Bombardier Inc.

Shirley Chenier - Director, IR Pierre Beaudoin - President and CEO Pierre Alary - SVP and CFO

Walter Spracklin - RBC Capital Markets Steve Hansen - Raymond James Joe Nadol - JPMorgan Fadi Chamoun - BMO Capital Markets Turan Quettawala - Scotiabank Cameron Doerksen - National Bank Financial Benoit Poirier - Desjardins Capital Markets Robert Spingarn - Credit Suisse David Newman - Cormark Securities Peter Arment - Sterne, Agee Ron Epstein - Bank of America-Merrill Lynch David Tyerman - Canaccord Genuity Steve Trent - Citi Anthony Scilipoti - Veritas Investment Deepak Kaushal - GMP Securities Chris Murray - PI Financial Danielle Ward - JPMorgan Scott Dewolf - National Post Marie Tison - La Presse Molly McMillan - The Wichita Eagle Francois Shalom - The Gazette

Thank you, operator. [Foreign Language].

Good morning, and welcome to Bombardier’s conference call intended for investors and financial analysts.

I also welcome the media representatives who are with us today. You will have an opportunity to ask questions later during this call when we open the media question period.

Shortly, Mr. Pierre Beaudoin, President and Chief Executive Officer and Mr.

Pierre Alary, Senior Vice President and Chief Financial Officer will discuss Bombardier’s financial results for the second quarter ended June 30, 2013.

This conference call is broadcast live on the Internet and is also interpreted in French and in English.

You can access the broadcast on our website at bombardier.com and the webcast archive of the integral version of this call will be available within the next 24 hours. Slides for this presentation in English and French are equally available on our website.

All dollar values expressed during this conference call are in U.S. dollars, unless stated otherwise.

I also wish to remind you that during the course of this conference call, we may make projections or other forward-looking statements regarding future events or the future financial performance of the corporation. Several assumptions were made by Bombardier in preparing these statements and we wish to emphasize that there are risks that actual events or results may differ materially from these statements.

For additional information on such assumptions, please refer to the MD&A released today. Please also note that I am making these cautionary statements on behalf of each speaker whose remarks today will contain forward-looking statements.

Pierre Beaudoin will now begin the presentation.

Welcome to everyone. [Foreign Language].

To start I’d like to say that we had a good second quarter with overall increase in revenue, EBIT and backlog. In aerospace, revenues were stable and the EBIT margin was in line with our guidance.

In business aircraft, we continue to capture strong market share in a stable market. As for the CSeries, the integration of the aircraft CPU and engines on the first flight test vehicle is running smoothly and the latest software upgrade continues to be successfully implemented.

However, these highly technical steps are taking more time than initially anticipated. We are comfortable at taking the time to ensure mature system integration before first flight to take place in coming weeks.

Transportation had a very strong quarter on the order front with a book to bill of 1.5. It also increased its revenue, EBIT and free cash flow.

I would also like to welcome Lutz Bertling, our new President of Bombardier Transport, a strong addition to our leadership team. And now I will let Pierre Alary go through the results.

Good morning. Aerospace revenue for the quarter totaled $2.3 billion, the same level as last year.

EBIT before special items totaled $107 million or 4.7% of revenues, in line with our guidance and which compared to $99 million or 4.4% last year. Our transportation revenues totaled $2.2 billion, compared to $1.8 billion last year.

This increase is due to the ramp up in production of contracts received in Europe, North America and Asia-Pacific. Overall, there has been no significant currency impact.

EBIT margin is at $150 million or 6.9%, compared to $115 million or 6.3% last year. The increase is mainly due to the higher gross margin and system signaling and services and higher absorption of SG&A, partly offset by a lower margin of rolling stock and lower share of income from associates.

On a consolidated basis, revenues totaled $4.4 billion, an increase of 8% compared to last year. EBIT before special item was at $257 million, compared to $240 million last year.

Net financing expense amounts to $36 million, compared to $29 million last year. And with an effective income tax rate of 28.6%, the adjusted net income totaled $158 million or $0.09 per share, compared to $167 million or $0.09 per share last year.

As expected, we used cash flow in the second quarter. Aerospace used $459 million of cash, which is better than last year's usage of $504 million and the use of cash is essentially due to our significant investment in program which amounted to $534 million in this quarter.

Transportation used $21 million of cash in the second quarter compared to last year usage of $44 million and for the full year we expect free cash flow to be in line with our guidance. As at the end of Q2 our short-term capital resources totaled $4.5 billion, including cash and cash equivalent of $3.1 billion.

It is also worth noting that the pension deficit reduced by $640 million in the last six months, mainly due to increases in discount rates and good return on our planned asset.

So to conclude, our results for this second quarter were good and in line with our quarter guidance. We have a record backlog of $65.5 billion, which represents about four years of manufacturing revenue and we continue to invest in new products which will put us in very solid position for the years to come.

Thank you

Thank you Pierre. We will now start the question period for analysts and investors.

In order to keep the duration of this call reasonable, I would ask you to limit yourself to one question to give everyone a chance to participate. If you have any remaining questions at the end and if time permits, you can get back in queue.

If not, you can contact me after this conference call. We can now start with the first question.

Operator?

So my first question is on the CSeries, and I am just interested on the timing on the EIS side. I know that obviously there have been a couple days here on first flight and you kind of left it open now as when you're official view on EIS is.

I guess my question revolves around cost. If we do see entry in the service, let's say hypothetically moves into late 2014, potentially early 2015, just hypothetically, does that mean that your 200 basis point drag that you have been guiding for aerospace for this year would no longer apply?

And also on the cost side what does that do to your total program cost? I think the latest is $3.5 billion.

How would that change if we do see an EIS now especially pushed out to a later 2014 timeframe?

Let me start by saying that there is nothing that has changed about the entry into service. Of course we expect the first flight in the next few weeks and from there we have always said that we have plan a flight test for 12 months.

But it is a flight test program. So we're learning during the flight test.

And we'll have to keep you informed on what kind of progress different milestones during the flight test, but it is a flight test and it's scheduled for 12 months.

Under to the hypothetical though that it didn't make that 12 months and got pushed into next year 2015, would the 200 basis point that you highlighted, that drag, would that no longer apply if it were pushed out?

It's very hard to answer a question like this when you say theoretical; this depends on their assumptions specifically et cetera. And when we give guidance and we gave guidance earlier this year as to 2014 and that's based on the certain steps of the assumption that we have and we obviously don’t revise those on a daily basis and we’ll revise it with our annual guidance with our year end.

Okay and then on the program cost question, did these delays effect your program costs from the $3.5 billion that you'd flagged for the total program cost initially?

Not in a material way.

Just looking at the net order count for the quarter and it strikes me that the cancelations were relatively high in the quarter. I was wondering if you could give us a break down of why that might be.

The breakdown, it’s a question of some customers that realign in the skyline. So we’ve adjusted, some customers wanted to be later one or had been replaced by new customers within in the current quarter.

There is no specific pattern, some swaps customers move from aircraft to the other but nothing specific, nothing unique I would say.

Pierre Alary, I think I heard you say that you're maintaining your guidance for aerospace cash flow for the year. Just wondering if you could give a little more detail on the cash from operations part?

You're at about $100 million through six months. I think your guidance is $1.4 billion.

I noted that advances were down a little bit during the quarter. Just what's your line of sight to getting that $1.4 billion?

It seems like you'd need a lot of advances coming in to get there.

Yes we do I mean what we’re expiring the first two quarters are in line with what we’re expecting within the guidance and in fact I’ve been specific on the guidance with respect to free cash flow but there is no change in guidance and our guidance overall. But having said that, the first quarters follow the pattern we’re expecting and in fact if you look at the cash flow from operating activity we’re doing better on a cumulative basis than last year, up to the $340 million better.

So the pattern is that do we expect to have an increase in advances from customers from this point, the answer is yes. That’s based on the original guidance.

And that also follows the pattern that we have.

Exactly.

Yes, I understand. Just looking for, is this commercial orders you're expecting?

C Series orders? Is it business jets?

Is it contractual advances based on orders you've already received or is it new orders? Any kind of color?

The answer is that, it’s all of the above. This progress payment that we’re expecting, that are based on orders that have already been signed and have signed last year and previous year and so that’s scheduled, coming from the orders and from the orders on effectively every platform.

But business aircraft are generally better advanced than commercial aircraft.

So, looking at your aerospace EBIT margin guidance for next year, which is 8%, at this stage, how much of the revenues that you need to get to 8% are in the backlog? I would suppose with the aircraft side of the business, aviation and everything else, you're probably pretty close to where you need to be or from a visibility point of view, just wondering how do you see that outlook now?

Well, let me answer this. In part you look at the backlog of business aircraft it’s quite healthy, depending also on the product line you’re looking at like, the pattern that we’ve been talking does not change.

It's stronger on the larger aircraft than it is on the smaller. So overall I think the market so far permits us to continue with our guidance.

Okay, so you don't essentially see any big holes in the skyline that you would need to fill to get to that 8%?

Well, there is aircraft still left to sell and that’s normal pattern. Like I said, this market continues to be same that we spoke about in Q1 in last year.

The bigger aircraft were selling stronger than the smaller aircraft. So in other words there's more Learjets to sell than there is Globals.

I guess for the first one, I just wanted to ask the last question as a follow-up maybe. Pierre, can you give us some sense on does the commercial side of the business at all impact this with the CRJ orders and the Q400 backlog also looking a little bit weaker here?

For next year you are talking?

Next year's margins. That's right.

Sorry.

Again in commercial aircraft we see the skyline is forward. We don’t see anything that has changed that wouldn’t have us review our view of next year.

Just also, quick question on, I know the EIS timing for the CSeries, you haven't officially changed that. But just trying to understand here, can you give us a sense of how long of a potential delay would start causing problems with regard to penalties maybe with airlines?

I can’t start to speculate about the potential delays. That for me is a hypothesis.

What we do is with airlines we keep them informed of how we are making progress in the test, like they're all very informed on where do we stand with the first flight and what are the tests we still have to do and then we look at the delivery and we look at the test schedule, when the test schedule is 12 months and we’ll keep them informed all the way through. So I am not going to speculate which airline would have, it would vary based on a potential delay, that’s a hypothesis.

I guess based on where you are right now I guess there's no risk of that happening? Is that fair to say?

No, I mean the airlines are all very supportive of the program that we have and where we are in our schedule.

I guess my question's on transportation. You had some pretty good growth year over year in BT and it was especially strong on the system and signaling side.

Is there something unusual going on in the quarter or is that close to a sustainable level that we'll see in the system and signaling sides specifically?

Well, this quarter was particularly strong in system and sometime it is question of the timing of recognition of certain element within the system because it’s more spiky, but it is growing although this quarter is growth and this quarter would be on the high side.

I would say that we see quite a few projects that are in the system side. So when you are dealing in emerging markets or markets where they have not add transit systems before, they very often ask for the manufacturers to be responsible at putting the whole system in place, including working with civil.

So I see as a trend forward, as we developing our business in new markets you see more system for us.

I was wondering if you could provide an update on the marketing campaign for the regional side, especially with AMR and Garuda and also whether you're ramping down the Q400 production or any risk on that side?

The first part is that once you named American inactive campaign, which we are very active of answering questions that they have and AMR will make a decision. We expect AMR to make a decision shortly.

I can’t tell you more than on this because it's a competitive campaign. As far as Garuda, I think you are referring to them exercising options?

Yes?

Okay, this is something the airline has said publically that they would do. At this point they have not yet exercised the options, but of course we are in discussion with them regularly.

They're taking deliveries of their aircraft, they like the aircraft. So I'm hoping they will exercise the option shortly.

As far as the Q400, we've given guidance for this year. We have not given guidance for next year.

So there's some active campaigns on the Q400, the product is appreciated, it just entered into service, (inaudible) jet as you know. So I think we're making good progress on the campaigns that are active.

A couple questions on commercial. First of all, Pierre, what are you seeing here at the late stages of ground testing that you had not anticipated two months ago?

Could you give us a little bit more specificity on that?

Yes, it's not tested, we had not anticipated. When we make a test there is, the earned value that we plan in the day of the test, is not quite at the level we had anticipated.

So for example we're doing a test and then we discover that the wires are plugged upside down. So takes, okay it’s not a big deal but we have to go back and understand why it happened and then it takes us two days rather than half a day.

So it's a whole bunch….

We have to find the wire.

So nothing significant showed up but a lot of small stuff. That means that what we have planned in a day sometimes takes three-four-five days and of course delays first flight.

And like we have said to our team, it's not a question of rushing. This has to be done very well.

We have to learn what we need to learn to get a good flight test program because it’s not only about the first flight. So if it takes more time it takes more time.

That being the case, how do we think about the cushion in the 12 month flight test program? Are you tight there?

Do you have adequate cushion? Because I could see something similar happening.

Well first of all the test that we do for the first flight test is a lot more intensive than what we would do to get the other aircrafts to fly, because this is the first time we're learning all these integrated test cells that we add at suppliers and at Bombardier we’re learning how they behave on the aircraft. So we're taking a lot more time.

It does not necessarily affect the flight test. So don't link one to the other.

So that would be my answer.

And different flight test vehicles do different tests. So on one series of tests we could be delayed.

That has no impact on the other series as we can do it concurrently and Pierre referred to where sometimes it takes longer, in some cases it takes less time than what we have usually planned. So there's pluses and minuses.

But what you learn on the first aircraft, the first thing that happens with the teams, we go back and look at the other flight test vehicles, see if we need to make a modification, if we've made the same mistake on the other ones. So we're learning to get the other airplanes ready.

So I think one is not related to the other.

But would you characterize the 12 month flight test as a tight schedule or do you have a fair amount of cushion? Not necessarily relating it to the tests for first flight but in and of itself is it a tight program?

That would depend on the amount of aircrafts you put into the flight test program. As you know, in the CSeries we've going to have five plus five CS-100 and two CS-300 and then there's some additional tests to be done on the first production airplane.

So for me, when we look at the schedule, yes it's a busy test schedule for one year, but we’ve planned it and it's doable, but like I said this is flight tests. So as we learn and we achieve milestones we'll keep our customers informed how we make progress and of course we'll adjust if we need to adjust, but I've got no reason this morning to say that the 12 months is not realistic.

Okay, and then just wanted to ask you, Embraer launched its new aircraft during the Paris air show and I wanted to get your thoughts on how this alters the competitive landscape and do you see this aircraft as competing with CSeries?

Well first of all their program covers regional and goes up in size into the category of where the CSeries. Is its aircraft that doesn’t come before 2018 and 2020 for the regional version?

So there is lots of time. And so the CSeries will be on the market.

As we have said before we have a big time advantage on our competitor and it’s a derivative. So they did their best with what they had at making an aircraft.

That’s just a derivative. So I don’t want to get into it on the call but I'm sure our marketing people can give you all the advantage the CSeries has because it’s an all new airplane.

So Embraer did their best with modifying an airplane.

Just a question maybe for Pierre Alary. You had a net positive variance on RVG and credit guaranteed provision.

What's at work there and how material was it to the BAE margins? And I do believe that the maturities begin to kick-in in the next few years.

Is this something that we can expect as you're obviously maybe perhaps managing the RVG well and we might see reversals on that front. Any comments?

Yes first of all, the reversal itself was not important and it’s disclosed in the Note 14 in provision and the reversal is $7 million. So in itself it’s not material.

And affectively we are working on reducing the risk overall with RVG, FLVG and reducing the risk and as a result, variable in some cases to turn to profit or reverse in a sense that some of the provision that is required.

And do you anticipate this could as you kind of get into the part of the program and assuming that you're doing a good job of sort of managing it, that this could actually become more of a contributor to margin?

Certainly team that we have tasked to de-risk or look at those aspects in looking at the asset and what not, that’s really that is definitely the objective, is to be able to fulfill those obligations at a lower cost than what we have provided for.

Very good and last one for me, the Lear 85, when do you anticipate first, flight perhaps, Pierre Beaudoin; for the FTV1 is still obviously being built and obviously I guess in your guidance overall for the year you're calling on a lot of the smaller business jets. So the 7075, is that still intact I guess for the end of the year?

Let me start by the second part of your question. The answer is yes.

The 7075 is still scheduled to deliver through the end of the year. I believe we said Q4 and it’s still scheduled to deliver this year.

For the 85, we are making good progress with this program. As I said before there's been some challenge in the composite structure but that is largely behind us.

Now we are getting ready for first flight and it is scheduled to happen this year.

This question really is more of a falling back up on the CRJ demand, Pierre. Some of the higher profile campaigns, I'm thinking Delta last year and American this year, we can kind of somewhat track, but how do we think about CRJ demand kind of more globally in some of the international markets that you compete in?

Could you just give us more color of what you're seeing and when we would expect to see some additional orders?

Well of course there is a lot of focus on the big American campaign and what happened now is the major airlines ordered airplanes and of course the AMR campaign is one that's still outstanding and as you know it’s a competitive campaign and we are there with our product and we feel that we have a significant advantage. So we will see what the airline decides and when.

And then after that you should see also the regional airlines that support the main airlines. If they get additional routes from the airlines, of course they will look at ordering airplanes.

So the main volume remains the U.S. with the campaigns that you know but we are developing international market.

You’ve seen our success with Garuda and our success in China and I would say and of course in Russia as our product is now certified; we’re working very hard on these campaigns, getting the regional jets known and appreciated for the types of routes that they have I expect to see some continued success internationally with the CRG. Nothing was announced lately but I think there is good campaign in the works right now.

So, just maybe back on the commercial side again, when we think about demand in the market, it seems like there's just a huge amount of orders for the 737 sized airplane, the A320. And when you look down at maybe the A319 size, 7377, it seems like there's a little bit less demand.

What's holding you back from going forward and just doing a, not to put a name on it but a CS500 that puts you right in that segment where demand seems to be surging? That's one question, and a follow on if I may?

Well, first of all I think we’ve too very good products that we’re working on with a unique market where we’ll be offering a unique airplane in a market where we’re the only manufactures. We feel there is 7,000 units in this market over 20 years and our competitors that look at that market also say there is 7,000 units.

So, it’s not a forecast that Bombardier does alone. Actually we see 6,900 to be precise.

So there is a market there. What the airlines are saying that they have a need for a smaller aircraft but at a seat cost that competes with the bigger aircraft and that’s what the 319 does not do or the 7377 (ph) does not do.

It’s too expensive for them to be competitive from a seat cost perspective. So that CS-300 does that very well and we’re able to address routes that today is very difficult for them to address competitively.

So that’s the market we’re focused on because I think we have a unique product.

Okay. Then just as a follow on, just for clarity, I think one of the earlier questions was, someone asked about if there was a potential delay in entry into service.

I think you mentioned that that won't have an impact on cost or not very much. Help me understand that.

How can a delay in entry into service possibly not impact the cost of the program?

The question was the delaying first flight. So it doesn’t have material cost, material effect on the cost of the program, we said not material.

Of course, if the flight test program will be longer than planned, well we’ll spend more money on the program but I don’t want to speculate on this at this point. We’ve scheduled a flight test for 12 months.

I was wondering if you could give an update on the market demand for business jets. I would observe that excluding the big orders, you're sort of normal order type of business seems to have slowed down in the last, at least the last couple of quarters, maybe three quarters and so, I'm wondering, are we in a much slower situation across the business jet area or should this pickup at some point?

So the way we monitor the market is two ways of course, the orders and then what’s in the backlog of discussions, the pipeline we see of orders. The pipeline is very healthy.

What has taken more time this year is closing deals. So we have strong pipeline.

So that’s the positive about this market and there is a lot of very active discussion. The concern we have is deals are taking long time to close.

So, I would say generally we are in stable market, if you look compared to last year with some growth in the larger aircraft but we want to follow closely that these active discussions in the pipeline get to a contract.

Just a question from me on the transportation side. Certainly, in the Latin America side of the fence, both Brazil and Mexico are talking up potential rail projects, subway projects and high speed rail projects.

I believe you guys have production in Queretaro in Mexico, as well as in Sao Paolo in Brazil. And, could you just give us some color on what you're seeing there and where you see the potential for Bombardier transportation?

Yes, I see great potential for Bombardier transportation. And, like you side in Mexico we’re very active with a factory in transport in Sahagún and an aerospace factory in Querétaro.

We know the market very well. We’ve followed this market very well and I think with the projects they are talking about like a high speed line to Querétaro, we’re very much following this and looking with the customer what’s the ideal product.

There is another one, they’re talking about the line to Toluca, to the airport which would be also a type of product that I think we would be very competitive. So Mexico has great potential, just to name two projects and the current President also said it was a priority for Mexico to implement some mass transit in the country and he specified some projects like the two I just named.

So I think this will represent a great opportunity for Brazil. Our focus is on the Monorail that we’re starting to implement in Sao Paulo.

This is a unique product because it’s got the capacity of a metro but it’s a Monorail. So it’s easier to put in place than a metro from an infrastructure perspective.

So with the success of this first project that’s starting now and we're going to start to deliver trains and the infrastructure is making good progress. We then have a showcase to show in Brazil a system that can deliver what they’re looking for is capacity to move a lot of people without disturbing the city for the long term by digging tunnels.

So I think we have a great product and great potential in that country.

I'm just looking at the presentation you have for the adjusted net income, Pierre and maybe you could just walk us through to understand how your rationale for what's included and what's excluded to these numbers. I guess I'm on page nine of the MD&A.

In this quarter, the first adjustment we’re making is in relation to the net financing expense in relation to the net financing expense in relation to the retirement benefit obligation. So we’re excluding this one because under U.S.

GAAP it’s calculated differently. A lot of our competition is U.S.

GAAP. So therefore we identified that distinctly, that element to be more comparable.

Now, the next one is the net change in provision arising from change in interest rate. So, we have a number of provisions within the balance sheet that need to be net present value and as the interest rates are fluctuating on a quarter-to-quarter basis, we kind of exclude that fluctuation because it’s not part of, really the business and the provision is there to cover what is needed, and it’s going up or down.

Our expense has been going both ways and it’s not a reflection of the business, the core business. And obviously when we have some special item, like interest portion of the special item, which is the litigation, the successful resolution of the litigation, so we’re going to get back the capital tax that we’ve paid in the past.

So that’s part of the EBIT as it was part of EBIT originally and as an interest component. So we believe that interest component is not a reflection of the current order of business.

So that’s basically how we go about it. So it's us identifying what we believe is non-color and non-reflective of the current operation and it's basically to help the reader of the financial to get to the core business result.

I think that's good that you provided, I understand the special item adjustment. It's just the pension one and you are right, there is slight difference to U.S.

GAAP but historically that's always been included in the earnings that you presented. So…

It's been included the past few years under IFRS and under IFRS the calculation was made differently. It was done using the discount rate on the liability and using the expected return on the asset, which was basically bringing a neutral impact on the entrance.

We're identifying it. You have the information.

We believe that's brings to the core business and that's why we do it.

I have a broader industry question. There have been a number of tragic incidences for operators on both the rail and aviation business this year.

I was just wondering if you could comment, if you are seeing any signs of increased scrutiny from regulatory and safety authorities or any changes and how this might impact the industry and the business.

I think you are referring to the series of events in the train and in the rail business this summer in Europe. Of course this is very tragic and we are concerned.

When these events happen they seem to be all, of course all of the causes are different of these events, from operators' mistakes. All of these events are under investigation right now, but they seem to have all different causes.

We see additional scrutiny at this point. We'll have to follow this, but we feel that at least in the Spanish situation that equipment was not in cause at all.

And just a quick follow-up on the transportation business, you did announce a big order for locomotive. I'm just wondering if those are standard design locomotives, if there's any custom work there and if this changes your margin mix of you when you gave your 8% target for EBIT, given the higher margins that come with locomotives.

So you're referring to the framework agreement with Deutsche Bank?

Correct.

So this relates a new design which we're doing in the context of this framework, of course based on the locomotives that we have today but there is quite a few modifications, and that's why they gave it to us in a framework and we only got the first tranche from an order perspective. But if you look at the framework, it's above 400 locomotives.

So it justifies large modifications to the (inaudible) locomotive.

And again, does that change the mix of margin that you anticipated when you gave your target for 8% EBIT margins for transportation?

No. I think this is very good news because it gives us the basis to quote lead these type of locomotives to other customers.

Just another follow-up, I think a little bit on the business jet market. So a couple parts to this.

So first, this morning you guys came out and announced a 96% year over year growth for the first six months in fractional and jet car sales and I guess what I'm trying to figure out is there any read-throughs that we should start to be thinking about into at least the lower end of the market? And then the second part of this question, it's just a little bit of a follow-up on your comments that deals are taking a little bit more time to close.

Can you give us an idea of what's maybe causing that? Is it something related to pricing or the availability of financing with customers?

To answer your first part, I always said that frac jets are a leading indicator of the industry. What we're seeing since November last year is that customers are flying at a very high rate above their contract agreement with us.

So they’re consuming their contract faster than the hours that they have. So that’s a very good use because it indicates to us that there is a lot of interest in flying private and usually it’s sign that there is leading indicator toward to have more traditional sales of aircraft or sales of complete aircrafts.

So I think that’s what you should read in communique, is that frac jet fractional business, frac jet particularly is growing again. As far as closing the orders, there is nothing specific that I want to point out to.

It’s just the customers are there and they’re shopping for aircraft. So as compared to when it was very slow that’s not the case anymore.

We have a great pipeline but they’re being careful in their evaluation as the market is I would say just starting to pick up.

My question is on the 2016 Euro bonds that you have outstanding and these are obviously callable at this point in time and I was wondering if you have any plans for these notes; whether you're thinking about refinancing or paying any of the issue down with cash on balance sheet in the near-term?

Well, it’s 2016. So that few years down the road, we’re currently in a significant investment period which kind of reduced.

We’re investing $2 billion. It’s going to reduce by $500 million over the next two years.

So I would say that our option are open and we’re revaluating the capital structure from time to time, but there is no specific orientation on that 2016 bar.

I just had a couple of follow-ups. First on the Lear 70 and 75, Pierre, Cessna delayed as I'm sure you saw the entry into service of three of their aircraft here because of the Garmin flight deck and on their call they said that they were first in line to get their aircraft out the door.

So, I was just wondering, your confidence level, you reaffirmed Q4 deliveries but just wondering how to bridge that gap?

I guess they are first line at Cessna. I don’t know how to interpret that.

We’re making good progress. Testing is going well.

I don’t think we have 100 hours of testing left to do so we’re making good progress and we plan to deliver in Q4.

Okay and then just one more on the transportation side. Lutz has been there I guess a few months now and my understanding was that he was doing is kind of a top to bottom review and getting comfortable.

Is that still going on? In other words is he signing off on, I guess for what that means or what we can take this as?

Is he signing off on all the contractual estimates at completion each quarter now, or is he still in that review mode?

Well, right now he is touring the organization. As you know Bombardier transport has plants in many countries and there is many sites to see.

It’s a quite large team to see, getting familiar with all contracts also. And as you know we constantly looking at our contracts and make sure that the results are clear in line with our expectations.

So of course he’s getting familiar with this, including the whole organization at this point.

I wanted to ask about the fractional improvement as well. The first question's been answered but perhaps, is there any detail you can offer as to where across the fractional portfolio the strength is.

You mentioned wealthy individuals coming back into the market, but are you seeing it at the higher end supplemental lift for corporations?

Its spread all over. What we do see though is corporation adopting cards as a general rule because it gives them good easy access to supplemental lift, rather than buying a fraction which is I guess a longer term commitment.

So that comment is specifically for supplement lift but we also see a lot of corporation looking at fractional as has good alternative to owing. So I think overall the business of fractional, today we offer more products than we did in the past, meaning anything from a 25 hour card to a leased aircraft to a complete own and fractional aircraft and we even manage aircraft for customers that own 100% of the aircraft and include these aircrafts in our fleet.

So the product portfolio is very broad and I think this is what is giving us a good growth right now, because when we sit in front of a customer we don’t offer only one type but really a good portfolio of products.

And the reason I asked the question is to try to isolate the different demand drivers and stratify the fractional, because ultimately what we're interested in seeing is if this will translate to light jet demand for whole aircraft. Would you say that you have a line of sight to that happening at the Learjet level?

The growth in fractional is not happening only in light jets. For example our strongest product in fractional is the Challenger 300.

So we do not relate light jet to the growth in fractional. I would more relate to the growth in fractional as a good sign that the industry starting to grow again.

I have a question on RVGs. I was looking at the Republic Airways' latest quarter transcript and something jumped out at me when I was reading it.

The CEO was quoted as saying he's expecting roughly 600 small RJs to come out of the market in the next three plus years. That sounds like a large number that might be hard to place and may have negative impacts on residuals et cetera and trigger RVG losses?

I was wondering if you could comment on that.

I don’t think it's in the news to say the lot of 50 passenger jets are going to come out of the U.S. market and that’s why we have a very active team at marketing these products in new markets, such as Africa, such as Russia.

We are also looking at traders for the CRJ200, looking at different business application, like Shadows like complete convert to business aircraft. We have been very-very active there and just if you take Russia, we have about 100 airplanes in Russia flying with different airlines which builds the business for larger CRJ in time and also creates a market for the CRJ200.

So we need to continue to work on that but I don’t think and what you said is any news. I can’t comment whether it’s 600 or 300.

We are looking at that with the individual airlines, but there is quite a few airplanes coming out of the U.S. market.

And maybe to put that in perspective, remember maybe four years ago or so, the same kind of statement were made that 400 units were to be coming back on the market over a 12 to 18 month period and effectively a lot has been coming back but have been marketed somewhere else and there has been no impact really.

You actually think you could put 600 planes into all those secondary markets over a three or four year timeframe? It just seems like an absolutely enormous number and way larger than anything in the past.

First of all, I am going to speak about the CRJ. There may be some smaller ERJs that are going to be hard to play like 35 passenger ERJs.

That’s probably part of the volume, is a large operator of Embraer airplanes also. But the CRJ have got already about 100 in Russia and it’s a very well appreciated airplane.

So I think there is definitely a market for these type of airplanes at the lease rates that’s they are going out in these new markets. So the specific volume for me would be hard to comment but we look at it account by account, where the airplanes are going to come out and we make a plan and we have been public for example that we are working on a very detailed plan with Delta.

So I see that there is a market and we're going to address the airplanes that are coming out, the U.S. markets will find homes for them.

Operator, do we have any more questions.

Okay, so this concludes the question period intended for investors and analysts. We will now begin a question period for media representatives.

Operator.

I just wanted to ask you about the last few delays into the first flight. I was curious why you were so certain that the plane was ready to fly up until the week before both delays were announced and how we might look at future delays?

Would they come that quick or that soon before it's meant to occur?

Like I've said, we're making really good progress on getting to the first flight. What we have to do is very complex and as we see issues come up, we correct them and sometimes it takes more time than anticipated.

But there's nothing significant to report. We announced the delays when we judged that it was not possible anymore to make that specific date and now what we’re saying is that we're weeks from the first flight, not being able yet to pin a date.

You can’t pinpoint a date? You couldn't say that it will fly by the end of August or by the end of September at this point?

We're weeks away and we're making very good progress.

I was also kind of curious about the entry into service state. I know that you said that it’s a 12 month flight program, but why are you so hesitant to say that with every successive delay the entry into service wouldn't be delayed if they move in tandem.

You're trying to relate the first flight to the test program. Is that?

Yes. So if the first flight's delayed by eight months say, why wouldn’t entry into service be delayed by eight months?

First of well we've always said it's 12 months after first flight. So that has not changed.

So if we have delay of two months from the first flight, the entry into service will be two months delayed.

So they do move in tandem then?

Well, they only move in tandem as far as the schedule starts with first flight. So schedule of 12 months with first flight.

So that moves in tandem. When I said that was not related is not because we have delay on first flight means that the 12 month schedule is going to suffer delay.

The two are not related. In fact what we learn as applying for the first flight test vehicle is learning that we're applying to the other airplanes we're building.

I'd like to know, in terms of hiring to build the CSeries aircraft, when is most hiring going to happen and now with the delays, when are people going to be hired to build the CSeries aircraft?

There's a large team working on the C series, in terms of production we'll make that decision during the flight test program because we want to make sure that we don't start manufacturing parts before we get a very good handle on the aircraft. So we'll have those discussions later in the year.

And how many people will you be hiring?

I don't think we've given exact figures. I can look at what we disclosed already but I don't think we give any exact figures.

You have started building the plant at Maribel. Could you tell me how much money will be invested in building that plant and when production will start in the plant?

Well production will start obviously when we start building the CSeries, which is once the 12 month flight test program is over, with which will start after the first flight. So flight testing is risks related to the flight testing but we have scheduled 12 months.

So we will be starting production in existing facilities, existing hangars and then gradually we will be moving into the new facilities. I can’t give you the exact dates when we will be starting production in those facilities and we haven’t disclosed the amounts.

My question has to do with can you kind of characterize demand for Learjet products and then a little bit of the progress of the 85?

The demand in the smaller aircrafts remains soft. Now with the Learjet we have quite a few innovations on the 7075.

So the demand is good but in a soft market for the 7075. And as far as the Lear 85 progress, we are getting ready for first flight and we have scheduled that for this year.

For this year, okay. I am told there is some staff reductions at the Learjet plant.

Can you tell me a little bit about that?

Yes, we are adjusting the amount of people in line with the progress on with the assembly schedule and the fact that we had to delay the deliveries of 7075 to the fourth quarter and of course on the progress of the Lear 85 that was slightly delayed from the fact that we had some challenge with the composite material, but today that is behind us and we are getting ready for the first flight.

Do you know how many people you may have to or how many positions you are going to cut or how many people you might have to lay off?

The exact amount, we could get back to you but I don’t think we have announced this at this point.

One on the EIS. As you said recently some of these technologies are more complex than you had expected or some of the integration was more complex than you had expected.

I am just wondering, wouldn’t it be better for Bombardier’s credibility to give yourselves another cushion for EIS rather than announce successive delays like you did with the first flight?

Well first of all Francois, we didn’t say that it’s challenging from a technology perspective. It’s just taking more time than anticipated and of course it’s a very complex product.

We have always said that we have a flight test schedule for 12 months and that is the schedule that we have. It is flight test.

So as we progress we will keep our stakeholders informed. I think that is the best way to approach this.

But if you have already experienced this on several occasions, these delays with first flight, wouldn’t it be rational for you to expect the same thing with EIS?

Like I said before the two are not necessarily related. What we are doing on the first flight test vehicle is a lot more complex than the type of test that we will do to get the other flight test vehicles in the air.

We are learning from this first aircraft and we are applying it to the other aircraft. So I don’t think you can relate the two.

It is flight test, so there is risk involved but I'm speaking to you about our schedule. The schedule says 12 months.

The other thing, for Bombardier transportation, I am wondering if you can comment on the investigation for bid rigging in Brazil? There was some documents seized I believe in your office in Brazil.

Can you comment on that at all?

Well all I can say is that we have very strict business practice and very high ethical standards. Brazil is conducting an industry-wide investigation into allegation of cartel and related activities in public tender situations.

We are collaborating fully with the authorities and we will make sure that they get all of the information necessary. I just want to repeat again, Bombardier has very high ethical standards and we’ll support the authority at making sure they do a total investigation.

What do you expect to come out of this investigation?

I’m not going to speculate what I expect to come out of this investigation. We will support the authority in this investigation.

59:

Could you give a little more detail about regional aircraft? What’s the impact right now on the EBIT of the aerospace?

We don’t disclose profitability by product line.

Do you have some kind of benchmark that could help us a little bit?

Well, you can take deliveries of regional jets. That will give you an idea of the commercial revenue.

So you can take the commercial revenue. That will give you an idea of the impact of commercial aircraft on the business of aerospace.

Embraer is launching a new, I won’t say a new family of aircraft but a new line of aircraft. Some analysts feel that those aircraft will be at least more competitive than CRJ.

Ultimately could that lead Bombardier to question or to decide to invest more in CRJ or to abandon that family of aircraft?

Our aircraft are competitive right now. We have a strong advantage Embraer in terms of performance.

In fact Embraer has already tired fight back by tweaking the aircraft they have right now, but we feel that our aircraft continues to offer major advantages over Embraer. They’ve announced major modifications to a plane that they’re calling E2 for 2020, for the regional version is 2020.

The advantage for us is we’ll be observing that very closely and we’ll make sure we remain competitive.

Should that mean new investments in the CRJ family when CSeries is in place?

What that means is we’ll make sure we’re main competitive.

One final thing. It seems that there were number of CRJ models that were going to be marketed or that were coming back on the market.

You’re helping to resell?

Like all manufacturers of commercial aircraft, our job is to make sure that those products continue to fly around the world after their first lifecycle is completed with the first customer. So, CRJ-200s, some of them are coming out of the American continent and we’re working with customers to try new markets, new usage, for example converting CRJ-200 into freight aircraft.

So, that’s the kind of thing that ageing aircraft can do very well, because somebody who’s carrying cargo often can't pay for a new aircraft because it’s only used once or twice a day. So, that’s a normal cycle.

We’ve seen it with a number of aircraft throughout the world.

Is that what you’re referring to when you’re talking about Russia earlier?

Russia is a market where they’re using CRJ-200 for carrying passengers with Russian airlines. So this is not a cargo application but a passenger application.

Operator, do we have any more questions?

[Foreign Language]. Thank you all for us being with us today.

Have a good day everybody.