The Corporation: Strategies
In February, Chinese railroad officials will descend on La Pocatire, Que., a town of under 10,000 nestled beside the St. Lawrence River. From its sprawling plant here, Bombardier Inc. has taken a commanding position in the North American market for mass-transit equipment. At La Pocatire, the company has built subway cars for New York, double-deck Superliner cars for Amtrak, and monorail cars for Walt Disney World Co.
Now, the Chinese want Bombardier to share this technology. Under a tentative joint venture announced last November, Bombardier will help manage China's largest passenger-rail factory. The agreement would give Bombardier a toehold in the world's largest market for mass-transit gear.
If the deal goes through, it will be just one more example of Montreal-based Bombardier's emergence as a global powerhouse. In Malaysia, Bombardier recently won a contract to build a 20-mile light-rail system in Kuala Lumpur. In the U.S., Bombardier's 50-seat Regional Jet is helping revolutionize commuter airlines by letting carriers provide economic jet service to small cities. And in Europe, where it built the high-tech railcars now hauling cars and buses through the Chunnel, "I would put Bombardier in the same league as Siemens, GEC-Althsom, or ABB," says Eurotunnel Chairman Sir Alastair Morton.
SNOW JOB. All this has helped Bombardier more than triple sales since 1989, to $3.4 billion in fiscal 1994, while profits were up 157%, to a record $125 million. Bombardier's stock, at 17, has grown at a compound annual rate of 33%. Fiscal 1995, which ends on Jan. 31, looks even better. Through the first three quarters, Bombardier's income soared 40% on a 12% sales gain.
That's a far cry from its early days. When CEO Laurent Beaudoin took the reins of Bombardier in 1966, he was just 27, and the company--with only one major product, the Ski-Doo snowmobile--had annual sales of some $15 million. "I had to learn on the job," the 56-year-old Beaudoin recalls. Along the way, Beaudoin has made Bombardier a global force in three industries: rail and mass-transit equipment; aerospace, including business and regional jets; and consumer products such as snowmobiles and watercraft (table).
Beaudoin accomplished the makeover through a risky strategy of buying a string of nearly bankrupt companies. Now, he vows to double Bombardier's sales over the coming five years without making major acquisitions. It's an ambitious goal, since many of Bombardier's markets are mature and the competition cutthroat. But Beaudoin is at his best when facing a challenge. His first big one came less than a year after he joined Bombardier as comptroller in 1963. Only nine months after he arrived, his father-in-law, Joseph-Armand Bombardier--who had invented the snowmobile--died of cancer. Beaudoin was promoted to general manager, and in 1966 to president, just as the snowmobile craze swept North America.
FLYING RIGHT. When the 1973 energy crisis wiped out all but 4 of the 100 snowmobile manufacturers, Beaudoin frantically diversified. The key deal was a contract to make 423 subway cars for Montreal. Today, Bombardier has a third of the North American market for mass-transit equipment and five plants in Europe. "Their manufacturing knowhow is among the best in the world," concedes Wolfram Martinsen, president of archrival Siemens Transportation Systems Inc.
It wasn't until Beaudoin sought to take Bombardier into aerospace in 1986 that his savvy at dealmaking became apparent. His first target: Canadair. The government-owned aircraft maker was drowning in debt and had only one viable product: the Challenger, a large business jet. The company looked hopeless, and "we knew nothing about aerospace," Beaudoin declares.
Maybe not. But Beaudoin "has an incredible sense of smell," says board member and Harvard business school professor Hugo Uyterhoeven. At Canadair, Beaudoin scented the chance to move into two niches where his company could excel: business jets and regional aircraft. To round out Canadair's product line, he snapped up three other sick plane makers: Boeing's hemorrhaging de Havilland unit, business-jet pioneer Learjet, and Short Brothers, Northern Ireland's largest employer. Since then, his management team has turned all four around by melding them into a competitive whole.
In early 1990, for example, Wichita's Learjet was in a seemingly uncontrollable nosedive. But Beaudoin didn't sack Learjet President Brian Barents, who had a credible turnaround plan. What the company needed was money. That fall, Lear announced it would spend $100 million on a new intercontinental business jet, the Lear 60. In 1992, Beaudoin sank over $200 million more into the development of a new midsize jet: the Lear 45, due in 1996.
Here's where the acquisitions paid off handsomely: The Lear 45 would have cost an extra $40 million if Lear hadn't been able to farm out the fuselage to Short and turn over the wing to de Havilland. That helped Lear price the plane at just $6 million, which will make it "their breakthrough product," says Fred George, a pilot and a senior editor at Business & Commercial Aviation.
Over the coming five years, "most of our growth will come from such new products," says Beaudoin. He also has big expectations for the Global Express, a new long-range jet that cost $800 million to develop, (page 66) and the $200 million Regional Jet (RJ). Although the 50-seat RJ got off to a slow start when it hit the market in 1992, it is now taking off. Before the RJ, "there was no jet in the 50-seat range with decent economics," says SkyWest Inc. Chief Executive Jerry C. Atkin. With the RJ, SkyWest can break even flying just 25 people from Salt Lake City to Rapid City, S.D., vs. the 90 to 100 people it took with bigger jets. In December, Lufthansa's regional carrier, CityLine, ordered eight RJs, pushing Bombardier's backlog to 42.
CHINA CHOO-CHOO. The other engine of Bombardier's growth is a stronger push into new geographic markets. Last year, 53% of Bombardier's sales came from North America and 41% from Europe. But in November, Bombardier cinched its largest Asian contract yet: a $400 million role in Kuala Lumpur's $2 billion light-rail system.
The joint venture Bombardier is negotiating with the China National Railway Locomotive & Rolling Stock Industry (LORIC) has far bigger potential. Under the deal, Bombardier would bring LORIC's plant near Qingdao up to world-class standards. Railcars built there would then be sold throughout Asia. If the deal succeeds, "Bombardier would have a substantial lead over its competitors," says Normand Roy, an analyst at Montreal's Levesque Beaubien Geoffrion Inc.
Beaudoin has already learned a few hard lessons about operating in emerging markets. After the company paid $22 million to buy Concarril from the Mexican government in 1992, it assumed it had a lock on Mexico. But just six months later, it was beaten by a Spanish competitor for a contract to supply cars to the Mexico City subway.
Only then did Bombardier hire Miguel Yoldi, a Mexican consultant, to run Concarril. Yoldi's advice: "It's very difficult to do business in Mexico if you don't develop a relationship and build trust." Bombardier quickly dropped a legal challenge to the Spanish deal and began cultivating Mexican officials. Although the peso crisis will slow its projects, Beaudoin still considers Mexico one of Bombardier's better prospects.
Still, globalization hasn't come without problems. Although Bombardier beat out stiff competition to win a $575 million contract to build shuttle-train cars for the Eurotunnel consortium, costs soared as specifications changed repeatedly. In mid-1993, Bombardier filed a claim for an additional $600 million. After arduous negotiations, Beaudoin settled for just $113 million in cash, plus 25 million shares in the Eurotunnel project, then worth some $150 million. If the shares, which have since fallen to around $125 million, recover, Beaudoin says Bombardier will still break even on the project.
The Chunnel debacle has caused Bombardier to lose $70 million in its transportation-equipment unit in the past two fiscal years. But thanks to diversification and booming sales of products such as Sea-Doo watercraft, Bombardier's overall net income still rose.
It's Beaudoin who personally steers the company through such turbulent waters. Few executives can keep up with his relentless pace. "He's a workaholic," says Bank of Montreal's Barrett. "He just loves what he does, and he does it 150% of the time." Barrett should know. During a weekend at Beaudoin's hunting lodge on an island in the St. Lawrence, Beaudoin "successfully harassed me on why it might be a better idea to have a plane with a Canadian flag on the tail," Barrett recalls. The pressure paid off when Barrett traded in the bank's French-built Falcon 50 for a Challenger.
Beaudoin, who relaxes by playing tennis, riding horses, and zooming through the Quebec woods on a Ski-Doo, is showing no signs of retiring very soon. But when he does, the succession decision will belong to him and other members of the Bombardier family, who control over 60% of the corporation. Does that mean Beaudoin's son Pierre, who at 32 is managing the division that makes Ski-Doos and Sea-Doos, will succeed his father? His father insists that is far from sure. But whoever it is, he'll find himself at the throttle of one of North America's most thoroughly international companies.By William C. Symonds in Montreal, with Farah Nayeri in Paris, Geri Smith in Mexico City, and Ted Plafker in Beijing