Bombardier’s Focus on Emerging Markets Paying Dividends
For years Bombardier Commercial Aircraft claimed a modest level of sales success in Asia, selling more than 300 airplanes over the years to nearly 40 operators. But its performance there had proved uneven, and the company traditionally has depended on strongholds in North America and Europe for the majority of its revenues. Unfortunately for the Canadian manufacturer, what once stood as the world’s two biggest markets for regional aircraft have become saturated. Consequently, Bombardier’s failure to penetrate emerging markets forcefully has cost it a once dominant position in the segment. It must now play catch-up, prompting it to turn more of its attention to places such as China and India, where, until recently, it had woefully underperformed.
Lately, however, its efforts to expand the geographical profile of its customer base paid some handsome dividends, as Garuda Indonesia in February ordered six CRJ1000s and placed options on another 18. Garuda also plans to take another 12 of the 100-seat jets from a lessor in the region. The deal came some two months after Bombardier announced another modest deal in Asia—involving the first CRJ customer in China in several years. The contract, involving a conditional purchase agreement for six CRJ900s and options for another five from China Express Airlines, preceded the signing of an MOU between Bombardier and China’s Avic International Leasing covering expanded cooperation in the area of financing of commercial aircraft sales in China and around the world. A subsidiary of Aviation Industry Corporation of China (Avic), Avic Leasing controls what Bombardier characterized as substantial assets and a rapidly growing aircraft fleet.
In India, meanwhile, last year’s delivery of the first tranche of 15 Q400 turboprops on order by SpiceJet finally gave Bombardier a firm foothold in a country where rival ATR has dominated the turboprop market over the past decade. More recent Q400 business came in the form of a firm order for five of the high-speed turboprops from Ethiopian Airlines and two more from Seattle’s Horizon Air.
Until the recent flurry of sales and marketing activity, however, the company’s commercial aircraft division struggled mightily, in stark contrast to its business aircraft performance. Bombardier recently released figures showing that it delivered only 78 commercial aircraft during the 11-month period that comprised its last fiscal year (February 1 to December 31), while receiving net orders for just 54 aircraft, resulting in a backlog that, as of last December 31, dwindled to 48 CRJs and 24 Q Series turboprops. The previous year it drew firm orders for 93 commercial jets and delivered 97. This year it plans to deliver only 55. Fortunately, as of March 1 the backlog for its new C Series airliner stood at 138, meaning Bombardier has sold out all the delivery slots for that program for two-and-a-half years following expected first delivery at the end of next year. Still, the dwindling numbers of airplanes scheduled for delivery among the only two families of commercial aircraft now in production had no doubt given rise to concern at Bombardier’s headquarters in Montreal.
Nevertheless, in an interview before the Singapore show, Bombardier Commercial Aircraft vice president of marketing Philippe Poutissou insisted last year would prove an aberration, and that sales will rebound in the North America and Europe and accelerate in developing economies.
“It has been a challenging time for many of our customers, particularly in our strongholds of North America and Europe,” conceded Poutissou. “In 2011, of the orders we did book, we had quite a bit of success on the C Series side, where we specifically booked 43 firm orders and, in January, we added another one for five from PrivatAir.
“If we set aside the C Series and talk about the Q400 and CRJ, we’re going to work hard to ensure that the result from 2011 is a one-off,” continued Poutissou. “In fact, we’re taking a few steps, one of which is to ensure we have better presence and penetration in the emerging markets.”
In an effort to help reverse its fortunes in Asia in particular, the company announced the establishment of a Bombardier Commercial Aircraft regional sales and marketing office in Singapore. “The economic growth of this region is expected to outpace the rest of world over the next 20 years, and there remains a tremendous potential to develop and expand intra-regional and domestic services throughout the Asia Pacific region,” said Poutissou. “With its proximity to the Association of Southeast Asian Nation [ASEAN] countries, Oceania and India, Singapore is the perfect hub for our commercial aircraft sales, marketing and customer support teams.”
The company also has recently announced the appointments of two new vice presidents of sales for the Asia-Pacific region and the introduction of a vice president of sales for the Middle East and Africa based in Dubai. The company has also devoted more resources to overseas customer support offices in places such as Mumbai, said Poutissou. “As we’ve started to deliver aircraft into that market with the Q400s for SpiceJet, we’ve introduced more and more of our team into that office and we’ve grown the capabilities of that office.” In the Far East, Bombardier also maintains support offices in Tokyo, Shanghai and Sydney, all of which, said Poutissou, inevitably will become more important pieces of the company’s global network.
“I would say a couple of things are changing,” added Poutissou. “First of all, we have new products that are perhaps more adapted to the needs of the airlines in the region. For example, the C Series absolutely has the capacity and range to allow some of the Asian carriers—and [C Series customer] Korean [Air] is a great example of it—to expand their route networks into secondary destinations.”
Poutissou also referred to the new 100-seat CRJ1000 as a potential magnet for Asia-Pacific carriers that previously rejected the smaller CRJs for their comparatively high seat-mile costs. “We know that the Asia-Pacific market is one that is very much driven by low seat costs, whether it’s the LCCs in Southeast Asia or the competitive market in India…So with the CRJ1000 now going into service we have a new tool we can offer to those customers.”
Bombardier hopes SpiceJet’s experience in India with the Q400 will convince others in the region—outside its relatively large base in Australia and Japan—to consider the 78-seat turboprop more seriously. “We see opportunities to perhaps replicate what SpiceJet has done and introduce this aircraft again to take the low-fare model into new routes and new destinations that [airlines] can’t serve with 150-plus-seat aircraft.”
Meanwhile, Bombardier still holds high hopes that its so-called framework agreement with Chinese manufacturer Comac will help it make headway into a market that, by its own reckoning, stands to account for 18 percent of the world’s demand for 20- to 149-seat airliners over the next 20 years. Entered in March 2011, the agreement calls for the two companies to cooperate in seven major areas of development. Although Bombardier has not yet signed a firm contract with Comac, Poutissou indicated that the companies “certainly have [partaken] in a high level of engagement and [held] many discussions on areas of cooperation.”
“It’s certainly something that we’re not letting slip and we are actually putting quite a bit of energy toward,” he concluded.