 After three decades in the automotive industry as a top executive with General Motors and Delphi in the U.S. and Europe, Guy Hachey returned to his native Quebec in April 2008 as president and chief operating officer of Bombardier Aerospace. Five months later, the collapse of Lehman Brothers triggered a global financial crisis that decimated the business aviation industry. In a recent interview with Aviation Week editors William Garvey and Joseph C. Anselmo, Hachey explained how and why the Montreal-based company continues to make hefty investments in business aviation through the downturn and gives his outlook for 2012 and beyond. AW&ST: We wanted to talk with you about business aviation’s hard times. HACHEY: (laughs) I haven’t known anything else. Some people keep telling me, “It’s not always like this,” but I was only on the job a few months before Lehman Brothers. At the 2007 National Business Aviation Association show, six months before you came to Bombardier, some people were saying the industry had become recession-proof and would grow forever. Exactly. And then we went to the Farnborough air show [in summer 2008] and it was still a heady time. And then at the NBAA show in the fall, things just happened. It was a little bit early to anticipate all of the cancellations and deferrals and ensuring difficulties with financing, but we could feel something. I remember telling our board, “We’re not quite sure what’s happening, but it’s not good.” You faced some pretty big challenges. I have to deliver on an enormous number of programs, all at once, in a crisis period. It is not an issue of the company being close to insolvency or something like that, but more about how you manage getting ready for the next decade in a [downturn] that nobody anticipated would last so long. Two years ago, we thought, “OK, we’ll hunker down a year and a half to two years, and it will come back”—2012 was to be the year. That was our plan, just like most companies. And we’re finding out that’s not the case. It looks like at least another year until things get better and probably a slower recovery over the mid-term than anybody anticipated. So given that backdrop, you have to look at the challenge that we’ve faced. We’ve committed to a lot of capital investments, and it’s critical that these programs deliver on time. We have to maintain profitability and generate cash flow in a low-revenue environment, relative to what we’re investing. What’s your long-term outlook? We’re very bullish about the longer term for both commercial and business aviation. We believe there’s going to be growth and there are going to be replacements. Now there’s going to be some shakeout as well for our competitors. We intend to be a very strong player, and we need the portfolio to back that up. Your strategy regarding business aviation has been to keep investing through the downturn—R&D, product development, advertising and marketing. When things pick up, it should give us leverage. [When the downturn hit,] we’d already launched Lear 85 and the CSeries [commercial jet], but since that time we have continued investing in the business. We looked at our portfolio, where we were going to be challenged and where we had the opportunity to dominate or at least improve our market share, and we made the decision to come out with something pretty substantial on the Global family. We have been continuing to make some smaller investments in other product lines. Can you put a number on those investments? Last year we invested slightly above $1 billion, and this year it will be $1.5 billion. As for the outlook, I would say [to expect] a few more of these. Obviously the CSeries is the prevailing investment—$3.5 billion. We haven’t published what we’re investing in the Lear 85 or Global Vision [cockpit upgrade], but you can surmise from what I’m telling you that at a clip of $1-1.5 billion per year, these are very substantial investments. The problem is that all these programs are absorbing the operational cash. People say, “You don’t generate cash.” Well, yeah, I’m generating $1.5 billion of cash, it’s just that I’m reinvesting to get the wings done in Belfast, or the Lear 85 done in Wichita or setting up Queretaro, [Mexico,] to do the structures. You weren’t here a decade ago when the last downturn hit, but Bombardier’s pause in the regional jet business gave Embraer time to catch up. Was that in your mind when we went into this downturn? Our company almost went under in that 2001-03 time frame. It was not because we paused, but because we had a very diversified portfolio of businesses, one of which was a finance arm. All of the efforts at that time were focused on restructuring the company and rebasing the balance sheet. The company was in a very, very difficult financial situation, and that’s why there was a pause in investment. I don’t think it was by design—there was no money available. And quite frankly, it paused for quite a while, which is why today we are [making big investments] in our portfolio. We were falling behind. There is only so much money to go around. Will the CSeries development come at the expense of your business aviation activities? I don’t think you could accuse our company of not spending money on business aviation. When compared to our competitors, I think we’re pretty good. Yes, it is a finite resource. But what’s more important to me is the organizational capacity: How much can you take on and deliver? That is as much of a gating factor as money. The Lear 85 is a wholly composite aircraft. Will you have others? We’re definitely upping our game and learning this technology. Are we getting the benefits? Probably not [yet], because we are at the beginning phase of learning. But I believe there will be tremendous benefits from composites over the mid-to-long term. Will we have more composite aircraft? Absolutely. Will it be another all-composite? It’s too early for me to tell. You’re no stranger to market turbulence, having worked in Detroit for many years in the auto industry. Are there any business strategies that you brought to the company to help it through this downturn? Operational excellence, or you could call it Lean manufacturing. We had shortages and lateness from the supply chain, problems that were new to me. I experienced it 30 years ago in the auto industry, but that changed because of intense competition. The Japanese and eventually the [South] Koreans and others forced everyone to raise their game. If you go into a GM plant or a Ford plant today, they’re very efficient, very lean. So this is something we’ve been driving very hard through our Achieving Excellence System, which is our operating system. Last quarter, we delivered 93% of our planes on time. Three years ago it was below 25%. Three years ago you were building a lot more airplanes. Four hundred, and now we’re building 250 [a year]. But to deliver on time in this environment—with the movements of customers, cancellations and deferrals and turbulence in financing—is actually harder because we have to be more agile. Our business aviation customers are dependent on financing from banks to close the deals. Very few of them actually open their wallets and give us $20 million. So these transactions are not always happening when they were [scheduled]. What about customer satisfaction? In the 1990s, we were at the top of the heap, and in the 2000s, we lost that for business aviation and went to the bottom. There were many things that drove that, such as lack of support in the field, not having a global footprint and not having enough inventories of parts when our customers needed them. We’ve been working extremely hard over the past 4-5 years to improve our customer service and support and satisfaction, and it’s starting to show. Earlier this year, Bombardier announced a plan to co-market the CSeries with aircraft produced by China’s Comac. Could you do something similar in business aviation? With the CSeries, we’re a small company that’s trying to enter a giant arena. So partnering is maybe not a bad idea. In business aircraft, we’re more of a giant and we have incumbency. We are looking, but probably not to the same degree as in commercial aircraft. We are still faced with limited resources, and where it makes sense, we will definitely have to partner. An example would be customer support. We will look at partners in certain geographies to help us establish our presence quickly. What is the split between commercial and business aviation at Bombardier, and what is your group’s overall contribution to the corporation? We actually don’t break that down in our public information. But suffice it to say that right now our largest business is business aviation, followed by the commercial group and then services. I think before the end of this decade the largest business will be the commercial side after the CSeries comes on board. The group as a whole is slightly below $9 billion [in sales]. And the CSeries could be anywhere between $5-8 billion annually before the end of the decade. Aerospace and the Transport Group [rail cars] used to be 50-50, but now we’re about 45-55, so they overtook us a little bit. I don’t think that’s the case long-term. Did you abandon autos, or were you attracted to aerospace? I was approached. Bombardier was looking for a global executive with an operational background that was maybe bilingual and knew a little bit about the environment in Canada. I fit a lot of that, though they may have preferred having a pure aerospace person. But I think they believed I would be a good complement to what already existed here. Quite frankly, initially I wasn’t coming. In fact, I turned it down a few times. I was very happy where I was. But they were very persistent, and I’m glad they were because I’m extremely happy to be in this industry. If I had a chance to redo things, maybe I would spend a lot more time in this industry. While you were leaving the auto business to come here, Alan Mulally was leaving the airplane business to run Ford. Who was right? (Laughs) Well, if you look at compensation, I think he was. He’s done an extraordinary job at Ford and I think that Ford is very lucky to have him. We’ll see in 10 years if Bombardier was lucky to have me. Guy Hachey Age: 56 Education: B.A. in commerce from McGill University and MBA from Concordia University. Career: • Began in the late 1970s with General Motors, where he held executive positions in both Canada and the U.S. • Ran Delphi’s Powertrain Systems business, served as president of Delphi Europe, Middle East and Africa, and was responsible for the implementation of Lean enterprise processes and common systems across 150 plants globally. • Joined Bombardier in 2008 Did You Know: Hachey once flew from Europe to an important meeting in China without realizing his visa had expired. Chinese military officers detained him and escorted him back to the plane. |