In a major shakeup at the family-controlled Bombardier Inc., the aerospace and train manufacturer announced today that Pierre Beaudoin would step down as president and CEO, while his father, Laurent—who led the company for more than 30 years before becoming chairman—will retire.
Former United Technologies Corp. executive Alain Bellemare will take the helm as CEO, while Pierre Beaudoin, after nearly seven years as CEO, would become executive chairman in place of his father. The appointments take effect on Friday.
Although it was abrupt, the shakeup was not surprising. The company’s stock has languished amid executive departures, delays in two different jet development programs, a credit-rating cut, lowered profit targets, layoffs and and a strike. Investor patience wore thin some time ago. The question now is whether a new CEO can restore confidence. The fact that Bombardier shares fell 11.5% in the day’s trading is not an auspicious sign.
“I would think that we could have had a bigger change in leadership,” says Neal Dihora, a senior analyst with Morningstar based in Chicago, Ill. “You might say, ‘Well they just changed their CEO, isn’t that big enough?’ But everyone else is sticking around. It’s sad because the new CEO still has to go answer to the chairman of the board.”
But Karl Moore, a management professor at McGill University says Bellemare’s appointment is a positive change for the company. “My understanding is that Alain will be the CEO, and Pierre will be there to advise him, and also to look on the merger and acquisition side of the house,” says Moore. The two have known each other for a number of years, Moore adds.
“Because they know each other well, I think they know they can work together, and they’ve agreed to what the rules are,” says Moore. “Now, we’ll see how it works out, but I think it should be fine and it should work out because of the knowledge and the relationship they have, and Alain’s long experience as someone who really knows how to execute in the aerospace industry. Execution is what Bombardier really needs right now.”
Bellemare is only the second outsider to run Bombardier since the company began operating in 1942 as a snowmobile maker in rural Quebec. He resigned as president and chief executive officer of UTC Propulsion and Aerospace Systems in January. From 2002 to 2008, he was the president of Pratt & Whitney Canada, a key supplier to Bombardier.
The changes come as the company has seen its aerospace division struggle due to impending cash restraints for its costly CSeries passenger jet program, which continues to be delayed, and has some worried that Bombardier won’t meet its expected launch of the aircraft by the end of 2015.
Observers have said Bombardier’s CSeries jet has a lot of promise, designed from scratch with cutting-edge technology: “an ultra-lightweight, ultra-quiet, ultra-fuel-efficient commercial airliner that can reach near transcontinental distances from a measly 4,000 feet of runway,” Philip Preville wrote for Canadian Business in October 2013. But the project’s continued delays has mired the company as development costs continue to soar. The aircraft manufacturer was expected to begin flight tests four months ago on the jets, but due to an engine failure those have continued to be postponed. The program has now cost Bombardier US$5.4 billion, up from US$4.23 billion a year ago.
On a conference call Thursday, Beaudoin said he was “feeling good” about CSeries certification by the end of the year, and that the program, which was meant to compete against Boeing and Airbus in the 100-plus seat aircraft category, was meeting or exceeding his expectations. Beaudoin has said he’s counting on the CSeries to help the company almost double sales by the end of the decade.
Including a $1.4-billion previously disclosed cost, which was mainly related to the company’s decision to suspend its Learjet 85 business-jet program in January, Bombardier posted a fourth-quarter loss of $1.6 billion, or 92 cents per share, compared with a profit of $97 million, or 5 cents, a year earlier.
Revenue was up 12% to $5.96 billion in the quarter ended Dec. 31, 2014.
The troubled company announced during the release of its latest quarterly results that it is also suspending its dividend, and is looking to bolster its balance sheet by accessing debt markets for up to US $1.5 billion and issuing about $600 million of new equity.
Bombardier’s announcement that it would suspend its dividend payments on both Class A and its widely held Class B shares is expected to give the company room to explore “other initiatives” to reduce debt.
- The inside story of Bombardier’s $4-billion gamble on a super quiet jet
- CSeries jet delays aren’t the only late product launch hurting Bombardier
- Bombardier’s CSeries problem in one chart
- As CSeries flounders, Bombardier’s Q-Series planes are selling like hot cakes
- The biggest layoffs in Canadian history