BUSINESS

A down-home hero

Bombardier is taking Quebec to the world

DAN BURKE September 11 1989
BUSINESS

A down-home hero

Bombardier is taking Quebec to the world

DAN BURKE September 11 1989

A down-home hero

BUSINESS

Bombardier is taking Quebec to the world

It is a huge transition from a garage in Valcourt, Que., to the subways of New York City and the aircraft factories of Belfast. But since J. Armand Bombardier created the first snowmobile in his garage out of old car parts in 1926, that is exactly what has happened. Although still producing the popular

Ski-Doo, Montreal-based Bombardier is now known worldwide for jet aircraft, subway cars and high-speed trains. The company long ago decided to diversify its transportation products, and the pace of acquisition at Bombardier has escalated sharply in recent months. In June, the company spent $60 million to buy the world’s oldest aircraft-maker, Short Bros. PLC of Belfast. In July, it won a contract worth $425 million to supply shuttle train cars to the Chunnel project, the tunnel being built under the English Channel. And Laurent Beaudoin, Bombardier’s confident chairman, seems intent on keeping the many-armed, $ 1.4-billion company running at a fast pace, and further expansion is likely to take place soon. Beaudoin told Maclean’s: “We have very dynamic sectors of activity. The work is there, we have to deliver.”

The new European contracts are the result of the most aggressive actions yet in the company’s global expansion. After the market for snowmobiles collapsed in the early 1970s, Beaudoin led Bombardier on a diversification drive that was intended to ensure the thentroubled company’s survival. In the company’s first major departure, he broke into the mass-

transit industry by winning a contract to supply subway cars to the Montreal Metro in 1974. He also bought a Belgian manufacturer of masstransit railcars, BN Constructions ferroviaires et métalliques SA, in 1986 and Montreal aerospace company Canadair Ltd. the same year.

Despite taking huge risks, the company is

now debt-free and profitable. In 1988, the firm’s sales totalled more than $1.4 billion, with only $275 million derived from snowmobiles and their cousins, the waterborne SeaDoos. Its stock rose to $16 at the end of August from $11 in January. And last week, the company appeared to be preparing for further growth. Transportation industry sources said that Bombardier is even considering a bid to operate a high-speed train between Montreal and Toronto.

Beaudoin, a 51-year-old accountant, has been credited with providing the vision for Bombardier’s expansion in North America and Europe.

He came to Bombardier through family connections.

He met Armand Bombardier’s daughter Claire at the University of Sherbrooke, where both were studying commerce. They married in 1959, and Beaudoin joined the company as controller in 1963. He became president

in 1965 following the death of his father-in-law the previous year. The company prospered until the market for snowmobiles collapsed during the energy crisis of the early 1970s. It was that disaster that propelled Bombardier on the path of diversification. Declared the entrepreneur: “I would never have thought about [diversification]. We were only manufacturing snowmobiles. Then our market crashed from 200,000 to 50,000 snowmobiles in one year.” Beaudoin decided then that he would never again rely on one product for the company’s fortunes.

Well-entrenched in the mass-transit industry for the past 10 years, Bomdardier is now concentrating on developing its interests in aerospace. Beaudoin has said that he hopes to balance the company evenly between the two industries, “like a good, solid four-legged chair.” Indeed, Bombardier’s successful management of Canadair made it a prime candidate for the Short Bros, purchase. Short is the largest employer in Northern Ireland, and the preservation of 7,000 jobs became a key in last spring’s negotiations. In approving the sale, Northern Ireland Secretary Thomas King said that Bombardier’s record with Canadair had made a significant impression on the British government.

Asa result, the British gov| emment agreed to cancel

more than $780 million of g Short’s debts, as well as pro^ vide grants and loans that

raised the total package to $1.5 billion. In return, Bombardier undertook to keep the company intact for at least four years. Said Canadair president Donald Lowe: “Short has a great workforce and good products; but the government never invested in the plant. They are 15 years behind.” Added Lowe: “It is going to take us two or three years to turn it around.”

So far, aerospace has been a profitable new business for Bombardier. Indeed, many analysts maintain that Bombardier’s current string of successes began with its purchase of Canadair. Bombardier reorganized the formerly government-owned company, cut costs and increased sales of Canadair’s popular 12-seat Challenger business jet. Bombardier announced last March that Canadair will design and develop ^ a 50-seat stretched version of g the Challenger, known as the I “Regional Jet.”

ÍE Development of the ReË gional Jet reflects Bombar5 dier’s strategy of finding mar-

kets where it can compete effectively with larger companies. The Regional was designed to fill the gap on routes that are too lightly travelled for full-size jets and too long for comfortable travel in turboprop planes. The strategy appears to be working. Two days after the announcement of the Short takeover, British Airways took options for 20 Regionals—a contract worth $335 million. Total orders for the plane now number 116.

Said Jon Reider, an analyst with the brokerage firm Richardson Greenshields of Canada Ltd.: “Canadair is just at the beginning of its real life cycle. The acquisition completely changed Bombardier’s direction.”

To break its dependence on the snowmobile, Beaudoin had to set aside the company’s founding tradition of innovation. Designs for its mass-transit cars, in both the Montreal and New York City subway systems, have been based on existing foreign technology obtained through licensing agreements. And when Bombardier bid on a 1982 contract to supply the Canadian government with half-ton trucks, it

submitted blueprints for a West German-designed vehicle called the Iltis. One railcar that Bombardier did engineer itself, for Via Rail during the 1970s, the Light, Rapid, Comfortable train, has failed to emerge as a salable product in markets outside of Canada. Said

Beaudoin: “The quickest way for us to get into mass transit was through technology transfer.”

Bombardier has made a particularly strong impression because of its ability to work with—some critics say manipulate—the federal government. Clearly, Ottawa has taken a proprietary interest in the development of the Quebec company. Between 1982 and 1985, Bombardier manufactured 2,762 2V2-ton trucks for the Canadian Armed Forces at an average cost of $66,000 per vehicle. The government went ahead with the contract even though a U.S. firm had offered to provide comparable trucks at a cost of only $15,000 per vehicle. More recently, in January, 1987, Ottawa angered many residents of Manitoba when it awarded the CF-18 jet fighter maintenance contract to Bombardier’s Canadair division in Montreal, despite what some analysts said was a more attractive bid from Bristol Aerospace Corp. of Winnipeg.

But the Transportation Group Inc. also represents a step forward for Bombardier. Formed in 1985 to design and operate new mass-transit systems, the American subsidiary has adapted a monorail system licensed from Walt Disney World Resort of Orlando to serve as a feeder line for city-core transit networks. So far, Transportation Group has sold systems to two international airports in the United States, in Tampa, Fla., and Houston, and it appears to be the favored bidder for a $1-billion contract for a transit system in Honolulu. Said Transportation Group chairman Carl Mawby: “If you cannot afford to go underground with a transit system, you have to go up. The monorail has such terrific potential on the market.” For his part, Beaudoin dismisses claims that Bombardier has benefited from excessive government generosity. Said Beaudoin: “In order for us to compete in the aerospace field, the government has to have programs. In fact, we are trying to get them to be more generous.” Beaudoin said that he considers Bombardier a shared accomplishment, a monument not only to Armand Bombardier and his descendants, but also to the rise of commerce in Quebec. From the backwoods snow trails of the province, the French-Canadian company has cleared a path into the world market for transportation equipment. And as much as Beaudoin wants to keep it there, he also wants Bombardier to remain firmly rooted in Quebec. He added, “I am trying to build a company that survives the family.” According to many analysts, Beaudoin is on course to achieve that goal.

DAN BURKE in Montreal