Companies & Industries

Plenty of turbulence ahead for Bombardier’s new CEO

Alain Bellemare’s availability to take over may have prompted the Beaudoins to move

This article originally appeared in two parts on L’actualité. Translation by Julie Barlow.

Former Bombardier chairman Laurent Beaudoin

Bombardier founder and former chairman Laurent Beaudoin. (Graham Hughes/CP)

Skies are looking cloudy for Canadian aerospace and transportation giant Bombardier. On Thursday, the company announced the appointment of a new CEO, while delivering news of $1.2 billion in losses in 2014, and its $2.1 billion re-financing plan. The company is even considering closing divisions to reduce its debt.

But the news getting the most attention is the appointment of Alain Bellemare as Bombardier’s new president and chief executive officer. Bellemare will replace Pierre Beaudoin, CEO since 2008 and son of Bombardier founder Laurent Beaudoin.

Bombardier’s shares fell 67% under Pierre Beaudoin. Troubles have been brewing in recent years due to difficulties with Bombardier’s new family of commercial jets, the CSeries. The program was delayed four times and is now two years behind schedule, increasing costs and delaying revenues.

It’s a huge thorn in Bombardier’s side. The delays are draining cash flow and probably explain Bombardier’s decision, announced a few weeks ago, to put its Learjet program on ice. That forced Bombardier to record a pre-tax special charge in the fourth quarter of 2014 of approximately $1.4 billion.

Until the end of January, Alain Bellemare was former chief executive at United Technologies Corp. in Connecticut where he oversaw the Pratt & Whitney division.

Alain Bellemare is a francophone Quebecker, with a degree in engineering from the University of Sherbrooke, an MBA from McGill university and a diploma from France’s National Higher School of aeronautical constructions (ENSICA). By a happy coincidence, he left his job at UT just a few days ago, following the reorganization after the departure of UT’s Canadian CEO, Louis Chênevert.

Bellemare knows the aviation world well. At Pratt & Whitney, he supervised development of the engine motors Bombardier is using for the CSeries. His sudden availability may have influenced the decision to shift Pierre to the chairmanship and his father Laurent to President Emeritus.

Laurent Beaudoin will have spent half a century at the helm of Bombardier. Under his leadership, Bombardier grew from a small snowmobile manufacturer into one of the giants of Canadian industry, with 74,000 employees in 60 countries and sales of 20 billion dollars.If Laurent Beaudoin was a professional athlete, he would be inducted into the Hall of Fame right now.

But Bombardier’s new president is facing an uphill battle.

The new CEO has to come up with enough capital to make sure Bombardier can get through the next few months. And while he’s at it, he has to make sure the new CSeries jet gets certified. Bellemare has to win the favour of airlines, get the CSeries into production, fill his order books in the aviation and rail transport sectors and reassure markets that have lost confidence in his company.

It’s not going to be easy.

The plane and train manufacturer is not about to crash, but Bombardier’s control panel is making shareholders nervous. The available short-term capital resources Bombardier needs to stay in the air fell by a billion dollars at the end of the last fiscal year, to 3.8 billion dollars.

The company is burning a lot of money, and there are fears it won’t have enough fuel to make it to its final destination: getting the CSeries into production and securing a revenue stream.

The company claims there’s nothing to worry about. But the announcement of a refinancing plan of up to 2.1 billion dollars (including 1.5 billion refinancing debt and 600 million dollars from issuing new shares), along with suspension of dividends to shareholders, is making financial analysts’ concerns look justified.

Alain Bellemare now has to convince lenders to advance capital at a reasonable rate in spite of Bombardier’s difficulties. And it won’t be easy to sell new shares with falling stock prices. Shares fell 15% within hours of the announcement of Bellemare’s appointment as CEO, after weeks of declining prices.

Bombardier says it will not try to refinance on the market unless the conditions are right. If they’re not, the company might have to shut down one, or even hundreds of its divisions.

The best way for Bombardier to avoid dramatic scenarios will be to make sure the CSeries gets certified by the end of the year, as expected. Flight tests so far have had good results. As of February 10, the SC100, the smallest plane in the series, had registered 967 flight hours. The inaugural flight of the SC300 is scheduled for the end of March.

This good news should help boost Bombardier’s sales. The company is aiming to sell 300 aircraft before entry-into-service, though only 243 sales have been finalized. Airbus, in comparison, has sold 4000 of the A320neo planes that compete for the same market. Last week, Air Canada announced it was buying 61 Boeing 737 Max planes, the new repowered version of its popular model, also a competitor of the CSeries.

In short, the battle’s not over for Bombardier, especially given that the airplanes are not even in production yet.

The scenario would not be as disastrous if Bombardier’s Learjet 85 program hadn’t been put on hold. Sales in the aeronautic sector increased 11.9% in 2014, to $10.5 billion. In the transport division, sales increased 9.7% to $9.6 billion.

Alain Bellemare is running a company with a great history, and possibly a great future, but only if he manages to get the CSeries off the ground and through the heavy turbulence ahead. It’s a bad storm. And Bombardier will need a solid captain.

Former editor-in-chief of Quebec business magazines Commerce and Affaires Plus, Pierre Duhamel has been reporting on Quebec business since 1986.