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The inside story behind the bungled Bombardier CSeries

The C Series has a lot going for it, but management missteps havebrought Bombardier to the brink

It was an astonishing bit of candour,

uttered as it was by the president and

CEO of one of the largest

transportation companies in the

world. The Quebec government had

just announced a $1.3-billion

investment in the C Series, the new

line of commercial jets from Montreal-

based rail and aerospace company

Bombardier. Plagued by technical

delays, cost overruns and nagging

existential questions about its very

purpose, the C Series has long been

a source of unwelcome headlines for

the company.

Landing on the same day as the

company’s ugly third-quarter report—

Bombardier had lost nearly $5 billion,

mostly having to do with writedowns

on the C Series—the $1.3-billion

government investment, equivalent to

about $160 for every man, woman

and child in the province, was meant

to be a bit of good news in an

otherwise gloomy day for the

company. Bombardier president and

CEO Alain Bellemare spoke to

journalists following the announcement, one of whom noted that as recently as July, management had

assured investors the company had enough cash to see the C Series into production. Now the Quebec

government was investing, and the company was petitioning the federal government to do the same. “I’m

having trouble understanding what happened,” the journalist said.

“That’s an excellent question,” Bellemare responded to the non-question, in his raspy French bonhomie.

A front view of a CS 100 on the production line. Structurally complete,the plane could be described as in the finishing stages at theBombardier facility in Mirabel, Quebec on the 1st of Feb. 2016.(Photograph by Regor LeMoyne)

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“Actually, I wonder that too.”

Related: Why Quebec’s Bombardier bailout isn’t as crazy as it sounds

Left unsaid in Bellemare’s ensuing explanation was how the company was able to secure the money from

a government in the depths of austerity measures mere months after saying it wouldn’t need financial

assistance for an airplane project that is 2½ years late, US$2.2 billion over budget and sorely lacking in

confirmed orders.

Even more gobsmacking to analysts and observers: that Bombardier was able to secure the funding

without relinquishing its corporate governance structure, despite having lost nearly 90 per cent of its value

since June 2008. This dual-class share structure ensures that the Bombardier family and that of company

scion Laurent Beaudoin remain in control of the board; the company has had a CEO from the Beaudoin

or Bombardier families for 66 of its 73 years in business.

The power the Bombardier-Beaudoin clan wields over Bombardier the company is surpassed only by

their secrecy. Very little is known about the family dynamics at play behind this crown jewel of Quebec Inc.

The shares are controlled by the four children of Joseph-Armand Bombardier, the mechanic and inventor

who in 1937 gave the world the snowmobile. Claire Bombardier Beaudoin, J.R. André Bombardier,

Janine Bombardier and Huguette Bombardier Fontaine control the majority of Bombardier’s voting

rights.

Yet despite being the picture of discretion, the families are reportedly frustrated that the battered share

price has drained much of their wealth—since 2008 the value of their Bombardier stake has dropped from

$2.2 billion to $260 million. And according to a source close to the family, who spoke to Maclean’s on

condition of anonymity, they put the blame squarely on Pierre Beaudoin, 53, the company’s erstwhile

CEO and its current executive chairman.

J. Armand Bombardier, 52, designer of the Bombardier snowmobile, stands beside the latest model on theproduction line of his Valcourt, Quebec, factory, 60 miles east of Montreal. (Granby la voix de l’Est/CP)

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Pierre is the son of Laurent Beaudoin, who turned his father-in-law Joseph-Armand

Bombardier’s fledgling snowmobile company into a global transportation brand. Pierre joined the

company in 1985 and became its CEO in 2008. Pierre became Bombardier’s executive chairman in

2015, after stepping down as CEO.

“The families are very disappointed in Pierre. They’re wealthy, so it’s more a question of pride. They’ve

taken the stock collapse almost as a personal slight,” says the source close to the family.

As president of Bombardier Aerospace, Pierre launched the Learjet 85 business airplane in 2007. Less

than a year later, as Bombardier CEO, he launched the C Series program. Today, the Learjet has been

shelved, with the company incurring a $1.4-billion writedown last year on the shuttered project, while the C

Series has only 243 confirmed sales. Meanwhile the company’s new VIP business jets, the newest

editions to the Global Express program launched in 1993, were meant to hit the market in 2016. That’s

been delayed by at least two years.

With the success of the C Series in doubt and Bombardier’s share price dipping below a dollar in recent

weeks, former executives at the company are irked. “The reason the company is where it is today is

because of the leadership,” says a former Bombardier senior executive, who spoke to Maclean’s on

condition of anonymity. “Pierre would never have been CEO of that company if he didn’t have his name,

period.”

Now, after so many stumbles, taxpayers are being asked once again to cough up. Bombardier will likely

receive its infusion of federal cash. In 2008, the Conservative government approved a $350-million loan to

cover research and development costs of the C Series. This loan, along with the $117 million from the

Quebec government and $310 million from the British government—Bombardier Aerospace employs

6,000 people in Belfast—has yet to be repaid.

Despite evident governance issues and bleak financial prospects, Bombardier remains “a key anchor

firm for Canada’s aerospace industry,” according to a recent government memo prepared for the Liberal

Federal Transport Minister Marc Garneau speaks to staff at Bombardier’s CS100 plant Friday, December 18, 2015in Mirabel, Que. After years of delays and cost overruns, Bombardier’s CSeries commercial aircraft has beencertified by Canada’s transportation regulator. THE CANADIAN PRESS/Ryan Remiorz

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government last fall. Translation: for all its warts, allowing Bombardier to fail would have enormous political

implications for Justin Trudeau’s government.

Here’s another translation. Rightly or wrongly, Bombardier will continue to exist thanks in large part to the

Canadian taxpayer.

Related: Jason Kirby’s idea for Bombardier: What if we let it fail?

In many ways, the development of the C Series is entirely in line with the company’s high-risk, high-reward

history of either conquering market segments or conjuring them out of thin air. The company that became

Bombardier was birthed in a garage in Valcourt, Que., a swath of wooded wilderness located about 120

km east of Montreal.

It was in this garage, in the depths of the priest-ridden era that was Quebec in the 1930s, where Joseph-

Armand Bombardier invented the snowmobile. He envisioned a vehicle that would allow those priests

(along with doctors, teachers and the like) to travel from village to snowbound village. By 1963, the

nascent company was selling $10 million worth of the machines a year, mostly to recreational users. A new

market was born.

Though separated by nearly 80 years and innumerable levels of engineering complexity, the C Series

aircraft shares certain traits with its comparatively humble Ski-Doo cousin. It is a brand-new airplane

design, for one, the first such innovation in narrow-body aircraft in nearly 20 years.

The two C Series models, the CS100 and the larger CS300, have a seating range of 100 to 160 seats, a

mostly unserved market between the 60-to-100 seat regional jet class and narrow-body behemoths like

the Boeing 737. Its design, along with the use of composite production materials, allows for a more

technologically advanced and much less thirsty airplane than its competitors.

As C Series president Rob Dewar pointed out during a tour of Bombardier’s manufacturing facilities

near Montreal, the C Series has bigger windows, larger storage bins, wider aisles, more headspace, a

Bombardier CEO Alain Bellemare, left to right, former CEO and executive chairman Pierre Beaudoin and Presidentof Bombardier Commercial Aircraft Mike Arcamone stand in front of a CS300 before it’s first test flight in Mirabel,Que., on Friday, February 27, 2015. (Ryan Remiorz/CP)

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better cockpit and a quieter ride than anything else on the market.

The C Series is a potential game-changer, says U.S. aerospace consultant Ernie Arvai. “Technically, it’s

a superb airplane, and it beats the other guys handily at the same size class. To some degree the C

Series caused Airbus to re-enter the A320 class with the Neo. Airbus realized they had to be more

competitive.”

The problem is simply everything else. Adjusted for inflation, fuel prices are less than a third what they

were when the C Series program was launched in 2007. The aircraft’s 20 per cent savings in fuel

consumption has suddenly become far less of a selling point.

And the numerous production delays (the C Series was meant to be on the tarmac by 2013) has meant its

competitors have been able to fill the market Bombardier itself created. France-based Airbus Group SE

has been particularly damaging to C Series sales, with company COO John Leahy frequently

disparaging the C Series in public—he recently described the program as an “orphan”—and undercutting

Bombardier in airline board rooms.

“There were several instances where Bombardier was hours from signing a deal and John came in and

made an offer they couldn’t refuse: a larger aircraft at a cheaper price,” says Arvai.

It speaks to another inherent problem for Bombardier. The company is attempting to sell a brand-new

aircraft to typically conservative airline industry executives, in a market dominated by established, deep-

pocketed players who can discount their wares far more than the Quebec-based company can.

If all those external headwinds weren’t enough to thwart Bombardier’s new aerospace ambitions, tensions

and disruptions within the company’s executive ranks only made the turbulence worse. According to the

former Bombardier executive, who was involved in the development of the C Series, the problems with

the aircraft were exacerbated by Pierre Beaudoin’s management style. “[Pierre] would tell people that he

wanted to be challenged, but this would change when people actually challenged him.”

In 2005, Bombardier business aircraft president Peter Edwards abruptly left the company, following a

Bombardier’s CS100 assembly line is seen at the company’s plant Friday, December 18, 2015 in Mirabel, Que.After years of delays and cost overruns, Bombardier’s CSeries commercial aircraft has been certified by Canada’stransportation regulator. THE CANADIAN PRESS/Ryan Remiorz

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budget review during which, according to the executive, Edwards stood up to Pierre. This former

executive and another say Edwards was pushed out.

(Edwards declined to comment for this article. Bombardier spokesperson Isabelle Rondeau also

declined to comment.)

Several members of Bombardier’s senior management left the company when Pierre became COO of

Bombardier aerospace in 2001, and again when he became CEO in 2008. This in itself isn’t unusual;

new executives generally clean house when they are appointed. Yet according to the two former

executives, Pierre Beaudoin had curious hiring criteria. Any new hires “had one thing in common, which

was they were French Canadian,” the executive, who is still in the airline industry, says. “This was totally

different than his dad, who basically wanted the best executives to run the company, irrespective of where

you come from.” (The Bombardier spokeswoman also declined to comment on these claims.)

“Pierre is not his father. Let’s just say that. Nice man, nice guy, but is a little bit over his head,” says Arvai,

who adds that this was evident in the marketing of the C Series. “Orginally he believed that the airplane

had such performance benefits that they could get a large premium for it. That was a lost opportunity.

Bombardier should have taken a loss on first 50 airplanes, got the production line going, getting the

airplanes up. And I think that was a strategic mistake by Pierre.”

Bombardier’s dual-class shares, which have existed since 1969, are a product of Joseph-Armand

Bombardier’s desire to keep the company under the control of the Bombardier and Beaudoin families.

But when it came time for Joseph-Armand’s son Laurent to select someone from the third generation to

steer the company into the future, problems arose.

According to the source close to the family, Pierre wasn’t his father’s chosen successor. Rather, Laurent

Beaudoin wanted his daughter Élaine to eventually lead the company. “She is most like Laurent in terms

of common sense and intellect,” the source says. “But he couldn’t get her interested in the business.” (On

this question too, Bombardier spokesperson Rondeau declined to comment.) Today, Élaine Beaudoin is

a corporate director of Canam Group Inc. and serves on other corporate boards.

According to this source, former Bombardier executive Raymond Royer, Laurent Beaudoin’s right-hand

man, advised his boss against grooming Pierre for the role of CEO. (Royer didn’t return a request for

comment.) Indeed, in 2009 Pierre himself told the business newspaper Les Affaires that when he was

younger he wasn’t interested in even working at Bombardier.

Once in, though, he took to the company with gusto. Among other things, he oversaw the rollout of the

Sea-Doo personal watercraft in 1990, and was president and COO of the company’s recreational

products group by 1996. He was in charge of the entire company 12 years later.

In 2007, as president and COO of Bombardier Aerospace, Pierre helped launch the Learjet 85 program.

As with the C Series aircraft, which launched eight months later, the Learjet was loaded with new features

and built from composite materials—“an aircraft that is set to redefine the mid-size jet category,” as Pierre

put at the time.

Yet the plane was plagued with delays, and Bombardier paused the program in early 2015 before

shelving it indefinitely last fall.

Missteps aside, the Quebec government believes it is crucial to finance Bombardier and the C Series—

and strongly suggests the federal government do the same. Through Investissement Québec, its

investment arm, the Quebec government has bought a minority stake in the C Series program.

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“Bombardier had three choices. It could have abandoned the product. It could have sold it lock, stock and

barrel to another company. Or it finds partners who will ensure it stays in Quebec. That is what we decided

and it’s up to the federal government to do the same,” says Jacques Daoust, who until a recent cabinet

shuffle was Quebec’s minister of the economy.

The federal government has yet to say definitively whether it will make a similar investment in Bombardier.

“There has to be a strong business case for making a federal investment and any assistance would have

to be in the best interest of all Canadians,” says Industry Canada spokesperson Sabrina Foran.

When it comes to employment, Bombardier certainly has a compelling political argument. There are

41,750 people employed in the aerospace sector in Quebec, according to a 2014 study by the industry

group Aéro Montréal. Bombardier is the biggest employer in the industry. Much of the small- and medium-

sized aerospace businesses rely on the company to buy their goods and services. Essentially,

Bombardier has made itself too big to fail.

In Bombardier’s facility in Mirabel, the C Series production line hums along efficiently. Workers dart

between fuselages, which are in various degrees of assembly; most of these planes will go to Swiss

International Airlines, which bought a fleet of the planes early on. “There is clear interest from Air Canada,”

says Bombardier spokesperson Isabelle Gauthier.

C Series president Rob Dewar is optimistic that the federal government will reverse a recent decision

and allow Porter Airlines to fly jets to and from Toronto’s island airport. (In November Ottawa disallowed

jets, which was a considerable setback for the C Series.) “It’s not done yet. Porter’s working on it,” Dewar

says.

Optimism for the C Series resonates up Bombardier’s chain of command. Transport Canada recently

certified the CS100; the test model that did the deed is now a flying sales pitch to prospective customers.

And though there are only 243 confirmed orders, the sky is practically the limit. “According to the analysis

we’ve done, over the next 20 years there is an opportunity for 7,000 airplanes or so in the 100 to 150

[seat] category,” says Bombardier commercial aircraft president Fred Cromer. The company is also less

hidebound to the original pricing of the C Series. “Pricing is an issue, and we understand what the issue

is,” Cromer says. “We’re trying to be a little bit more open about what we’re doing here, and that’s

important, for better or worse.”

Bombardier workers look at the CS300 aircraft after it was unveiled at a news conference at its assembly facility inMirabel, Quebec, March 7, 2013. (Christinne Muschi/Reuters)

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Meanwhile, Pierre Beaudoin seems as entrenched as ever. A rumour circulated in a Reuters report that

he was stepping down was quickly swatted aside by the company. After all, the Quebec government

invested in the company without mandating a change in the company’s governance structure. Perhaps

Ottawa is next.

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Bombardier C Series CS100 CS300 Editor's Picks Pierre Beaudoin

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