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Is the worst over for Bombardier?

The founder's heirs have stepped aside to let Alain Bellemare actually run Bombardier. Now comes the hard part


Top 1000 rank #20 | 2016 Revenue $16.5 billion (U.S.) | 2016 Loss $1.0 billion

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Say this for Alain Bellemare: More than two years after his appointment, the president and CEO of Bombardier Inc. looks to be firmly in charge at the family-controlled plane and train maker. Another hired gun, former CN Rail chief Paul Tellier, didn't make it to the two-year mark, after clashing over strategy in late 2004 with then-chairman and paterfamilias Laurent Beaudoin.

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But this past May, amid intense pressure from large institutional shareholders, Pierre Beaudoin—Laurent's son—agreed to relinquish the job of executive chairman. For the first time in the company's 75-year history, a member of the Bombardier-Beaudoin clan won't be part of senior management. Even so, the move was only a partial victory for the institutions, which include the Caisse de dépôt et placement du Québec and the Canada Pension Plan Investment Board. They wanted Bombardier to be chaired by an independent director, but Pierre remains chairman of its 15-member board, and Laurent and three other family members still sit on it.

That is hardly surprising, since the family controls the company through a special class of shares with 10 votes each, which gives it about 54% voting control while owning only 13% of outstanding shares. But Bombardier's dismal financial and stock market performance over the past decade, and the family's refusal to give up the management reins, finally led to a showdown. The palace semi-revolt at least provided some emotional relief to the long-suffering Class B shareholders. At the peaks in 2000 and 2001, those shares traded for more than $20 apiece, but they then crashed and stumbled along to lows around 80 cents in early 2016.

Bellemare, who is 55, arrived in February, 2015, and he seems to have helped the share price so far. It has climbed back to around $2.50 recently, and investors and analysts are expecting more from him now that he is in firmer control. "We think the worst is over," says Todd Johnson, portfolio manager at BCV Asset Management Inc. in Winnipeg. "I think there is a lot of confidence in Bellemare."

Plenty of big problems remain, however. They include sluggish sales of Bombardier's bet-the-ranch new C Series passenger jets, long delays on deliveries of new streetcars to the city of Toronto, and a World Bank audit to determine if bribery played any role in the company winning a contract in 2013 to supply Azerbaijan with railway equipment. The company is still in a deep financial hole as well. Bombardier generated negative free cash flow of $4 billion (U.S.) from 2014 through 2016, and its long-term debt is stubbornly high at $8.7 billion (U.S.).

The renewed optimism in the market is based partly on Bellemare's resumé and partly on a five-year financial recovery plan that he announced in November, 2015. A Quebec native, Bellemare has an MBA degree from McGill and did post-graduate work in aeronautical engineering at France's École Nationale Supérieure d'Ingénieurs en Construction Aéronautique. In 1996, he joined Montreal-based jet engine maker Pratt & Whitney Canada, a division of U.S. aerospace giant United Technologies, and he was appointed president of the division in 2002. From 2012 to 2015, Bellemare was CEO of propulsion and aerospace systems at the U.S. parent.

Bombardier's recovery plan calls for the company to increase its revenues to $25 billion (U.S.) by 2020 and to double operating profit margins, in part by slashing costs. In 2016, it announced two rounds of layoffs totalling 14,500 workers. Management now forecasts that Bombardier will be cash-flow break-even by the end of 2018. BMO Capital Markets analyst Fadi Chamoun wrote in a recent research note that the company is still a "high-risk turnaround, but we believe that the senior leadership team has sufficiently moved the needle from ongoing restructuring efforts to deliver on 2018 financial targets." Some new C Series sales to Tier-1 airlines would also boost shareholder sentiment, says BCV's Johnson.

Bellemare declined to be interviewed, but Bombardier's vice-president of investor relations, Patrick Ghoche, says the company is back on track. "Management's credibility has been growing, and as they execute on the plan, they deliver exactly what they told the market they would do," he says.

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With the family fireworks out of the way, weary investors are counting on Bellemare to now start delivering big gains.

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