which were Government owned companies and 1 private company, Learjet.

————————————————

In 1989, Bombardier bought Short Brothers, a Belfast, Northern Ireland aerospace manufacturer with a long aviation history, owned by the UK Government, it went for a UK sterling 30 million ($US +/- 51 million).

This time the UK Government was desperate to sell the manufacturer and the deal included UK sterling 390 million in recapitalization from the UK Government and another UK sterling 390 million to recapitalize the company, so UK sterling 780 million ($US 1.32 billion) in state aid.

In 2003, Bombardier sold the Shorts owned Belfast City Airport for UK sterling 35 million and paid for the company, another very generous state supported deal. A side note, Shorts was working on a Shorts FJX regional airliner at the time, in one small investment, Bombardier killed a possible future competitor and now had a tremendous lead and market monopoly when it launched its 50 seat CRJ-100 (stretched CL-600).

————————————————-

In 1990, Bombardier turned its eyes on Learjet Company of Wichita, Kansas, USA a major business jet aircraft manufacturer, something Bombardier needed to go with its CL-600/601 business jet, and paid $US 75 million for the company and assumed $US 38 million in debt, no government money here, and Bombardier gained a major aerospace brand with great sales, marketing and a large loyal customer base many looking to move up in equipment.

————————————————

In 1992, Bombardier was ready to go after de Havilland, which was owned by Boeing (bought from Canadian government and state owned since 1975) for several years, but Boeing’s acquisition was a calculated move to influence Air Canada not to buy the Airbus A320.

When Air Canada ordered the A320 (the first in North America), Boeing wanted out.

Bombardier bought de Havilland in another crazy deal, that screwed Canadian taxpayers, it paid $C 100 million and Ottawa kicked in $C 260 million in subsidies and Ontario kicked in $C 230 million in subsidies, while de Havilland between 1981 and 1984 received $C 450 million to underwrite the DHC-8 program and $C 500 million in equity from the Canadian and Ontario Governments.

Again, Bombardier screwed Canadian taxpayers thanks again to Quebecois PM Brian Mulroney, who like the Canadair deal made it happen, helping the Bombardier family and Quebecois nationalism.

So for $C 100 million, Bombardier got the Downsview plant and the airport (real estate value over $C 1.0 billion today), they got he DHC-8 turboprop 37 and 50 seat airliner in production, and the Q400is still in production today (1,218 delivered DHC-8s/Q400 by April, 2016). Another crony capitalist deal by our Prime Minster at the time, who was off course a Quebecois, Brian Mulroney.

The de Havilland employees that came with the deal were highly trained airline sales and marketing people that Bombardier needed, yet soon after the merger, “Quebecois Nepotism” settled in, and slowly French Canadians were replacing their Anglo Canadian counterparts, even though they were less educated, less experienced and much less knowledgeable about the aerospace industry, this self-destructive practice extended throughout the company to its highest executive levels.

Yes, as I have written before, discrimination based on place of birth, first language was and is still common at Bombardier even though it is against the Canadian Human Rights Act, no government agency has taken up the cause, yet it is well documented that even just a few years ago, CEO/President of Bombardier Pierre Beaudoin (the “destroyer” of Bombardier), wanted Francophone employees over Anglophone employees, and much of today’s production, supply chain, etc. problems is due to having inexperienced francophone employees in positions of responsibility they did not have the qualifications to be in.

Today, many former Bombardier employees glee at the problems and decline at Bombardier for the ill treatment they received under a discriminatory and racist management, and Bombardier is no Canadian company, it is strictly  a Quebecois company built on political connections, hiding tax money overseas from CRA, sending Canadian jobs overseas and yet seeks time and time again state aid, the company does not deserve an sympathy because it has created its own mess through arrogance and discrimination.

———————————————————————————————————————————————————————————————-

Below is the story “The Rise and Fall of Bombardier” a detailed account of how cronyism in Canada propelled a little snowmobile company into a world class Aerospace giant. The stoty needs to be told, as this company is NOT an innovator or world class organization, just a well connected company with politicians in a Province that seeks independence and wants to be that country’s “show case” of industrial capabilities, but to us in the know, it is a show case of CRONY CAPITALISM in Canada, and how Bombardier has used Canadian taxpayers to become the darling of Canadian politicians, and probably too BIG to fail ? let’s hope not !

cs-Pierre-Beaudoin-400x266

Ex-Bombardier President & CEO Pierre Beaudoin (PHOTO-above), “the destroyer of Bombardier”, an inept executive and now Executive Chairman of the Board, the man responsible for the current “mess” at Bombardier, the man who promoted “Quebecois Nepotism” the deliberate hiring of francophones over anglophones, a breach of the Canadian Human Rights Act, and a a major reason that Bombardier is a poorly run and managed company with many poorly qualified people in high positions, and that is seen in in their current production programs to supply chain issues.

 

The Hartmann Papers:  The Rise and Fall of Bombardier

The first report of the expected CSeries aircraft purchase by Delta Airlines appeared in public media in mid‑April 2016, and the extremely high degree of confidence with which this order was predicted pointed to the only obvious source – Bombardier. In the next two weeks until Delta actually made it official, a media circus was unleashed that had all the hallmarks of a good American TV infomercial sponsored by, again, Bombardier.

It was, and still is, a well coordinated corporate marketing campaign with grossly misleading statements, buzz words from Bombardier’s junior marketing guy’s dictionary, and a focus concentrated on very few narrow and specific issues to the total exclusion of hard true facts. To this day the media repeat the “$5.6 billion value” of the Delta deal, even though Bombardier itself tacitly acknowledged – and never disputed – the reported 75% discount which brings the deal down to a mere $1.4 billion. Bombardier already announced a $500 million write-off on this “onerous deal”, acknowledged that it is not going to make profit on its CSeries aircraft until 2021, and the Airbus sales chief, who is the one who ought to know, claims that Bombardier is losing $7 million on each Delta aircraft. So when will Bombardier start making profit, and how will it pay off the accumulated multi-billion $ loses with single-digit-millions of profits made on aircraft in 5 or 10 years?

The CSeries is being presented as a “game changer” and a sort of revolutionary aircraft that guarantees Bombardier’s great future. In fact, it is just yet another airliner. State-of-the-art, but  no longer special. It does have new revolutionary geared turbofan engines with up to 20% increase in fuel efficiency compared to decades-old aircraft, but so do the current production Airbus NEO (over 4,500 ordered), Boeing 737 MAX (over 3,200 ordered), Embraer E-2 and Mitsubishi MRJ, which also have similar high-tech avionics and systems, composites, and modern passenger facilities. And how much can you improve on aerodynamics of a classical round-tube fuselage with pointy ends, swept tail and wings?  Not really much.

Few days ago, on a CSeries demo flight to Zurich carrying airline executives attending the IATA conference in Dublin, Rob Dewar, Bombardier’s CSeries general manager, told them that “this CS100 saves 35% of fuel over Airbus and Boeing aircraft”.  It is stupid marketing deceptions like this – still comparing the CSeries to obsolete, half-century old aircraft models while completely ignoring the thousands of Airbus Neo and Boeing MAX – that destroys Bombardier’s credibility. On the same flight, Tewolde Gebremariam, CEO of the ‘next big potential CSeries customer’, Ethiopian Airlines, said “I want the best deal, better (!) than Delta”.  God help Bombardier and its sales team!

In fact, the crucial difference among all these aircraft is in the targeted market segments, i.e. the aircraft seating capacity – and that is were the CSeries death trap is. But let’s start from the beginning.

Aircraft and Airline Markets

One of the most crucial skills that helped Boeing to remain the world’s leading aircraft manufacturer, is the MIAM (Market Identification, Analysis and Monitoring), a crucial skill that Boeing developed into a really high form of art, which is emulated by other manufacturers. The single- and multi-aisle (widebody) aircraft markets are divided into segments defined primarily by the number of seats and maximum range. These market segments are rigorously analyzed by Boeing for their potential opportunities to either introduce new models, or the need to improve its existing models. They are also very closely monitored for any new competitor activities – such as CSeries – with a view of preventing other manufacturers from establishing themselves in the market, especially in segments where Boeing doesn’t have a product.

The airline market is generally divided into regional and mainline airlines by ‘scope clauses’. Union contracts of mainline airlines seek to protect pilots’ jobs from outsourcing to smaller aircraft at regional airlines with much lower pilot pay scales and other costs, by restricting the size and number of aircraft that mainline airlines can outsource to regionals. The goal is to protect union jobs at major airlines from being eliminated by regional airlines cheaply operating larger aircraft.

In the biggest market, the USA, the current scope clauses in contracts restrict regional airlines to 76 seats and 86,000 lb in weight, and in Europe to 100 seats. In addition to higher mainline overheads and other costs, the mainline crew salaries are sometimes up to ~10-times higher then those of young regional crews who, in their eagerness to build up their flight hours to eventually qualify for lucrative mainline jobs, are willing to work for starvation wages. Hence there is a huge step increase in aircraft operating costs just above the scope clause seating size. Only by increasing the number of seats filled with self‑loading cargo can mainline airlines start making profit with them, and this limit is somewhere above 150 seats.

Thus the market segment between the scope clause seating limit and 150 seats is outside the limits for regional airlines, and unprofitable for mainline airlines. In the rest of the world, primarily in Asia, the population is rapidly exploding in size, available financing is directed to developing major airport hubs which have restricted landing slots and high fees, while the regional airports infrastructure is still mostly inadequate and neglected. Together with an increasing shortages of pilots, the airlines are thus being pushed into upgauging to ever larger aircraft. All of the above is reflected in the airlines’ loss of interest in 100-150 seat airliners (apart from Ethiopian), as clearly evidenced by the current aircraft order backlogs.

While Airbus and Boeing have correctly identified this 100-150 seat range as a ‘black hole’ market segment, Bombardier saw it as a life-time opportunity – perhaps due to its incessant marketing blunders and its propensity of discriminately hiring and promoting local inexperienced, underqualified, or even unqualified French Québecois marketing staff.

The results speak for themselves.  So what is this Bombardier company, and where did it come from?

Politics & Mega-bucks

In 1970’s the long simmering Québec sovereignty movement picked up considerable strength.

In 1974 the Bill 22, known as the Official Language Act, was proclaimed by the Québec govt.

In 1976 the PQ (Parti Québécois) won elections, formed the provincial government for the first time, and promised to hold a referendum on the issue of Québec’s independence.

One of the obvious questions French Québecois politicians must have asked themselves was, how should they present the expected newly independent Québec to the world – as a rural, backward, third-world nation famous primarily for its maple syrup and Oka cheese, or as a modern, world-class industrial country? Obviously they picked the second option, but then, not having “a modern, world-class industry” they would have to create it first, from a scratch. As we now know, they selected ‘planes & trains’ as their new industrial flagship – it is definitively high-tech, and highly visible around the world.

First of all, the politicians, being merely politicians, needed a proxy, or a front man, for this new industrial mega-project. They choose the iconic name of Bombardier, well known in Québec.  Joseph-Armand Bombardier was the world famous – at least within the confines of Québec and earth’s polar regions – “inventor of snowmobiles”,  even though Russians were using their air propeller-powered aerosani (aerosleds) in Siberia at the turn of the century long before Joe-Armand was even born, and a track-powered snowmobile was patented by an American in 1916, i.e. years before Armand ‘invented’ it.

In 1974 Bombardier Inc., a small, private rural company struggling with a sudden decline in its snowmobile business, was awarded a lucrative $1.5 billion (est) order to manufacture 423 subway cars for Montreal, even though it had no prior experience in the urban transit engineering. With Montreal being world famous for political corruption scandals, it is hard to say what portion of that price was for actual costs, and how much of it was set aside for ‘special political purposes’.

In 1976 the government acquired the old and nearly bankrupt Canadair Ltd. in Montreal from its US owner for $39 mil.

In 1977 Jean Chrétien, as a new junior finance minister, arranged a $100 million “RESCUE” to save the Canadair CL‑600 Challenger business jet program from collapse due to major performance shortfalls which were grounds for cancelling orders. The deal was structured – in his own words – “to keep it from parliament and the public for several years”.  It was also tied to a TAG deal for 50 Challengers, which ended up with multi-billion $ cost consequences later on (see below).

Over the next few years the CL-600 development costs soared from the original $100+ mil estimate to $1.35 billion, with the govt making annual “equity infusions” of $200, $240 and $310 mil, respectively, of taxpayers $’s to Canadair.

In 1984 the govt then simply wrote off the Canadair CL-600 Challenger’s entire $1.35 billion development costs.

In 1986 Brian Mulroney – after a direct intervention by Laurent Beaudoin (!!!) – awarded Canadair a lucrative 20-year $1.4 billion CF-18 jet fighter maintenance contract, which until then was widely expected to go to Bristol Aerospace in Winnipeg because its bid was cheaper and of a higher technical merit. Canadair’s value was thus greatly enhanced.

Bombardier – surprise, surprise – then purchased Canadair from the govt for paltry $120 mil, with which it also received –

– the $1.4 billion 20-year on-going contract for the CF-18 jet fighter maintenance

– the $1.35 billion write-off by the govt of the CL-600 business jet development costs. With the development costs written off and CL-600 costs consisting primarily of labour and materials, the profits must have been considerable

multi-billion $ prime real estate land, the Cartierville airfield, right in the centre of Montreal (only 4 km from Mount Royal). This multi-billion $ hidden assets and cash cow conveniently never seem to be mentioned by Bombardier.

In 1988 Bombardier Immobilier Ltée, claiming to be “a corporation created to enhance the heritage of Bombardier Inc.”, started development of the 460 acre Cartierville airfield land which at the time was said to be worth over $1 billion – construction and sale of 8,000 residential housing units (today priced at hundreds of thousands to several million $’s each),  plus the adjacent 200 acre Le Challenger golf course of unknown value. What could they do with so much profit?

Bombardier, by a sheer coincidence (?) flush with lots of new cash, then built new super-modern CL-600 production and office facilities at the Dorval airport, and two years later built super-modern CRJ (and CSeries) production facilities at the Mirabel airport’s Foreign Trade Zone which enjoys a 25% tax relief on new building construction, and up to 40% wage subsidies through Investissement Québec as an incentive to move work up there – i.e. more taxpayer subsidies. What an enhancement of Bombardier’s heritage indeed.

In 1989 Bombardier purchased Short Brothers aircraft manufacturing company in Belfast, Northern Ireland, for a mere £30 million. As part of the sale, the UK government also agreed to a £780 million (US$1.23 billion) subsidy – writing off of the company’s accumulated losses, recapitalizing, and covering current and future losses and capital investments.

Bombardier then promptly turned around and sold the adjacent Belfast airfield for £35 million, i.e. for more then what it paid for the whole package. Hence the Shorts company and the UK government’s £780 million subsidy were a free gift. Bombardier later built there super-modern production facilities for the CSeries wings and fuselages (among other things).

In 1990 Bombardier purchased Learjet Company of Wichita, Kansas, the world’s oldest business jet manufacturer, for $113 mil.  It was not a huge financial windfall Bombardier got used to by that time, but its extensive business jets design, marketing and sales expertise, as well as a large customer base, were invaluable to Bombardier Business Aircraft Div’n.

In 1992 Bombardier purchased the Boeing Canada’s de Havilland Division (“DHC”) in Toronto, in a more complex deal –

– Bombardier paid $51 million for 51% of de Havilland‘ shares

– the Ontario government paid $49 million for the remaining stock, with Bombardier having an option to buy Ontario’s shares after four years (which it did)

– the Ontario government committed to provide nearly $500 million in subsidies

– the on-going Dash-8 production which was by that time already modernized, streamlined and fine-tuned by Boeing

– a substantial part, if not the entire adjacent Downsview airfield right in the centre of Toronto, worth over $1 billion

The Ontario government insisted on DHC’s Downsview airfield staying operational for its military and govt use. Bombardier eventually did sell and/or develop some parts of its prime land area, e.g. the site of the original 1928 British de Havilland plant and surrounding land on the north side.  If the govt eventually relents on its insistence on protecting the runway use – perhaps when DHC is eventually shut down permanently – Bombardier will undoubtedly develop it commercially just like the Cartierville airport in Montreal, or sell it like the Belfast airfield. For now this land, valued at over $1 billion 24 years ago, simply stays dormant on Bombardier’s books as a valuable ‘reserve fund’.

In 2016 the big new issue is the CSeries rescue plan whereby the Québec govt has already committed itself to providing $1 billion (Cdn $1.3 billion) for 1/3 of the newly proposed separate CSeries company spun off from Bombardier, which is to be matched by the same deal from the federal govt, provided the Bombardier/Beaudoin family gives up its control of the company. This would be then complemented by another $1 billion issue of new shares – which may be the real reason behind the current media frenzy promoting Bombardier’s bright future (!) – for a grand total of US$3 billion in new funds.

Did you notice how great things keep happening to Bombardier in regular two year intervals, and in even years? Except of course for the Short Brothers purchase in 1989, but they are foreigners to Québecers, so it ought to be different, and Chrétien’s 1977 $100 mil CL-600 rescue deal announcement – he was off by a year, but he was still new and young. It must be some kind of a natural bi-annual cycle for internal planning and disbursing of Canadian taxpayers’ billions.

TAG (Techniques d’Avant Garde)

In 1993 Bombardier launched its new ultra-long-range Global Express (“GX”) business jet, which superficially resembles the CRJ – a long tubular fuselage with pointy nose, swept T-tail, swept low wings with winglets, and two engines on its pointy tail. However, this similarity is literally only skin deep, and in reality it is indeed a completely different aircraft.

Later on a Bombardier Sr. VP freely talked about TAG, a Challenger exclusive dealer for the Middle East & Nth Africa, and its lawsuit against Bombardier in which it claimed that the GX was a direct derivative of the Challenger.  According to this Sr. VP,  the 1977 agreement by which Chrétien and TAG essentially saved the CL-600 program from collapse, TAG  was entitled to a royalty of $1.0 million from each sold Challenger or any other aircraft derived from it. Subsequently, two sales directors confirmed that this was a “common knowledge” in the business aircraft division’s sales department. So far some 3,000 Challengers and its stretched versions, CRJ’s, have been produced – and they have always had a reputation of being very expensive aircraft – thus suggesting some $3 billion in payments to TAG in royalties alone.

In 2016 Bombardier announced that it would cancel an agreement with “its third party sales agent, TAG”, and wrote off a “$278 mil in compensation to TAG” – i.e. more than the total it paid for Shorts, Learjet and DHC (!). Bombardier also cancelled 24 firm and 30 optional orders for its planes, hoping to resell those aircraft “without paying a sales agency fee”.

Bombardier dealers or sales representatives in foreign countries typically receive a monthly retainer to cover their office expenses – about $30k – plus a commission on every aircraft they sell – about 2.5% of the sale price, double that for spares.

So, what else, if not hefty billions in royalties, could have made the TAG dealership agreement so extremely valuable?

And if Bombardier indeed paid TAG those billions in royalties, how much did it pay back to the govt for all those multi-billion $ handouts from Canadian taxpayers? “That’s highly confidential”, says Bombardier.  Most likely, not very much.

Bombardier Marketing Skills

Bombardier’s primary interest in DHC was not the unglamorous turboprops, but the vast engineering, marketing, sales and support know-how, and customer base of one of the world’s oldest and most experienced regional airliner manufacturers.

Since the Ontario govt insisted on DHC jobs staying in Toronto for at least 10 years, all Canadair marketing, sales and support employees had to be relocated to Toronto. This resulted in most of those positions being initially double‑occupied, with one person being ex-DHC and the other ex-Canadair. With most ex-Canadair staff being recently hired locally in Montreal, very few, if any, had any airliner industry experience, and many of those employees were under-qualified or even outright unqualified, with at least some of them being just plain political F&R (“Friends & Relatives”) appointees.

First, a lot of ex-DHC people were fired (e.g. 12 sales directors on the very first day), then some ex-DHC people were explicitly instructed “to teach their double-posted ex-Canadair colleagues everything they knew because they are going to be replaced by them”. Employees in whole departments were demoted to the basic level and from these pools individuals were being picked and promoted to managerial levels (the sales department revolted, and its ‘reorganization’ was then handled separately).  Naturally most, if not all people promoted to higher management positions had very limited, if any, airliner experience, but they all did have family roots in Montreal. This gave rise to the “Québecois Nepotism” legends.

Bombardier’s subsequent marketing and management blunders and incompetence clearly demonstrated themselves. To what degree this was caused by Bombardier’s peculiar practice of ‘political’ hiring and promoting, is anybody’s guess.

After the de facto takeover of de Havilland by Canadair, one of the top executives incoming from Montreal with no experience in aviation talked about adopting new strategy commonly used by automobile and ‘white goods’ industries – introducing at least one new model every year. He was totally ignorant of the fact that when those industries introduce a new model, the previous years’ models can be safely abandoned to their fate in customers’ hands, and when they break down, they are simply junked. On the other hand, each new aircraft model requires multi-billion $ investments and dedicated teams of engineers and support staff essentially for the rest of its useful life. This leads to a rapid fragmentation and depletion of aircraft manufacturer’s resources, not only financial but more importantly, engineering and support staff which is hard to replace. The multi-billion $ R&D write-offs on the Q400, BRJ-X, CSeries, and outright cancellations of Learjet 85, Global 8000, and most likely Global 7000 after its recently announced 2 year delay, is a testimony to it.

In 1989 the 50-seater “Challenger RJ” (CRJ) was a simple stretch of the Challenger business jet to exploit opportunities in the airline business where the only regional jet available was the old Fokker F-28. Unfortunately, this CRJ inherited a number of undesirable business jet features. The Challenger was designed as a business jet with super-critical wing to cruise at high altitudes over very long distances, and with typical low utilization of 600 – 1,000 hours a year. The CRJ is used on relatively short regional routes with high frequency flights, and with high utilization (~3,000 hrs). This resulted in highly premature cracks in wing structures, high operating costs, and poor airfield performance (on the first demo tour of Australia pilots surreptitiously polished wing leading edges cleaning off bugs before each flight to prevent stalls).

Passengers also frequently complain about cabin windows being positioned at their knee level, many of them finding it quite claustrophobic. This resulted from the difference between typical business jet’s plush armchair seats positioned close to the floor, and much taller upright seats in airliners, as illustrated on one of the Bombardier’s slides (see below).

In 1995, to the astonishment of the whole world’s aviation community, Bombardier launched not one, but two 70-seater aircraft – the regional jet CRJ-700 and a 360 kt ‘jet-speed’ regional turboprop DHC-8 Series 400 (‘Q400’).

The CRJ-700 fixed some of the previous 50-seater model’s worst deficiencies with a modified and strengthened wing to reduce structural cracking, leading edge slats to improve performance, and windows raised by 5.8” to at least the shoulder height, while the additional 20 seats improved the high per-seat operating costs. This was just a logical product improvement demanded by customers, rather then a result of any sophisticated marketing research and strategy efforts.

The Q400 was originally a 70-seat Dash-8 stretch proposed in 1990 by Boeing Canada in response to the 74‑seat ATR-72. It was taken over by Montreal’s engineering from Toronto’s de Havilland, and with their megalomaniac desire to prove their own superiority over the other ‘jet speed’ aircraft manufacturers with failed projects – the Dornier Do-328 and SAAB 2000 – the ‘jet-speed’ turboprop Q400 ended up being a major disaster itself. One of the golden rules in aviation, obviously unknown to Bombardier’s top brass in Montreal, is that “if you want a jet-speed aircraft, build a jet aircraft”.  At speeds between 300 to 400 kt the aerodynamic, engine power and structural strength requirements start to rise exponentially, and the resulting weight, aerodynamic and power requirements and penalties become prohibitive. The only known jet-speed turboprops are the 1950’s Russian Tu-95 bomber and its civilian derivative, the Tu-114 airliner, with highly swept wings and four 14,800 shp engines – unmatched to this day in the West – with counter-rotating propellers.

In several “death spiral” development cycles, which were repeated years later by Bombardier in its BRJ-X project (the CSeries predecessor), the ‘jet speed’ objective required more powerful engines with much higher fuel consumption.

This then required further fuselage stretch to reduce per-seat fuel consumption and costs, which increased the empty weight, and thus required even more power, etc. After several  such “death spiral” design cycles, the Q400 ended up with engines about twice as big as on the competing similar-sized ATR-72, and the engine nacelles alone are physically bigger than the very first DHC aircraft, the two-seater Chipmunk. The overstretched fuselage then caused aerodynamic difficulties with powerful propeller slipstream (propwash) wrapping itself around the long tail, requiring two huge ventral fins on the bottom of the fuselage to break down those powerful vortices causing severe vibrations and control problems.

But even bigger problem with the ultra-long fuselage are structurally devastating and extremely costly tail strikes during takeoffs and landings. The solution Montreal ‘experts’ eventually settled on was to fly with one pilot dedicated to monitoring the fuselage attitude during takeoffs and landings to ensure that it is as close to horizontal as possible. This requires higher takeoff and landing speeds, which in turn degrade the airfield performance.

Bombardier reportedly considered an articulated fuselage similar to articulated streetcars, but found that to be impractical.

The Q400 design was claimed to be optimized for 450 nm distances and 360 kt speed. From introduction into service the worldwide Q400 fleet averages, according to Bombardier’s RU statistics, have been just below 60 min flight time, corresponding to just over 200 nm route. On such distances the Q400 is only few minutes faster than the ATR-72, but burns 50% more fuel. The Q400 does have 6 more seats at equivalent passenger facilities configuration, but those seats bring in additional revenue only when you can fill those last few empty seats with a self-loading cargo – which isn’t often. And to add more embarrassment to the Q400, its very low cabin pressurization inherited from the old Dash-7 – and one of the lowest among the regional aircraft – forces the Q400 to start its descent soon after reaching its cruise altitude.

After a very slow sales start highly reminiscent of the CSeries, and with fuselage barrels wrapped in blue plastic arriving from Japan at a steady rate and piling up on de Havilland’s tarmac (reportedly due to a very solid Mitsubishi sub-contract and stiff cancellation penalties), Bombardier decided to continue with the Q400 program. It was saved by writing off $264 million in development costs, and by making two large sales to Flybe and Porter.  According to a source who ought to know (ATR), even though the Q400 list price was $10 million higher than the ATR-72, Bombardier made to these two customers an “offer they couldn’t refuse” – reportedly undercutting even the discounted ATR-72 price.  Déjà vu, Delta?

In 1998 Bombardier announced the BRJ-X 90 and BRJ-X 110, a 90 to 110-seat aircraft generally similar to the CSeries but with then-current production engines (CFM-56, BR-750, …), at expected program development cost of $1 billion. A new division, Bombardier Commercial Aircraft (BCA) – as opposed to the Bombardier Regional Aircraft Division (BRAD) in Toronto – was established in Montreal for this project, headed by a Boeing exec, Gary Scott. It was set up in parallel with, but in total isolation from BRAD in Toronto where Bombardier’s all existing airliner industry know-how resided. With a total communication blackout between the two divisions, nobody at BRAD knew what they did at BCA, or who actually worked there (presumably it was staffed by locally hired people, i.e. inexperienced French Quebecois).

Because its existing competitors – Fokker, B737, DC-9 – were designed in 1960-1970’s when regulations and aircraft systems were much simpler, the new BRJ-X design was substantially heavier, and ended up going through several “death spiral” design cycles, just like the Q400. At the end, before it was cancelled, the last version of the 110-seat BRJ-X 110 was 37% heavier than a 108-seat Fokker 100, and marginally heavier (1-2%) than 138-seat B737-500 and 118-seat B717.

In 2000 the BRJ-X program was therefore cancelled, and the original CL-600/CRJ stretched for the 3rd time into a 90-seat CRJ-900. This aircraft features baggage micro-compartments located below the floor, which has sort of sliding pallets for baggage, but still requires real ‘little people’ to crawl into a small cross-section under-floor space to retrieve baggage.

In 2004 Bombardier announced re-start of the cancelled BRJ-X program development as the C110 (100-125 seats) and C130 (120-145 seats) aircraft. These were later re‑designated as CS100 and CS130 (for Commercial Series, or CSeries).

In 2006, because of lack of airline interest (!), Bombardier once again cancelled this BRJ-X project, just like before. Curiously, even this continuing lack of airline interest in 100 – 145 seat aircraft didn’t trigger any alarms at Bombardier.

In 2007 Bombardier therefore launched the 4th CL-600/CRJ stretch, the 100-seat CRJ-1000 instead. Because this aircraft by its size also reaches into the ‘black hole’ market segment, it is by now also shaping up as a failure with very slow sales.

In 2008 Bombardier once again relaunched the BRJ-X project as the CSeries, but this time with new, highly fuel efficient Pratt & Whitney Geared Turbofan (GTF) engine, the PurePower PW1500G. The new engine gave the CSeries a 20% fuel efficiency improvement, and thus, as they say, ‘game changer’ economic advantages over the old, then-existing airliners.

In 2008 the Canadian government approved $350 million, the Québec government $117 million, and the British government US$310 million in subsidies to cover research and development costs of the CSeries. The CSeries was once again being developed in Montreal, in a complete secrecy and total isolation from Regional Aircraft Division in Toronto. To this day essentially no CSeries detailed technical or marketing documentation is available anywhere for evaluation by external experts, and the only marketing study that has somehow surfaced in the public was of a poor, dilettantish quality.

In one of its presentations even Bombardier correctly identified the scope clause limits, and depicted the rapid decline of 100 to 150‑seat aircraft deliveries over the last 10 years into this market. However, while all of this led everybody else to identify this market segment as a hopeless ‘black hole’, Bombardier must have seen it as a great opportunity for itself. And to this very day, it has not wised up yet.

The ‘New’ CSeries Company

Presently the public awaits the federal govt’s decision on its expected US$1 billion support for the CSeries, and its demand for Bombardier/Beaudoin family, a minority shareholder (25%), to relinguish its absolute control of the company.

The Bombardier/Beaudoin family, a mere proxy for the Québec’s old pro-independence French political establishment (the “Family’), controls the Bombardier company through a dual-class share structure. It will never ever give up that control for a very simple fact – the rapid, spectacular rise of this small private company from essentially nothing to the present day corporate ‘planes and trains’ behemoth, was from the very beginning nothing but a giant political project.

From mid‑1970’s Bombardier’s hoarding of ‘planes & trains’ companies from around the world was diligently orchestrated by the Family, and paid for by an astronomical, multi-billion $ financial support from all Canadian taxpayers. The well known practice of its discriminatory hiring and preferential promotions to management positions of under-qualified, or even unqualified employees as long as they were French Canadians, and the company facilities’ deliberate heavy concentration in Québec, reveals the true purpose of this project. In fact, it should have been renamed as Québec National Industrial Monument (“QNIM”), or something like that, long time ago.

The idea of a ‘new’ CSeries company split off from Bombardier Inc., nowadays heavily promoted in media frenzy and euphoria over the Delta sale, is for the Family a clear win-win solution. The CSeries program is doomed by Bombardier’s colossal marketing blunders, mismanagement, multi-billion $ loses, deliveries over the next five years at prices below production costs and equally bleak profit future after that, all of which will require endless billions in govt subsidies in future years. If, on one hand, the govt wises up and decides to cut the taxpayers’ lifeline, 2/3 of the failed company is going to be already on govt books, and with the healthier parts of the company (equally giant Transportation and Business Jets, and presumably the prime real estate land at the Dowsview airport) split off and still firmly in its hands, the Family is going to win by minimizing its own loses.  If, on the other hand, Baby Trudeau continues pumping billions of taxpayers’ money into it and the CSeries company thus survives, the Family will again win by continuing to be still in control.

Today’s Bombardier is an enormous, two-handed industrial monster created by Québec with Canadian taxpayers’ money, and with Québec’s French-speaking workforce upgraded with know-how extracted from the rest of Canada. Its one hand is always extended asking for a steady flow of Canadian taxpayers’ billions, while the other hand repeatedly writes off billions in losses, development costs, subsidies, repayable loans that are seldom repaid, and marketing blunders like Q400, BRJ-X, Learjet 85, Global 8000, CSeries.

In 3Q 2015 Bombardier announced a $3.2 billion charge on the CSeries, another $1.2 billion charge related to the canceled Learjet 85 program, and at the same time extended its other hand asking for $1 billion from the provincial govt and further $1 billion from Ottawa.   As Bombardier might say, in Canada “billions easy come, billions easy go”.

Not mentioned here are further billions in other miscellaneous govt handouts, losses by sub-contractors who spent lot of their own money but now have to wait for years to start their deliveries, and other financial assistance to Bombardier. For example, Québec has now allocated $250 million to its MACH Initiative to lure more ‘Tier 1’ aerospace subcontractors to relocate to Québec, even though over 50% of Canadian aerospace is already located there.  In 2008 the Québec premier Landry announced that he’s prepared to provide loan guarantees worth $3 billion to foreign buyers of regional jets, while EDC at the national level over the last five years provided over $10 billion in loan guarantees, $8 billion of which went directly to CRJ customers.  How many more billions are going to be available to Bombardier’s CSeries customers?

But, on the other hand, let’s not forget all those jobs that are being created with Canadian taxpayers’ money – in Mexico, Morocco, Japan and many European countries – while jobs are being lost in Canada, like the 7,000 layoffs announced last February, or 6,000 layoffs following the 9/11, and countless almost regular waves of layoffs by the hundreds in between.

Conclusions

It is a noble act when provinces or countries do their utmost to promote their home industries. However, when a province with strong ambitions for independence is building its very own new massive industrial base monument with billions of taxpayers’ money from the rest of the country which it wants to separate from, there surely must be something wrong.

All Canadians have by now a huge investment in the Québec’s monumental Bombardier industrial empire, both financial as well as in technology and human skills, and it would be a great loss to the whole nation if it was to go down the drain.

It is now up to Baby Trudeau’s government to decide whether it is going to lower itself down to the Québec’s French national political establishment’s level, or whether it is going to rise up and act for the benefit of all Canadians. For that, this giant behemoth must be freed from the definitively incompetent, and perhaps even politically immoral, Family’s stranglehold,  the CSeries somehow saved from the present ‘black hole’ market segment,  and a new purpose for its life found in some other market where the sun is shining.

BOM 99999

BRJ-X (Bombardier Regional Jet – eXpansion)

Launched in 1998 as BRJ-X; cancelled in 1999; re-launched in 2004 as CSeries; cancelled in 2006; re-launched in 2008; to be cancelled in 20??

bom 3345

CRJ regional aircraft windows design

*** CLICK BELOW TO GET THE PDF VERSION OF THE ARTICLE:

– The Rise and Fall of Bombardier – 2016

 

Advertisements

About Aviation Doctor - Helping aviation companies to transform the present into a more profitable tomorrow

I am a Canadian and EU national with an MBA and 33+ years experience in aviation business development with 20 years overseas and work in 25+ countries. A former investment/merchant banker (mergers and acquisitions to corporate turnarounds). airline and OEM senior executive and past owner of 6 successful aviation companies in 3 countries (executive jet charter/management companies, aircraft sales, aircraft broker, airline/aerospace consulting to aircraft insurance). I have a very diverse aviation background with 75+ aviation companies (45+ airlines of all sizes, OEM's, airports, lessors, MRO to service providers) as consultant, executive management, business analyst and business development adviser. Excellent success track record in International Business Development. Most work with airlines is with new start-ups and restructuring of troubled carriers. I sold new business jets, turboprops and helicopters for Cessna, Raytheon, Gulfstream to Eurocopter as an ASR as well as undertaking sales and marketing of commercial aircraft for Boeing, de Havilland, Dornier, Saab and Beechcraft. Brokered everything from LET-410's to B747's and from piston PA31 to G550 business jets. I look beyond the headlines of the aviation news and analyze what the meaning and consequences of the new information really means. There is a story behind each headline that few go beyond. Picked the name Aviation Doctor, as much of my work has been with troubled companies or those that want and need to grow profitably. I fix problems be in the business, and help with restructuring for a better tomorrow. You can reach me with comments or suggestions at: Tomas.Aviation@gmail.com and I comment a lot on Google+, my Facebook and LinkedIN.

Discussion

One thought on “SUMMARY: Bombardier’s rise to become the 3rd largest Commercial Aircraft manufacturer in the world, was due to 4 acquisitions between 1986 and 1992 (1986-Canadair, 1989-Shorts Brothers, 1990-Learjet and 1992-de Havilland), with all but one using billions of Canadian and UK taxpayers money and lots of political help (aka cronyism) to make it happen. The story behind the acquisition headlines, with their give away low acquisition costs, billions in written off aircraft programs, state subsidies and hidden airports that were later sold at big profits, all kept from public eyes. Bombardier’s current product line is 30+ years old, with the 1980’s Challenger CL-600 business jet (now Challenger 650 still in production) from which a family of CRJ regional jet airliners came from, while the early 1980’s 37 passenger DHC-8 is still produced as the 90 passenger Q400. The CSeries is Bombardier first new commercial airliner since it entered the aerospace industry 30 years ago in 6 short years. Contrary to Bombardier’s PR BS, Bombardier is definitely NOT an innovator, just excellent at low risk, low development programs that just stretched existing aircraft, like 12 passenger Challenger CL-600 business jet into the 104 passenger CRJ1000 and the DHC-8-100 into the high density 90 passenger Q400. Attached to the bottom of this article is an paper entitled “The Rise and Fall of Bombardier” and how Bombardier REALLY become an Aerospace power house. The CSeries program is still suffering, Air Canada was enticed to buy by Quebec dropping a long disputed lawsuit against Air Canada and Ottawa offered changes to some legislation, only last weak Air Canada threatened to walk away from the deal as Ottawa had not moved on the legislative changes, and even stated the obvious that “there are other alternatives other than the CSeries”, proving it bought not because it was an aircraft it had to have or needed, but because it was politically coerced to make a deal in crony capitalist Quebec, where politicians and big business are all in bed together to screw Canadian taxpayers, and enrich a few. Meanwhile, the 75 x CS100 Delta Air Lines deal was good for an order WIN, yet the deal is expected to lose $525 million ($7 million per aircraft), and is nothing but a money LOSER deal. Is this the ONLY way Bombardier can sell the CSeries ? through political coercian or selling below cost ? if so then the game will be over soon for the program. But why is the stock up from February’s $0.77 a share ? business deliveries will be off by 25% this year, the Q400 is down to 42 orders in backlog and dying while the CRJ line has 86 in backlog (with 23 x CRJ1000 questionable) and dying as well, high end Global business jet demand is down, while the CSeries even with the Delta and Air Canada deals has only 330 orders (with +25% of existing orders HIGHLY questionable) after 8 years of sales effort ? and with all existing orders currently at a loss, loses are expected well into 2021. Bombardier the world’s only plane and train manufacturer can’t deliver trains on time ! so NO reason to be optimistic, other than the fact Bombardier looks set to DUMP the Cseries program on naive Canadian taxpayers for $2.0 billion for a 2/3 ownership, and raise another $1.0 billion in new stock offering for the new partnership called CSeries Aircraft Limited Partnership (CSALP). Bombardier failed to find a buyer last fall for the CSeries, but now thanks to crony capitalism in Canada, Canadian taxpayers have been suckered into owning the program that NO other aerospace company wanted 9 months ago. Bombardier will get the program off its books and collect $3.0 billion in new capital after writing off $3.2 billion in the CSeries program in 2015. Now the program will be a Canadian government program, and will draw fire from the WTO and the US for state aid, illegal and prohibited subsidies and price dumping, the saga is just beginning and no light at the end of the tunnel for the CSeries.

  1. Great article on BOMBardier – too bad for the Canadian tax payer – and worst for the Bombardier employee

    Like

    Posted by AGforce2 | July 6, 2016, 3:19 pm
%d bloggers like this: