Bombardier’s Rough Landing: Falling from the Blue Blue Sky

Bombardier’s Business Model

Bombardier’s aerospace division competes in two aircraft categories: business aircraft and regional commercial aircraft. The company covers as wide a range of market segments as possible with one of the industry’s largest product portfolios.

Given the immense cost of developing new aircraft, manufacturers like Bombardier release all-new product families for a particular market segment every 20-30 years, and iterate on these families until the next new family is due. These iterations are modifications serve to increase passenger count, reduce fuel consumption, change interior design, or make other necessary improvements. Bombardier’s CRJ product line is a good example. CRJ200 is an all-new aircraft, called a “clean-sheet” design, while the CRJ700/900/1000 are product line extensions, commonly referred to as major derivatives, and the variants are considered minor derivatives.

Aircraft program profitability depends on several factors, including number of aircraft sold, profitability per aircraft, and total cost of development. In other words, on-time, on-budget delivery is the name of the game, especially when a company makes an oversized bet on a particular program. With product development costs regularly exceeding $5B threshold, mistakes are extremely painful to absorb.

Bombardier’s Oversized Bet

With oil prices soaring in 2008, Bombardier sought to capitalize on rising demand for fuel-efficient regional aircraft with the all-new CSeries family, an ultra-efficient clean-sheet regional jet. At the same time, Bombardier launched the Learjet 85 (also clean sheet), the world’s first all-composite business jet, and followed with yet another ambitious program by launching the flagship Global 7000/8000 in 2010 as a reaction to a new entry by Gulfstream, its biggest business aircraft competitor. The CSeries and Learjet 85 were expected to enter into service in 2013, and the Global 7000/8000 in 2016.

Operating Model Shortcomings Exposed

As of today, the Learjet 85 has been cancelled to the tune of a $2.6B write-off, the CSeries is expected to be 2.5 years late and $2B over budget, and the Global 7000/8000 is running behind schedule. Also, CSeries’ first to market advantage is gone with Airbus A320neo set to enter into service in 2016. The Aerospace division’s COO has been fired, and the Quebec government has bailed the company out with a $1B cash infusion in order to protect thousands of jobs in Montreal.

So what happened?

Three “clean sheet” airplanes at the same time!?

Clean-sheet programs include many new technologies, which increases the risk of design failures and rework. Delivering one clean-sheet program can be extremely challenging (for example, the Boeing 787 was three years late!); three challenging programs simultaneously is a near impossible feat. Not only were company resources stretched beyond their limit, but upper management’s attention was spread over three major programs which increased the likelihood of overlooking issues and limited their ability to effectively manage risks. An excellent counterexample is Bombardier’s competitor Gulfstream, which focuses on one clean-sheet development program at a time, and has recently delivered the brilliant G650 with minimal schedule/budget overruns.

Why won’t you think like Toyota!?

Issues will inevitably arise during the design of complex technology products like cars and aircraft. A company like Toyota recognizes these challenges, and has set up its famous product development system to reduce the likelihood of major design failure. Below are some elements of this process and how Bombadier’s processes square up:

• Knowledge capture and reuse: Toyota’s knowledge and expertise is systematically documented for reuse in the future, limiting unnecessary rework and allowing for continuous improvement of design knowledge.
  • Bombardier fails to systematically document its knowledge and sharing is limited among its different development teams.
• Technology readiness: product development schedules revolve around key decision points, called “Integrating Events”, during which decisions are made to include or exclude certain technologies on a particular program. If a technology is deemed immature or risky, it is excluded and documented for reuse on a future program
  • Bombardier also tracks new technology readiness, but can be guilty of incorporating high risk technologies into some of its development programs.
• Rewarding problem solving: as with Toyota’s manufacturing system, employees are rewarded for discovering and solving problems, and updating the company’s knowledge with findings.
  • Bombardier focuses on development milestones instead of problem-solving. This can lead to issue discovery late in the design process, when problems are both costly and time-consuming to solve.

The pursuit of three development programs simultaneously amplified these issues and resulted in insurmountable budget and schedule overruns, showing how Bombardier’s operations could not sustain its ambitious business goals.

Sources:

http://www.shmula.com/the-toyota-product-development-system/344/

http://leehamnews.com/2015/10/26/whats-the-trouble-with-bombardier-and-the-cseries/

http://www.kansas.com/news/business/aviation/article41786862.html

http://airinsight.com/2014/06/30/24-bombardier-crj900-undisclosed-customer/

https://www.linkedin.com/pulse/20140830135251-221147816-2000-bombardier-challenger-crj-200lr-700-900-for-sale

http://www.theglobeandmail.com/news/world/canadian-made-jet-in-deadly-kazakhstan-crash-not-known-for-poor-safety/article7936624/

http://wiki.flightgear.org/Bombardier_CRJ700_series

http://www.aerospace-technology.com/projects/crj900/

https://en.wikipedia.org/wiki/Bombardier_CRJ

http://www.reuters.com/article/us-boeing-idUSTRE78O20D20110926