LOUD N OISES AT BOMBARDIER

OUD N OISES AT BOMBARDIER

I For Laurent Beaudoin, the 59-year-old chief executive of Montreal-based Bombardier lnc.. 1997 was
a bumpy ride. First. Bombardier’s Sea-Doo, a sit-down water bike that had blasted past stand-up
models like Kawasaki Heavy Industries Ltd. ‘5 Jet Ski to sales growth of more than 30% a year, be-
gan to sputter. By August. a growing chorus of complaints about waterway congestion, noise. and
safety had forced Bombardier to cut production. and unhappy investors were selling stock. Some 81
billion in market value disappeared in a few weeks.

2 The next month, stockholders were rocked again when a political flap cost the company’s mass
transit division a lucrative Mexican subway car contract. These troubles. combined with Bom-
bardier’s long struggle to turn around its money-losing Learjet Div.. ended the wmpany’s hot growth
streak. After a five-year ride in which operating profits raced ahead by an average 39% a year, the
maker of trains, planes, and snowmobiles had been stopped cold. Net earnings for the fiscal year end-
ing this month are expected to be flat at $285 million, on a paltry 5% sales gain, to $5.9 billion. And
at around 19, Bombardier stock remains roughly 20% below its mid-1997 high.

3 None of that means Beaudoin is swearing off risky innovations such as the Sea-Doo. Instead, he’:
diving in deeper. To rev Bombardier back up, he’: counting on a bevy of new products-everything
from the Global Express, a top-of-the-line corporate jet, to a new series of New York City subway ars.

4 That has convinced some investors that Bombardier’s setback is nothing but a short-lived squall.
Indeed, analyst Peter A. Razenberg of Toronto’s TD Securities Inc. forecasts net income will rise
33% for the coming fiscal year, to $377.8 million. as sales grow 24%. to $7.3 billion. Adds John G.
Ambrose, a portfolio manager with Toronto‘: Nigel Stephens, one of Bombardier’s largest share-
holders: ‘The stock market is focusing on the disappointing results in personal watercrah. but seems
to be ignoring other aspects of the company which have much better growth potential.”

5 Certainly, Beaudoin appears to have good reason to be unruffled: He has faced much worse. in
1973, eight years after he took charge at age 27, the company’s Ski-Doo snowmobiles came under at-
tack as unsafe, polluting gas-gunlers. As the energy crisis ground on, Ski-Doc sales-then more than
90% of Bombardier’s $127 million in annual revenues-began to melt away.

lUGE LEAP”

6 Beaudoin determined” to diversify. Over the next two decades, he engineered a series of ambitious
purchases that have built Bombardier into a premier worldwide manufacturer of transportation equip-
ment. The shifi has brought balance to Bombardier ’s product line-and kudos for its CEO. Beaudoin
has “done a remarkable job moving from snowmobiles to Global Expresses,” says Joe Leonard, pres-
ident of the aerospace marketing unit of Bombardier partner Allied Signal line. “That is a huge leap.“

7 Much of the company’s growth has come from new products, long its forte. Snowmobiles were
primitive and cumbersome devices until inventor J. Armand Bombardier figured out in the late 195os
how to mass-produce a user-friendly model. Today, Bombardier’: annual snowmobile sales top $400
million. Beaudoin, the son-in-law who took the helm a year after the inventor died, has continued t

CA5; 1%
I7-2
‘n start with the Learjet as. I‘
3 3″‘ ‘”5″ B°'”b”‘di°’ b° ’61:.” keep ” up? Th‘ )3: irfnffciintgijrental flishts. The $8 milli:
midsize vim P”°°“ ‘“‘° ‘ “3””“ ‘’“‘.°‘.’”b’° 0‘ “on J.’ 2000 will be a plane with even greater‘
plane boasts I35 orders outstanding. Hitting thettarmac Al ad it has won ova such mama)
potential: the 70-seat Canadair Regional Jet Series if S Inc which has 25 on mac,’
as American Eagle, the commuter division of American Air: 3‘ features __ says Pam
Bombardier did – very good job of Iislenins *° “5 ‘*’°”‘ “3‘ °” gm -3.; at} Plane’: I
PaPt>as. American Eagle’s senior vice’P“5id°’“ 7°‘ P””””‘5’ W o pr” ‘. ml (Re . nu.
windows and ease of servicing Th‘ P””° “*5 “kc” °ff 3° “’3 “‘_” A”° ‘menu 9 l h3’°”‘l)-
a European consortium, last month opted not to build a cornpelIlor- Afl3l)’5‘5_°5″“’3 1:“ 91¢!
for 70-sealers may reach $20 billion over 15 W373. and fo” “‘°“’v B°mb”d’“ M5 I mm”
to itself.
9 These planes join strong Bombardier names like the Challenger 604. a lon8″’f“8° Vmkbody
jet designed to ferry up to ll passengers on routes stretching over 4,000 miles. Microsoft
Corp. Chairman William H. Gates lll recently paid $21 million for one. Analyst Rozenberg of
TD Securities expects pretax profits at the $3 billion aerospace division to soar 41% in 1998, to
$328 million.
10 Still, Bombardier’: planemakers can’t just cruise-they’re in the midst of a furious dogfight with
rival Gulfstream Aircraft Inc. in the market for ultralong-range corporate jets. Gult’stream’s top-o{._
the-line jets have long been the ultimate executive perk, and in Bombardier they face their most aeri- j
ous head-to-head competition yet. With its entrant, the Global Express, Bombardier wants to carve‘
out a larger share of that market. The company says the plane. which will be able to ferry 16 or so
people from New York to ‘lbltyo nonstop. should reach customers later this year. Gulfstream is al-
ready delivering its newest planes and has sold more than 70, claiming a superior cabin pressure sys-
tem that will make long rides more comfortable. But the Global Expres is expected to fly faster and
longer and has won customers like us Vegas architect Anthony A. Marnell. designer of the Mirage
I casino hotel. “They’ve really gone out and designed a 21st century airplane,” says Mamell. who‘:
flying an old-model Gulfstream but has ordered a Global Express. l
While Bombardier appears to be holding its own in the battle so far, serious coocerru remain i
about whether the ultralong-range market will ever pay off for either player. Richard T. Santulli.
chairman of Executive Jet Inc.. the largest buyer of corporate jets, believes demand for this latest it-‘;
eration may be running out. That would be bad news for Bombardier, which says it has more than 731
on order but must sell at least 100 to break even on its investment of about $280 million. Bombardier
says it expects strong demand.
Concerns about other business lines-particularly Bombardier’: $1.2 billion transportation unit-
have begun to lift. Countering the stalled Mexican efiort arrderratic and decliningsales in European
recent big-ticket wins in the U.S. Bombardier is building 680 highly automated New York City sub-‘
waycarsfornearly $1 billion andAmtralt’sfirsthigh-speed trains, settohittheBoston-Washirrgtoq
route by 1999, for $419 million. And Bombardier’s Mexican prospects may also be on the rise
On Jan. 12, Mexican ofiicials told a visiting Canadian trade delegation that bidding for the subway”
cars will reopen in two to three months.
13 Elsewhere, Beaudoin is introducing entirely new products, such as his electric “Neighborhood We
hicle,” or NV. After brainstorming sessions on the kind of vehicles people will drive in the futuri-
Bombardier executives began researching this souped-up golf cart. Aimed at gated or retirernfllf‘
V communities. it features a windshield and seatbelts and whizzes along at up to 25 mph Says Po50‘.
Chief James V. Murray, whose force is using one to patrol Peachtree City. Ga.: “It’s a spectacular W7
tle machine.” introduced last year. analysts say sales of the $8,000 carts could hit 333 million ill‘!
year. Also in the works: an unmanned hovering aircraft to detect buried land mines, as well as I
sporty all-terrain recreational vehicle to be introduced this spring that will compete with pool!“
models now sold by Honda Motor Co. and Yamaha Corp.

innovate. “We’re selling technology, and we’re selling new products,” he says. “That’s what malt
us a success.”

Source: Joseph Weber in Montreal. with Wendy Zellner in Dallas and Geri Smith in Mexico City. “Loud Noises at Bombardier

Business libel; January 26. I998.

EXAMINATION QUESTIONS;

Part 1
Case “Loud Noises at Bombardier”
1. What in your opinion are the key success factors in this ca

2. Name and justify audits that have to be performed as the result of your definition of key success factors?
Using “Myth of Excellence” concept design strategic positioning of Bombardier.

Part 2
Named five major strategic challenges and justify your
selection.

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