BUSINESS

A FITTING MATCH

BOMBARDIER’S PURCHASE OF LEARJET BOLSTERS ITS POSITION IN THE AEROSPACE BUSINESS

April 23 1990
BUSINESS

A FITTING MATCH

BOMBARDIER’S PURCHASE OF LEARJET BOLSTERS ITS POSITION IN THE AEROSPACE BUSINESS

April 23 1990

A FITTING MATCH

BUSINESS

BOMBARDIER’S PURCHASE OF LEARJET BOLSTERS ITS POSITION IN THE AEROSPACE BUSINESS

At first glance, there are few similarities between a Ski-Doo and a Learjet. But both are the products of two singularly creative individuals, both revolutionized a mode of travel and both appeared at roughly the same time. In the late 1950s, as the first personal one-seater snowmobiles were rolling off Canadian inventor Joseph-Armand Bombardier’s assembly lines in Valcourt, Que., American inventor William P. Lear was at work in Switzerland, with top-notch Swiss engineers, designing the executive jet—modelled on the P-16 Swiss fighter airplane he so admired—that would make his name a byword in air transport. And if the companies spawned by the two men’s genius have a similar history, they are now poised to share a common future: last week, a newly formed subsidiary of Montreal-based Bombardier Inc. offered $87 million to buy the assets of the Learjet Corp. of Wichita, Kan.

The bid, which includes assuming $44.1 billion in Learjet Corp. debt, is subject to approval by a New York bankruptcy court. If the deal clears that legal hurdle, as analysts expect, it will be the latest in a series of acquisitions by Bombardier that have propelled it from a relatively humble regional manufacturer of winter sports and work vehicles into a major participant in the international transportation and aerospace business.

In the past two years, the company has acquired aircraft and rail-transport firms in Northern Ireland, France and Belgium. Those deals followed a 1986 acquisition from Ottawa of the Crown-owned Montreal aircraft manufacturer, Canadair Ltd., maker of the successful Challenger business jet. Montreal-based Bombardier, which already holds about 30 per cent of the market for mass-transit vehicles in the United States, is developing advanced subway cars that will be delivered to the New York Transit Authority in 2000. Two Bombardier subsidiaries—BN Constructions ferroviaires et métalliques SA of Belgium and ANF-Industrie SA of France— are also building shuttle-train cars for the tunnel under the English Channel and

subway cars for a high-speed train link between Paris and Brussels. The company is currently seeking financing for a proposed high-speed rail system, for which Bombardier would build rail cars, new bridges and new train stations. The new train link would run from Quebec City to Toronto via Montreal and Ottawa.

Last year, Bombardier’s sales were $1.4 billion, and the total is expected to reach $2 billion this year. Company chairman Laurent Beaudoin, the 52-year-old son-in-law of Bombardier’s founder, told a meeting of the New York Society of Security Analysts last month that he was optimistic sales would approach $4 billion within five years.

The Learjet bid offers another opportunity to expand sales. The U.S. manufacturer has sold more than 1,600 aircraft over the past 27 years, about 1,500 of which are still flying. The company has 2,750 employees worldwide, most of them based in Wichita, and had annual sales last year of more than $300 million. Despite that, Leaijet’s parent, Integrated Resources Inc. of New York, has filed for protection from creditors under Chapter 11 of the country’s bankruptcy laws. The required court approval of the Bombardier purchase is expected to be a formality, according to Learjet Corp. vice-president William Robinson, because representatives of creditor committees set up as

part of the bankruptcy process have all reviewed the arrangement and offered no objections.

Industry analysts described the bid as part of a Bombardier pattern—buying financially troubled aerospace manufacturers that, despite money problems, possess valuable, innovative technology. “It is what they did when they bought Canadair from Ottawa and Short Bros, from the British authorities,” said Stephane Solis, a transportation analyst with Montreal-based Midland Doherty Ltd. When Bombardier bought Canadair in 1986 for $120 million, the company acquired assets worth more than $275 million. Similarly,

Bombardier paid the British government what analysts describe as a bargain price of $60 million last June for Short Bros. PLC of Belfast, and gained control of not only the world’s oldest aircraft manufacturer but an acknowledged leader in the field of composite technology, which involves the manufacturing and development of lightweight materials such as graphite and epoxy for use in the place of metals.

While Bombardier is trying to revive Short Bros., which manufactures aircrafts and missiles, the company has turned Canadair into a very profitable business. Last year, the Montreal-based aircraft manufacturer registered sales of $764 million, accounting for roughly half of Bombardier’s total revenue. Altogether, Canadair has now sold 27 of its Challenger business jets, each of them worth $18 million. “That may not sound like a lot of airplanes,” said Canadair spokeswoman Catherine Chase, “but it amounts to 29 per cent of the market worldwide.”

The company also stands to profit from the development of a 50-passenger regional airliner which is scheduled to go into service in 1992. Canadair has received 90 firm orders for the larger jet and another 36 options to purchase, representing potential sales worth a total of $1.9 billion. Said analyst Jon Reider of Montreal’s Richardson Greenshields of Canada Ltd.: “Canadair has been a phenomenal success under Bombardier’s management. It has been a dream acquisition.”

Many industry observers feel that Learjet, whose products include four different types of jet models that range in price from $4.5 million to $8.4 million, will fit well into Bombardier’s aerospace program. Said Reider: “It’s an excellent strategic move. It expands their product base and their geographic base. Learjet brings them a whole family of planes at the lower end of the scale of executive jets.” It also brings to Bombardier Learjet’s established global network of 30 aircraft maintenance-and-service centres, an asset that may help to attract customers to both the Challenger executive jet and the larger regional jet.

Another potential benefit arises from Learjet’s success in a lucrative area that Canadair has not been able to penetrate—the U.S.

defence establishment. Learjet is a subcontractor on a number of military and spacerelated projects with such companies as Boeing Co., Martin Marietta, McDonnell Douglas, General Dynamics and Textron. Canadair, despite repeated efforts, has managed to land only one contract in the same field—a $3.4-million, six-month program to evaluate a remotely piloted reconnaissance vehicle, the CL 227 Sentinel, for the U.S. army and the CanaI dian Armed Forces.

Canadair’s bid has been welcomed by the Wichita firm. Learjet vice-president Robinson told Maclean ’s last week: “We are delighted. We think it’s just tremendous. It’s a good company, a strong company. It brings us stability and the opportunity for the kind of capital investment we need to keep growing.” That commitment to growth is another feature common to the two companies, and it stands as a shared testimonial to the visions of William P. Lear and Joseph-Armand Bombardier.

BARRY CAME in Montreal

BARRY CAME