Bombardier: Risk and International Management
Today, the company controls two industry-leading businesses which are Bombardier Aerospace and Bombardier Transportation. They have groundbreaking products that range from commercial aircrafts, business jets, rail transportation equipment, systems and services. Its headquarters are in Montreal, Quebec, Canada. Bombardier and their shares are operated on the Toronto Stock Exchange (BBD) and they are listed on the Dow Jones Sustainability World and North America indexes. Bombardier Inc. set strong priorities for international growth.
They are constantly increasing their presence in growing economies and that lets them capture opportunities, generate cost advantages and reinforce their worldwide leadership and competitiveness. Over the last decade, Bombardier Inc. learned a great deal about the commercial thoroughness which they needed to deliver intricate global projects and compete in a regularly ever-changing worldwide marketplace. Bombardier Inc. has a workforce in 60 countries around the world and generates both direct and indirect commercial benefits.
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This includes managing a worldwide supply chain in two industries, with providers in over 68 countries in Transportation and over 49 countries in Aerospace. Business strategy and International Management Felicia Cote-Floyd |5 In 2011, Bombardier Inc. ranked #1 worldwide in business jets, #1 in turboprop aircraft deliveries and #1 worldwide in many rail transportation divisions, making them the rail industry’s worldwide frontrunner. 2. HISTORY Bombardier Limited was founded in 1942 by Joseph-Armand Bombardier, the inventor of the snowmobile.
Is main ambition was that he wanted people to be as comfortable to travel during winter as during other seasons in Canada. Developing, engineering and retailing transportation and recreation products globally, including Ski-Doo snowmobiles, Bombardier is also involved in heat-transfer products, aerospace components and engines. They also participated in building snowmobiles that were made for World War II. The company mainly operates plants in Quebec, Austria, Iceland, Belgium, France, the UK, Finland, Mexico, Germany, Czech Republic, Switzerland and the US.
In January 1999, it already had annual sales of $11. 6 billion, assets of $14. 2 billion and over 53 000 employees. Its major shareholder, Les entreprises de J. Armand Bombardier Limitee, owns 63% of the business and more than 80% of incomes come from markets outside Canada. In August 1986, Bombardier was successful in taking over Canadair LTD, the disturbed aircraft company, for $120 million and in April 1990, Bombardier acquired the insolvent Lear Jet Corp. They then took over half of De Havilland in March 1992, obtaining the balance in 1997.
These resources were merged in a new aerospace division and Bombardier became the third-largest producer of civil aircraft (after Boeing and Airbus) worldwide and the principal manufacturer of regional aircraft. Today, the company has seriously progressed into the rail car and bus manufacturing business and was mainly accountable for engineering the shuttle trains for the Euro Channel Tunnel. The company has greatly evolved since its start in 1942. Business strategy and International Management Felicia Cote-Floyd |6 3. STRATEGY AND MARKETS 3. 1 Bombardier Aerospace
Strategy Bombardier’s strategy is to remain focused on execution and on making progress in program development. They develop industry leading products and their new products will meet their customers’ needs and improve their competitive positioning. They have an extensive portfolio of business and commercial aircraft, all of which offer clients with unique operating performance advantages. Also, seven aircraft models in progress will contribute to solidify Bombardier’s product leadership. Furthermore, noteworthy expansion of customer services is ongoing to better meet customers’ needs.
They also continuously expand their international presence which allows them to better serve their customers and enrich their cost structure. Bombardier established two new sales and marketing offices in China (Shanghai) and the US (Dallas). Their customer service volume was also improved in Africa, Canada, China, Europe, India, Qatar, Russia and the US. It was also confirmed to establish a manufacturing facility in Morocco and to support in-production Business strategy and International Management Felicia Cote-Floyd |7 as well as in-development programs; therefore Bombardier opened an engineering service office in India (Bangalore).
Bombardier Aerospace also plans on reaching impeccable execution in order to improve their products’ reliability, customers’ satisfaction and profitability. Their Bombardier Vision Flight Deck entered service on Global5000 and Global6000 aircraft and demonstrated outstanding performance and consistency. In 2012, Bombardier Aerospace increased “off-the-shelf” parts availability globally from 90. 3% to 93. 3% and their CRJ700/900/1000 NextGen regional jets and Q400 NextGen aircraft received aircraft type authorization for operation in Russia and the Commonwealth of Independent States in 2012.
Markets Bombardier Aerospace is well-positioned to capture long-term market opportunities. For their Business aircrafts, their three families of business jets, when joined, represent the most complete offering of all business aircraft producers, which is a unique advantage in a market with durable long-term progress. There will be 24,000 business jet deliveries worldwide over the next 20 years and the industry annual revenues are expected to reach $39. 8 billion in 2031. Business strategy and International Management
Felicia Cote-Floyd |8 For their commercial aircrafts, their three families of commercial aircraft offer great performance. Bombardier Aerospace is well-positioned in a market with solid long-term forecasts with around 12,800 new deliveries over the next 20 years. Also, their industry annual revenues are expected to reach $34. 8 billion in 2031 in the “20-to 149-seat” commercial aircraft market. For their customer service, their increasing service contribution is intended to meet the growing and changing needs of their customers.
This market offers significant development opportunities such as more owners and operators that are subcontracting non-core service activities. Their customer fleets are increasing globally and they are shifting towards comprehensive “nose-to-tail” services and predictable expenditures. 3. 2 Strategy Bombardier Transportation’s strategy is to innovate for customer needs over the whole lifecycle. They continue to influence their technology leadership in order to reply to their customers’ needs by taking a comprehensive and continuing standpoint.
Bombardier Business strategy and International Management Bombardier Transportation Felicia Cote-Floyd |9 Transportation is a trusted partner for their customers worldwide and they continuously work hard in order to earn this distinction with every project they participate in. They are committed to develop innovative and cost optimized solutions, capture the full potential of fast growing markets and achieve flawless execution. In order to develop innovative and cost optimized solutions, they are devoted to unceasingly participate in Research and Development to continue to develop new innovations.
Their new innovations includes; WAKO tilting bogie with active radial steering which is to increase transport capacity by up to 60%, ORBITA, which is to observe vehicle systems and subsystems to recognize service problems before they arise. They also have TRAXX locomotive last mile technology which is to save cost by eradicating the need for shunting vehicles and MITRAC permanent magnet motors which is to attain greater power productivity than conventional engines. Concerning the capture of full potential of fast growing markets, Bombardier Transport employs a range of approaches for the sake of capturing opportunities in target markets.
They have a Local footprint project in Brazil and India with fully preserved manufacturing plants. They have a partnership with local players such as China and Russia. They have local capability building with a Project Management academy in Saudi Arabia. They have multiple licensing agreements, with local partners in China to report new market divisions such as the light rail segment. In the interest of achieving flawless execution, the customers of Bombardier transport strongly recognize the excellent in their execution. They have a strong endorsement from the City of London for the Olympic Games.
Bombardier guaranteed the higher level of trustworthiness and accessibility of trains in operation ever accomplished in the UK. Singapore driverless subway was conveyed two weeks ahead of the contractually agreed date and the re-signaling in Madrid (CITYFLO650 technology) was accomplished without any service interruption. Bombardier Transport leads by novelty and develop resolutions adapted to customers’ needs. They continuously improve their processes and are dedicated to raising their business in their home and in strategic new markets. Business strategy and International Management
F e l i c i a C o t e – F l o y d | 10 Markets Bombardier Transport continues to shelter large and strategic orders around the world and remains the provider with the best distinguished set to withstand worldwide competition. Their markets continue to grow steadily in their traditional central markets and vigorously in fast-growing rail markets. It is a company that is well-positioned for important future opportunities in every market and the industry essentials are positive and worldwide trends continue to favor rail transportation. Business strategy and International Management F e l i c i a C o t e – F l o y d | 11
Their accessible market is anticipated to develop by 2. 8% per year and reaching 112. 4$B per year in 2017. The market has been resistant regardless of a puzzling economic environment by showing commitment from governments to spend in rail. Their rolling stock remains the biggest segment, representing 53. 8$B per year in 2017 and Europe will see constant investment and stay the largest market. By Europe being the largest market, Bombardier Transport will be following a great number of orders in the local and inter-city segment and France and Germany will participate in better resolutions for commuters in key cities.
The UK will also continue to see strong investments, especially in the London Underground and Crossrail projects. Furthermore, other important markets for Bombardier Transport are planning major investments in Sweden, Belgium and the Netherlands. For the Northern American sector, there will be a high level of investments in metros and it is expected to be continuous. Also, growth for high-speed and signaling is forecasted. The market has been resistant to the predicament with key cities such as New York, San Francisco, Montreal and Toronto continuing investments into greener transportation.
This tendency is projected to be continued with investments in metros and the possible development of high speed plans. Services market is broadly accessible, and classic service activities are frequently subcontracted by operators. Positioning of new signaling standards in the U. S. will generate a trend of investments. Business strategy and International Management F e l i c i a C o t e – F l o y d | 12 And for the rest of the World, the big events, aging fleets, and the service freight will be incessant drivers of rail investments.
Concerning the future Olympic Games and FIFA World Cups, governments in Brazil, Russia, and the Middle East are spending in “state-ofthe-art” rail projects. Furthermore, Russia and other CIS states are proposing to refurbish their aging fleet and infrastructure, particularly for light rail, trains and signaling. Investment in freight to rush the movement of merchandises is anticipated to prompt orders for locomotives in Brazil and South Africa. Business strategy and International Management F e l i c i a C o t e – F l o y d | 13 4. FINANCIAL RISK ANALYSIS 4. 1 Key financial figures Bombardier inc. Annual Report 2012 Business strategy and International Management F e l i c i a C o t e – F l o y d | 14 Business strategy and International Management F e l i c i a C o t e – F l o y d | 15 4. 2 Risks and uncertainties General economic risk There is a risk of possible loss due to unfavorable economic circumstances, such as a macroeconomic decline in important markets, could result in possible consumers delaying the acquisition of their products or services. It can also lower order intake, order cancellations or delay of deliveries, lower accessibility of customer inancing, an increase in Bombardier’s participation in customer financing, downward pressure on selling prices, increased inventory levels. Furthermore, there can also be a decreased level of customer advances, slower collection of receivables, reduction in manufacture activities, dropped production of certain products, termination of personnel and even adverse impacts on their suppliers. Business environment risk This is the risk of potential loss due to external risk causes. More precisely, external risk causes may comprise the financial condition of the airline industry, business aircraft customers and major rail operators.
In addition, acts of terrorism, natural disasters, global health risks, political instability or the outbreak of war or continued hostilities in certain regions of the world could result in lower orders or the rescheduling or cancellation of part of the existing order backlog for some of their products. Operational risk There is a risk of potential loss due to risks related to the nature of Bombardier’s operations. In addition, large and complex projects are common in their businesses, structured as fixedprice contracts and therefore exposed to production and project execution risks.
Bombardier is also subject to risks related to problems with supply chain management, reliance on information systems, reliance on intellectual property rights as well as the successful integration of new business acquisitions. Financial risk They risk a potential loss related to the liquidity of their financial assets, including counterparty credit risk (access to capital markets), restrictive debt covenants, financing support provided for the benefit of certain customers and government support. Business strategy and International Management F e l i c i a C o t e – F l o y d | 16
Market risk Bombardier risks a potential loss due to adverse movements in market factors, including foreign currency fluctuations, changing interest rates, decreases in residual values of assets and increases in commodity prices. 4. 3 Bombardier overall financial results analysis of 2012 At the end of 2012, Bombardier’s revenues totaled 16,8B$ compared to 18. 3B$ in 2011. Their EBIT before special items was 5% of revenues compared to 6. 6% of revenues back in 2011. For the year, EBIT was 4. 1% of revenues as opposed to 6. 6% last fiscal year.
Adjusted net income for the year ended December 31, 2012 was 692M$ compared to 865M$ in 2011, occasioning an adjusted EPS of 0. 38$ as opposed to an adjusted EPS of 0. 48$ last fiscal year. Net income for the year 2012 was 598M$ as opposed to 837M$ for 2011. Free cash flow usage was 741M$ for 2012 whereas the free cash flow usage of 2011 was 1. 2B$. This being said, the CEO of Bombardier, Pierre Beaudoin, mentioned that the results for 2012 are not contemplative of the company’s potential. They are still building ahead with revolutionary products and increasing their reach in essential growing markets.
Bombardier proved their flexibility during the economic crisis and they have a 19% increase of backlog Business strategy and International Management F e l i c i a C o t e – F l o y d | 17 compared to 2011, which is not to be left unnoticed. There three main focal points will allow them to provide long-term sustainable development. Their first point is their set of “state-ofthe-art” products and services, which will be further uplifted as numerous groundbreaking platforms roll out of Bombardier’s amenities beginning in 2014.
The second is their increasing presence in vital global markets which brings them closer to their customer base. Finally, the last focal point is the solidification of customer satisfaction through impeccable performance on every order. 4. 4 Bombardier Aerospace financial results analysis of 2012 For 2012, revenues amounted 8,6B$ which is the same level they reached back in 2011. Their EBIT before special items was 4. 4% of revenues for 2012 compared to 5. 8% two years ago. For the year, EBIT was 4. 7% of revenues whereas in 2011, it was 5. 8%.
In 2012, their free cash flow usage amounted 867M$ compared to a free cash flow usage of 453M$ in 2011 Bombardier Business Aircraft saw an outstanding level of order in 2012, with 343 net orders compared to 191 back in 2011. The business department acquired two of its most major orders in its history with an order from VistaJet for 56 Global aircraft, priced at 3. 1B$ and an order from NetJets Inc. for 100 Challenger aircraft, priced at $2. 6B$. Bombardier Commercial Aircraft received 138 orders in 2012, compared to 54 for 2011’s fiscal year. Bombardier Aerospace’s backlog improved by 38% attaining 32. B$ in 2012, compared to 23. 9B$ in 2011. In 2013, the EBIT margin ought to be at a comparable level as in 2012. However, in 2014, Bombardier Aerospace presumes to accomplish an EBIT margin of roughly 6%, after an expected 2% dilutive effect from the entry-into-service of the CSeries aircraft. Bombardier aerospace expects cash flows from operational activities of approximately 1. 4B$ at the end of 2013. In 2013, Bombardier Aerospace believes to deliver almost 190 business and 55 commercial aircraft. Business strategy and International Management F e l i c i a C o t e – F l o y d | 18 . 5 Bombardier Transport financial results analysis of 2012 For 2012, revenues totaled 8. 1B$ as opposed to 9. 8B$ in 2011. For the year, EBIT before special items was at 453M$, compared to an astonishing 700M$ in 2011, which implies that the EBIT margin of 2012 was 5. 6% of revenues compared to 7. 2% in 2011. EBIT for 2012 was 290M$ versus 700M$ two years ago, which implies that the EBIT margin of 2012 was 3. 6% compared to 7. 2% in 2011. Bombardier Transportation’s free cash flow was, in 2012, 386M$ compared to a free cash flow usage 424M$ for the last fiscal year.
New orders reached 9. 4B$ compared to 9. 7B$ back in 2011. The order backlog totaled a personal best for the company of 33. 7B$ in 2012 versus 31. 9B$ in 2011. Bombardier Transportation continues to secure orders internationally and throughout all its product sectors. As for example, the orders from Metrolinx/GO Transit in Toronto, for 10 years of operation and maintenance services, prized at an astounding 937M$ and from San Francisco Bay Area Rapid Transit District (BART) for 410 metro cars, priced at 897M$.
In Switzerland, the City of Basel’s Transport Authority contracted an agreement for 60 FLEXITY trams priced at 241M$, Abellio Rail NRW GmbH in Germany, ordered 35 TALENT 2 Electrical Multiple Units priced at 226M$, and Public Transport Victoria of Australia engaged an order for 40 VLocity Diesel Multiple Unit vehicules priced at 216M$ Bombardier Transport also stated measures to develop its competitiveness and cost structure. It includes the termination of a plant in Germany and the decrease of direct and indirect employees by roughly 1 200 worldwide, including in Germany.
A reorganization charge of 119M$, in link with these intended measures, was recorded in the end of 2012’s fiscal year. In 2013, revenues are expected to be higher than in 2012, with a percentage growth in the high single digits, excluding currency impacts, and the group should maintain its free cash flow generally in line with EBIT, although it may vary significantly from quarter to quarter. Bombardier Transportation extended its target date, to achieve an EBIT margin of 8% by 2014. Business strategy and International Management F e l i c i a C o t e – F l o y d | 19 . SWOT ANALYSIS 5. 1 Bombardier overall Strengths ? They have a strong marketing position ? They have a diversified business model ? They are continuously focusing on innovation ? They provide beneficial packages to their employees ? They strongly emphasize on research and development ? They generate their total revenue from as many as17 different segments ? They have a strong profit growth Weaknesses ? They have a relatively low employee productivity as opposed to other major companies in their field ? Their employee benefit obligations are overfunded ?
They are the first brand in rail and transportation, therefore they can’t avoid previously made mistakes by other companies Opportunities ? Environmentally focused ? Innovation ? Expand to broader horizons ? New efficient technology ? Cost-effective to buy and maintain ? Safety e. g. inboard motor is much safer than that of a speed boat Business strategy and International Management F e l i c i a C o t e – F l o y d | 20 Threats ? Competition ? Economic crisis and the global economy ? Environmental concerns whereas Bombardier’s operations are subject to strict environmental regulations ?
Tightening of credit in the financial market of the customers and the suppliers 5. 2 Strengths Bombardier Aerospace ? Part of a strong and worldwide known brand ? High quality and technologically advanced products ? Owns the most respected jet companies in the world ; Learjet ? World’s third largest aerospace company behind Boeing and Airbus ? Broader scope of engines and material developments Weaknesses ? Because of the recession, a lot of employees were laid off, mainly at the headquarters in Montreal, Quebec, Canada ? Drop in revenues from 2011 to 2012 ?
Can’t fully compete against Boeing and Airbus Business strategy and International Management F e l i c i a C o t e – F l o y d | 21 Opportunities ? New efficient technology which might bring down the prices of jets and raise the demand of consumers and suppliers ? Setting sights on producing a greater number of commercial aircrafts ? Possibility to be ahead of Airbus and Boeing ? Increase their competitiveness Threats ? High price of R&D implies that they are not making as much profit as they should be ? Noteworthy competition of Airbus and Boeing ?
Affected organizational structure by the economic crisis 5. 3 Bombardier Transportation Strengths ? Well diversified across the diverse territories of the transportation industry. ? Strong track record of incorporating acquisitions ? Strong in product costing and offering ? Solid employee support & well recognized, strong corporate culture ? One of the most effective rail companies in relations of its ability to deliver agreements and manage and govern itself ? Active use of “just-in-time” delivery process and of subcontracting noncore functions to external suppliers
Business strategy and International Management F e l i c i a C o t e – F l o y d | 22 Weaknesses ? No in-house expertise in propulsion systems, locomotives and switching communications gear. ? Rely on some of its competitors for locomotive components Opportunities ? Opportunity for growth in the European market as one of the European Commission’s highest investment priorities is to develop a European-wide highspeed train infrastructure system. ? European policies and green initiatives promote the use of public transportation and consequently the culture is one of high public transportation ridership.
Threats ? North American government is not pushing for green initiatives, and therefore the culture was not one of high public transportation ridership. ? Government mandate in the U. S. means that all U. S. passenger cars must be reinforced and strengthened, meaning heavier trains which are poorly adapted to markets outside of North America. Business strategy and International Management F e l i c i a C o t e – F l o y d | 23 6. CONCLUSION In conclusion, it is noticeable how this Canadian company became a demand worldwide.
From the beginning of its process, to its global expansion, Bombardier has always been trying to connect with people with their innovations, flawless customer care and worldwide expansion. It is a company that behaves with integrity and maintains the trust and respect of their customers. They are also committed to excellence in all domains of their work and they are also focus and maintaining sustainable shareholder value through innovative products and services. It is clear that the only company offering rail transportation and aerospace is above all standards and keeps on bringing new products to the table.
Their strategies are strongly effective and they continuously strive to broaden their market segments. Nonetheless, it is evident that this company is exposed to numerous threats and risk, but I had the ability to beat the odds of failure and shine above all. Business strategy and International Management F e l i c i a C o t e – F l o y d | 24 7. REFERENCES 1. www. aviation. ca 2. www. wikiswot. com 3. www. bombardier. ca 4. www. businessinsider. com 5. www. flightglobal. com 6. www. mcafee. cc 7. www. scg-strategy. com 8. www. josephinevyam. com 9. www. avitrader. com 10. www. aviationpros. com Business strategy and International Management