Bombardier Showdown Looms as Investors Abandon a Family Scionby
Chairman loses support after ‘lapse of governance’ on pay plan
Tensions rise with outside shareholders amid turnaround effort
Bombardier Inc.’s family owners are on a collision course with outside shareholders. In the middle is Executive Chairman Pierre Beaudoin, scion of the company’s founders.
An array of institutional investors is set to withhold support from Beaudoin in a Thursday proxy vote. Caisse de Depot et Placement du Quebec, the biggest outside shareholder and a crucial business partner, criticized Bombardier on Monday for a “lapse of governance” after the manufacturer raised executive compensation despite announcing plans to cut more than 14,000 jobs and relying on taxpayer support for a $6 billion jet program.
“The big pension funds are all piling on,” Karl Moore, an associate professor at McGill University’s business school in Montreal. “That’s putting enormous pressure on the board. It speaks loudly of their desire for change.”
The vote will be held as Chief Executive Officer Alain Bellemare pushes a turnaround plan at Bombardier after the C Series jetliner program championed by Beaudoin entered service more than two years late and $2 billion over budget. Beaudoin, in a nine-year tenure as either CEO or chairman, earned about $53 million, according to data compiled by Bloomberg. Bombardier’s widely traded Class B shares tumbled 75 percent in the period.
Quebec’s Bombardier and Beaudoin families control the company by virtue of owning a majority of the Class A multiple voting shares. Each Class A share carries 10 votes, compared with one each for the Class B stock. That’s likely to give the families the last word even if outside shareholders reject the compensation plan and withhold support from Beaudoin.
“Governance and the family is what this is about,” said David Tyerman, an analyst at Cormark Securities. “A lot of public money is involved, a lot of it has been raised under challenging circumstances. Investors aren’t very happy about the dual-class structure.”
On Wednesday, Canada Pension Plan Investment Board became the latest institutional investor to say it would withhold support for Beaudoin’s re-election and vote against the company’s executive-compensation package. The decision by the country’s largest pension fund manager followed the lead of investors such as the Caisse, Ontario Teachers’ Pension Plan and the British Columbia Investment Management Corp.
Bellemare, 55, who took over from Beaudoin as CEO in 2015, has made progress in fostering a recovery, Tyerman said. He cut costs amid sluggish sales for private jets, Bombardier’s most profitable products. The company won a lifeline for the C Series last year with orders from Delta Air Lines Inc. and Air Canada. Shares jumped 62 percent, tripling the gain in Canada’s benchmark S&P/TSX Composite Index.
Bombardier will report first-quarter earnings Thursday before the annual meeting, which is scheduled to start at 10 a.m. New York time at a company facility in suburban Montreal. The company is expected to report an adjusted loss of 2 cents a share, according to the average of analysts’ estimates compiled by Bloomberg.
Beaudoin still plans to run for re-election to the Bombardier board at the annual meeting, spokesman Simon Letendre said Wednesday.
Beaudoin, 54, took over as CEO of the company from his father Laurent in 2008. He previously ran Bombardier’s business-jet unit and won a reputation as an effective builder of international partnerships in China and elsewhere, as the company pushed its private planes, regional jets and trains. But his signature decision was to take on Boeing Co. and Airbus SE with the C Series, Bombardier’s biggest plane yet.
The younger Beaudoin also made Bombardier simultaneously develop two other aircraft programs, the Global 7000 and Lear 85 business jets. That stretched engineering and financial resources. Both the C Series and Global 7000 fell behind schedule, and the Lear 85 was eventually scrapped, resulting in a $1.2 billion writedown.
Then there was the cost of developing the C Series as a major new entrant in the global market for workhorse single-aisle aircraft. At $6 billion, the latest cost estimate of the C Series program now represents almost twice the company’s market value of about C$4.7 billion ($3.4 billion). That contributed to saddling the company with about $9 billion of debt, which led Bombardier to seek government support from both Quebec and Canada.
The plane has won applause from initial operators Swiss International and AirBaltic after entering commercial service last year. But with the exception of a two-aircraft order from Air Tanzania in December, Bombardier hasn’t booked a major sale of C Series jets since Delta committed to buying at least 75 planes in April 2016.
“They need to firm up the order book soon,” said John Stephenson, CEO of Toronto-based money manager Stephenson & Co., who which sold its Bombardier shares earlier this year. “They made a very large bet, built a great plane but risked the company on it. The jury is still out.”