The Inside Story Of The $4 Billion Gamble On The Super Quiet Jet

(Bombardier)

Product launches are festive occasions, but it’s rare to attend one so joyful that it moves the crowd to tears. And yet, a fleet of aviation honchosâ€"Bombardier Inc. CEO Pierre Beaudoin, aerospace division CEO Guy Hachey, commercial aircraft president Mike Arcamone, Porter Airlines CEO Bob Deluceâ€"all admitted that the takeoff last Sept. 16 of the first aircraft in Bombardier’s new CSeries line of planes had them choked up. “My heartbeat was going quite fast as I watched,” blubbered Hachey afterward, flashing a mile-wide, white-toothed smile. “I had lot of thoughts in my mind about how long we have been working at this, and how important it’s going to be for the future of the company.”

Bombardier turned the maiden takeoff of Flight Test Vehicle 1 (FTV1) into a major spectator event at its Mirabel, Que., production facility. They set up stadium seating along the runway and packed it with 2,700 employees and 300 invited guests. They produced their own live, news-style webcast featuring a parade of expert commentators. And they handed out plenty of first-flight-themed mementos: hats, T-shirts, lapel pins, buttons, booklets, stationery, the works. But when FTV1 arched upward on that crisp, sunny late-summer morning, their elation rose above the pomp and the swag. Who can blame them? The maiden voyage of a new aircraft is as close as engineering can get to a spiritual journey.

The CSeries has been designed from scratch and conceived with cutting-edge technology. It is without precedent: an ultra-lightweight, ultra-quiet, ultra-fuel-efficient commercial airliner that can reach near-transcontinental distances from a measly 4,000 feet of runway. Its ability to make big leaps with small environmental footprints make it an ideal aircraft to reinvigorate downtown airports that have fallen out of favour with governments and residents in recent decades. It also has the potential to open up new direct flights on what the industry calls “long, thin” routes: destinations too far for a regional jet but with not enough travellers to justify a larger plane. In short: it will make life easier for the average travelling business schmo.

At least, such is the craft’s promise. Thousands of hours of flight testing for both the 110-passenger CS100 and the larger, 135-passenger CS300 are still needed to prove their mettle. But it all starts with first flight, and when the moment finally arrived at least one promise was made manifest: as FTV1 lifted off, those in attendance, standing a mere 150 metres away, could barely hear it make a sound. It was a stark contrast to the clearly audible Global5000 jet that had taken off minutes before, and it was that silence that caused their hearts to skip a beat.

FTV1 flew for two and a half hours that morning, reaching heights of 12,500 feet. When it landed, just as quietly as it had taken off, the magnitude of the event began to sink in. Hachey compared it to the day in 1987 when the Airbus A320 made its maiden flight. Others compared it to more recent first flights like the Dreamliner and the A380 megaplane. “Only Boeing, Airbus and Bombardier have undertaken a project of this size in the last 10 years, and we won’t see any of them do it again for at least another decade,” says McGill business professor Karl Moore, who was also in attendance. “This is Canada at its best, playing in the big leagues.”

The most apt comparison was the one no one mentioned: this was the finest moment in Canadian aviation history since March 25, 1958, the day the Avro Arrow took to the skies. But since the Arrow’s development was infamously halted less than a year after its first flight, there was reason to avoid that analogy.

Away from the runway, the CSeries program still faces many obstacles. The maiden flight was originally slated for late 2012, but successive delays had pushed it back by nine months. At the press conference following first flight, Arcamone revealed that the cost of the CSeries program had swelled by half a billion dollars to $3.9 billion. And while Bombardier insists the plane’s entry into service is a mere 12 months away, the production facility was still nothing more than a collection of steel girders adjacent to the staff parking lot.

Investors certainly aren’t convinced the plane will succeed: despite achieving the first-flight milestone, Bombardier ended that eventful week with its stock down 30¢ at $4.77. With its order book languishing at 177 aircraftâ€"well short of Bombardier’s stated goal of 300 sales before entry into serviceâ€"the CSeries’ future is not yet assured.

CLICK IMAGE TO EXPAND

From the Arrow to the Bricklin sports car to urea formaldehyde insulation to Mirabel Airport, Canada has a long track record of highly promising, large-scale, government-subsidized industrial failure. Bombardier has somehow managed to avoid being part of our heritage of ineptitude, evolving from its modest 1930s origins assembling its own innovation (the Ski-Doo) to its current status as a global plane, train and bus manufacturing conglomerate. The company is experienced at taking massive calculated risks, and the CSeries represents the biggest gamble yet, one that has vaulted the company up near the pinnacle of Canadian corporate R & D spendersâ€"more than $1 billion per year in 2010, 2011 and 2012.

Bombardier initially launched the CSeries in March 2004 under the generic moniker of the New Commercial Aircraft Program (NCAP), and at first they ran it on a shoestring: a mere three employees were tasked with designing a single-aisle commercial aircraft larger than anything the company had built before. For Bombardier, experts in regional jets carrying from 30 to 100 passengers, building a 130-seat plane was a stretchâ€"but not an overreach. What made it logical was the sorry state of the competition, aviation behemoths Boeing and Airbus. “Our competitors had downsized some their larger aircraft for this market, but the planes weren’t very efficient,” says Rob Dewar, one of the original three staffers who is now vice-president and general manager of the CSeries program. “They were oversized.”

Bombardier decided to go in hot pursuit of the opportunity. The NCAP division grew to nearly 600 employees in only 18 months as Dewar designed specs for a brand new airplane that could achieve an 8% operating cost advantage over the competition. But when they shopped it around, they found no takers. “The plane we’d designed simply wasn’t competitive enough,” says Dewar. The situation was akin to a prize fight: Bombardier wanted to move up into the heavyweight class with Boeing and Airbus, but defending champs always get the benefit of the doubt against a new challenger. To have any chance of winning customers away from the established players, Bombardier’s new plane would have to be a knockout. That didn’t seem likely, so in January 2006 Bombardier shelved the program just as quickly as they’d ramped it up. They placed a hiatus on the plane’s certifications with Transport Canada and reassigned nearly all the NCAP’s employees.

But aviation types are dreamers by nature, and Bombardier never quite gave up on the idea. Dewar, a lanky, six-foot-tall, bespectacled redhead with a mechanical engineering degree from McGill (“I’d wanted to be a military pilot, but my height and eyesight made it unlikely,” he says), was allowed to maintain a skeleton staff for his phantom jetliner. He knew which people he wanted to keep, but he decided to let them self-select. “We offered everyone the opportunity to be reassigned,” he says, knowing some wouldn’t want to be stuck in a dead-end project. “We asked everyone: Do you really want to stay?”

It wasn’t intended to be a team-building exercise, but that was the effect it had: given the chance to walk away risk-free, only the 47 most committed chose to stick around for the trip back to the drawing board. They redesigned the wings using new carbon-composite materials. They incorporated an aluminium-lithium alloy into the fuselage. They added a fly-by-wire system and electric brakes.

They also became the first manufacturer to sign up for Pratt & Whitney’s new PurePower PW1500G geared turbofan engine, whose early development had also been spearheaded in Canada. “The geared turbofan operates like the transmission in your car,” explains Pratt & Whitney vice-president Bob Saia. Think of it like driving a manual sports car: when you shift up a gear, the engine works less hard to go faster. Adding a gearbox to a jet engineâ€"an engineering challenge long considered a holy grail in aviationâ€"allows the fan and the turbine to spin at different speeds. The net result is a quieter jet engine that burns less fuel.

For Bombardier, the total worked out to more than the sum of its parts: the design changes and the new engine doubled the plane’s operating cost advantage to 15%, a quantum leap for an industry where fuel costs can cut deeply into margins. Buyers were impressed, and the CSeries program was officially reborn on July 13, 2008.

Dewar remembers that date by heart. The other 1,887 days between green light and first flight have been a blur of designing, modelling, simulating, assembling, testing and troubleshooting. The CSeries design wasn’t just new for Bombardier; many of its components were new to commercial aviation writ large. There were no existing standards anywhere for the carbon-composite wings or the aluminium-lithium fuselage, so Transport Canada had to make them up as they went, working closely with American and European regulators to make sure the new specs would apply worldwide. Thankfully, says Dewar, “we never had any oh-shit moments in the plane’s development, where we discovered problems we had no idea how to solve.”

Bombardier also put in place a global supply chain, bringing parts from Belfast, California, China and elsewhere to Mirabel for final assembly. Both the Dreamliner and the A380 experienced major delays and massive cost overruns during their similar development processes. To avoid repeating history, Bombardier built Aircraft Zero: a full-scale CS-100 model that brought together all electrical, electronic and other systems from suppliers into a single rig dedicated solely to ground testing. While other companies have built similar models, says Dewar, “ours was 10 times more expensive and 10 times more sophisticated. It’s the most extensive ground-test rig in the industry.” The investment paid off on first flight, and it will likely pay further dividends when the CSeries enters full production next summer. Dewar has already figured out where the assembly line hiccups might be. Now all he needs is for somebody to sell some of his planes.

The lowest point in the CSeries program this year came back in June, when Bombardier postponed first flight for the second time and came back from the Paris air show with zero new orders for the aircraft. That same week in Paris, Embraer, Bombardier’s longtime Brazilian nemesis in the regional-jet category, announced an initial order for its updated 80-passenger E175-E2 model, which would be outfitted with Pratt & Whitney’s geared turbofan.

Suddenly, the squeeze was on. Airbus was already flogging its upgraded 156-seat A319neo with a geared turbofan. One month earlier Boeing had landed its first customer for its revamped 126-seat 737 MAX 7. The niche that Bombardier had so carefully staked out for itself, for aircraft seating between 100 and 150 passengers, was starting to shrink. With Embraer chipping away at the low end and the big players pushing down from the top, the CSeries could be squeezed out of existence. Airlines that don’t already do business with Bombardier, the logic goes, will prefer to source new planes from the airlines they know, because it keeps training and maintenance costs low. One observer provided this analogy: “Have you switched all the lights in your house from incandescent bulbs to LEDs? You’re guaranteed to save money if you do, but most people don’t because there’s a transaction cost and a time investment.”

And yet, despite the stalled sales, the CSeries’s 177 firm orders are still more than all its competitors combined: 100 for Embraer, 30 for Boeing and 45 for Airbus. Moreover, since Paris, no airline has purchased a single plane in this market segment. They’ve all decided to wait and see how the CSeries’s flight-test program goes before making any decisions. That’s music to Bombardier’s ears, but it’s also a planeload of pressure: a massive global industry has decided to stop and watch, to see if a Canadian upstart can pull off something big. “If the data from the flight-test program proves that the plane can perform as promised, new orders will come through,” says analyst Walter Spracklin of RBC Capital Markets.

Tryggve Gjertsen, the fleet manager for Sweden’s Braathens Aviation, is among those who couldn’t wait for the test data. He was one of the first to sign on the dotted line for the CSeries, purchasing a total of 10 aircraft in June of 2011, and Braathens will be the first to bring the planes into service. Braathens flies domestic routes in Sweden from Bromma Airport, located just seven kilometres from downtown Stockholm. Its proximity to the city makes it a lightning rod for noise and emissions concerns. “Our fleet needed replacing, and we had a lot of environmental sensitivities to manage,” Gjertsen says. “When we looked, nothing could compare to the CSeries. Airbus and Boeing planes could not operate on our short runways. Embraer was no match in terms of range. And for noise, emissions and fuel consumption, it was the best plane available.”

Braathens is not alone in its requirements: many of the CSeries’ existing purchasers have similar constraints imposed by urban airport locations. Lufthansa-owned Swiss European Airlines operates from London City Airport, as will U.K. startup Odyssey Airlines. And Toronto’s Porter Airlines reckons the CSeries will give the company its best shot at gaining a much-needed exemption to the current ban on jets at Toronto’s island airport. Porter CEO Bob Deluce tells roughly the same story Gjertsen does, though as a lifelong aviation geek he likes to use the military terminology that still lingers in the industry. “Other planes claim to be designed for the same mission as the CSeries,” he says, “but none of them really are. They are all thousands of pounds heavier and burn 20% more fuel.”

If companies flying out of urban airports make natural buyers for the CSeries, then Bombardier’s order book could indeed swell in the months ahead. A recent list compiled by the Rotman School’s Martin Prosperity Institute shows that more than 20 major North American airports are located less than 15 kilometres from their respective downtowns, including Boston’s Logan International (5.6 kilometres), Miami International (8.0), Vancouver (9.2) and Dallas/Fort Worth International (10.3). Even far-flung airports like Pearson and Edmonton International have seen residential development creep ever closer. Few of them have the same stringent requirements as Bromma or Billy Bishop, but as Gjertsen puts it, “governments will start establishing new regulations as new technology becomes available.” The CSeries may prove to be ahead of its time.

On the way to witness first flight, the ride to Bombardier’s Mirabel facility took a busload of journalists and airline execs right past the Château de l’Aéroport, the now-derelict former airport hotel that once served Mirabel’s passengers. It had been a resort-themed facility built by Canadian Pacific Hotels in 1977, with glass elevators and rooms looking down into an inner atrium of giant palms and tropical greenery. It shut down in 2002, and whatever splendour it might have radiated has vanished. All that remains are grimy windowpanes set in a block of concrete.

But Mirabel is not nearly as abandoned as its faded jewel might suggest. It has become a cargo port for companies like FedEx and UPS, as well as Bombardier’s manufacturing hub. The construction of the new CSeries plant will bring Bombardier’s workforce at Mirabel to 3,500. The company’s suppliers, including a new Pratt & Whitney facility, will bring hundreds more. And word came down earlier this year that Syscomax, a Quebec commercial real estate developer, plans to invest $36 million in the hotel’s revival. It’s slated to reopen in 2014.

It’s not just Mirabel whose future is tied to the CSeries. Investments from both the federal and Quebec governments already exceed $350 million, a figure that will likely increase by the time the plane actually carries a paying passenger. And the money is only part of the story: Bombardier is one of corporate Canada’s few remaining shining stars in the global economy. Nortel burned out years ago. BlackBerry, despite Prem Watsa’s intervention, is likely to remain a mere shadow of its former self. Our banks are successful but only just starting to gain international recognition. Our oilsands companies, for all their engineering sophistication, are still just raw-resource extractors. Says Karl Moore, the McGill business professor: “You’d be hard-pressed to name another Canadian company that plays in the same league Bombardier does, in advanced, value-added manufacturing, where the company is Canadian owned and the board is Canadian and all the decision-making happens here.”

Bombardier is already the world’s third-largest aircraft manufacturer, but that’s just a nice way of saying that it’s really “the best of the small players”â€"an apt metaphor for Canada itself. It’s not a bad position to be in, but it’s not particularly inspiring either, and the company could do with a jolt of ambition. Bombardier has aimed higher, and it’s not just the company that’s strapped to the back of that plane, so this bird had better fly.