{"id":5031,"date":"2015-12-09T20:10:46","date_gmt":"2015-12-10T01:10:46","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/how-not-to-run-an-aircraft-building-business\/"},"modified":"2015-12-09T20:10:46","modified_gmt":"2015-12-10T01:10:46","slug":"bombardiers-rough-landing-falling-from-the-blue-blue-sky","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/bombardiers-rough-landing-falling-from-the-blue-blue-sky\/","title":{"rendered":"Bombardier\u2019s Rough Landing: Falling from the Blue Blue Sky"},"content":{"rendered":"

Bombardier’s Business Model<\/strong><\/p>\n

Bombardier’s aerospace division competes in two aircraft categories: business aircraft and regional commercial aircraft. The company covers as wide a range of market segments as possible with one of the industry\u2019s largest product portfolios.<\/p>\n

Given the immense cost of developing new aircraft, manufacturers like Bombardier\u00a0release all-new product families for a particular market segment every 20-30 years, and iterate on these families until the next new family is due. These iterations are modifications serve to increase passenger count, reduce fuel consumption, change interior design, or make other necessary improvements. Bombardier\u2019s CRJ product line is a good example. CRJ200 is an all-new aircraft, called a “clean-sheet” design, while the CRJ700\/900\/1000 are product line extensions, commonly referred to as major derivatives, and the variants are considered minor derivatives.<\/p>\n

\"Bombardier<\/a><\/p>\n

Aircraft program profitability depends on several factors, including number of aircraft sold, profitability per aircraft, and total cost of development. In other words, on-time, on-budget delivery is the name of the game, especially when a company makes an oversized bet on a particular program. With product development costs regularly exceeding $5B threshold, mistakes are extremely painful to absorb.<\/p>\n

Bombardier’s Oversized Bet<\/u><\/p>\n

With oil prices soaring in 2008, Bombardier sought to\u00a0capitalize on rising demand for fuel-efficient regional aircraft with the all-new CSeries family, an ultra-efficient clean-sheet regional jet. At the same time, Bombardier launched the Learjet 85 (also clean sheet), the world\u2019s first all-composite business jet, and followed with yet another ambitious program by launching the flagship Global 7000\/8000 in 2010 as a reaction to a new entry by Gulfstream, its biggest business aircraft competitor. The CSeries and Learjet 85 were expected to enter into service in 2013, and the Global 7000\/8000 in 2016.<\/p>\n

Operating Model Shortcomings Exposed<\/strong><\/p>\n

As of today, the Learjet 85 has been cancelled to the tune of a $2.6B write-off, the CSeries is expected to be 2.5 years late and $2B over budget, and the Global 7000\/8000 is running behind schedule. Also, CSeries\u2019 first to market advantage is gone with Airbus A320neo set to enter into service in 2016. The Aerospace division’s COO has\u00a0been fired, and the Quebec government has bailed the company out with a $1B cash infusion in order to protect thousands of jobs in Montreal.<\/p>\n

So what happened?<\/p>\n

Three \u201cclean sheet\u201d airplanes at the same time!?<\/u><\/p>\n

Clean-sheet programs include many new technologies, which increases the risk of design failures and rework. Delivering one clean-sheet program can be extremely challenging (for example, the Boeing 787 was three years late!); three challenging programs simultaneously is a near impossible feat. Not only were company resources stretched beyond their limit, but upper management\u2019s attention was spread over three major programs which increased the likelihood of overlooking\u00a0issues and limited their ability to effectively manage risks. An excellent counterexample is Bombardier\u2019s competitor Gulfstream, which focuses on one clean-sheet development program at a time, and has recently delivered the brilliant G650 with minimal schedule\/budget overruns.<\/p>\n

Why won\u2019t you think like Toyota!?<\/u><\/p>\n

Issues will inevitably arise during the design of complex technology products like cars and aircraft. A company like Toyota recognizes these challenges, and has set up its famous product development system to reduce the likelihood of major design failure. Below are some elements of this process and how Bombadier’s processes square up:<\/p>\n