Bombardier, Once the Crown Jewel of Canadian Industry, Sells its Train Division
Bombardier, the Canadian industrial behemoth, will sell its train division to French conglomerate Alstom. The Montréal-based company, which for years has gone through a financial crisis, will now concentrate on selling private jets, thus competing with Gulfstream and Dassault. Bombardier has already exited the commercial aircraft business.
Alstom will pay $10.8 billion CA to buy Bombardier Transport, which employs 36,000 people, mostly in Europe. Bombardier will be paid in cash, which it will use to pay back the substantial debt it has incurred during the development of the CSeries, an ambitious airplane project that almost drove the company into bankruptcy (the project was sold to Airbus and is now called the A220).
Bombardier was founded in 1942 by Joseph-Armand Bombardier, the inventor of the snowmobile. Laurent Beaudoin, who married Bombardier’s daughter, turned the snowmobile manufacturer into what has become one of Canada’s most important manufacturers. In 1970 Bombardier bought an Austrian transportation company that became the basis for Bombardier Transport. It has since become a substantial maker of trains and subways, with its equipment operating in New York, China, and elsewhere.
Bombardier’s Recreational Products division (BRP) had been sold in 2003 to Bain Capital, Québec’s Caisse de dépôt et placement, and the Bombardier family itself. It is now making not only snowmobiles but jet skis and three-wheeled motorcycles. Now what remains of Bombardier is almost worthless, as most of the family’s net worth and income is tied to BRP.
Beaudoin also turned Bombardier into a major airplane manufacturer. In 1986 Bombardier purchased Canadair from the federal government after the latter incurred major loses during the development of the Challenger jet, which Bombardier still sells. In 1990 it acquired Learjet, which produced smaller jets. Shortly after that, Bombardier started the conception of the Global Express, the crown jewel of its portfolio. This line includes the Global Express 7500, the most powerful and luxurious private jet available today. All indicates that the business aircraft division of Bombardier is in good financial shape.
Bombardier’s foray in the commercial aviation business was less fortunate. Although some of its initial models were successful, such as the CRJ, which Beaudoin called “one of the most financially successful airplanes in history,” the development of newer models proved difficult.
In 2003 Beaudoin left the company to make place for his son, Pierre. It turned out that the younger Beaudoin had none of the business acumen of his father. Indeed, Beaudoin fils, a Brébeuf and McGill graduate, wanted his family business to compete with the likes of Boeing and Airbus, and to do so he decided to launch a new, larger airplane, the CSeries. The CSeries costed $10 billion CA for Bombardier to develop and was way over schedule and budget.
By all accounts, the airplane performs exceptionally well, but the mismanagement of the project was such that the company had to beg for government subsidies. Even that was not enough, and Bombardier had to sell the project to Airbus. By then, Pierre Beaudoin had already been ousted. Recent reports indicated that the Québec government, which in 2015 had invested $1.3 billion CA in the CSeries, will lose hundreds of millions of dollars, which led some to call for Bombardier to be nationalised.
Those large government subsidies are the main reason why Bombardier is still alive today. A study found that over the course of its existence, the company received $4 billion CA in government handouts, which as of last week was more that its market capitalization. Laurent Beaudoin made particularly cynical use of his government connections to secure sweet deals for his company, bringing his family from its humble beginnings to wealth in the billions.
Most of the company’s government contracts were the result of blackmail. In 1986, for example, Beaudoin extorted the federal government into giving him a maintenance contract for F-18 fighter jets even if a Winnipeg company—not a foreign company—was bidding way lower than Bombardier. Beaudoin, meanwhile, made sure to go on TV imploring his employees to vote against Québec independence in the 1995 referendum, and even threatened to shut all plants in Québec if it were to separate. Curiously, the subsequent death of the Québec independence movement came with the disappearance of federal government subsidies.
The Bombardier family today owns barely more than 10% of the company’s equity, but, as a result of the implementation of multi-voting shares, has a little over half of the voting rights. Which makes them in total control of the company and of the board, making it a challenge to raise new equity. Bombardier’s board of directors is packed with family pals and has become an asylum for former politicians. Daniel Johnson Jr., for example, found a seat on the board despite having been premier of Québec for less than a year.
Bombardier is probably the most famous Canadian company. In her Dictionnaire amoureux du Québec, famous intellectual Denise Bombardier recounts having been applauded and asked for her autograph while boarding a Bombardier plane in Indonesia, despite having no relation to the family. Celebrities such as Oprah Winfrey, Bill Gates, Jay-Z, and obviously Céline Dion are Bombardier owners. Canada’s prime minister, Québec premier, and other world leaders travel on Bombardier aircraft.
Bombardier is suffering greatly from past mistakes and a slim down was necessary. Focusing only on the production of private aircrafts will probably make the company sounder and keep Quebeckers, as well as other Canadians, proud of a great company that emerged out of the Quiet Revolution.