Guy Hachey is making a big bet on a shaky industry. The president and chief operating officer of is planning to invest more than $1 billion annually during the next few years on new aircraft, technology, facilities and maintenance support. While the largest chunk will be used for the new commercial jet, Bombardier also is putting considerable sums into the beleaguered business jet market for projects such as the 85, Global 7000 and 8000 derivatives, and the Global Vision cockpit (see p. 55). “People say, 'You don't generate cash,'” says Hachey. “Well, yeah, I'm generating $1.5 billion of cash, it's just that I'm reinvesting [it].”
The C-Suite has long struggled with balancing the need to invest in tomorrow against pressure from Wall Street to generate profits today. Aerospace icon Norman Augustine learned that the hard way when, as CEO of Martin Marietta, he unveiled a plan to pump up R&D spending. The company's stock fell 11% and took two years to recover.
Making the case to put money into the business jet sector is just as challenging. Deliveries are down more than 40% in the past three years and likely to tread water in 2012. And the industry's two dominant markets, the U.S. and Europe, remain mired in economic uncertainty. But despite those woes, competition has actually intensified., a unit of , has solidified its position in large-cabin aircraft with the $1-billion G650 and is putting big bucks into the mid-cabin G280. has shaken up the lower end of the market with its new Phenom jets. And now China's Avic Aviation Techniques is setting its sights on developing business jets (see p. 63).
Hachey argues that if Bombardier wants to remain a player, it needs leading-edge products and improved customer service. One need only look atto see the perils of underinvestment. Parent company milked Cessna's profits when sales were booming—and then scuttled the $775 million development of the super-mid-cabin Citation Columbus when hard times hit. One result: Cessna lost a key customer, fractional aircraft operator NetJets, to Bombardier and Embraer. Textron may have finally realized the error of its ways. Cessna is expected to announce development of a new aircraft this week at the National Business Aviation Association's annual convention in Las Vegas (for the latest from NBAA, go to AviationWeek.com/nbaa).
Cameron Doerksen, an aerospace and airline analyst at National Bank Financial in Montreal, agrees that Bombardier has come under fire from investors for not generating enough cash. But he believes much of the shortfall stems from delivery problems in the company's rail transportation business. Savvy investors, he says, are buying into Hachey's long-term bizjet plan. “It's a very competitive industry,” Doerksen says. “It seems if you don't come out with something new every couple of years, you're out of style.” That's an outcome Hachey is determined to avoid.
|Current||Previous||Fwd.||Tot. Ret. %||Tot. Ret. %|
|Company Name||Week||Week||P/E||3 Yr.||1 Yr.|
|AEROSPACE & DEFENSE|
|Allegheny Technologies Inc.||35.40||39.25||10.0||54.1||-23.5|
|Alliant Techsystems Inc.||55.05||54.51||6.4||-37.0||-25.2|
|Bombardier Inc. ‘B’||3.79||3.86||7.9||-14.9||-21.7|
|Embraer-Empresa Brasil ADR||24.51||25.48||….||20.1||-11.3|
|Esterline Technologies Corp.||54.19||53.05||10.3||46.8||-5.0|
|FLIR Systems Inc.||26.05||25.69||15.9||-15.1||4.9|
|General Dynamics Corp.||57.71||57.44||7.8||-4.8||-6.8|
|Precision Castparts Corp.||152.61||162.14||16.9||131.4||16.6|
|SIFCO Industries Inc.||18.90||17.23||….||177.1||53.8|
|Singapore Technologies Eng.||2.18||2.28||15.8||29.4||-13.3|
|TransDigm Group Inc.||80.15||82.94||15.5||226.6||28.4|
|Triumph Group Inc.||48.69||51.15||10.7||157.0||28.3|
|Source of financial data: Standard & Poor’s and Capital IQ Inc. (a Division of Standard & Poor’s) U.S. dollars and cents. Forward P/E ratio uses S&P and Capital IQ forecasts of current fiscal year.|