Bombardier’s Soaring Success

January 1, 2001 by Laura Byrne Paquet
The 50-seat Canadair Regional Jet assembly line at Dorval, Quebec.

A willingness to take risks, as any modern business maverick will tell you, is one of the keys to corporate success. And Bombardier Inc., a Canadian corporation that builds everything from motorized recreational products to trains and planes, seems to be living proof of the maxim.

For example, one of the corporation’s main units, Bombardier Aerospace—headquartered near Montreal International Airport—has design and production facilities in three countries. Its manufacturing facilities include Canadair and de Havilland in Canada, Learjet in the United States and Short Brothers in the United Kingdom.

In just 14 years, Bombardier has become one of the world’s largest civil aircraft manufacturers. To track this part of the corporation’s success, it’s useful to examine the history behind Canadair and how it became part of Bombardier Aerospace.

Canadair was founded in the waning days of World War II, when the Allies were hungry for planes of all descriptions. Employees of Canadian Vickers Ltd., the Canadian branch of a British company, formed Canadair on Oct. 3, 1944. The firm took over operation of a new Vickers plant in Cartierville, northwest of Montreal, a month later.

The company was soon churning out PBY-5A Canso amphibian airplanes to aid the war effort. But as soon as the war ended in 1945, company president Benjamin W. Franklin switched gears to focus on modifying DC-3s and C-47s for civilian use. Between 1945 and 1949, the company converted more than 250 planes, selling them to fledgling operations such as Trans-Canada Airlines and Canadian Pacific Airlines.

Despite this booming success, however, the company couldn’t raise some $2 million it needed to buy the Cartierville plant it had leased from the Canadian government. So, reluctantly, the government allowed Canadair to be sold to the Electric Boat Company based in Groton, Connecticut. The company eventually became General Dynamics Corporation.

In the General Dynamics days, Canadair—still based in Canada—made a variety of civilian and military aircraft—everything from anti-submarine planes to the T-33 jet trainer. Most notably, it built 1,815 F-86 Sabre jet fighters between 1949 and 1958. The company also branched out into a dizzying variety of other products: Nuclear reactors, missile components, military land vehicles, curtain walls for building construction, mail sorting equipment, cable cars and even a “baby belt”, a device designed to soothe pregnant women’s labour pains.

In 1953, Canadair reached its staffing peak with 13,495 employees. And three years later, beginning with the CL-41 Tutor jet trainer, the company began producing planes from scratch, instead of simply licensing and adapting designs from other aircraft makers in other countries.

Some of the risks Canadair took in those days paid off. For example, Canadair was one of the first companies to make water bombers to fight forest fires. Today, it is the only company in the world making such planes, and its CL-215 and CL-415 water bombers are used around the world.

Other risks were not so profitable. The CL-84 military aircraft, which first rolled off the assembly line in 1964, is a case in point. “It was a leading-edge type of technology when it was under development,” says Steven Payne, curator, aeronautical technology at the Canada Aviation Museum in Ottawa. A revolutionary aircraft designed to fly three ways—normally, like a short takeoff and landing aircraft, and like a helicopter—the CL-84 was ahead of its time. So far ahead, in fact, that it was a marketing disaster.

“The CL-84 had great promise but, well, you’ve got to be able to sell in your own country first before you try to sell to anybody else. And the Canadian Forces really had no use for it. They wouldn’t buy it. So nobody else bought it,” says Ron Pickler, co-author—with Larry Milberry—of the book Canadair: The First 50 Years.

Another innovative plane was the CL-44, which featured a tail that swung open to make it easier to load cargo. “We would have sold that to the Americans during the Vietnam War if it hadn’t been for Mr. Diefenbaker and his government messing it up,” says Pickler, who worked for Canadair between 1954 and 1986, ultimately as the director of public and media relations. “So there again, that was not really the success that it should have been.”

Sales disasters like the CL-84 and the CL-44 ate into profits, and the aircraft industry went into a general slump in the 1970s. By 1975, Canadair was down to 1,563 employees and General Dynamics was looking to sell it or close it. Unwilling to see one of Canada’s last remaining aircraft companies shut its doors, the Canadian government bought Canadair in January 1976. Later that year, Canadair took perhaps the greatest risk of all: It decided to start making corporate jets.

“There was a lot of opposition to the program, funnily enough more from Canadians than from anywhere else,” says Pickler. “The airplane had a big market in the United States and was selling well in the States. But at the time, our people would go to Canadians, and the Canadians would say: ‘Oh, I’d never buy a Canadian airplane. You know they can’t build a business jet.’”

Canadair management was convinced the program could succeed. But some teething pains—along with a series of bitingly critical episodes of the CBC current affairs program The Fifth Estate— took the wind out of the Challenger jet’s proverbial sails. The Challenger would eventually drive the company $1.35 billion into debt. The Canadian government wrote off the debt in 1984 and decided to sell the company. Shortly after that—in 1986—Bombardier showed up with its chequebook in hand.

In retrospect, it was a remarkably gutsy move on the part of Bombardier. The 44-year-old company had never made a single plane. But it understood transportation, and it knew how to re-invent itself. After all, it had done so more than once.

Bombardier was founded by Joseph-Armand Bombardier, who put runners on an old car engine to make the first prototype snowmobile in 1922. But everyone thought he was crazy, so he started a garage and put his dreams for the snow vehicle into storage. Then, in 1934, his young son Yvon was struck with appendicitis in the middle of a snowstorm. There was no way to get him to the hospital—Bombardier’s snowmobiles were in pieces—and, tragically, the boy died. Bombardier began to work on the snowmobile again, convinced there was a need for the machine. Finally, in 1942, he opened his company and began selling snowmobiles to the military.

After the war, the machines found many commercial uses. In 1959, Bombardier began making a recreational version, the Ski-Doo, which soon saw riders around the world taking to trails on winter weekends. But competition and the oil crisis of the 1970s severely affected business, and Bombardier had to branch out or die.

The company focused on other forms of transportation, eventually building New York subway cars, Vancouver’s SkyTrain, the monorail at Walt Disney World, all-terrain vehicles, and shuttle trains for the English Channel tunnel, among many other things.

When Bombardier took on Canadair, it began applying assembly techniques from other transportation fields to its new acquisition, but not without resistance. “There was a lot of opposition raised by the manufacturing people to Bombardier’s manufacturing practices when they first started, largely because the people who were responsible for running the manufacturing side of Canadair had been doing it this way for years,” says Pickler. “And in came this…upstart company who had never built an airplane in their lives.”

But the effort paid off. Before Bombardier took over, a Canadair plane just off the line could spend a month in “pre-flight,” a stage where further modifications would be made to the plane before it could fly. “But nowadays, when an airplane comes off the line, it flies on the same day. That’s the sort of improvement that Bombardier has brought about,” adds Pickler.

Eventually, the Challenger jet caught on with buyers around the world, and today it and its successors—such as the long-range Global Express corporate jet—are some of Bombardier’s most popular products.

Bombardier’s decision to take a risk on Canadair was completely in character for the company, says aerospace industry analyst Ted Larkin of HSBC Securities (Canada) Inc. in Toronto. “It’s been growing its business by doing two things…acquiring undervalued, poorly run divisions from other companies, and then secondly improving those operations by increasing R&D spending and developing new products.”

Not only did Bombardier make the Challenger jet a Canadian business success story, it took another huge risk when it decided to use the Challenger as a basis for a whole new type of aircraft: the 50-seat Canadair Regional Jet, known as the CRJ.

Before Bombardier broached the idea for the CRJ, short-run air trips were handled by noisy, uncomfortable turboprop planes. The general wisdom in the industry was that it was too expensive to run a jet for just 50 passengers. “People firmly believe that aircraft of that size were better economically if they were turboprops, which is indeed true on short-haul trips,” says Colin Fisher, a media relations analyst with Bombardier Aerospace. But, while a turboprop plane has a maximum range of about 400 miles, a regional jet can fly between 1,200 and 1,500 miles before needing to be refueled.

This solved a pesky problem for airlines.

The North American air market, in particular, is run on a hub-and-spoke model, where little planes from smaller cities fly into large hub airports such as Pearson International in Toronto, Vancouver International Airport and Montreal International Airport. Once there, passengers switch planes to fly on to other destinations. For years, this arrangement seemed cast in stone in the aviation industry. Why would you need a powerful jet to make the short hop from, say, Cleveland to Toronto? “There was a great deal of skepticism in the aviation industry globally that this would be a success. No one had done a brand-new 50-passenger jet,” adds Fisher.

And yet Bombardier was prepared to take a risk. It found several airlines interested in the concept. Germany’s Lufthansa City Line was the first airline to put a CRJ into service, in November 1992. And Comair, a Delta Connection airline based in Cincinnati, was the first North American carrier to order a CRJ. It now owns the world’s largest fleet of CRJ aircraft with 100 of the roughly 400 planes currently in service.

Comair also faced doubting Thomases when it decided to supplant its fleet of turboprops with the untried jets. Comair management was convinced passengers would prefer jets to turboprops, but “Wall Street didn’t exactly feel the same way,” says Meghan Glynn of Comair’s public relations department. “(Some people) thought that Comair had really gone over the edge!”

But for both Comair and Bombardier, the CRJ has been a classic case of “who’s got the last laugh now?” Since it started using the CRJ, Comair’s passenger traffic has soared from two million annually to more than seven million. And Bombardier Aerospace has become the cornerstone of the enormous Bombardier empire that has manufacturing plants in several countries.

“Aerospace is the key at this point to Bombardier’s earnings picture. It represents 55 per cent of revenues. But more importantly, it represents about 80 per cent of the company’s earnings,” says stock analyst Larkin.

Regional jets have captivated the airline industry for several reasons. First, they’re more cost efficient to run than larger planes. In many cases, aircraft have to operate with about a 50-per cent “load factor” to break even on a trip. That means that an airline would have to sell 65 seats on a 130-seat jet, but it can break even with just 25 passengers on a 50-seat CRJ.

That cost efficiency has made it possible to build new markets slowly. An airline can begin serving a new market with a CRJ—after all, the cost risk is relatively low. Once people get used to the idea that they can fly directly from point A to point B, and business goes up accordingly, the airline can either increase the number of flights per day or switch to a larger aircraft, says David Gillen, a professor of transport economics at Wilfrid Laurier University in Waterloo, Ont.

The CRJ also allows airlines to offer “point-to-point” jet service, bypassing congested hub airports to link two smaller cities directly. This is particularly popular in the eastern and Midwest United States, and in Europe, all of which have lots of cities within a reasonable distance and lots of overloaded hubs, says Gillen. For instance, he explains, instead of flying from Madison, Wisconsin to Chicago—a hub—by turboprop, and then from Chicago to Columbus, Ohio, it is now theoretically possible—and economically feasible—to fly directly from Madison to Columbus by jet.

Even large cities can benefit, if they don’t traditionally have a lot of traffic between them. Fisher, of Bombardier Aerospace, gives the example of a business trip from Toronto to Washington, DC, which used to require passengers to connect through a U.S. hub airport. “It costs you half a day to do that,” says Fisher. “Now, you have a direct flight that takes you about an hour and 20 minutes, and it’s so much more efficient. You can now comfortably go down to Washington and do a day’s business and come back on the same day.”

Passengers seem to like the convenience. They also like the fact that the CRJ is quieter than a turboprop.

People who find themselves seated between the propellers in a turboprop plane find that the props “go in and out of sync, so you’ll hear wow-wow-wow-wow,” says stock analyst Larkin. “Not many people can take more than 60 minutes of that before they find it a little bit uncomfortable.”

So single-handedly, Bombardier created an entirely new aircraft market—and for four years, it had that market entirely to itself. Now, several other companies make regional jets, including Brazil’s Embraer. Bombardier isn’t resting on its laurels, though. It is working on two other regional jets to create a “family” of planes with interchangeable parts and similar training procedures. The first 70-seat CRJ-700 is slated to enter service in early 2001, while an 86-seat model is due for release two years later.

The 70-seat plane “is about two years ahead of its next competitor, which is Embraer, with a 70-seat airplane. A two-year lead’s very, very important in this market,” says Larkin.

As of last fall, Bombardier had orders or options for almost 1,400 CRJs, in addition to the 400 already in the skies. The company had obviously gotten the hang of the aircraft business.

The Canadair purchase was only the first in a series of aircraft manufacturing purchases for Bombardier. It went on to acquire de Havilland; Short Brothers of Belfast, Northern Ireland, and Learjet Corporation of Wichita, Kansas. Fisher says Short Brothers was the oldest continuously operating aircraft manufacturer in the world. “It supplied the Wright Brothers, literally.”

In the 14 years since it bought Canadair, Bombardier has become the world’s third-largest civil aircraft maker, behind behemoths Boeing and Airbus. Revenues for Bombardier Inc., including non-aircraft units, for the fiscal year ended Jan. 31, 1999, were $11.5 billion, and the firm employed 53,000 people around the world. “(It’s a) great company,” says Gillen. “I think it’s a good long-term investment. They’ve really positioned themselves very well across all the modes of transportation.”

Not bad for a company that started by making snowmobiles out of converted cars. It all goes to show the value of taking a few risks.

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