Coleal delivering on Bombardier's promises

David Coleal re-joined Bombardier in 2015 as part of its turnaround team. Now things are looking a lot brighter.

A LOT OF exciting things are happening at Bombardier Business Aircraft. New aircraft are being delivered, new models developed, upgrades made to existing aircraft and serious investment in services. You can sense the confidence in the division. So, it is perhaps surprising that one of the words that David Coleal, president of Bombardier Business Aircraft, uses a lot when he is talking about the future is the word “prudent.”

This partly reflects the wider organization. Bombardier is midway through a company-wide turnaround plan after problems with the CSeries commercial aircraft and the key theme of its December 2018 New York Investor Day was that things are very much on track.

But it also reflects how Coleal sees his role. Coleal and his colleagues are keen to be innovative and take risks, but they have to deliver on their plan.

Since Coleal returned to the company in 2015 he has been delivering on his promises. In the past five years the OEM has: delivered more business jets in its class than any other manufacturer (although Gulfstream wins on dollar amount); grown its backlog to $14.3 billion, the biggest in the industry; certificated the newly delivered Global 7500 and; launched the Global 5500 and Global 6500. He has also reshaped the business, selling its training business to CAE, while investing heavily in its own service network.

“You’ve seen the numbers that we have posted over the past three-and-a-half years,” says Coleal, “driving our earnings, doubling our earnings, continuing to improve and drive our service and support and delivering the best aircraft in the industry including the Global 7500.”

Coleal is speaking at a time when he and his team are still on a high from the delivery of the first Global 7500 to Stonebriar, a leading business jet financier.

With a range of 7,700 nautical miles the Global 7500 is the longest-range dedicated business jet available – capable of flying between New York and Hong Kong without stopping.

But the Global 7500 is not just about flying far. It is fast, capable of flying at Mach 0.925, and it is big. The Global 7500 has a cabin 10 feet longer than other Global models. With four living spaces and the largest kitchen (an area where Bombardier knows passengers like to congregate) the aircraft is exciting loyal customers as well as new ones. “The 7500 has been an amazing journey,” says Coleal. “It is going to set the standard for the industry of what people expect for this size and class of aircraft. We just couldn’t be prouder. We are elated that we’re delivering.”

Launched in 2010, the Global 7500 (then branded the Global 7000) was delayed in 2015 – just after Coleal joined – due to issues with the design of the wing. The manufacturer then told customers that it would be ready in 2018.

There was a lot of pressure on Coleal and his colleagues to make this happen. In fact, delayed certification was identified in 2018 by Alain Bellemare, Bombardier’s CEO, as one of the two biggest risks facing the whole company. Coleal also did not want to let customers down.

We met our commitments to our customers,” says Coleal. “The customers that have been in the backlog for many years are incredibly excited. I stay close to them with regular updates, and we exceeded both range and field performance, so everything about the aircraft is going extremely well.”

The delivery of the Global 7500 is also a significant boost to the whole company.

“This marks the dawn of a new era,” says Coleal. “We're basically making history with the delivery of this first aircraft and its entry into service.”

But he is being prudent about Global 7500 deliveries. Following the first delivery in 2018, Coleal says that Bombardier is planning to deliver between 15 and 20 Global 7500s in 2019 - around three to five aircraft in the first half of the year with most coming in the second six months. He says that this is to ensure that the first customers have a good experience and that the entry into service is as smooth as possible. In 2020 he plans to deliver between 35 and 40 Global 7500s.

Bombardier is also focused on building the new aircraft efficiently. Fitting the interior into the first Global 7500 took less time than it normally takes to complete a Global. Coleal says that Bombardier has also taken delivery of all of the parts it needs for its 2019 deliveries, so is confident that there will be no supply chain issues.

Even more Globals coming in 2019

In May 2018 Bombardier invited several hundred people to a cocktail party in a hangar the night before the start of the Annual European Business Aviation Convention and Exhibition (EBACE). Coleal took to the stage and announced the launch of two new aircraft – the Global 5500 and the Global 6500. A curtain dropped and everyone could then see a Global 6500, which had been cleaned after flying to Switzerland from Canada. “It was an amazing event at EBACE,” says Coleal. “We were so pleased with the response, the fact that everybody was so surprised about the aircraft. It demonstrated our innovative spirit to fly the aircraft across and stage it there for a fabulous kind of unveiling.”

Thanks to its new Rolls-Royce Pearl engines (a new line that is exciting other aircraft OEMs), the $46 million Global 5500 and the $56 million Global 6500 can fly further than the existing Global 5000 and Global 6000. The Global 5500 will be able to fly 5,700 nautical miles and the Global 6500 some 6,600 nautical miles. Both aircraft also have 13% lower fuel burn.

With the performance characteristics of the aircraft - its speed, its efficiency and, ultimately, its range, there’s been tremendous interest in the 5500 and 6500,” says Coleal. “We launched at exactly the right time. The programme is going incredibly well as far as flight tests are concerned, and we’re on track for the planes entering service at the end of 2019. We couldn’t be more pleased with the response to the 5500 and 6500.”

As well as the new engines, both versions have new upgraded avionics packages with both ADS-B-In and ADS-B-Out ready for future air traffic control systems. The interiors also benefit from the work that Bombardier did on the Global 7500. This includes its more comfortable Nuage seats. Coleal says its Nuage seats are the first all-new business aircraft seats in 20 years.

Coleal is confident that the aircraft will sell well: “You have customers that are non-Bombardier customers that are now saying,Wow, this has the range, performance and the cabin that nobody else has.’ So, we’re getting a lot of interest from existing and new customers.” Although most of the focus is on the Global family of aircraft, Coleal is also keen to stress that Bombardier has kept investing in the Challenger 350, the Challenger 650 and Learjet 75. In 2018, it introduced a new heads-up display to the Challenger 350, improved short field take-off capability and Ka-band connectivity on the Challenger 650. Bombardier says that the Challenger 350 is the best-selling business jet in the last 10 years.

We feel very good about the Challenger franchise,” says Coleal. “They’re amazing aircraft and we are always going to remain incredibly competitive in our space. We’re not going to relinquish market share in that space, and we’re going to continue to perform very well.”

Coleal headed Learjet until 2011 – when he left Bombardier for Spirit Aerosystems – but Learjet is a lot less important to the company now. Bombardier delivered 12 Learjets in 2018 and is not planning to increase production in 2019.

I can build and sell more,” says Coleal. “We choose to build a certain volume of Learjets to make sure we maximise the price for the product. It’s a premium brand. If we built more, it just would dilute the price. This is a conscious choice at my level to decide how to meter production, and we do that. There are always these criticisms about overproduction, and I just want to make sure the message is clear that we’re very thoughtful about our production discipline."

Bombardier wants you to bring your jet home

During the downturn all aircraft manufacturers increased their focus on providing after-service to customers after their aircraft were delivered (an area where engine manufacturers have been much stronger). Bombardier has been encouraging owners to “bring their jet home” and it is working.

In 2015 Bombardier estimates that about 28% of its 4,700 fleet was coming into Bombardier’s own maintenance facilities. By 2020 it wants to be looking after one in two aircraft. And it is pretty confident that it can achieve this. On any given day, Bombardier is typically working on 200 aircraft.

Bombardier is investing heavily in services. In 2018 it announced that it would spend $80 million on a new 300,000 square foot facility at Miami-Opa Locka Executive Airport.

This is on top of recent expansion at its facilities in Tuscon, Wichita and Singapore as well as new centres in London and Tianjin. Although building the facility is the most obvious cost, hiring good people is also becoming increasingly expensive. Bombardier estimates that the average salary for a worker at its new Miami facility will be $70,000.

“Our mandate is to make sure we bring our jets back home. In order to do that, you have to increase capacity, capability, and ensure that we’re taking care of our customers, no matter where they are around the world,” says Coleal.

The manufacturer has also added seven line-stations since 2017. It added five new mobile response trucks in November 2018 bringing the total up to 30. Bombardier is also rethinking how maintenance hangars should look. It has upgraded all of the customer service areas at all of its facilities to make them more welcoming for owners.

The Global 7500 launch party

Coleal stresses that they are keen to work with third-party maintenance companies. “We know that you can’t be everywhere, so you have to pick strategic partners that are aligned with your philosophies, your strategies,” he says. “We have great partners in the service sector who are aligned with us. They will never go away, but we’re going to make sure that we’re taking care of as many customers as we can, in as many locations as we can. Where we can’t, we’ll make sure we partner with people aligned with us.

After a strong 2018, Coleal is optimistic about selling aircraft in 2019. “With the introduction of the Global 5500, Global 6500 and Global 7500, we have really positioned ourselves very well because that’s the market over the next 10 years that is going to grow. It’s a great place to be positioned.” So, are the good times back? “I think we’re always optimistic about the future. The market forecasts always show that there is demand that’s going to grow. But I think what you have to see is year over year – and then, actually, quarter over quarter – a book-to-bill greater than one, to demonstrate that the market is actually capable of taking more aircraft,” says Coleal. “But until then I think we’re going to stay optimistic, but prudent.

What happened with the CSeries?

When Bombardier’s board pushed ahead with the launch of the CSeries no-one thought it would completely reshape the whole commercial aircraft market.

MANUFACTURERS ARE ALWAYS given to hyperbole, but the CSeries is - without doubt - one of the most significant commercial airline projects of all time.

It forced Airbus and Boeing to each launch new products – despite both of them stating that they would not do this. A 2016 order by Delta for 75 CS100s riled Boeing so much that it convinced the US to government to impose 300% tariffs against the aircraft, threatening trade relationships with Canada and the UK (the wings and some of the fuselage are produced in Northern Ireland). It then led to the reshaping of the large aircraft duopoly with Airbus joining with Bombardier on the project and Boeing acquiring 80% of Embraer’s commercial aircraft business for $4.2 billion.

The final aircraft is also a great product. Feedback from passengers and launch airlines has been extremely positive. Now rebranded as the A220 it also has the support of Airbus.

You need to look beyond some of the media headlines now that you have seen the CSeries, now the A220, in operation. It’s got some of the best reviews, best dispatch reliability and is revered as, obviously, the most modern commercial aviation airliner in the last 30 years,” says Coleal. “This joint venture with Airbus demonstrates that it’s an amazing platform because they wouldn’t do it if they didn’t have a strong belief in it.

The gamble did not work out

Bombardier invested more than US$6 billion in the programme, with the Quebec government putting in another C$1 billion. In 2017 it gave 50.01% of the programme to Airbus. Bombardier also agreed to fund losses up to C$700 million over the three year of the joint venture.

The deal with Airbus has given Bombardier the financial stability it needed, although it still has significant debts. At the end of 2017 it had liabilities of $13.2 billion with revenues of $16 billion. Bombardier’s management team is open about this – in its three-phrase plan it saw 2015 and 2016 as being about reducing risk, 2016 to 2020 about transforming the business and 2019-2020 about deleveraging.

In December 2018 Bombardier sold its turboprop aircraft business for $300 million and its business jet training business to CAE for $800 million to help cut its debt. The company is now dominated by business jets and rail. With jets expected to provide most of the growth. In 2018 rail is expected to have generated $9.5 billion in revenues with Bombardier Business Aircraft contributing $6.25 billion. By 2020 rail sales should be more than $10 billion with business aircraft over $8.5 billion. Aerostructures, which makes parts for business jets and A220 will add another $2.5 billion.

CSeries testing at London City Airport

The CSeries reshaped Bombardier

I simply do not understand how their board could gamble the entire company on one aircraft,” said the CEO of a rival business aircraft manufacturer in 2016. In fact, it is part of its culture, Bombardier has always been prepared to take risks.

Historically Bombardier’s management team have had no fear,” says Rolland Vincent, creator of JETNET iQ, who also worked at the company for eight years. “This approach has meant that it has been willing to try anything – which has led to great technological innovations, but it has been guilty of trying to do too much with too little. The CSeries is the perfect example of this.”

"Taking big risks had worked out for Bombardier in the past.”

David Dixon, who is now president of Jetcraft Asia and author of I sell Planes – a book covering his 33 years at Bombardier that is being published in 2019, agrees. “The Canada Regional Jet was a huge gamble at the time. I was working on it at the time and we had 125 orders – including a lot with leasing companies. The same was true with the Global – we had 48 Letters of Intent for it,” says Dixon. “Taking big risks has worked out for Bombardier in the past.

In 2015, Bombardier’s directors poached Alain Bellemare from United Technologies to be CEO and turn the company around. He brought Coleal on board. In January 2015, Richard Aboulafia, the respected Teal Group aerospace analyst who was unconvinced by the Canadian manufacturer’s commercial aircraft strategy, wrote: “Bombardier will likely never reclaim its number one business aircraft market position.

Aboulafia’s argument had merit. Investing in the CSeries made Bombardier highly leveraged and the lack of cash meant that one of the first decisions he took was cancelling the Learjet 85 programme (a $1.4 billion project he had worked on when he was vice president of Learjet from 2008 and 2011). Coleal also took over at a time when large fleet orders from VistaJet and NetJets were coming to an end, so cut production.

David Coleal is definitely the right person for the right time,” says Vincent. “He has clearly blossomed in the role and come into his own. Bombardier Business Aviation is in a pretty good place today.” Aboulafia has also been won round and is impressed by Bellemare. “The one Black Swan, I ruled out as a possibility was a company leader who had the wisdom and the political clout to be able to give the CSeries away, even to the point of actually paying Airbus to take it,” says Aboulafia. “I certainly didn’t see that coming.” And his view on Coleal’s division? Did they actually give up leadership of business aviation? He adds: “I actually think they’re headed back towards number one, or at least tied.

Gearing up for the Global 8500

Like Coleal, Bellemare, also talks a lot about being prudent. But launching innovative new products is a key part of the company’s culture. In 2015 Bombardier was forced to delay its Global 8000 programme. Coleal is in no hurry to relaunch the Global 8000 (or 8500?) but it will come.

What we’re going to do is get the 7500 in service, get our ramp-up well under way, and evaluate the market needs. Then we will come back with the 8000,” says Coleal. When it relaunches, you can bet that the new Global will be a genuinely exciting product with innovative new technology. But it definitely will not be as big a financial gamble as the CSeries.

Alud Davies, Asia Editor, Corporate Jet Investor

Alasdair Whyte, Editor, Corporate Jet Investor