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Bombardier Explained

Why the manufacturing behemoth is coming up against a very angry Canadian public

Why Bombardier is facing the wrath of Canadians

Recently, Canada’s crown jewel of manufacturing companies continued its downward spiral into financial oblivion with a very misguided decision to offer sizeable bonuses to six members of its executive team. This was despite the fact that the company has been underperforming financially for years.

On Sunday, more than 200 people gathered outside Bombardier’s headquarters in Montreal to voice their frustration at the company, which received $1 billion in funding from the Quebec government just last year, and an additional $375 million from the federal government as recently as last month.

Caving to public pressure, Bombardier eventually conceded defeat, and announced new plans to delay (but not reduce!) executive bonuses. A statement by Bombardier reassured Canadians that CEO Alain Bellemare and five of his right-hand men would not get their full $32 million in additional compensation until 2020, and even then, only if they hit certain performance targets.

Performance. That’s indeed been the source of most of Bombardier’s woes over the last decade or so.

Its 2008 launch of the sleek C-Series line of jets was met with much fervour from the international aviation community. German airline Lufthansa slapped down an order of 60 aircraft, each of which had a list price of $50 million. In a grand speech at the Farnborough Air Show then-CEO Pierre Beaudoin giddily hailed the CSeries as a “family of aircraft that would revolutionize the economics and network strategies for airline operations”.

Bombardier customers eagerly awaited their new toys, that were promised for delivery by the end of 2012, to enter into service by early 2013. But 2013, turned into 2015, then 2016. After all that pomp and circumstance, fueled by a $1.3 billion government investment to develop the CSeries fleet, Bombardier failed, by a large margin, to meet the most basic expectations a company has to its customers — get me the goods and get them to me on time.

The first CSeries plane entered into service with Swiss Global Airlines on July 15th, 2016. At that point, Bombardier had lost nearly $5 billion, mostly because of write-downs from its bungled CSeries launch. It’s stock price was a mess — in January 2015, the company’s stock was worth $4.20 each, but a year later, its value had plunged to a mere $0.81. It has hovered around $2 in the last six months or so, a far cry from what the company wants to be worth to its shareholders.

It’s complicated to pinpoint exactly why Bombardier has found itself in such a deep financial hole, despite billions in government loans and bailouts. Some say corrupt leadership at the helm of the company, in the form of the very elusive Beaudoin-Bombardier clan, has created a culture of inefficiency, entitlement, and dependence on provincial and federal funding. Others say competing in the aviation space is hard, comparing the CSeries delays to similar roadblocks faced by Airbus’ A380 fleet and Boeing’s Dreamliner fleet, the latter of which found itself with an exploding battery problem that took at least a year to fix.

But inefficiency seems to be Bombardier’s most consistent trait, even outside the airline industry. The most famous and (personally) frustrating example of this, is the company’s delay in delivering new streetcars to the Toronto Transit Commission. The TTC ordered 204 streetcars back in 2012 — it has only received 30 of those streetcars so far, when it should have received more than 100 by now. A TTC report published in December 2016 expressed doubt at Bombardier’s ability to deliver all 204 streetcars by 2019 and requested more provincial funding to upgrade existing streetcars, a costly expenditure that hurts commuting Canadians the most, above all else.

Which brings us to the real root of the public’s anger at Bombardier — it’s unbridled use of public funds, with little to show for it. According to Industry Canada, Bombardier has borrowed at least $1.3 billion from the federal government over the last 20 years. That amount, according to a report from the Fraser Institute, does not include tax dollars received from any other federal department or provincial government, including Ontario and Quebec, both of which have provided funding to Bombardier projects.

It’s unclear how much of this money Bombardier has actually paid back. In fact, the company has been in court on numerous occasions to fight Access to Information requests that could shed some light on its murky payback record. Publicly though, Bombardier claims that it has returned $275 million on two government loans originally worth $187 million. That leaves at least $800 million in unpaid loans to the Canadian taxpayer.

Meanwhile, the Beaudoin-Bombardier family, who continue to command significant authority over the management of the company, have unsurprisingly seen their personal wealth sharply dwindle in light of Bombardier’s failed ventures. At the height of Bombardier’s success they were worth over $2 billion — the most recent estimate of the family’s value stands somewhere in the range of $250-300 million.

Within the company, there is some acknowledgement that Pierre Beaudoin, whose father, Laurent Beaudoin turned Bombardier’s flailing snowmobile business into a global transportation enterprise, was the catalyst in Bombardier’s downfall. Until last week’s compensation blunder, Pierre’s replacement, Alain Bellemare, has shown potential to turn the company around. The company reported a loss of $95 million last year, in sharp contrast to the $4.89 billion loss a year before that due to the CSeries mess.

Which perhaps is why, at Question Period this Monday, Prime Minister Justin Trudeau refused to call out Bombardier’s initial decision to handsomely compensate its executives.  Trudeau claimed his government was “obviously not pleased” with the decision, but is happy to see that Bombardier is making amends for “Quebecers’ and Canadians’ confidence”.

But then the icing on top of the cake — Bombardier, which employs about 70,000 people worldwide, plans to eliminate 14,500 of those jobs by the end of next year, part of the company’s grand restructuring plan to get back on track. Our fingers are indeed, crossed.

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Cover: Ben Ruby/Vice illustration

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