Tellier Ousted from Bombardier | The Canadian Encyclopedia

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Tellier Ousted from Bombardier

WHEN PAUL TELLIER took over the reins of BOMBARDIER INC. in January 2003, it appeared the family-controlled aerospace and rail giant was finally going to allow an independent boss to call the shots. Wrong. Too bad for Tellier, a turnaround artist ousted with 13 months left in his contract.

This article was originally published in Maclean's Magazine on December 27, 2004

Tellier Ousted from Bombardier

WHEN PAUL TELLIER took over the reins of BOMBARDIER INC. in January 2003, it appeared the family-controlled aerospace and rail giant was finally going to allow an independent boss to call the shots. Wrong. Too bad for Tellier, a turnaround artist ousted with 13 months left in his contract. For Canadian taxpayers, who've given or loaned billions of dollars to Bombardier and who are now being asked to fork over additional sums, more's the pity.

While the company's initial communiqués were at best opaque about why Tellier was leaving, industry speculation has been rife with theories as to the reasons the Bombardier family would suddenly ditch its hand-selected CEO. Everyone seems to agree it can't just be that Bombardier, a one-time Canadian success story, has been ailing miserably, or that in his 23 months on the job Tellier was unable to either boost profits or bolster the sagging share price. The Montreal-based giant has fallen so low that bond-rating agencies have slapped junk status on its debt. For the family, who've watched the company grow from a humble snowmobile maker into a respected global manufacturer of planes and trains, that must have felt like a slap in the face. Still, no one has been blaming Tellier for these woes - and it's not likely they are the reasons he was dumped.

That said, even Tellier's successes often involved actions that were difficult for the family to abide. He launched a painful but necessary restructuring program, including embarrassing writedowns worth $2.2 billion. Almost a third of the company's jobs, 22,000 out of 75,000, have been cut since his arrival. He also raised $1.2 billion by issuing new shares and cut the dividend in half, both diluting the family's holdings and slashing its income. He was instrumental in establishing a more independent board of directors and in making the company more transparent. But Tellier's most controversial move, especially for the nostalgic members of the Bombardier clan, was to sell the poorly performing snowmobile division - the foundation on which J. Armand Bombardier built the company. Still, not only did the family permit the sale, it participated in the consortium that bought it.

The reason for Tellier's departure given by Laurent Beaudoin - son-in-law of the company's founder, Bombardier's executive chairman and now the lead player in a newly created three-person Office of the President - was that Tellier hadn't planned on continuing with the company after his three-year term as CEO was over at the end of 2005. Some read this as a suggestion that Bombardier is about to embark on such a major undertaking that it needs a person at the helm who will commit to a longer term - or that the plans for this new venture have opened an unbridgeable rift between Tellier and Beaudoin.

Many observers speculate the issue that split the two men was whether to move forward with a new line of jets, called the C-series, which would carry between 110 and 135 passengers. The market for Bombardier's regional jets is stagnating, and the new size is a better fit for short-haul flights, the latest answer to airline woes. However, the project would require a massive upfront investment, and would pit Bombardier against industry leaders Boeing and Airbus. Beaudoin, who's been with Bombardier for four decades and who led it through a growth spurt in the '90s, is seen as more bullish on the new planes than Tellier. "Without the C-series," says Joseph D'Cruz, a University of Toronto management professor who specializes in the aerospace industry, "Bombardier's aerospace business is not sustainable."

Whatever the cause for Tellier's departure, the result is indisputable: the family is back, firmly in charge. And perhaps, observers suggest, that's what was really at issue. In the new president's office with Beaudoin is his son, Pierre, who many think is being groomed to take over. Two independent directors followed Tellier out the door; with the promotion of Beaudoin's son to the board, that leaves the family holding five of the 13 seats, compared to four of 14 before the recent events. Last year, Tellier tried, without success, to revamp the company's ownership, replacing the dual-class share structure that guaranteed family control with a one-share-one-vote system. The existing formula allows the family, which owns 16 per cent of the equity, or less than one-fifth of the business, to call the shots. Which it just did, by showing Tellier the exit.

The changes at the top have precipitated a crisis of confidence. On the day Bombardier announced that Tellier was out, the stock price fell 17.3 per cent, to a dismal $2.11. While the turnaround was taking longer than both Tellier and investors had expected, the market was still confident in Tellier's ability to improve Bombardier's fortunes, says aerospace analyst Cameron Doerksen of Dlouhy Merchant, a Montreal-based investment firm. Most of the company's problems are due to events out of the CEO's control - notably, the near collapse and slow recovery of the global airline industry after 9/11. "Confidence in the company, which was fragile, is even weaker now that Tellier's gone," Doerksen says.

Perhaps this should give politicians pause before they throw new money Bombardier's way. Yet that doesn't seem to be the case. Both Quebec and Ottawa have already indicated they would provide financial help to Bombardier. The federal government is preparing to hand over more than $300 million to the company as part of a planned bailout of Canada's aerospace industry that could be worth more than $1 billion.

More than 60 years ago, J. Armand Bombardier wanted to create a vehicle that could "float on snow." He couldn't possibly have imagined the thin ice that lay ahead.

BOMBARDIER TAKES A DIVE

BOMBARBIER INC.

Head office: Montreal

Founded in 1942 by Armand Bombardier

No. of employees in early 2003: 75,000

No. of jobs cut since then: 22,000

Share price at peak in 2000: $26.30

Share price at Dec. 17 close: $2.15

Maclean's December 27, 2004