Bombardier Launches New Jet | The Canadian Encyclopedia

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Bombardier Launches New Jet

Her project name was Orient Express. Later, her corporate creator, Montreal's Bombardier Inc., settled on the Global Express instead.

This article was originally published in Maclean's Magazine on September 2, 1996

Bombardier CRJ200
The CRJ200 Series is the world's quietest and most environmentally friendly commercial jet aircraft. The aircraft's capacity and fuel efficiency allow airlines to provide jet services on routes where low load factors make larger jet aircraft unprofitable (courtesy Bombardier).
Global Express
Bombardier's new business jet was launched in Sept 1996 (courtesy Maclean's).

Bombardier Launches New Jet

  My she's yar. There she sits, all 91,000 lb. of her when she's fully tanked, the aluminum cladding on her double-crank wings polished up like the finest silverware. Standing at her rear, admirers can follow the sweep of her beautifully scalloped fuselage, a physical feature that, say her engineers, will help her cruise at Mach .88. They say she will do 6,500 nautical miles - Riyadh to Washington - without refuelling; that she will be the finest long-range business jet money can buy. Big money, that is. Stripped bare, before the gold-faucet, crushed-red-velvet installations, she sells for $46 million and change.

Her project name was Orient Express. Later, her corporate creator, Montreal's Bombardier Inc., settled on the Global Express instead. Five years after Bombardier announced its tentative intention to take the huge risk of entering the small, sexy, high-priced end of aerospace, the first Global Express was ready to roll out this week in Toronto to be ogled by such corporate titans as Power Corp. chairman Paul Desmarais, who is still flown about in a Challenger 601 and could probably do with an upgrade. The Global Express won't have her first flight until late September, but for Bombardier the swish launch marked the jet's big day.

"Now," says BOMBARDIER CEO Laurent Beaudoin, "people can touch it. They can see that the product is real." He says that the company has firm orders for more than 50 jets (interested buyers should note that ordering up a Global Express requires a $250,000 nonrefundable deposit); that this will be a billion-dollar business for Bombardier three years down the road; that the Global Express will swiftly capture at least 50 per cent of the ultra-long-range business-jet market.

Ten years ago, Bombardier had expanded far beyond its Ski-Doo beginnings - into defence and subway cars. But it was not in the aerospace business at all. Today, aerospace accounts for close to half the company's $7.1 billion in sales. The acquisition of Canadair Ltd. from the federally owned Canada Development Corp. in 1986 started the aviation binge, which took the company to Northern Ireland with the acquisition of Short Brothers PLC, Wichita, Kan., with the acquisition of Learjet Inc., and Downsview, Ont., with the purchase of de Havilland Inc. That the division grew aided by government largesse is well-known and has been much examined. But it can be said too that under Bombardier's ownership and Beaudoin's leadership the parts have come together to create a "family of aircraft," as they like to say in-house. The family includes commercial aircraft - the de Havilland Dash 8, and the Canadair Regional Jet, for which Bombardier last week announced a $432-million, 16-plane sale to Mesa Air Group Inc. of Farmington, N.M. And a business-jet group that runs the gamut from the Learjet 31A (a light corporate jet at roughly $7 million), up through the Canadair Challenger 604 (yours for $27 million), to the Global Express, which is the capper.

It is also the upstart. The high-end business-jet market has been dominated by Gulfstream Aerospace Corp. of Savannah, Ga., since 1966 when it introduced the Gulfstream II, the first high-speed, large cabin business jet, which quickly became the standard-bearer for rock stars and high-flying CEOs. So when Beaudoin says, as he did in his elegant Montreal office last week, that he is going to take half of the market, he is speaking directly to Gulfstream.

Through the 1980s, if Gulfstream saw creeping competition at all, it was from Dassault of France, makers of the Falcon series of jets. Then in 1991, Bombardier announced that it was set to design and produce an ultra-long-range business jet, aiming for 5,650 nautical miles. No aerospace company anywhere was offering a business jet that could fly farther than 4,500 nautical miles without refuelling. Though the company was a long way away from making a production decision, Bombardier then saw the sales appeal of a plane that could service global markets, jetting not just American ambassadors to Saudi Arabia, but Japanese electronics kingpins to New York City, or London-based bond traders to Singapore. "It was the first time that Gulfstream was ever faced with a competitor that was going to have an airplane that was newer, more capable, and would capture the top end of the market," says John Lawson, president of Canadair's business aircraft division.

Gulfstream responded quickly, not only by trumpeting that it too would produce an ultra-long-range version, but that it would fly farther - 6,000 nautical miles - and be first to market. It was never really a race. Beaudoin did not formally launch the Global Express program until December, 1993, when Bombardier had 30 firm orders in hand. And he announced that the project would not be a solo flight for his company, but rather a risk-sharing partnership that would see the likes of Japan's Mitsubishi Heavy Industries Ltd., which designs and manufacturers the plane's highly swept wing, share the plane's $800-million development cost. By then, both Bombardier and Gulfstream had targeted 6,500 nautical miles for their new planes. But the Bombardier people said then and say today that they were prepared to sacrifice early market entry in order to create an airplane from "a clean sheet of paper," as Lawson says, as opposed to the "derivative" course taken by Gulfstream.

Each company claimed aeronautic superiority from the start. Last fall, when Gulfstream rolled its first GV into its flight-testing program, the spitting match between the two companies extended to an advertising campaign that had Bombardier, first, claiming that its product would trump the competition. Gulfstream followed with its own two-page ad digging Bombardier for having so far produced a plane on paper only. "What they've ended up with in essence is a warmed-over GIV that has extended range," says a withering Lawson, who blames Gulfstream for breaking what he claims - and this seems a stretch - are the industry's Marquess of Queensberry rules.

Beaudoin says that this week customers will be able to see for themselves that "we definitely have a better product, better cabin, better performance, at the same price." The plane has its boosters in the analysts community. Jon Reider, who follows transportation stocks for Richardson Greenshields in Montreal, says he believes the Global Express will be "the plane of choice, the one everyone aspires to." Even those who have a "hold" recommendation on the stock are cautious not because of the Global Express but because other segments of the company's business are not growing as quickly as had been expected - the personal watercraft industry, including the Bombardier Sea-Doo, had been forecasted to grow by 30 per cent in North America this year, and instead will likely post a more modest 10-per-cent increase in unit sales. Still, the whopping Global Express price tag marks a product that will clearly be vulnerable to financial setbacks within customer companies as well as economic slumps in foreign markets.

But Lawson argues this is a plane in for the long haul. The Global Express, he says, "has growth capability inherent in the design, which will allow that design to grow through the next 25 to 35 years and for it to be a modern airplane that enters the next century. The GV is a derivative of a plane that started out in the '60s."

Lawson believes that the Bombardier family of airplanes will have a pull-through effect, urging clients to move ever up the business-jet price chain. "Gulfstream," he says dismissively, "is a one-product family, one that is owned by Mr. Forstmann and is not committed in the long term to aviation in the same sense that Bombardier is."

"Mr. Forstmann" is Theodore Forstmann, a New York leveraged buyout artist immortalized in Barbarians at the Gate as a principled financier, which to other players in that tale seemed absurdly oxymoronic. "Ted Forstmann fervently believed junk bonds had perverted not only the LBO industry, but Wall Street itself," said the book's authors. The style of Forstmann Little & Co. was to "buy companies to work side by side with management, grow their business, and sell out in five to seven years."

Forstmann bought control of Gulfstream from Chrysler Corp. in 1990, restructured the company and, by 1994, returned it to profitability. He struck an international advisory board to assist the company in penetrating foreign markets. On this board sit the likes of former U.S. secretary of state George Shultz and Hollinger Inc. CEO Conrad Black, whose "geographic area," or sales region, is listed by the company as "Canada."

Forstmann now intends to take Gulfstream public, which he has tried before, only to pull the prospectus from a disinterested investment market. Going back to market has led to much gloating at Bombardier. In registration documents filed in early August with the Securities and Exchange Commission in Washington, Gulfstream has detailed how the chief purpose of the initial public offering (IPO) is to repurchase stock held by Forstmann Little Partnerships. Assuming a $23 (U.S.) share price, the net proceeds to the company - after the Forstmann payments and expenses associated with the underwriting, led by Goldman, Sachs & Co. - will be, well, nil. Meanwhile, the company's debt will very nearly triple to $540 million and its interest expense will almost double to $45.1 million. Executives at Bombardier have clearly enjoyed reading the Gulfstream specs. "We are industrials, we develop an airplane for the long term," says Beaudoin. "We don't develop an airplane to go into the market and make an IPO and get out." Adds Lawson: "The IPO would be more of a concern to us if [a long-term commitment to aviation] were the purpose of it," he says. "Reading the IPO one sees that the money that is being invested from the market is not going into Gulfstream as a company, is not going into the future of product development, is not going into cash flow. The money is coming out and going to the investors within Forstmann Little and to people in the management team at the expense of the company."

A key member of that team is Bryan Moss, who up until the spring of last year had spearheaded the Global Express project only to switch horses mid-gallop and move to Gulfstream. Lawson, who ascended to Moss's job, says sparringly that "it created a dilemma of credibility for Mr. Moss to have been so closely associated with the Global program and to move to a direct competitor." (The shifting loyalties of Moss, who could not be reached for comment, can perhaps be explained by his base salary at Gulfstream last year of $840,000, a signing bonus of $440,000, a performance bonus of $422,000 and more than $4 million worth of in-the-money stock options as of the end of last year.) Moss's move is less irksome an issue for Beaudoin now that he sees that Gulfstream has just 63 firm orders for GVs. "They should have an order book at least a year more than us," he says, meaning he would be concerned if Gulfstream had a 25-plane lead as opposed to roughly 10. "And that's not what they have."

Still, Gulfstream is a powerful player with a known name brand and a solid customer base that consists of 125 of the Fortune 500 companies. When Edward Phillips, air transportation editor in the Washington bureau of Aviation Week, toured Gulfstream recently, he says he was impressed by the company's building of two models concurrently - the GV and the GIV-SP - and by the cohesiveness of operations, which belies the picture of a company run by craven financiers. Phillips, too, sees the GV and Global Express as extremely similar aircraft, deflating Bombardier's attempts to have its creation seen as a virgin aircraft. That said, Phillips believes, and he says he is being liberal here, that the market over the next 15 years for planes of this type could reach 600. If Phillips is right, there does not need to be a victor in this to see both companies profit from this latest gambit. Bombardier says it will break even when it produces its 100th Global Express, and will be pleased with 250 plane sales for the model. (The company will take planes 1 and 5 for itself. "When I fly it, I sell it," says Beaudoin.) "I think the market is large enough for two players," says Phillips. "But certainly not for three." The market appears to agree. Dassault announced three years ago that it had decided against making an ultra-long-range business jet of its own.

Lawson suggests that the market sharing will not go as smoothly as that. "If we were to sit down five years from now, we wouldn't be having the same conversation about our competition," he predicts, referring, of course, to Gulfstream. The Global Express, he says, bodes "trouble" and "complications" for the team in Savannah. "They're very constrained in what they can do," he charges. "Their time is running out."

Back at de Havilland, on a horrendously gummy Toronto day, Mitsubishi workers in royal blue overalls scrum under the wing of the second Global Express in production. Her external parts have been recently mated, as they say. Her time has just begun.

Maclean's September 2, 1996