SPECIAL REPORT

TYCOONS IN PROGRESS

QUEBEC'S BOMBARDIER TURNS SNOW INTO PROFIT

BRENDA DALGLISH July 6 1992
SPECIAL REPORT

TYCOONS IN PROGRESS

QUEBEC'S BOMBARDIER TURNS SNOW INTO PROFIT

BRENDA DALGLISH July 6 1992

TYCOONS IN PROGRESS

SPECIAL REPORT

QUEBEC'S BOMBARDIER TURNS SNOW INTO PROFIT

Laurent Beaudoin is filled with chagrin when he recalls the last time that he flew an airplane. Even though Beaudoin is chairman of Bombardier Inc., a Montreal-based transportation conglomerate that owns four airplane companies and manufactures some of the sleekest jets in the world, he does not fly any of them. On a clear summer day in 1970, Beaudoin, who was working towards his pilot’s licence, took a small plane for a practice flight. The plane’s wheels had just left the runway when Beaudoin decided to re-adjust his seat. Without thinking, he reached down and released a lever. To his horror, the seat snapped backwards to the rear of the cockpit. Firmly strapped to the seat, Beaudoin strained forward, barely managing to reach the controls and keep the plane from crashing. “I was just high enough off the ground,” he says, laughing sheepishly, “to kill myself.” The experience convinced Beaudoin, an accountant by training, that he was not cautious enough to fly a plane. But he was bold enough to build one of Canada’s few truly international corporations—a quintessential^ Canadian company that turned snow into profit.

In the 28 years that Beaudoin has been running Bombardier, he has transformed a modest snowmobile-manufacturing firm started by his father-in-law in a tiny garage in Valcourt, Que., into a $3-billion conglomerate with more than 26,700 employees and masstransit and aerospace interests around the world. He has also followed in the best traditions of Canadian business. Fish and beaver pelts, minerals and forests—those were the sources of wealth for the country’s earliest entrepreneurs, and for some of the current ones. Other people have gotten rich supplying the nation with railroads, buildings and bridges—and with whisky and beer. But as the country has grown more sophisticated, service companies have sprouted and Canadians have become expert at banking and insurance— Canada graduates more actuaries per capita than any other nation. And despite the national stereotypes of politeness and reserve, Canada has unleashed a string of colorful, confident tycoons, including such newspaper barons as Lord Beaverbrook, Lord Thomson of Fleet and Conrad Black.

It was Joseph Armand Bombardier, however, who invented something uniquely Canadian. As a boy in the 1920s, the mechanically inclined Bombardier spent his spare time tinker-

ing with small toys and machines. At 15, he built a crude snowmobile on narrow runners powered by an old Ford motorcar engine. Although his father, a farmer and merchant, wanted his eldest son to be a priest, young Bombardier persisted. He learned English in order to take correspondence courses in electrical engineering and mechanics. Eventually, in 1926, when Bombardier was 19, his father relented and built a small gas station for his son in Valcourt. Bombardier married and settled into a successful business. But he spent the slow winter months, when few automobiles were running, trying to perfect a snowmobile. His determination grew even stronger after his two-year-old son died tragically in January, 1934, from a bout of appendicitis—snow had

closed the roads and prevented Bombardier from getting the child to the nearest hospital in Sherbrooke.

Three years later, Bombardier produced the first working model of the snowmobile with commercial potential. It was an awkward-looking, tank-hke vehicle that could carry 12 people and was able to travel over otherwise impassable snow because of its distinctive track wheels at the back and skis at the front. Fifty years ago in July, Bombardier formed a company to manufacture the vehicles. Soon the infant firm was selling them across Canada—family doctors were among the most eager customers—and exporting them to other snowbound countries, establishing the tradition of looking abroad for business opportunities. But by the end of the

decade, snowplows were beginning to open roads in the winter and the big snowmobiles were no longer needed. Armand Bombardier went back to the drawing board and modified his machine for other uses. He developed a muskeg tractor for traversing northern swamps and a forestry tractor used in the logging industry. It was the first of many times that Bombardier would prove to be an adaptable company.

In 1959, Bombardier finally produced the vehicle that he had dreamed of as a boy, the small recreational Ski-Doo. He actually called it the SkiDog, but the tail fell off the “g” on a prototype and the new name stuck. Ski-Doos replaced dog teams as the vehicle of choice in Northern Canada, and in the South they soon created a new winter sport. Meanwhile, Beaudoin, who had married Bombardier’s daughter Claire while they were attending the University of Sherbrooke’s master of commerce program, won over her father, as well, after he successfully turned around a money-losing sawmill in 1962. Bombardier invited his son-in-law to join his company the year before he died in 1964. Two years later, at 28, Beaudoin became president. The company continued to turn out snowmobiles, building a sound financial base during the boom years of SkiDooing—until the energy crisis of 1973.

When snowmobile sales plummeted after the first big oil-price increase, Beaudoin decided, like Armand Bombardier before him, that the firm needed to change course. It was the end of the first phase of the company’s history. “We were looking for where we could diversify to use the talents, like welding and machining, that we had developed in the organization,” says Beaudoin. “And we wanted one that wouldn’t follow the same business cycle as our recreational vehicles.”

In 1974, the company, with the encouragement of the Quebec government, entered the masstransit business by winning a contract to produce subway cars for Montreal. Over the next several years, the company won contracts to supply various kinds of railway cars in Canada, the United States and Mexico. Then, in 1982, the firm was awarded what Beaudoin calls “the order of the century,” beating out its outraged American competitors to supply 825 subway cars to New York City. Earlier this year, Bombardier continued its expansion into mass transit, buying some assets of UTDC Inc. from the Ontario government.

The firm’s next diversification, into the aerospace industry, began in 1986 when Bombardier bought Canadair Ltd., a government-owned air-

craft manufacturer that made business jets and amphibious aircraft. “After urban transit, we were looking for a third leg,” says Beaudoin. “But we would not have gone to aerospace if the Canadair opportunity hadn’t come up, because we could not have afforded it.” The Canadair acquisition was soon followed by the purchases of other financially troubled aircraft companies: Short Bros. PLC of Northern Ireland in 1989; Learjet Inc. of Wichita, Kan., in 1990, and de Havilland of Toronto early this year. Learjet was the only one not bought from governments or with government assistance. Last year, Bombardier’s aerospace division accounted for the bulk of its $107.7-million profit.

Analysts who follow Bombardier note its skill at striking deals with government. One Toronto financial analyst, who asked to remain anonymous, says: “Other people, when they go to buy something like Shorts or de Havilland, look at the assets and say, ‘What am I prepared to pay for that?’ Bombardier turns the thing on its head and says, ‘What is the government trying to achieve and how much should I charge them to meet their policy objectives?’ ” Some analysts contend that Bombardier has bought valuable companies at low prices. “A lot of the strategic moves they’ve made are just about to pay off,” says Fred Schilling, an analyst with Nesbitt Thomson Inc. in Montreal. “The key is that all their acquisitions were made very cheaply. If you buy at 10 cents on the dollar, all you’re risking is a dime. And if you can turn it around, it can be worth a dollar.”

Others say that the company has assembled a collection of chronic money-losers that cannot be turned around. In fact, few Canadian companies have prospered by working closely with government. Historian Michael Bliss, author of Northern Enterprise, a history of 500 years of Canadian business, compares Bombardier to the A. V. Roe Co. of Canada, which built a prototype of the jet airliner but never actually developed it, and designed the ill-fated Avro Arrow fighter aircraft in the 1950s. “Bombardier, like Avro, is a company that has thrived on doing the government’s bidding,” says Bliss. “You can do awfully well out of government, but you can also get sloppy and uncompetitive.”

Now, Beaudoin is lending his time to a different problem. He is co-chairman of a coalition of Quebec businessmen who are speaking out in favor of federalism. But it was a controversial federal government decision to award a maintenance contract for CF-18 aircraft in 1986 to Bombardier’s Canadair subsidiary rather than to a Winnipeg company that contributed to the West’s opposition to the Meech Lake constitutional agreement. Beaudoin’s support for federalism is not surprising: his company relies on contracts from the federal government and other provinces. As well, he points out, Canada has one of the highest standards of living in the world. “When you’re at the top, it is easier to go down than it it is to go up,” says Beaudoin. “Quebec has been an asset to Canada and Canada has been an asset to Quebec. It would be a grave mistake for us to destroy that overnight.” For Beaudoin, who knows how to build a company, recklessly abandoning assets is simply bad business.

BRENDA DALGLISH in Montreal