Bombardier Shifts Gears With Restructuring

by Richard Pettibone, Forecast International

After getting its long-delayed CSeries jet in the air in late 2013, Bombardier suffered a setback in mid-2014 when an engine failed. This latest delay was attributed to issues with the oil lubrication system on the Pratt and Whitney PW1500G engine.  Pratt and Bombardier worked together to address the issue, and the aircraft returned to flight in early September 2014.

Cseries

This latest event follows a long litany of struggle for Bombardier’s latest flagship program. Originally planned for launch in 2004, the effort was shelved for two years due to a lack of orders. Relaunched in 2007, the program has been hit with repeated delays and rising costs.  In 2012, the first flight was delayed by six months due to assembly problems at its suppliers.  A second delay hit in June 2013 when systems and software upgrades didn’t come together in time.

Now the company is trying to keep its schedule for service entry in mid-2015 by ramping up its testing effort. Even with the push, Swedish company Braathens Aviation (Malmo) said it no longer wants to be the first recipient of the aircraft due to uncertainty surrounding the program, but did not cancel its order. The fear for the airline is that the program will slip yet again.

Despite the difficulties, the program did score a win in late 2014 when aircraft leasing company Macquarie AirFinance signed a firm agreement to buy 40 CS300 jets, with an option for 10 more. This latest deal brings the CSeries orders to 243 firm, 57 aircraft shy of its goal of 300 by mid-2015. The firm is, as of this writing in the fall of 2014, close to announcing a new launch customer for the program as well.

The turmoil in such a major program is speculated as one of the driving causes in Bombardier Aerospace’s decision to restructure from one unit into three independent segments. Effective in 2015, the Aerospace unit will be broken up into Commercial Aircraft, Business Aircraft, and a new Aerostructures and Engineering Services segment.  The move eliminates a layer of management, as all three segments will now report directly to Bombardier’s president and CEO.

The reorganization has ignited speculation that the firm might spin off parts of its aviation business. While the compartmentalization of the operations in this structure might make such a deal possible, it is considered unlikely at present. For example, a sale of the aerostructures unit would be difficult, as the unit produces major components across Bombardier’s aircraft product lines.  Rather, the new structure appears aimed at clarifying and focusing the firm on its particular markets while at the same time fixing operating issues.

As it looks toward a more globalized future, Bombardier has invested in various regions around the world, such as China and Morocco.  By establishing teams and factories in these regions, Bombardier is leveraging internationally competitive manufacturing costs, low shipping and transportation costs, and proximity to markets in Asia and Europe, respectively.

Despite the difficulties of the recent past, Bombardier’s management has moved quickly to correct its course.  With program difficulties hopefully behind it, Bombardier must now focus on delivering on its record aerospace backlog of $38.1 billion.

 

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