For Laurent Beaudoin, the 59-year-old chief executive of Montreal-based Bombardier Inc., 1997 was a bumpy ride. First, Bombardier's Sea-Doo, a sit-down water bike that had blasted past stand-up models like Kawasaki Heavy Industries Ltd.'s Jet Ski to sales growth of more than 30% a year, began to sputter. By August, a growing chorus of complaints about waterway congestion, noise, and safety had forced Bombardier to cut production, and unhappy investors were selling stock. Some $1 billion in market value disappeared in a few weeks.
The next month, stockholders were rocked again when a political flap cost the company's mass transit division a lucrative Mexican subway car contract. These troubles, combined with Bombardier's long struggle to turn around its money-losing Learjet Div., ended the company's hot growth streak. After a five-year ride in which operating profits raced ahead by an average 39% a year, the maker of trains, planes, and snowmobiles had been stopped cold. Net earnings for the fiscal year ending this month are expected to be flat at $285 million, on a paltry 5% sales gain, to $5.9 billion. And at around 19, Bombardier stock remains roughly 20% below its mid-1997 high.
None of that means Beaudoin is swearing off risky innovations such as the Sea-Doo. Instead, he's diving in deeper. To rev Bombardier back up, he's counting on a bevy of new products--everything from the Global Express, a top-of-the-line corporate jet, to a new series of New York City subway cars.
That has convinced some investors that Bombardier's setback is nothing but a short-lived squall. Indeed, analyst Peter A. Rozenberg of Toronto's TD Securities Inc. forecasts net income will rise 33% for the coming fiscal year, to $377.8 million, as sales grow 24%, to $7.3 billion. Adds John G. Ambrose, a portfolio manager with Toronto's Nigel Stephens, one of Bombardier's largest shareholders: "The stock market is focusing on the disappointing results in personal watercraft, but seems to be ignoring other aspects of the company which have much better growth potential."
Certainly, Beaudoin appears to have good reason to be unruffled: He has faced much worse. In 1973, eight years after he took charge at age 27, the company's Ski-Doo snowmobiles came under attack as unsafe, polluting gas-guzzlers. As the energy crisis ground on, Ski-Doo sales--then more than 90% of Bombardier's $127 million in annual revenues--began to melt away.
"A HUGE LEAP." Beaudoin determined to diversify. Over the next two decades, he engineered a series of ambitious purchases that have built Bombardier into a premier worldwide manufacturer of transportation equipment. The shift has brought balance to Bombardier's product line--and kudos for its CEO. Beaudoin has "done a remarkable job moving from snowmobiles to Global Expresses," says Joe Leonard, president of the aerospace marketing unit of Bombardier partner Allied Signal Inc. "That is a huge leap."
Much of the company's growth has come from new products, long its forte. Snowmobiles were primitive and cumbersome devices until inventor J. Armand Bombardier figured out in the late 1950s how to mass-produce a user-friendly model. Today, Bombardier's annual snowmobile sales top $400 million. Beaudoin, the son-in-law who took the helm a year after the inventor died, has continued to innovate. "We're selling technology, and we're selling new products," he says. "That's what makes us a success."
But will Bombardier be able to keep it up? This year's offerings start with the Learjet 45, a midsize plane priced like a light jet but capable of nonstop transcontinental flights. The $8 million plane boasts 135 orders outstanding. Hitting the tarmac in 2000 will be a plane with even greater potential: the 70-seat Canadair Regional Jet Series 700. Already, it has won over such customers as American Eagle, the commuter division of American Airlines Inc., which has 25 on order. "Bombardier did a very good job of listening to us about the customer features," says Peter A. Pappas, American Eagle's senior vice-president for planning, who praises the plane's large windows and ease of servicing. The plane has taken off so fast that Aero International (Regional), a European consortium, last month opted not to build a competitor. Analysts estimate that sales for 70-seaters may reach $20 billion over 15 years, and for now, Bombardier has the market to itself.
These planes join strong Bombardier names like the Challenger 604, a long-range widebody jet designed to ferry up to 11 passengers on routes stretching over 4,000 miles. Microsoft Corp. Chairman William H. Gates III recently paid $21 million for one. Analyst Rozenberg of TD Securities expects pretax profits at the $3 billion aerospace division to soar 41% in 1998, to $328 million.
Still, Bombardier's planemakers can't just cruise--they're in the midst of a furious dogfight with rival Gulfstream Aircraft Inc. in the market for ultralong-range corporate jets. Gulfstream's top-of-the-line jets have long been the ultimate executive perk, and in Bombardier they face their most serious head-to-head competition yet. With its entrant, the Global Express, Bombardier wants to carve out a larger share of that market. The company says the plane, which will be able to ferry 16 or so people from New York to Tokyo nonstop, should reach customers later this year. Gulfstream is already delivering its newest planes and has sold more than 70, claiming a superior cabin pressure system that will make long rides more comfortable. But the Global Express is expected to fly faster and longer and has won customers like Las Vegas architect Anthony A. Marnell, designer of the Mirage casino hotel. "They've really gone out and designed a 21st century airplane," says Marnell, who's flying an old-model Gulfstream but has ordered a Global Express.
While Bombardier appears to be holding its own in the battle so far, serious concerns remain about whether the ultralong-range market will ever pay off for either player. Richard T. Santulli, chairman of Executive Jet Inc., the largest buyer of corporate jets, believes demand for this latest iteration may be running out. That would be bad news for Bombardier, which says it has more than 73 on order but must sell at least 100 to break even on its investment of about $280 million. Bombardier says it expects strong demand.
BIG-TICKET WINS. Concerns about other business lines--particularly Bombardier's $1.2 billion transportation unit--have begun to lift. Countering the stalled Mexican effort and erratic and declining sales in Europe are recent big-ticket wins in the U.S. Bombardier is building 680 highly automated New York City subway cars for nearly $1 billion and Amtrak's first high-speed trains, set to hit the Boston-Washington route by 1999, for $419 million. And Bombardier's Mexican prospects may also be on the rise again. On Jan. 12, Mexican officials told a visiting Canadian trade delegation that bidding for the subway cars will re-open in two to three months.
Elsewhere, Beaudoin is introducing entirely new products, such as his electric "Neighborhood Vehicle," or NV. After brainstorming sessions on the kind of vehicles people will drive in the future, Bombardier executives began researching this souped-up golf cart. Aimed at gated or retirement communities, it features a windshield and seatbelts and whizzes along at up to 25 mph. Says Police Chief James V. Murray, whose force is using one to patrol Peachtree City, Ga.: "It's a spectacular little machine." Introduced last year, analysts say sales of the $8,000 carts could hit $33 million this year. Also in the works: an unmanned hovering aircraft to detect buried land mines, as well as a sporty all-terrain recreational vehicle to be introduced this spring that will compete with popular models now sold by Honda Motor Co. and Yamaha Corp.
Of course, new projects such as those bring high risk and high costs. Witness the slow takeoff of Bombardier's de Havilland Dash 8 Series 400 turboprop, a regional plane that will carry as many as 78 passengers and cost Bombardier some $319 million to develop. So far, U.S. demand has been weak. But for now, the success stories seem to outweigh the risks: Bombardier's backlog of orders is up to $10.3 billion, from less than $7 billion a year ago. That's the kind of bump Beaudoin, a snowmobiler for 40 years, can enjoy.