Bombardier to Turn Around and Boost Investor Confidence

Case Type: operations strategy; business turnaround.
Consulting Firm: PricewaterhouseCoopers (PwC) Advisory first round full time job interview.
Industry Coverage: aerospace, defense.

Case Interview Question #01176: Your client Bombardier Inc. is a Canadian multinational aerospace and transportation company. Bombardier was founded by Joseph-Armand Bombardier as “Bombardier Snow Car Limited” in Quebec, Canada in 1942. Starting as a maker of snow machines or snowmobiles, over the years the company has grown into a large manufacturer of regional airliners, business jets, mass transportation equipment, and recreational equipment.

Bombardier’s aircraft division “Bombardier Aerospace” focuses on regional and business jets. Lately, Bombardier’s C-series aircraft, its largest jet, has a number of problems including cost overruns, delays, and mechanical issues. Investors are losing confidence in the company, as its stock price has declined almost 70% within the past year, and as its credit ratings have fallen. A large number of orders of the C-series that are scheduled to be fulfilled in the next 3 years, are at risk of cancellations and further delays. What should the client Bombardier consider and do to change the direction of the company, and increase investor confidence?

Possible Answers:

1. Information Gathering

Additional Information to provide if asked by candidate:

* Aircraft revenue makes up more than 80% of Bombardier’s revenue.
* Although Bombardier has other aircraft types, the C-series is the costliest of their aircraft, as well as the type with the greatest number of orders.
* Bombardier competes with major aircraft manufacturers, such as Boeing and Airbus, and sells their aircraft to airlines around the world.

2. Suggested Framework

Prompt #1: What should Bombardier consider and do to change the direction of the company, and increase investor confidence?

Possible Answer:

Possible responses or areas that the candidate could consider:

* Market environment: Demand for Bombardier aircraft, air travel; competitor production trends and market share; risk of customers cancelling Bombardier orders for competitors.
* Bombardier operations: What is leading to delays and cost overruns? Mechanical issues, supplier issues, distribution inefficiencies, employee productivity?
* Turnaround strategies: Marketing (e.g. Paris Air Show), discounts to customers to build loyalty, spin-off train division to raise capital, ask for loan/subsidy from Canadian government.

3. Detailed Analysis

Prompt #2: To understand the significance of Bombardier’s issues with the C-series, Bombardier needs to consider which of their customers are at high risk for cancellation. Hand Exhibit #1 to the candidate, and ask the candidate the following questions.
* What do you observe from the following exhibit?
* What percent of the orders are at high risk of cancellation?

The candidate should drive towards the significance of this. If not, ask the candidate for the implications.

Exhibit #1. Bombardier’s C-Series Deliveries

Possible Answer:

* The candidate should note that 78 aircraft or 40% of total deliveries received the highest risk rating due to geopolitical or financial uncertainty.
* The candidate should point to the potential worst-case scenario of Bombardier ending up with an accumulation of planes from cancelled orders.

Prompt #3: Anticipating the possibility that “high risk” aircraft orders will be cancelled due to production delays, what can Bombardier do?

Possible Answer:

This is a brainstorming exercise for the candidate. In addition to noting the potential strategies, a strong candidate should also consider the implications of those strategies. Possible responses include the following:

* Cease manufacturing aircraft that are “high risk.”
– Implication: Loss of desperately needed revenue. But with fewer aircraft to manufacturer, there’s a possibility of reducing the delay on other orders.

* Reaffirm orders with high risk customers.
– Gain confidence in orders from high risk customers.

* Provide discounts to airlines with orders
– Loss of revenue. Discounts may not be enough to convince airlines to maintain their orders. This may incentivize airlines to bargain the price downward.

* Find other airlines or entities that could be potential customers for C-series aircraft.

* Invest in R&D to modify or enhance C-series to make the aircraft more attractive to airlines
– Bombardier already has too high of debt to equity ratio. This could lead to further delays with existing customers.

4. Recommendation

Prompt #4: The CEO of Bombardier is about to enter the room to learn your recommendations. Please prepare your findings and conclusions for him.

Possible Answer:

The candidate should succinctly state the problem that the client is facing, and provide strategies and potential risks to those strategies. Examples of strategies and risks are below:

* To boost investor confidence and turn Bombardier around, the company should find a way to reduce the risk of cancellations for the C-series aircraft. In the short term, Bombardier could appeal to the Canadian government for additional funding, and try to boost customer loyalty to reduce the risk of cancellation. However, Bombardier should also determine the root cause of the delay to find a way to expedite production.
* In continuing to invest in the C-series to turn the company around, there is a risk of further delays and cost overruns, which could lead to bankruptcy. However, by not following through on existing orders, Bombardier would be risking its credibility as the leading aircraft manufacturer in Canada. This could lead to a loss of loyalty of customers, and further issues in the long run.