(The Globe and Mail published the following column by Douglas Goold on its website September 1.
TORONTO — History at Bombardier — or the “New Bombardier” as the company is calling it — literally stops and starts with Paul Tellier. If you look at the history of the company on its Web site at http://www.bombardier.com , you will see that it starts in 1942 with the founding of L’Auto-Neige Bombardier Ltée, which manufactured tracked vehicles that could operate on snow-covered terrain. The history rolls through the decades and comes to an abrupt halt with an entry for Dec.13, 2002, which says — without explanation — that Robert Brown left Bombardier and Mr. Tellier was appointed as president and chief executive officer, effective Jan. 13, 2003.
Few needed to be told that Mr. Tellier had been a remarkable civil servant as Clerk of the Privy Council, the top public servant in Ottawa, and an equally impressive CEO who turned a lumbering former Crown corporation, Canadian National Railway Co., into one of the best railways anywhere. He was a brutal, yet very effective, CEO.
While it may have been a surprise to outsiders that a civil servant could succeed as an executive, it was not a surprise to those who had made the same transition. “Why is Paul Tellier such a good manager?” Stanley Hartt, himself a senior civil servant turned executive, asked rhetorically in Report on Business Magazine in October, 2000. “Because he was a good civil servant. He ran a huge operation and he used to have to make similar decisions. If you can manage the government, you can manage anything.”
When the interviewer suggested to Mr. Tellier, who laid off 18,000 at CN in five years, that some considered him “an arrogant bully” who motivates through fear, he replied: “If my company did not perform for a few quarters, Wall Street or Bay Street would not give me a second chance, and therefore the people who work for me understand: deliver, or someone else will.”
Mr. Tellier has brought the same focus and clarity of purpose to Bombardier. He did that, as he said at the annual meeting in June, by not “trying to hide anything; our company is suffering from a temporary crisis of confidence — a situation explained by our recent performance. I want to repeat here this morning that this performance is unacceptable to Bombardier shareholders.”
That crisis of confidence, which was based on real problems, had taken the share price from a high of $26 in 2000 to $2.50 last March. Mr. Tellier responded to the problems with a series of quick, decisive actions, highlighted by a comprehensive recapitalization program announced in April.
All of the major elements of that program have now been successfully completed. They include an equity offering of $1.2-billion; the reduction of the dividend by about 50 per cent; the sale or winding down of assets at troubled Bombardier Capital, the company’s financing arm; the booking of writedowns as a result of more conservative accounting practices; the sale of non-core assets such as the Belfast City Airport and the Military Aviation Services unit; and the successful renewal of bank lines in Europe and North America.
This was topped by last week’s news of the sale of the recreational products division for $1.2-billion to U.S. private equity giant Bain Capital (50 per cent), a group led by Bombardier chairman Laurent Beaudoin (35 per cent) and the Caisse de dépôt et placement du Québec (15 per cent). The “new” Bombardier will be a simpler, more focused combination of two equal-sized businesses: aerospace and rail transportation. Profit will count for more than revenue.
Investors have taken note. Shares rose 8.5 per cent to $5.45 over the following two days, finally settling at $5.31 on Friday, despite the announcement of modest, if on-target profit of 5 cents a share for the second quarter. But before investors rush out to buy more shares — I regrettably own some that were bought at a much higher price — they should ask themselves not what Mr. Tellier has done, which is impressive, but what lies ahead.
That isn’t so pretty. Aerospace margins are razor-thin, so more cost cutting is essential; the regional aircraft market is being hampered by the number of major airlines operating under bankruptcy protection or amid major restructurings; and the business aircraft market is being hurt by the weak economy and by a cultural shift away from pampering executives. Brazil’s Embraer continues to be a formidable competitor, and is ahead in the development of a larger regional jet. Meanwhile, Bombardier is increasingly reliant upon government financing.
In a report last week, Dominion Bond Rating Service concluded “it will take at least two to three years to turn Bombardier around.” As Mr. Tellier said at the annual meeting, “We have to be patient.”
(Douglas Goold is a Toronto-based writer and broadcaster. He can be reached at dgoold@rogers.com.)