Summer 2004 - Volume 7 Number 3
Case Study: Bombardier Inc. Competitive Intelligence Report (with special reference to Aircraft exports)
, Ph.D (Economics) and , Ph.D (Economics)
This paper provides a brief explanation of case learning methodology, its growing importance in the education process and presents a case, which was developed for and successfully used in research courses at Seneca College.1. Introduction
Case method is becoming more and more popular among educators. It is a discussion-based learning methodology, which allows the participants to identify, analyze and solve problems in a number of cases in different industry settings. This prepares the learners for real situations in their area of work, builds up their confidence as well as their professionalism.
Case learning methodology was developed at the Harvard Business School in 1910. Initially, executives were invited to come to classes to present business situations and the students were asked to write analysis and proposals. The first book of cases is dated 1921. In 1922 the University of Western Ontario created its version of case writing and learning methodology. Presently the Richard Ivey School of Business has become a leader in case method management education and provides annual seminars on case writing and learning practices.
Educators apply different techniques and styles in teaching cases. Cases may be written in different formats and may serve different purposes.
This case study is prepared for Trade Research and Market Analysis course. It may also be used in teaching Marketing Research courses. It was taught at Seneca College to two groups of students during the spring semester of 2004. Students were actively involved in class discussion and became comfortable with the idea of research-data compilation, data sources, trade classification system outlines of report writing and industry knowledge through case analysis.
The structure of the case is as follows. The first section discusses the Bombardier Company as a leader in the Canadian Aerospace industry, its products, structure, performance and some strategies. Section 2 provides a brief overview of the world Aerospace industry and section 3 sketches a broad view of the major Canadian companies in this sector. This section also discusses strengths, weaknesses and challenges facing Canada in the global marketplace. Section 4 provides a background of product and market segments of the Aerospace manufacturing industry. This discussion helps in identifying Canada's niche markets. Section 5 discusses certain global aspects and trends in this industry, including global trade developments. This section highlights the major competitors and partners of Canada in this industry. Section 6 leads to critical questions of competitive intelligence as an exercise.Bombardier Inc.
On May 19th, 2004 Sandra Lee, a graduate student, specializing in International Business Management, was preparing for the following day's class in Trade Research and Market Analysis. The topic was "Competitor Intelligence". She had to prepare material for discussion on the improvement of strategic and tactical decision making at Bombardier, major Canadian-controlled global aircraft manufacturer. Sandra's major concerns were about the number, size, strength and strategic approaches of Bombardier's competitors.1. Bombardier Inc.
Bombardier makes products that move people. Its largest business segment is Aerospace (65% of '00 revenues, 87% of '00 profits). Bombardier manufactures aircrafts or business users (Challenger and Learjet) and regional commercial users (Canadair and de Havilland). It is the world's 3rd largest aircraft maker. Commercial airlines make up its largest customer base. Besides aircrafts, Bombardier is the global leader in rail transportation. It manufactures high-speed railcars, tramways and locomotives. Bombardier also manufactures recreational products. Snowmobiles are marketed under the Ski-Doo and Lynx brand names. Watercraft is marketed under the Sea-Doo name. ATVs are marketed under the Bombardier name. Boats, neighborhood vehicles (golf carts) and engines are also manufactured.
Bombardier has been in business since 1942 and the company has remained firmly in the control of the Bombardier family. In fact, 3% of pre-tax income is funneled to the Bombardier Foundation. Although this is actually the shareholders' money, and they are not given a say in how this contribution is distributed, Bombardier has produced above-average financial results that more than offset this charitable disbursement.
Both 9-year and 5-year normalized EPS growth rates are approximately 25%. ROE has averaged 19% over the past 9 years. Bombardier, however, will not maintain its 25% growth rate, especially in light of the recent plunge in air travel, the distress of commercial airline companies, fierce competition from Embraer of Brazil and the possibility of Boeing entering the regional jet market. Embraer receives government subsidies and undercuts Bombardier on price. Boeing could muscle into the market using its clout and size to offer advantageous deals. Although Bombardier had the market virtually to itself for the first half of the nineties, and was able to establish a leadership position because of this, competition will continue to cut into Bombardier's market position.1
Bombardier is the world's biggest producer of Railway equipment, including high-speed locomotives. The company can generate many opportunities for synergies.2. Aerospace Industry.
The Aerospace industry is a high technology and knowledge-based industry.2 High technology industries are being accorded top priority in the economic development efforts of all countries. Developed countries are putting an increasing emphasis on accumulation of high tech knowledge and applications of newer technologies in their production structure to enhance and sustain international competitiveness. Competitive growth of these industries is, thus, considered a strategic step to further a country's goal of becoming innovative and knowledge-based economy.3 According to the European Commission (1997),4 the industry is not only considered as strategic, but is also a seen as a driver of the development in a wide variety of technologies, which are critical for innovation in other industries.5 The Aerospace industry is a most important and dynamic industry in North America. Canada is known as a leader in several high-growth system and subsystem areas of this industry.6 In Canada, more than 70% of this industry's production is exported. Furthermore, eighty percent of Canadian Aerospace industry's production is manufactured for civilian/commercial products like aircrafts, aircraft systems and components (e.g., engines), as well as spacecraft, avionics etc. There are approximately 700 Aerospace and defense companies in Canada, employing more than 80,000 Canadians. The world leader in the regional aircraft market is Bombardier; in commercial helicopters - Bell Helicopter Textron; in small gas turbine engines - Pratt & Whitney Canada; in commercial flight simulators - CAE industries; and, in large landing gears - Menasco, Messier-Dowty and Heroux.3. Canadian Aerospace industry a short sketch
Bombardier, the parent company of Candair and de Havilland, is a major Canadian-controlled global aircraft manufacturer. It has the world's largest market share of deliveries and orders for 30- to 50- seat turboprops and jets. The company has achieved particular success with the Candair Regional Jet and the new, longer-range, enhanced version of the Challenger Business Jet, the Challenger 604. A new high-speed, 70-sear turboprop, the Dash 8 series 400 was launched in 1996. The Global Express, a new long-range executive jet, will be available in 1997.
Bell Helicopter Textron (Canada) designs and manufactures Bell Textron's entire line of civilian helicopters, sales of which account for 50 per cent of the international market.
Pratt & Whitney Canada is a world leader in high-performance turboprop engines, as is CAE in flight simulators. Pratt & Whitney Canada has a 30-per-cent share of the world market for small gas-turbine engines, which power the world's fleet of regional aircraft, military trainers and helicopters.
Canadian Aerospace companies have grown by 50 per cent over the past 10 years, more than the Aerospace industry in any other country of the OECD. The private sector has poured billions of dollars into this sector in order to create industry leaders with as little government involvement as possible.
Since 1986, Canada has become a world leader in business aircraft. It has gained a leadership position in regional turboprops, expanding and renewing the Dash 8 family of aircrafts. It has created a whole new market for 50-sear jets with the CRJ. As a result, in just 10 years, Bombardier has become the world's number-four civil-aircraft airframe manufacturer.
High levels of government involvement have always characterized the commercial aircraft industry. This is much less true in Canada today, but is still very true in other parts of the world where its competitors are located.
Almost all commercial plane manufacturers in other countries are funded through military aircraft programmes. In the United States, the federal government funds $12 billion a year in Aerospace research and development mostly through military contracts. Military aircraft programmes are also key to the commercial Aerospace sector in France, Great Britain, Italy, Brazil, and even in relatively small countries like Holland and Sweden.
In addition, Canada's major competitors in France, Italy, and Brazil are owned in part or in whole by their national governments. As a result, different competitors may, depending on the country, have their losses absorbed, their R and D costs written off, or their aircrafts financed at subsidized rates.
As it stands now, compared to support given by foreign governments, which may reach up to 60-90 percent, the Canadian government's support, through the Technology Partnerships Program, is very moderate. This programme is a way for the federal government to contribute in a refundable way to large and risky development projects while ensuring that the responsibility for investment rests with the private sector.
We expect that foreign government subsidies to the Aerospace industry, still high today, will come down in coming years as pressures mount on these governments to reduce their public debt, to privatize and to stop tampering with market forces. For European countries, their effort to meet the deficit and debt targets required for entry into the European Monetary Union is forcing a reconsideration of government subsidization.
Canada is at the forefront of these changes. Canada, with the full support of Bombardier and other members of the Canadian Aerospace industry, is working actively in bilateral and multilateral discussions at the WTO and OECD to reduce the support provided by other governments. Most Canadians fully back these initiatives because they believe that, on a strictly commercial basis, Bombardier and the rest of the Canadian Aerospace industry could become the world leader.Strengths:
Statistics of the industry's performance, gathered by Statistics Canada, Industry Canada and the AIAC, show an industry that has grown strongly, even spectacularly, since the last recession and through the boom. Employment has more than doubled, and revenues have tripled. These numbers show that the industry has been doing the following things right: strong and sustained investment in research and development (although mostly by the largest, Tier 1 and Tier 2 companies), amounting to 12 to 14 percent of shipments, well above the ratios for other manufacturing industries, and a strong focus on exports - well over half of total shipments. Canada has been supplying aero structures for the large civil aircraft industry, and Boeing has been its long time customer. Canada has the Aerospace infrastructure to supply Airbus and will need the European market to increase its global market share.7Weaknesses and Challenges:
The Canadian Aerospace industry also has some areas in need of improvement, which could prove critical in the coming era of increased global competition. First, Canadian suppliers tend to be smaller than those of worldwide counterparts - a problem shared by other industries, as well. This means they don't always have the capital they need to pursue the global contracts, or to ensure long-term growth as the industry consolidates. Second, the Canadian Aerospace industry has a high degree of foreign ownership. There are only two prime manufacturers in Canada, Bombardier and Bell Helicopter Textron - and U.S.-based Textron, Inc owns the latter. Even Tiers 2 and 3 are dominated by U.S. or European-owned companies: Pratt & Whitney, Menasco, Messier-Dowty and others, to name a few.
Human resources management needs improvement; reports Industry Canada's Sector Competitiveness Framework report in aircrafts and aircraft parts. The industry also has a chronic shortage of skilled labor. The AIAC reports an annual deficit of about 4,000 licensed repair, overhaul and maintenance workers across the country. European and other competitors receive very substantial support through large-scale defense projects, defense and space R&D. In Canada we do not have matching projects. More efficient defense market is an essential prerequisite to further enhancing the competitiveness of the Aerospace industry.8 Europe's STAR 21 report has emphasized the need for defense and space programs to build a strong Aerospace industry.4. Aircraft manufacturing markets/products-background information
The aircraft manufacturing industry is comprised of several different sectors.9
a. Large civil aircraft primes are Airbus and Boeing. Most of Airbus's manufacturing facilities are based in Europe. It has subcontractors in the U.S. (Aerostructures Corp.) and Asia/Pacific. Most of Boeing's manufacturing facilities are located in the U.S. It has subcontractors in Europe (Finmeccanica in Italy, for example) and Asia/Pacific, (mainly Japan). Market share, based on orders announced by Airbus and Boeing is trending towards a 50/50 split of the large civil market by these two key suppliers.
b. Military aircraft: While the market for civil Aerospace products is clearly a worldwide market, military Aerospace markets are constrained by differing national defense and procurement regulations. The U.S. dominates the military aircraft manufacturing industry. Boeing and Lockheed Martin are the key suppliers of military jet fighters. Northrop Grumman is a major subcontractor on the Boeing F/A-18E/F program and a leading supplier of UAVs (through the Global Hawk program). Global competitors include BAE SYSTEMS, EADS/Dassault and Saab Aerospace in Europe. Russia's military fighters are competitive in some markets. Lockheed and Boeing now dominate the military transport market, but European plans to proceed with the Airbus A400M program could result in more competition in this sector.
c. The regional jet market. Major participants are Bombardier (Canada), Embraer (Brazil) and Fairchild Dornier (Germany). These firms source aero-tructures globally. For example, Embraer has wings supplied by Gamesa in Spain. U.S. aircraft manufacturing is nil in this sector. In regional aircraft (jet and turboprop), European companies held a majority share of the market for a long time (over 70% in 1994). More recently, however, rapidly increasing competition from Canadian, Brazilian and Asian producers combined with the collapse of Fokker and the sale of Dornier to Fairchild has resulted in a dramatic reduction in European market. The share of the Canadian industry is estimated to be 40% of the regional jet market.
d. The business jet market. Major players in this segment: participants include Gulfstream, which is owned by General Dynamics; Textron Cessna and Raytheon Aircraft are based in Wichita; Bombardier (Canada) and it owns Learjet, which is based in Wichita, however; Dassault of France is also a global competitor. American business jet suppliers include Sino-Swearingen (based in Texas), which is developing a new aircraft.
e. The general aviation market. U.S. firms still dominate this sector. Cessna, Raytheon and Piper are the major U.S. suppliers. Socata, which is owned by EADS and Pilatus of Switzerland are niche players. There is a number of U.S. firms developing general aviation products for entry-level use.5. Global Trends
(i) Some aspects of aircraft manufacturing reflect maturing technology
Aircraft manufacturing industry is a mature sector. There have been some advances in the use of composite structures. However there does not appear to be a break-through technology in materials that could revolutionize this sector.
(ii) Aircraft primes are under constant pressure to make their products more affordable
Aircrafts are major cost items. Regional jets cost $1 billion, or more, to develop and large civil aircraft development costs are multiples of this figure. Prices for a new large civil aircraft will range from $40-$150 million (depending on the model). Airlines in particular are under constant pressure to reduce the cost of the services they provide and aircraft primes therefore are under pressure to continue to make their products more affordable.
(iii) Emerging Trends
Regional jet sizes are increasing and could create more competition with large primes. This could spur new industry alignments and/or new product development. In business jets Bombardier is leading in product innovations with our new Learjet 45, the mid-size Learjet 60, the wide-body Challenger G04 and the world-beating, ultra long distance Global Express. Bombardier is up against excellent high-tech companies such as Dassault of France, Textron's Cessna, Raytheon's Beech craft, and, of course, Gulfstream Aerospace.
(iv) Trade and Competitiveness
The aircraft manufacturing industry is a global industry, with production sub-contraction spread over different countries. Capital markets treat the aircraft manufacturing as the global sector.
Table 1 presents a comparative analysis of major developed countries in the Aerospace industry, over the time period of 1990-2002. For trade purposes, we can define the Aerospace sector in terms of either HS classification system or NAICS system or in terms of SITC system. The study has compiled data on the basis of SITC Rev 3.11 The aerospace industry, as a high-tech industry, is defined in terms of SITC Rev 3, covering three digit codes 7921, 7922, 7923, 7924, 7925, 79293, (714-71489-71499), 57411.12 The computed index (CTB, Contribution to Trade Balance) is an index of the competitiveness of the Aerospace industry. Positive figures indicate the contribution of the Aerospace industry in improving the country's balance of trade. Negative figures, on the other hand, show the adverse effect of the industry on the country's balance of trade. As seen from the figures, Canada has improved competitiveness. Brazil is closely matching its performance. USA and France have shown strong advantage in the Aerospace sector. Germany is improving its competitive position.
Table 2 shows the major destination markets of Canada's exports. It is seen from this table that USA is the major destination market for Canada's exports. In fact, Canada's exports show heavy concentration in the advanced industrial markets.
Table 3, further sheds light on Canada's capabilities and its strong relative performance in the US market. Canada is among the top three countries supplying Aerospace products, and is closely competing with UK in the US market.
Sandra carefully reviewed the research material, read the chapter on "Competitor Intelligence” and, based on the chapter material, prepared the table summarizing some of the most important questions that the company will need to know about their competitors. Now she had to fill it in.
2. OECD Stan Database, using ISIC industry classification system (Rev3), classifies five industry groups as high-tech manufactures. These high technology manufactures are: Pharmaceuticals (ISIC 2423), Computing and accounting machines (ISIC 30), Radio and Communication Equipments (ISIC 32), Medical and Optical Instruments (ISIC 331), and Aircraft and Spacecraft (ISIC 353). See OECD Science, Technology and Industry Scoreboard 2003-Towards a Knowledge-based Economy. OECD
3. See in particular the recent report, Productivity and Innovation: A Competitive and Prosperous Canada. House of Commons Standing Committee Report (2000). See Chapter 18, The Aerospace Sector. Parliamentary Internet Website, http://www.parl.gc.ca/InfoComDoc/36/2/INDU/Studies/Reports/indy20/04-toc-e.html
4. European Commission (1997), The European Aerospace Industry meeting the Global Challenge, Brussels, 24 September, http://europa.eu.int/comm/enterprise/aerospace/aeronautics/aero_comm.htm
5 The Commission further points out that it stimulates technological development in high-tech industries(e.g., materials and electronics) and plays a leading role in technological innovations which diffuse to other sectors(e.g., energy and automobile)
6. See the above Committee Report
(2000, Ch 18). The discussion below, in this introduction part, draws upon this report.
7. See Subcommittee on Aviation, Hearing on The Competitiveness of the US Aircraft Manufacturing Industry(2001), Statement by Robert A. Rogowsky, July 26.
8. See more discussion in Commission of the European Communities(2003). Communication from the commission to the Council, The European Parliament, The European Economic and Social Committee and the Committee of the Regions. A Coherent Framework for Aerospace-a response to the STAR 21 Report.
9 The material that follows in this section draws upon two sources: (a) Subcommittee on Aviation- Hearing on the Competitiveness of the US Aircraft Manufacturing Industry (2001), Testimony of Byron K. Callan, First Vice President, Merrill Lynch before House, July 26 Hearing, and (b) European Commission (1997), The European Aerospace Industry meeting the Global Challenge, Brussels, 24 September, http://europa.eu.int/comm/enterprise/aerospace/aeronautics/aero_comm.htm
10. See the above European Commission Report.
11. This classification, in its definition of a high technology, takes into account direct as well as indirect technological intensity(that is, direct and embodied R&D flows, based on the Input-Output Tables of ten OECD countries). See details in OECD 1997, Hatzichronoglou.
12. This definition is suggested by OECD 1997. See Hatzichronoglou, T (1997), Revision of the High-Technology Sector and Product Classification. STI working Paper 59918 Paris. References Commission of the European Communities (2003). Communication from the commission to the Council, The European Parliament, The European Economic and Social Committee and the Committee of the Regions. A Coherent Framework for Aerospace-a response to the STAR 21 Report.
The European Aerospace Industry meeting the Global Challenge. Retrieved September 24, 1997 from: http://europa.eu.int/comm/enterprise/aerospace/
Hatzichronoglou, T. (1997). Revision of the High-Technology Sector and Product Classification. STI working Paper 59918. Paris.
House of Commons Standing Committee Report. (2000). Productivity and Innovation: A Competitive and Prosperous Canada. See Chapter 18, The Aerospace Sector.
Parliamentary Internet Website. Retrieved from: http://www.parl.gc.ca/
OECD Science. (2003). Technology and Industry Scoreboard 2003-Towards a Knowledge-based Economy. OECD
Subcommittee on Aviation- Hearing on the Competitiveness of the US Aircraft Manufacturing Industry. (2001). Testimony of Byron K. Callan, First Vice President, Merrill Lynch before House, July 26 Hearing.
Subcommittee on Aviation, Hearing on The Competitiveness of the US Aircraft Manufacturing Industry. (2001). Statement by Robert A. Rogowsky, July 26.
Industry Canada, Trade data online. http://strategis.ic.gc.ca/sc_mrkti/tdst/tdo/tdo.php#tag
UN Comtrade Database
Formula for calculating CTB (Contribution to Trade Balance)
Formula for estimating the "Contribution to the Trade Balance” indicator is
Where, and are the country's exports and imports of Aerospace products respectively; and are the country's total exports and imports. The 'contribution to the trade balance' is the difference between the actual and theoretical trade balance. The second part of the above expression
Elena Skliarenko, (Ph.D in Economics) is currently a professor at the School of International Business at Seneca College. Over the last twenty years she has held appointments with The World Bank, Morgan Grenfell, Deutsche Bank and other multi-national corporations, working on international assignments in Eastern, Central, Western Europe, North America and South East Asia. She can be reached at (416) 491-5050, ext. 6014 or Elena.Skliarenko@senecac.on.ca.
Ramesh Bhardwaj, (Ph.D. in Economics) is currently a Professor at George Brown City College. He has several published articles in refereed journals. He specializes in international business and applied economics. In addition to teaching, he has worked as a consultant and advisor in academic and professional organizations. He can be reached at (416) 227-0817 or email@example.com.
• The views expressed by the authors are those of the authors and do not necessarily reflect those of The College Quarterly or of Seneca College.
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