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Purser: Bombardier Redux

Once again, the aircraft manufacturer is at a crossroads, of a sort.


September 28, 2007
By Richard Purser

Topics

On August 25, Canada’s two nationally distributed daily newspapers, the
Globe and Mail and the National Post, reported the same news story on
the front pages of their business sections, the Globe’s Report on
Business and the NP’s Financial Post. The RoB headline read: “Clouds
part for Bombardier.” The FP headline read: “Bombardier Expectations
Crash.”

Well,
were RoB’s Brent Jang and FP’s Sean Silcoff actually reporting on the
same event? Let’s look at the subheads of the two stories. The RoB
subhead said: “Business jet sales help firm post $117-million profit
but investors wary.” The FP’s subheads said: “Share price falls 8%” and
“To have lowest flagship jet delivery in 13 years.”

Bombardier
had just announced its results for the quarter ending July 31. It had
net income of US$117 million, up from US$23 million in the same period
a year earlier.

So that was an improvement!

But
Bombardier also used the occasion to reveal that it would deliver only
18 of its 50- seat Regional Jets in the next fiscal year, the lowest
figure in 13 years and a formidable drop from this year’s deliveries of
54 CRJ200s.

That was not an improvement, and that’s what the stock market looked at and that’s what the FP’s headline writer looked at.

But
things were different in another sector of the company’s operations.
Deliveries of business jets (Challengers and Learjets) totalled 41 in
the latest quarter, a sharp gain from 29 in the second quarter of 2004,
and orders were placed for 49 more.

That’s what the RoB’s headline writer looked at.

Both
reporters wrote essentially the same story, but with the facts in
different order. The opening words of the RoB’s Jang were: “Strong
deliveries of business jets helped troubled Bombardier Inc. post a
second-quarter profit yesterday.” The opening words of the FP’s Silcoff
were: “Bombardier Inc. yesterday said it will deliver just 18 of its
flagship 50-seat regional jets next year.”

Both reporters moved
on to deal with the other topic, but those opening words justified the
disparate headlines. And both were accurate.

Bombardier is a
devilishly difficult company to deal with either as a journalist or an
analyst or an investor. Its various lines of business are subject to
different market forces and are rarely synchronized in their ups and
downs.

It runs five aviation businesses: regional passenger
jets, business jets, regional passenger turboprops, water bombers, and
a sharedownership program for business jets in competition with the
likes of Warren Buffett. And, for a touch of variety, it is the world's
largest manufacturer of railroad passenger equipment. Of course, it all
started with snowmobiles, but the Recreational Products unit was spun
off a couple of years ago.

(For a fascinating account of the Bombardier saga, see Peter Hadekel’s 2004 book “Silent Partners.”)

As
for Bombardier’s future, it must soon make perhaps the most momentous
decision in its checkered history – whether to expand beyond its
50/90-seat RJs to a new 110/130- seat model. Either a go or a no-go
decision could make or break the company, or at least its passenger jet
division, and no one seems to be quite sure which decision will lead to
which result.

If the decision is a ‘go,’ the federal government
will surely be involved, as it always is – as is reflected in the
subtitle of Hadekel’s book: “Taxpayers and the Bankrolling of
Bombardier.”

Ottawa has already offered up to $350 million in
aid for the proposed new jetliner which, as Hadekel himself points out
in the September 16 issue of Maclean’s, would surely trigger yet
another trade dispute with Brazil, home of Bombardier’s fierce
competitor Embraer. And if the new aircraft is to be built, there will
have to be initial orders for it. Given the economic state of the
airline industry, this will doubtless require purchase assistance from
the government’s Export Development Canada. And EDC was recently
revealed by the bankruptcy filings of Delta Air Lines Inc. and
Northwest Airlines Corp. to be already embarrassingly on the hook for
the purchase of Bombartdier RJs by those companies.