Canada’s Bombardier bets on business aviation

When Éric Martel was appointed CEO of Bombardier in March 2020, he initiated a turnaround plan with one central theme: simplification. He set to work cutting costs, completing the divestiture of assets, and building out higher-margin aftermarket services that are at the core of what the company does best: making business jets. This pure-play strategy became fully realized with the sale of Bombardier’s transportation business to France-based Alstom SA in January 2021.

Martel’s aggressive transformation is part of a broader plan to make the company more resilient and fiscally sound after a decade marked by massive business-model change and organizational restructuring. His efforts have been helped in no small part by a historic increase in private air travel. The COVID-19 pandemic led wealthy individuals and business executives to fly private in droves, many for the first time. Demand rose so dramatically that Bombardier couldn’t produce new jets quickly enough. The Montreal-based company’s stock soared 260% in 2021, dramatically outperforming the S&P/TSX Composite Index (the benchmark Canadian index), which rose by 20%. And Bombardier’s balance sheet and results improved: for the year ended December 31, 2021, it reported business jet revenues of US$6.1 billion, a 7% increase from the same period in 2020.

Martel, 54, holds a bachelor’s degree in electrical engineering from Laval University in Quebec City. He worked in a variety of divisions at Bombardier for 13 years before joining Hydro-Québec, a public utility in Canada, as CEO in 2015. Martel returned to Bombardier at the start of the pandemic and, having led the company through the global crisis, now faces a daunting challenge: increasing revenue while making business jets more sustainable. Aviation is currently responsible for about 12% of CO2 emissions from all transport sources (business aviation accounts for about 2% of total aviation emissions). Under Martel’s leadership, Bombardier has committed to achieving net-zero emissions by 2050, by increasing R&D spending on clean-product development and electrification and building a robust supply chain for sustainable aviation fuels, among other strategies. In a recent interview, Martel talked about his approach to growth through innovation and sustainability.

S+B: The reduction of commercial flights during the COVID-19 pandemic created unprecedented demand for private jet travel. Will the momentum continue as commercial air travel picks back up?
It’s been a very interesting phenomenon. At the height of the pandemic, a lot of people wanted to continue to move around, yet many commercial airlines were canceling flights. At the same time, even when commercial air travel was available, people were concerned about their health and safety.

When things get back to normal, there will be some who will return to commercial travel. But customers who have used business jets are now accustomed to a new way to travel. They leave at the time they want. They travel with the people they want. Yes, it’s more expensive, but there are clear benefits that will continue to be worth the cost for many of our customers. The reality is that, for the foreseeable future, Bombardier and our fleet operators will be competing with the commercial airlines for people who had traditionally flown first class.

Moreover, only a small number of people who can afford to travel on a business jet actually use them, which leaves potential for growth. To appeal to this untapped customer base, we’ve focused on making our aircraft as efficient, safe, and comfortable as possible. Details like air filtration and seat design are vitally important, and we’ve prioritized that as part of our manufacturing process. COVID-19 served as an accelerator for people flying private, and we expect more passengers to do so.

S+B: Bombardier has doubled down on jets. Having recently divested a number of businesses, such as commercial aviation, pilot training, some aerostructures, and rail transportation, what is your growth strategy looking ahead to the next five years?
 After completing the divestiture of our train business to Alstom, we are now operating as a pure-play business aviation company, with two leading aircraft families. With our Challenger and Global platforms, we are competing in the super-midsize category and the large-cabin category, a long-haul market segment that includes the Global 7500 business jet, which can seat up to 19. Both are the industry’s most profitable and fastest-growing segments.

We are also competing more than ever in the aftermarket service business, which is a business that will lead our growth strategy over the next few years. We have nearly 5,000 airplanes in our fleet. Previously, much of the maintenance on these planes was done by a third party. But we found that our customers actually prefer to come back to us for their maintenance. We made the plane and know the plane, so we are the best suited to do any repairs and maintenance. We’ve found that buyers on the secondary market feel more assured when they know Bombardier did all the servicing, which keeps a better value for the airplane.

In order to effectively provide aftermarket service, we needed to put in place a clear and comprehensive strategy. As part of this strategy, we are expanding our service center in London. We also acquired a service center in Berlin. We’ve almost quadrupled the size of our service facility in Singapore, and we are establishing a service presence in Australia. Beyond maintenance, we’re also offering programs such as Smart Parts, which provides extensive parts coverage for our aircraft.

This divestment and growth strategy is making our business simpler—and much more predictable from a financial perspective. We only make planes now. We’ve had so much demand for our aircraft that we’ve had to turn away new orders and only focus on fulfilling our backlog of existing orders.

S+B: Bombardier’s business depends on a high-functioning, reliable, and transparent supply chain. Can you talk about the company’s strategy for managing supply chain challenges?
We’ve seen issues in the supply chain, like any industry. I always like to tell my operational team that we need to know what’s going to happen six, 12, and 18 months from now. We’re always trying to anticipate the potential issues, whether it’s raw material availability or logistics constraints. Being proactive has been a key strategy for us in managing our supply chain and seeing problems coming down the line. Fortunately, we’ve been able to limit the number of potential problems, which in the past have included parts scarcities and shortages of skilled technicians. There will always be some issues that we didn’t see coming, but it’s more manageable if we have two or three problems instead of 300.

One thing we did early in the pandemic was to deploy more Bombardier people to our suppliers—very knowledgeable people with logistics or quality-control backgrounds. Although we’ve always had Bombardier people out there in the supply chain looking after our interests, what we’ve changed during the pandemic is the ratio of [our] people to contractors. If one person was looking after 20 suppliers prior to COVID-19, today we have one person for every five suppliers.

Beyond just looking after our interests in the supply chain, these employees are making sure that our suppliers are ordering the right material on time, getting the materials they need, and hiring the right employees. If something goes wrong, our strategy is to get the supplier what they need, whether that’s more staff or help obtaining parts or coordinating logistics. Even though some of our suppliers are bigger companies than Bombardier, we might be able to see the issues more clearly, and we can all work together to make sure that these issues are addressed and not hurting us.

S+B: In what other ways have you shifted your workforce strategy?
 During a pandemic, there’s no way you can build a cockpit or a wing in your basement, so we have to keep the factories running. This is probably the one thing that kept me and my management team awake at night. The good news is that we haven’t lost efficiency during the pandemic. We implemented mask protocols early on. And we’ve been pushing hard on vaccination, too. We opened our own vaccination center. Our main priority is to protect our employees and our operations, and we’re doing this successfully.

For other types of jobs, we discovered that we’re capable of running this company with many employees working from home. Yes, my salespeople are still traveling, but they do a lot more from home than they used to in the past. But at the same time, we’re all human. We need to get together, and that’s happening in a limited way. Truthfully, we’ll never go back to having people in the office five days a week. We’ll likely have a hybrid model moving forward.

We’re thinking about exactly how we’re going to set ourselves up to be successful in attracting the best young talent available. Bombardier is going to lose many employees in the next five years to retirement. We need to keep the people we have, and we want to be the employer of choice for younger people who have a different way of seeing the world today.

S+B: How do you see the company’s approach to employee engagement adapting to these new realities?
 At the height of COVID-19, we found that our engagement level was lower. We focused on improving our communications. For example, right now, we’re working on a plan for how we should be communicating with our people to inform them about what the company is doing, why we’re doing it, and how they can be part of the solution. We’ve made a point to bring people together in person for meetings and team-building activities—in a safe and responsible way—and have greatly increased our use of technology to keep people connected. That focus on communication has really improved employee engagement.

But it’s not only about communication. It’s about understanding what employees want and making sure we’re delivering that. Are we an employer of choice? Are we hitting the criteria for what people want to see their employer doing? We are having this dialogue with employees as we speak.

S+B: Do you see your ESG (environmental, social, and governance) performance and sustainability strategy as differentiators in the war for talent?
We have to be transparent. We have to report on our progress both internally and externally. It’s also important information to share with prospective employees; people are looking for companies that are environmentally conscious and savvy about technology, particularly technology that will help with ESG performance.

They’re also looking for greater diversity and inclusion, as they should be, and we’ve been working to add more women to leadership positions. This is important for an aerospace and defense industry that is typically behind societal trends when it comes to diversity in the workplace. Our goal is to have at least 30% of our management positions held by women by 2025. To get there, we’re working to identify unconscious biases in our decision-making processes, which include recruitment and promotion opportunities. We’re also now measuring our diversity progress at all levels—not just management. The subject of how ESG and diversity and inclusion translate to employee acquisition and retention is a priority for me and my management team.

S+B: How are you incentivizing executives and management to reach these goals?
 We have to walk the walk and make sure the money walks the walk, too. ESG policy and disclosure are increasingly important to investors, including linking ESG activities to executive compensation. That’s exactly what we’re doing. At the management team level, we are discussing different plans to make sure that compensation is aligned with not just our financial targets but also the targets that we have given ourselves on ESG—for example, around emissions reduction and gender diversity in the workforce. These outcomes are important, and they will be a bigger part of our executive and management compensation packages.

We also have to think about how to cascade those incentives down to all our people—to make sure they are incentivized to help reach our goals. That could mean a two-pronged bonus structure based on financial and ESG metrics or a variable compensation structure based on each of the three elements in ESG: environmental, social, and governance. Regardless of the final outcome, I can tell you these discussions are on my calendar every week.

S+B: Bombardier recently committed, in accordance with the updated Business Aviation Commitment on Climate Change, to net-zero carbon emissions by 2050. This builds on a previous goal to reduce carbon emissions by 50% by 2050. Bombardier also pledged to reduce greenhouse gas emissions by 25% and energy consumption by 20% (relative to 2019) by 2025. How have these commitments affected the company’s R&D strategy?
 In 2019, the civil aviation industry emitted 950 million tons of carbon emissions. And we’ve got to change that. The vast majority of our R&D spending today is geared toward reducing carbon emissions—on different time horizons. Our latest ESG report is quite clear. The number one challenge we have as a sector is to reduce the emissions produced by the airplane itself. In the long term, we believe we could lower emissions by as much as 19% by innovating on the design of the airplane. Our engine manufacturer is also looking at ways to make engines more fuel-efficient, which can lower emissions by as much as 10%.

In the long term, we believe we could lower emissions by as much as 19% by innovating on the design of the airplane.”

You’ll hear people say we could use batteries, but the battery technology is just not there yet for airplanes. Hydrogen is another area that people are working on, but I don’t think we’re going to see an airplane powered by hydrogen just yet. Instead, in the short term, we continue to explore ways to innovate with sustainable aviation fuel [fuel developed from renewable biomass or waste resources], including just increasing its availability. Today, you can fuel your airplane with sustainable aviation fuel, and you’ll get about a 30% reduction in emissions. Kerosene, electricity, and natural gas collectively account for more than 95% of our energy consumption. With sustainable aviation fuel, we can gradually replace kerosene.

But sustainable aviation fuel is not readily available. We hear many customers say, “I’m willing to pay a bit of a premium here to have an airplane that produces less emissions. I go to an airport, and I’m asking for it, but it’s just not there.” For that reason, Bombardier has teamed up with Signature Aviation, one of the largest operators of private jet terminals in the world, to increase the availability of sustainable jet fuel. If we push this very hard over the next several years, we can significantly reduce the emissions produced by airplanes.

In addition, we’re exploring electrification—replacing mechanical components with software-enabled electrical components—which reduces the weight of the airplane. When you reduce the weight of the airplane, you reduce your emissions. Water consumption is also important to us. In our Saint-Laurent Manufacturing Centre [in Montreal], we were able to reduce our water consumption by changing the key water intake technology. We’re also doing things like installing more sophisticated heating systems and using solar panels and other technologies, rather than burning gas. Decarbonizing our industry is a monumental task with far-reaching trade-offs, but we must avail ourselves of every strategy, tactic, and technological solution to ensure we help solve the climate crisis.

Author Profiles:

  • Nochane Rousseau is the Quebec managing partner for PwC Canada and a member of the Canadian Extended Leadership Team.
  • Mario Longpré is a partner and the Canadian Aerospace and Defense leader for PwC Canada.
  • Paul Barbagallo is a senior editor of strategy+business

Courtesy of Strategy+Business

Related Articles