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Bombardier CEO Pierre Beaudoin (Graham Hughes)
Bombardier CEO Pierre Beaudoin (Graham Hughes)

Strategy

Bombardier's delicate defence of a scorned aircraft Add to ...

In a year that saw customers retrench and financing for new airplane purchases dry up, Pierre Beaudoin could have done without the added problem of a public relations nightmare.

The president and chief executive officer of Montreal-based Bombardier Inc. agrees that the business-jet sector suffered a serious hit after the chief executive officers of the Detroit Three auto makers flew aboard executive planes to Washington to plead for government bailouts in November, 2008 - and were excoriated for doing so.

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But Mr. Beaudoin doesn't expect any long-term damage from the fiasco and predicts that demand for private aircraft will bounce strongly when the economic recovery takes hold.

"We have to pay attention to it," says Mr. Beaudoin about the image problem buffeting one of his key products in a year-end interview at Bombardier's head office.

One way to do that is to publicly make the case for the business jet as not an extravagance, but a useful management tool in a global business environment - not only for CEOs but for the entire executive team, he says.

He takes issue with the seemingly sheepish reaction of the Detroit Three. "I was disappointed with the car manufacturers that didn't stand up and defend why they need business aircraft," says the head of one of the world's biggest manufacturers of corporate planes.

Bombardier decided against mounting a PR counteroffensive and opted instead for a quieter effort, offering support to companies' flight departments in their defence of the corporate jet in these touchy, penny-pinching times, he says.

"We provided the tools to the flight departments to present their business case, what [a private jet]allowed the company to do."

Bombardier encouraged customers to speak out publicly, but most made their cases for the utility of a business jet internally, to the company boards for example, he says.

There is scant evidence of companies jettisoning the corporate jet - or jet fleet - and shutting down their flight departments as a cost-cutting move or for PR reasons, he adds.

New sales will return because of growing demand for business aircraft outside the United States, says Mr. Beaudoin. Asia and the Middle East are key growth markets. "We see more and more global businesses that need to connect, that need to meet their customers in person."

But there is still a long way to go before business jet sales can return to the peaks of 2007 and 2008, according to most industry experts.

"This is a three-year process, with only the beginnings of a comeback in 2012," says Richard Aboulafia, a U.S. aviation consultant.

According to the U.S. National Business Aviation Association, net new industry-wide orders aren't expected before late 2011 or early 2012.

Bombardier is preparing for an expected stabilization of markets in 2010.

Earlier this year, the company went into accelerated cost-cutting and cash-conservation mode as business and commercial regional-jet orders melted away.

But it also has a strong balance sheet and was able to maintain investment in its major product development programs, including the C Series family of long-range 110-to-130-seat commercial jets, says Mr. Beaudoin.

In fact, the C Series project has benefited directly from the downturn because it was able to recruit top engineering and management talent as other aerospace companies retrenched, says Mr. Beaudoin, who took over as CEO from his father, Laurent, in June, 2008, after a six-year stint as head of Bombardier's aerospace division.

"It's better than what we would have anticipated. Because of the recession, there is no other airplane development going on, so we have been able to recruit even better people than what we had anticipated."

The downside is that the world's airlines are also conserving cash - so they're not exactly falling over each other to place orders for the C Series, whose development cost is about $3.5-billion, including government funding. So far, there are firm orders for only 50 C Series planes, from airline Deutsche Lufthansa AG and Irish leasing company Lease Corporation International Ltd.

Mr. Beaudoin says interest in the aircraft - which he calls a "game changer" - remains robust. But financing is still challenging. The energy-efficient plane with space-age composite elements offers significant cost savings to airlines and Bombardier has the jump on rivals with an aircraft in the 110-to-130-seat niche, he said.

"We are having very, very active discussions with customers, some very advanced," he says.

At Bombardier's other division - rail - Mr. Beaudoin says the performance has been strong through the turmoil and helped offset the aerospace unit's difficulties.

After years of laying the groundwork in China, Bombardier announced a big breakthrough in 2009: a $4-billion (U.S.) deal in a joint venture with a Chinese partner to supply 80 next-generation superhigh-speed trains to the Ministry of Transport.

Now that Bombardier has cracked long-distance rail in China, next up is clinching contracts in the regional and commuter train market, where dozens of suburbs need to be connected to the urban centres.

There is huge untapped potential there, he believes. "They need to connect the regions and they have not focused on that yet."

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