Louis Hébert is professor of strategy and director of MBA and EMBA programs at HEC Montréal.
Bombardier has been in the news a lot in recent months. Since the federal government is considering investing in or supporting the company, it is likely an appropriate time to reflect on the company's situation and prospects.
Bombardier is no ordinary company. In fact, the Canadian economy, and by extension Quebec's, count just a few firms with Bombardier's clout and international reach.
The company is in a difficult situation. However, Bombardier has been making important moves to ensure its continuity. Last year's arrival of Alain Bellemare, a seasoned aerospace executive, was a signal of things to come, and things have been changing. What we've seen since exemplifies a textbook business transformation: changes in governance, structure, management, offerings and activities. Business and product lines are being restructured, streamlined and divested. All this change signals that Bombardier's situation is maybe not quite desperate yet, although it is certainly serious.
The company's flagship C Series airliner program is encountering major difficulties – it's proving more complex and much more expensive than initially planned. At the beginning, it was an attempt to enter the market for aircraft with capacity of around 100 to 160 passengers, which was expected to grow significantly.
With innovative design and leading-edge technologies, the C Series was called upon to replace the CRJ series that was so successful at the end of the 20th century. (Let's not forget that Boeing encountered significant delays and huge cost overruns for its 787 Dreamliner, which could be seen as its own C Series.)
Now, it seems that Bombardier is facing a market that's less attractive than originally envisaged. In addition, there is fierce competition from Boeing and Airbus. By moving up into the 100-plus segment, Bombardier literally entered those companies' radar screens. They don't want a new player to disturb their stable duopoly, and have been revamping their products and offering generous conditions to stop Bombardier from gaining a significant beachhead. This was to be expected, as the C Series, or at least some versions of it, may go head to head with Boeing's best-selling plane, the 737.
In short, Bombardier is having difficulties mustering the financial resources, mastering the technological complexities, and mobilizing the marketing clout to impose itself in a tough market. But the game is far from over.
We have seen how Bombardier has been utilizing its relationship with government. But before complaining about corporate welfare, we have to face the reality of the aerospace industry: No one survives without state intervention and support. Boeing, Airbus, even Embraer all benefit from significant government support – Bombardier is not the exception. The question becomes a political one: Do we want an aircraft industry in our country, with its technology spillovers and its well-paying jobs?
Government support does not exempt Bombardier from being competitive, both with superior products and cost efficiencies. The C Series is definitely a leading-edge product, and Bombardier is seeking ways to reduce costs in order to increase its profitability in both the short and the medium term. The plan to outsource work to lower-cost locations such as Mexico and China, as reported by The Globe and Mail, is commonsensical and consistent with improving profitability in the medium term.
Still, in return for public support, should the public be asking for concessions? Probably. However, beyond the political rhetoric, we must also make sure that these concessions don't tie Bombardier's hands and leave it in a dire state. Bombardier needs support in the short term, but for the medium term, some unpopular decisions will have to be made. Any action plan for Bombardier has to account for such prospects.