(The Canadian Press circulated the following article on June 11.)
MONTREAL — Bombardier Inc. has been beaten by Embraer of Brazil on a $3-billion-U.S. contract and has sold its defence aviation services unit for $90 million U.S. in its continuing asset sale, shareholders learned today.
They also were told that the founding family will retain control of the Montreal-based international transportation equipment maker, despite rising disaffection with two-class share structures that enable a minority stockholder — in this case the Bombardier family — to control a company through multiple voting shares.
New chief executive officer Paul Tellier urged impatient shareholders to hold on to their depressed stock, insisting that the company “is suffering from a temporary crisis of confidence.”
Bombardier, whose non-voting shares (TSX: BBD.B) have fallen from almost $25 two years ago to $4.25 today, will emphasize consolidation and conservative management in the next few years, as opposed to the rapid expansion of the 1990s, Tellier said.
“We have to rebuild our reputation as a company that not only has big revenue but is able to generate excellent profits,” said Tellier, who quit as CEO of Canadian National Railway to join Bombardier five months ago.
“We are still a long way from restoring our corporation to a higher level of performance and its historical levels of profitability.”
Chairman Laurent Beaudoin, son-in-law of founder J. Armand Bombardier, declared that the family will keep control of the company, and he is “convinced that the interests of all shareholders will thus be better served and protected.”
He acknowledged an emotional twinge at the company’s planned sale of the Ski-Doo division that was the foundation of the enterprise. The Bombardier family is among prospective buyers of the recreational products unit, which also makes watercraft and small off-road vehicles.
Bombardier also divulged that it had bid on a 100-plane regional jet order awarded today to competitor Embraer of Brazil in a deal worth $3 billion U.S.
Tellier had no explanation of why U.S.-based discount airline JetBlue Airways opted for Embraer.
“We talked with JetBlue, and they decided to give the order to Embraer,” he shrugged at a news conference after the meeting.
However, some observers suspect Embraer, second to Bombardier in the 50-seat regional jet market, has a growing advantage with its 100-seat plane built on an all-new platform.
Bombardier’s largest jet, with 86 seats, is a stretch derivative of the 50- and 70-seat models in production, and it cannot be extended further.
Tellier said the company is satisfied with its aircraft offering, and predicted the worldwide restructuring of airlines, including Air Canada, will increase demand for regional jets as struggling carriers opt for smaller aircraft.
Beaudoin and Tellier took a roasting from many of the 800 shareholders for their ample compensation while the company’s share value has nosedived.
In addition to an annual salary of $1.92 million, Tellier was granted one million stock options when he took the job; his predecessor, Robert Brown, departed with a package worth $5 million.
“How can the board allow such an exaggeration?” demanded one woman.
Tellier said later that the market decides who gets what, and he was lured to Bombardier by the compensation package.
He said he expects Bombardier’s railway transportation division, based largely in Europe, to compensate for depressed aircraft orders. Its order book stands at $31 billion, compared with $17 billion for aircraft.
Tellier said there would be consolidation and cost-cutting in its dozens of plants, while acknowledging that European laws make it difficult to close factories and lay off workers.
Earlier Tuesday, Bombardier announced the sale of its military aviation services unit for $90 million U.S. to Spar Aerospace, a subsidiary of U.S.-based L-3 Communications Corp.
The division has held the contract to maintain the Canadian Armed Forces CF-18 fighter jets since 1986. With 950 employees in Mirabel, Que., and Bridgeport, W.Va., it generated revenue of about $125 million Cdn last year.
Toronto-based Spar, best known for developing the Canadarm robot arm used on the U.S. space shuttle, was acquired by L-3 in 2001.
The sale is subject to approval by regulatory authorities and other government bodies in Canada and the United States.
The other wing of Bombardier’s defence services business — military aviation training — is also for sale.
Tellier also revealed that he and the president of Amtrak have agreed to mediation in Bombardier’s legal dispute with the American rail passenger system over problems with its high-speed Acela trains.