The Bomber is back

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by L. IAN MacDONALD
National Post, Friday, July 18, 2008

The Bomber, as Bombardier is known in investment circles and even within its own executive offices, has been in a turnaround mode since Paul Tellier was brought in as CEO in 2002. Then, Tellier left in the middle of the turnaround, and Bomber's chairman, Laurent Beaudoin, resumed command of the transportation giant.

Trains, planes and snowmobiles -- that was the business Tellier took over. He sold off the snowmobile and personal watercraft divisions as non-core assets, though Ski-Doos were the heritage part of the business. He vowed to improve margins in the Bomber's urban transit and intercity railcar division, where profits were about the same as the fast food business. And he tried valiantly to get the C-Series, the company's first full-sized jet, beyond design and into production.

By his own gracious account, Beaudoin reaped the benefits of some of the hard decisions Tellier made, and saw the company's stock price and order book largely restored before handing over the reins to his son, Pierre, last fall. And it was Pierre Beaudoin, groomed as head of Bomber's aircraft division, who last weekend announced the C-2 series was finally going ahead -- a $3.3-billion project with development assistance from Ottawa, Quebec and the U. K. government. The wings will be built by Bombardier's Short Brothers subsidiary in Belfast, the fuselage in China, the rear fuselage and cockpit at its plant in suburban St. Laurent, Que., and the final assembly at Mirabel, where Bomber has essentially taken over the disused airport. If enough orders materialize for the C-Series, configured at 110 to 130 seats, it will create 3,500 high-paying jobs in Montreal over the next decade.

For both Bombardier and Pierre Beaudoin, it's definitely a step up. Bomardier's reputation in aviation has been made with executive and regional jets (the Challenger, the Global Express, the CRJ 200 and 700), as well as Lear jets from Kansas and the fuel efficient family of turboprops from its DeHavilland division in Downsview, Ont. Bombardier has carved out a big market share of these spaces, in which its only serious rival is Embraer of Brazil. But with the C-Series, the Bomber is taking on the big boys -- Boeing and Airbus --and these big dogs are very territorial. "Pierre Beaudoin is the real deal," says a former Bombardier executive from the Tellier days. "He can play."

Boeing, Airbus and Embraer will all doubtless argue that government funding constitutes subsidies. But Boeing's civil aviation technology has been funded by the planes it built for the Pentagon. Airbus is a European consortium favoured by its own governments. And Embraer, like Bombardier in Canada, is a national icon in Brazil.

In truth, many governments bid aggressively on the C-Series from the beginning. In the U. K., the Blair government invited Bombardier executives right into the cabinet office at Downing Street, and made a strong presentation for the whole thing to be built in Belfast. The McGuinty government made a serious bid for the C-Series to be built at Downsview. But for political reasons, some part of the plane, probably the final assembly, was always going to go to Quebec, as long as federal and provincial funding were in place.

The federal funding of $350-million -- about 10 on the development dollar -- has been in place since the Martin Liberals approved it in 2005. The Harper government has simply reconfirmed this, hoping to receive credit for it in Quebec without being accused of flip-flopping on Conservative positions articulated during the Reform-Alliance years, which strongly criticized the Bomber.

In Conservative urban legend, Bombardier was some kind of corporate welfare bum. In reality, according to one senior executive, the last time it accepted an export development loan was 1994, and the money has long since been re-paid. The Reform-Alliance party would blast Bombardier, only to call the company asking it to buy tables at fundraisers.

While making the usual allowance for hypocrisy in politics, the auto industry in Ontario and the oil patch in Alberta have never been held to the same standard. This year's federal budget featured $250-million in funding for automotive R&D, and the tax breaks accorded the oil industry in energy trusts alone run to hundreds of millions more.

But something different has happened with the C-Series announcement this week -- a notable absence of beggar-thy-neighbourism. For once, the English-and French-language media have been on the same page, celebrating Bombardier as the Canadian world champion it is.

 
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