BUSINESS

Getting things cheap

The ‘snowmobile company’ moves on de Havilland

BARRY CAME January 27 1992
BUSINESS

Getting things cheap

The ‘snowmobile company’ moves on de Havilland

BARRY CAME January 27 1992

Getting things cheap

BUSINESS

The ‘snowmobile company’ moves on de Havilland

In its drive to become a major transportation multinational, Bombardier Inc. has almost always followed the same wellmarked trail. The Montreal-based company, which began life as a rural Quebec snowmobile manufacturer in 1942, has demonstrated a shrewd ability to expand by buying foundering companies cheaply from owners, often governments, that are desperately anxious to sell. It is a strategy that allowed Bombardier to acquire, among other assets, the Montreal aircraft manufacturer Canadair in 1986, the Belfastbased aviation firm Short Brothers PLC in 1989 and Learjet Inc. of Wichita, Kan., in 1990. Now, the pattern seems likely to be repeated as Bombardier prepares to purchase the financially beleaguered de Havilland aircraft division of Boeing of Canada Ltd. “The acquisition of de Havilland would rank as another classic Bombardier move,” said Fred Schilling, a transportation analyst at Nesbitt Thomson in Montreal. “It’s almost uncanny the way these people always manage to be in the right place at the right time.”

Ever since a joint FrenchItalian effort to purchase de Havilland failed last fall, Bombardier has been the leading contender to take over Seattie-based Boeing’s troubled Canadian subsidiary, which manufactures Dash 8 commuter aircraft in the Toronto suburb of Downsview. Although the final details were still being worked out, union officials at the Downsview factory said last week that a deal was almost completed. Under the proposed terms, Bombardier would acquire a 51-per-cent stake in de Havilland for $51 million. The Ontario government would pay Boeing $49 million for the remaining 49 per cent.

As well, Ontario is likely to promise up to $300 million in liability insurance coverage as a way of compensating Bombardier for projected losses over the next three years. The federal government is reportedly planning to inject another $200 million in research-and-development incentives, plus an unspecified amount in export assistance. Despite the huge cost to federal and Ontario taxpayers, Jerry Dias, president of the 3,200-member Canadian Auto Workers local at de Havilland, welcomed the proposals. “It’s not a bailout,” Dias insisted. “It ensures that high-tech jobs stay in the province.” He added: “With Bombardier’s expertise and the commitment of both levels of government, we think it’s a winning combination.”

Indeed, de Havilland’s Dash 8 series of turboprop commuter planes appears to complement Bombardier’s existing line of aerospace products, in particular Canadair's recently launched 50-passenger Regional Jet (RJ). The RJ, the first small regional jet on the world market, recently gained ground in the critical U.S. market when Comair Inc., an Ohiobased carrier, placed an order last November for 20 of the $ 17.3-million aircraft and took out an option on 20 more. The Comair deal brought the total number of firm orders for the new jet to 35, worth an estimated $605 million.

If the Dash 8 becomes part of the company’s fleet, Bombardier would be well-positioned to exploit what most experts predict will be a growing worldwide market for commuter planes. “The company will be highly competitive in this area,” said Paul Turk, director of publications for Avmark Inc. of Arlington, Va., a transportation consulting firm that has advised the Ontario government on the de Havilland sale. “It will have a broad product line to offer, as well as the flexibility that flows naturally from economies of scale.”

Even without the addition of de Havilland, however, Bombardier is already a force to be reckoned with in the global aerospace industry. The firm’s line of aerospace products, which includes unmanned surveillance craft, water bombers, cargo aircraft and business jets, accounts for almost half of the $3 billion in revenue that the company expects to earn in its current fiscal year, which ends on Jan. 31. Bombardier acquired its string of aerospace companies, as well as all of the associated innovative technology, for a relatively cheap $250 million. “The people who run Bombardier, led by chairman Laurent Beaudoin, are very conservative,” said Jon Reider, senior analyst at Richardson Greenshields in Montreal. “They are very, very focused and they are never in a hurry. As a result, when opportunities like de Havilland arise, they are not only not surprised—they are in a financial position to exploit the openings.”

A similar strategy has governed Bombardier’s approach to its other main business— ground transportation. The company is North America’s largest manufacturer of rail-transit equipment, with roughly 30 per cent of the market. It also has a significant presence in Europe, through wholly owned French and Belgian subsidiaries. Bombardier recently moved into the Ontario market, the third largest on the continent, with the acquisition of UTDC Inc., a maker of mass-transit vehicles like the Ontario government’s distinctive doubledecker GO Train cars. Bombardier stepped in to rescue UTDC after the ailing company had been taken over by the provincial government, which was anxious to find a buyer willing to preserve the company’s 860 jobs in Kingston and Thunder Bay. “That particular acquisition was a coup,” said Reider. “And it fits Bombardier’s other operations like a glove.”

It may well have an added advantage eventually. Bombardier holds the North American rights to the French-developed TGV high-speed train technology, a system that Bombardier is currently attempting to promote for the Quebec City-Windsor, Ont., corridor. Construction of the rail link would require at least $2 billion in public funds. If Ontario, Quebec and Ottawa decide to sanction the project, Bombardier’s close working relationship with government authorities is likely to give the company an important advantage over its competitors— and another low-cost entry into a potentially lucrative project.

BARRY CAME in Montreal with PATRICIA CHISHOLM in Toronto

BARRY CAME

PATRICIA CHISHOLM