(The following report by Dan Wascoe appeared on the Star Tribune website on May 21.)
MINNEAPOLIS, Minn. — Planes, trains and snowmobiles made Bombardier Inc. famous in its glory days during the late 1990s. Now the Montreal-based company, maker of 24 light-rail cars for Minneapolis’ Hiawatha line, is trying to turn a profit after two years of red ink and unwelcome headlines.
It has faced lawsuits in other cities over late deliveries, equipment maintenance and the death of a driver who was testing a train near Kennedy Airport in New York. Like other companies, it also has suffered financial fallout from the Sept. 11 attacks. And it is trying to rebound from earlier management decisions to expand into areas that caused financial strains. In an attempt to get company profits back on track, it appointed a new chief executive in 2003.
In Minneapolis, the company has been late in delivering rail cars and is making repairs at the behest of Metro Transit officials who are preparing to begin service June 26. The original scheduled start of April 3 was postponed, partly because of a strike by drivers, mechanics and office workers.
Bombardier (pronounced bom-bard-YAY) is no stranger to Minnesotans. Its small regional jets fly in and out of Minneapolis-St. Paul International Airport under the logos of Northwest Airlines and its partners.
The company also was known for its Ski-Doo and Lynx snowmobiles, Sea-Doo watercraft and Johnson and Evinrude motors. But it sold those enterprises last year to the family of Jean-Armand Bombardier, who founded the company in 1942.
Under Paul Tellier, Bombardier’s chief executive since January 2003, the company’s target this year is to improve the performance of its wide-ranging rail products. Bombardier says it remains the world’s leading producer of passenger rail equipment and services, and the cars it is building for Metro Transit in Minneapolis are similar to those operating in England, Germany, the Netherlands, Sweden and Turkey.
The $74.7 million rail-car contract with Metro Transit is small by the company’s standards. The company reported total revenue last year of $21.3 billion (Canadian).
After producing tracked snow-traversing vehicles during its first 30 years, Bombardier began building rail cars in 1974 for Montreal’s subway. In 1987 it acquired the railcar designs of two well-known companies: Budd and Pullman. It has bought rail-related enterprises in Austria, Belgium, France, Germany and Mexico, among others.
Tellier, who previously turned around the Canadian National Railway, said in March that Bombardier is shuttering seven of its 35 rail plants in 15 European countries because some were operating at less than 50 percent capacity. He also is slashing payroll by 6,600 people (about 18.5 percent of its workforce) and revising manufacturing and bidding procedures.
The main goal, considering losses of $89 million (Canadian) last year and $615 million the year before, is to make money. A contributing goal is to bring more uniformity to a manufacturing process that is not a one-size-fits-all enterprise. The company typically tailors rail cars for each customer. In Minneapolis, for example, Metro Transit officials say the Hiawatha line cars are a unique combination of parts, even though the parts themselves are standard.
In the company’s latest annual report, Tellier said every rail contract “is essentially a one-off project,” rather than a routine, mass-produced project. What’s more, rail parts, made in different places, sometimes must be cobbled together by hand in assembly plants.
Software to refine parts design
To help make parts fit correctly the first time, Bombardier two years ago placed an order with Tecnomatix Technologies, Ltd., in Nashua, N.H. A Tecnomatix software program is intended to refine how parts are designed and built — especially the fine tolerances of pieces meant to fit together.
Bill Siegel, a Tecnomatix spokesman, said that should reduce the need to take a train body off an assembly line to be worked on individually.
“You can imagine how much time and expense this can save with large parts,” he said. The software now is helping Bombardier make equipment for the London subway.
Richard Stoneman, an analyst with Dundee Securities in Montreal, said some of Bombardier’s past problems arose from a common manufacturing phenomenon: “Virtually all mechanical systems have teething problems. Usually, an initial batch of deliveries will have problems. You don’t know everything … until they’ve been in service for a couple of years.”
No. 3 in airplanes
While trains accounted for nearly half of Bombardier’s revenue in fiscal 2004, even more came from sales of airplanes. Bombardier is the world’s third-biggest airplane producer, after Boeing and Airbus, and its strongest products are regional airline jets with 60 to 86 seats and corporate planes, including Learjets. It faces competition from the Brazilian company Embraer, which also makes regional jets.
The company concentrated last year on squeezing more productivity from its airplane business. It also pressed the Canadian government to continue helping customers finance their purchases of Bombardier jets.
Stoneman said that sales of regional jets for airlines remained relatively strong after the Sept. 11 terrorist attacks in 2001, while the market for smaller business jets fell. But now the corporate buyers are coming back, he said.
On the other hand, last year was “a wipeout in the train business” for Bombardier, he said. “You hit divots about every 10 years in that business.”
Lawsuits, critics
While selling, installing and testing its rail products and services to many transit agencies, Bombardier also has faced lawsuits and public criticism.
One messy case centered on equipment and services it provided to Amtrak for its high-speed Acela service between Boston, New York and Washington, D.C. Years of allegations about late deliveries and inadequate maintenance finally led to a settlement in March. A consortium including Bombardier will get up to $42.5 million (U.S.) of the $70 million that Amtrak had withheld.
In another matter, the company was sued in September by the family of a 23-year-old train operator who was killed during a test run near Kennedy Airport in 2002. He was crushed by unsecured concrete blocks that shifted during derailment after the train was driven faster than specified. Bombardier and the Port Authority of New York and New Jersey were accused of not taking adequate safety precautions.
The automated service, called AirTrain, opened in December. Other Bombardier AirTrain systems operate at Newark International Airport and San Francisco International Airport. A similar system is being built at Dallas-Fort Worth International Airport.
Hélène Gagnon, a Bombardier spokeswoman, said, “All the cases are different. All have different explanations.” Some have prompted the company to change its procedures, she said. Stoneman said that because of Tellier’s restructuring, and new capital from a stock sale last year, “I think you’ll see moderate profitability this year.” But he added: “It’s going to take another year before you start developing some real traction.”
Improvement can’t come too soon for Bombardier’s investors. The company’s stock price tumbled from more than $26 Canadian) a share in September 2000 to less than $3 in March 2003. But a month later the company announced its largest-ever supply contract–$7.9 billion (Canadian) to help refurbish London’s subways. And this year Bombardier’s board offered Tellier additional incentives to stay for at least three more years.
At the close of trading Thursday Bombardier’s share price had crept back to $5.59.