Bombardier Inc.

Good morning, everyone, and welcome to Bombardier’s earnings call for the first quarter ended March 31, 2020. I wish to remind you that, during the course of this call, we may make projections or other forward-looking statements regarding future events or the future financial performance of the corporation.

There are risks that actual events or results may differ materially from these statements. For additional information on forward-looking statements and underlying assumptions, please refer to the MD&A.

I’m making this cautionary statement on behalf of each speaker on this call. With me today is our new President and Chief Executive Officer, Eric Martel; and our Chief Financial Officer, John Di Bert, to review our operations and financial results for the first quarter of 2020.

I would now like to turn over the discussion to Eric.

Thank you, Patrick and good morning, everyone that are joining us this morning and thank for being present. Let me start this morning by first of all recognizing that these are very unusual and challenging times for all of us, and I hope that you and your families are well and remaining safe.

It is clear that we’re facing a complete new reality. It is critical to embrace this new reality very quickly.

We will need to change significantly how we operate, how we lead and how we move forward. And this is exactly what we’re doing.

Our number one priority of course is the health and safety of our employees and communities. And I would like to recognize and thank the Bombardier side leaders and team members working around the clock to ensure that we’ve the right procedures and safe guard in place to protect the well-being of our employees around the world.

I also want to take this opportunity to thank all the essential workers on the frontline fighting the COVID-19 pandemic. We truly appreciate your efforts and sacrifices.

I am also proud of the Bombardier employees who are supporting these efforts. This includes our colleagues out in the field ensuring that public transportation system remain operational, as well as our employees working to provide first responder with the equipment they need to go from making rail cars and Bizjet to assembling lifesaving protective equipment and ventilators in just days is a testament to the skill and commitment of our people at Bombardier.

While our world has changed dramatically, Bombardier remains a company defined by its strong product portfolio and by dozens of smart, passionate and thoughtful employees who wants to be part of a winning team. As most of you know, this is my first earning call as Bombardier's President and CEO, and I am honored and excited to be back at Bombardier.

There is truly nowhere I would rather be given my passion for the company and the opportunities I see to elevate our culture and performance. Since rejoining Bombardier, my primary focus has been on managing the business through this crisis.

This includes daily leadership calls and intense focus on managing cost and cash flows, as well as regular communication with customer and key suppliers confirming orders and resetting delivery schedule as we deal with the current reality. I've also been getting up to speed on all aspects of the business.

This includes deep dive into our major aerospace program and largest rail projects to better understand the risk, the challenge, but also the opportunities. And while the COVID-19 related travel restriction and shutdown have limited my abilities to visit our operation, I have had the opportunity to meet virtually with the top leaders across the business and to set clear priorities for both the immediate and near-term future.

So these priorities include: first, continuing to proactively manage our business through the COVID-19 crisis to ensures our company long-term sustainability. Number two, making our rail business predictable by being consistent in our performance.

Number three, aligning Bombardier's aviation product -- production with market demand to be more profitable and a steadier cash flow generating business. Number four, driving business aviation after market growth opportunities.

Number five, completing the aerospace divestiture currently underway and the sale of Bombardier Transportation to address our balance sheet challenges. And finally, number six set the foundation for long-term success by defining a clear vision for our company and resetting our culture, to be more people and customer centric, more accountable and more focused on operational excellence.

With these priorities and culture, our objectives are clear. Navigate through the crisis and make Bombardier a more profitable and predictable company with a [indiscernible] balance sheet.

This is how we will redefine winning going forward. Turning now to the current situation and the actions we were taking in response to the COVID-19 pandemic.

While there is still a great deal of uncertainty surrounding the duration and impact of the pandemic, we believe that we are taking the right actions to be best position the company to navigate the crisis. You'll recall that when the crisis began to unfold, we acted swiftly to protect the health and safety of our employees, to support government mandates to slow the spread of the virus, and to service our customer to the best of our ability.

We also manage our operation to reduce costs, preserve cash and ensure sufficient liquidity. This includes ongoing dialogue with government, where we have major operation regarding additional support program, should they be necessary to navigate through the extended crisis.

With respect to our previously announced divestitures, we expect the CRJ sale as confirmed by MHI to close on June 1. The aero structure sale to Spirit remains on track to close in the coming months.

Collectively, when completed, these transaction will improve our cash position by over a $1 billion. They will also mark the completion of Bombardier's exit from the commercial aerospace market.

We also continue to make progress working with Alstom to complete the sale of our Transportation business. Throughout the crisis, our most senior leaders and planning teams have remained in constant contact, and we currently do not expect any delays to the original timeline as a result of the COVID-19 pandemic.

The pandemic will, however, have a material impact on our financial performance and cash consumption. We saw a significant impact in Q1 with more to come in Q2 as a large part of our operation have been shut down for the past eight weeks and international border remain closed.

For the first quarter, the cash impact is estimated to be between $600 million and $800 million. This reflects our inability to deliver aircraft following the government imposed travel restriction and border closings.

Production shutdowns at a number of our facilities, and lowered an anticipated order intake at both transportation and aviation. John will walk you through the Q1 details in a few minutes.

From an operation perspective, we are beginning the process of gradually resuming manufacturing activities at both aviation and transportation. This is a tremendous undertaking.

It involves restarting operation at dozens of facilities around the world with new stringent health and safety procedures, recalling thousands of furloughed employees, restoring disrupted supply chains and resetting delivery schedule with customer. We expect this process will occur over the remainder of the quarter and it will likely generate some challenges along the way.

Given this uncertainty, we'll continue to manage costs, defer capital expenditure and ensure that our production rates align with the current market demand and customer ability to accept deliveries. We look to give you more color on our outlook as we get clearer visibility on the full impact of the pandemic.

However, based on our current assessment and timeline for gradual resumption and stabilization of operation, we expect business activity to hit a low point in the second quarter with similar cash usage as Q1, before gradually recovering in the second half of the year. Let me say a few word on each of our business unit here.

In the first quarter, Bombardier Aviation led the industry with 26 business aircraft delivery, including 6 Global 7500. Since the onset of the pandemic and travel restriction, sales activity has slowed down significantly.

Most analysts predicted a 30% to 35% industry wide reduction for 2020 deliveries with a large -- with a -- with the large cabin segment less impacted. While this feels directionally right for a short-term, we think it's still too early to call the market with any certainty and though that we’ve seen limited cancellation in our backlog and remain in close contact with all our customer.

Lower aircraft usage will have a negative impact on revenues associated with flight hours, including part sales. However, our service center remained busy and most maintenance activities are continuing as scheduled.

As we resume operation, we're focusing on completing the aircraft currently in production and the firm order and the backlog as we watch how the market respond. With the Global 7500 where we have a solid -- a solid backlog, our focus will be on achieving our learning curve goals as we ramp up production in the second half of the year.

With the most time from the shutdowns, we'll deliver a few less 7500 than originally planned. At Transportation, the focus has been on production ramp up in the U.K., Switzerland and Germany, which is reflected in the strong Q1 revenue growth.

Progress in the first quarter also included reaching a commercial agreement with SBB, transferring title to the 32 trains in revenue service and reflecting the significant reliability improvement that have been made. Going forward, the COVID-19 related production shut down in supply chain disruption will delay the achievement of certain future milestones and associated cash inflows.

We are currently working with our customer and our supplier to re-establish new milestone and delivery schedule. And we'll look to provide a more complete update with our Q2 earnings call.

We also negotiated a new $386 million equity injection from the CDPQ in BT in the quarter, providing additional flexibility as we manage through the crisis and scheduled reset. From an overall market perspective, while passenger rail operator, I've seen an unprecedented drop in ridership and revenue due COVID-19, the long-term the outlook remains positive, with continued growth expected in the coming years.

Okay, let me stop here now and hand it off to John to walk you through the Q1 numbers and our liquidity position in detail. John, over to you.

Thank you, Eric, and good morning, everyone. In my commentary this morning, I'll focus on three key areas: first, our liquidity status at the end of Q1 and the additional liquidity initiatives that are underway.

Second, I'll provide color on Q1 financial performance across our businesses; and third, I'll provide insight on our short-term outlook and the actions we are taking as we navigate the current health crisis and its impacts on our operations. We've always managed our liquidity prudently and we have been proactive in maintaining adequate cash on hand and a long run with debt maturities.

Specifically, we entered 2020 with over $2.6 billion of cash on hand and almost $4 billion of total available liquidity. Moreover, our next debt maturity is a $450 million Eurobond due one year from now in May 2021.

And although the current pandemic poses additional challenges to our business, our financial strategy remains intact. To strengthen our balance sheet, notably by completing our planned divestitures and to build a bridge to a stronger and better capitalized Bizjet franchise.

To that end, we are making our operation -- we are managing our operations with discipline and we're making the adjustments necessary to protect our balance sheet and build added flexibility. As Eric mentioned, we are making progress in our early initiatives to add cash to the balance sheet and increase our capacity to support higher working capital during the crisis.

We have completed our exit of the A220 program and received $530 million in proceeds during Q1. And we also benefited from the additional $386 million of the CDPQ inject -- equity injection into BT.

Let me provide some details on a new CDPQ investment. CDPQ invested $386 million in the first quarter equivalent of €350 million directly into transportation equity and generally under the same terms and conditions as the original investment.

The cash provides BT with financial flexibility to manage working capital as we deal with disruptions to operations. As the business recovers, it should generate sufficient cash to buy back this equity ahead of the closing of the sale to Alstom.

It's important to note that this injection will not affect the expected net proceeds to bombarded from the transaction. Whether it is repaid ahead or is part of the closing, so long as the minimum cash threshold is achieved on closing.

In conjunction with this equity injection, we further increased our financial flexibility by amending the financial covenants under BT's credit facilities. Our banks have been very supportive in the process, providing temporary financial covenant relief.

With these measures, we had total liquidity of $2.9 billion on March 31, including $2.1 billion of cash on hand. We feel we have the liquidity and the financial support from our partners to weather this storm.

And as we continue to work diligently to strengthen our balance sheet in the short-term with the upcoming close of MHI's transaction set for June 1, which will bring our pro forma liquidity to $3.5 billion. In addition, we continued to make steady progress on the Spirit transaction, which will add another $500 million to cash.

These deals bridges to the transaction with Alstom, which, when completed, will significantly improve the health of our balance sheet. Turning now to Q1 results, which got off to a strong start on revenue growth before being interrupted mid-March by the COVID-19.

Consolidated revenues reached $3.7 billion, 5% higher year-over-year, reflecting an 8% increase at aviation with which 16 -- which includes 16% growth from business aircraft activities along. This impressive growth was driven by 6 Global 7500 deliveries, but was offset by the decreasing activities in commercial aircraft.

At Transportation, we experienced 5% organic growth, mainly reflecting production ramp ups in the U.K and Germany. BT's revenues were offset by some unfavorable currency impacts as the euro weakened year-over-year.

Adjusted EBITDA totaled $171 million and adjusted EBIT was $60 million, representing a 1.6% margin. Aviation's margin was 1.6% below the mid single-digit margin range we were targeting.

The dilution came from an unfavorable product mix, which included Global 7500 and less legacy aircraft as some March deliveries were delayed due to the travel restrictions. At Transportation, the margin was 2.4% generally in line with our low single-digit expectations as we execute and burn down low margin contracts in the backlog.

Our free cash flow usage was $1.6 billion for the quarter and includes a significant shortfall associated with the pandemic estimated at between $600 million and $800 million. Third of this shortfall is from Transportation, with cash inflows tied to certain milestones were delayed and this was caused by disruptions to our engineering and production activities, the inability to [indiscernible] trains and customers inability to accept the rolling stock during this period.

And finally, the deferral of certain orders which reduced cash deposits and advances. The larger share of the shortfall is associated with Aviation, where more than a handful of aircraft could not be delivered for logistical reasons despite our best efforts.

Additionally, our order intake slowed as the crisis mounted, reducing cash advances. Finally, we paid out approximately $100 million for RVGs related to the CRJ business being divested.

Post closing of the transaction with MHI the amount due on these RVGs will be below $300 million and will be spread much more evenly over the next three years. Looking at the outlook for the remainder of the year.

Given the unprecedented uncertainties related to the global macro economic situation and our operations, we suspended our full-year guidance and believe it is still too early to provide longer term forecasts. For the second quarter, we expect business activity to hit a low point before it gradually recover.

As Eric mentioned, we are dealing with production shut down that extended through April and are continuing in May. We expect a reduction of our production and deliveries and therefore revenues by almost half versus the same quarter last year.

With the lower top line anticipated and while we’re highly focused on managing costs in the short-term, we nonetheless expect to incur an EBIT loss for the second quarter. As we move through the rest of the year, we will look for revenue normalization and we will be fully adjusting our cost structure to return to profitability.

From a free cash flow perspective, we expect usage to be significant in the quarter as we deal with lower output and order intake and suboptimal productivity. It will also be too early to see any benefit from any cash flows deferred from the first quarter.

We expect, however, that as we focus on consuming existing working capital and reducing spending, we can limit cash usage in line with the first quarter. We'll also be pursuing several initiatives to improve our cash flows, including applying for various wage subsidies as well as tax deferral and pension holiday programs enacted by governments.

Finally, we are managing down costs through aggressive companywide actions, limiting nonessential or discretionary spending. This includes reducing CapEx until the investment, mainly at BA, by a couple of $100 million to approximately $300 million to $400 million on a consolidated basis for 2020.

For the full-year, we are running multiple cash flow scenarios that include lower production rates at Aviation and rescheduled deliveries at Transportation. We expect that our strength and liquidity, combined with the anticipated closing of the aerospace transactions, will be sufficient to absorb the volatility associated with the operating uncertainties.

And as we continue to monitor the situation, we'll keep the market updated on developments. With that operator, we're ready for our first question.

Good morning, everyone. This is [indiscernible] for Myles.

Good morning.

Good morning, Myles.

So just can you help me understand what you are seeing from demand wise in Bizjet? Is it completely the [indiscernible] stopped?

And do you see that 30%, 35% lining up, or just can you [indiscernible] to us?

Yes. Okay.

Good -- fair question, Myles. As I said this morning, most of the analysts right now, and I would say also our competitor are talking about a 25% to 35% reduction on delivery for this year.

And what I said earlier is that we are approximately in the same zone. So within that range also in terms of reducing our delivery, that were committed earlier this year.

But at the same time, we're saying, it is a little bit too early to assess and we see some movement. As an example, we have a very, very solid backlog in the 7500.

And we don't see that part moving a lot. So the large segment is better protected, I would say, as we can see it right now when we talk to a customer by customer.

But when we look at the light segment and the medium size, it is a little bit more volatile right now. So we are taking the time to assess this properly.

And I would say our customer are pretty much saying the same thing. I need to know exactly what's going to happen with the pandemic.

So is it going to last another two weeks or is it going to last another three months? So, you've heard pretty much the same thing on the recall, there's no clear science on this right now.

Most of the economy, including our software, we're restarting our operation because we do believe that the worst is behind and that we can do it properly. So that's how we are assessing the market today.

Okay, thank you. And then just one quick follow-up.

Do you see second half free cash flow being positive?

Maybe I'll take that one, Lou. So I think at this point in time, we've not given full-year guidance.

I do believe that from what we see today and as we kind of stabilize through operations, particularly in the first half, I would expect that the second half would start to breakeven or be positive on cash flow. So that's -- but it's an early signal at this point in time, but that would be my expectation.

Great. Thank you.

Hey, guys, this is Dan on for Cai. Thanks for the question.

Good morning.

Good morning, Dan.

Yes. So.

I guess it's -- I guess, I'm wondering how quickly can you guys deliver Bizjet aircraft once the shutdowns are lifted. There might be a lack of visibility into that currently, but if you have any insight on that and just how many aircraft are currently sitting, waiting to be delivered?

And related, are customers kind of obligated to accept delivery of those? Does it depend based on the class of aircraft, any insight you could offer on that would be helpful?

Clearly in the large segment, but also in the medium one we had airplane that were ready for delivery at the end of Q1, but unfortunately with the pandemic and the borders closing, there was difficulty. Some we've been able to, but some others were just sitting there and customer were not even able to get them either inspect the airplane or take delivery of the airplane.

So we've lost a couple of airplanes right at the end of the quarter. So clearly, as we resume our operation, our focus will be to make sure that we deliver those airplanes as much as fast as possible.

So that will be, of course, as you can imagine, helpful for our cash flow. And of course, we are assessing the market, and restarting with prudence, I would say our operation.

But we are being ready to go back to full production when ready. So, our business is a long lead time and bring some product [ph] clarity.

So we are able to deliver, to answer your question, some short-term delivery. And as we resume, at the new cadence or cadence that we had before, we'll be able to start -- restart all delivery process.

Okay, great. Thanks.

And then how many production facilities are currently shut RIGHT now? How many are running, or scheduled to reopen soon?

That's a good point. At some point, I think pretty much all our facilities were closed at a certain point in time.

But we are resuming everywhere, actually since probably May 4th and even a little bit before in April, we have started gradually putting new measure in place to start. There is only one facility to note and I that I know it's Crespin [ph] in France that has not been responding, but it plan to restart next Monday.

Awesome. Thanks.

Yes. Thank you very much and good morning, Eric, good morning, John.

Could you talk a little bit about action or measure to be taken to reduce or adjust the production rate lower and maybe talk about the magnitude of some potential charges that could be taken on the back of the lower production rates?

Good morning, Benoit. So I would say that, as Eric said, we're in the current process now of assessing what the right rates would be in the second half.

I think that we -- we've acted pretty quickly right out of the gate in terms of March, in terms of managing the operations here. So we've taken out quite a bit of [indiscernible].

As I mentioned, all discretionary spending, but also we've been able to limit overhead spending. And as we go into the second quarter, I think that'll help us mitigate the impact.

In terms of special charges, I think it's a bit early to call now. The -- it's important that we get a good deed on what the production rate will be.

I think there's a few important things to note here and Eric mentioned them: one, you've got a 7500 that sold out over several years. So we see pretty good steady state there.

It's a matter of really the interruption in the business and trying to get back straight up and running and I think that'll happen as Eric described. On the rest of the portfolio, you do have some open orders in the production [technical difficulty].

Okay.

So I think that overall, from a restructuring charge or any kind of special charges, we'll give you guys better color as we get through the middle of the year here.

Okay, perfect. And second question.

Could you talk, John, maybe about additional measures taken to boost liquidity and meet the upcoming debt maturities in 2021?

Benoit, it's a good question. So I think it's important to just take a step back here.

Nobody comes in prepared for this kind of an event, that's for sure. But I think that we have been pretty prepared in terms of liquidity and planning with respect to our balance sheet, even with the heavy debt load.

So when you think about it just in simple terms, we came into the year with about $4 billion of liquidity right out of the gate, right? So $2.6 billion at the [indiscernible] $1.3 billion of facilities.

We described in my commentary, kind of a 1.6 burn in the first quarter and we expect something in that neighborhood in the second quarter. So just take that as kind of just the general three just for easy math.

So from there, we -- I think we got off to a good start with liquidity builds in Q1. You had the A220 closed, cash in the bank.

It's a $0.5 billion. CDPQ, just rounding in that out, that's a $1 billion between the two.

So when you think about that, we've already put a $1 billion of new liquidity onto that for even though we have some significant COVID related burn here. And then from here, we announced overnight this morning that we're set on track now for June 1 on MHI.

That's a $0.5 billion and then a $0.5 billion come from Spirit. So by and large, we're $2 billion into this thing here as we complete the transactions that we're working on.

And I would say, the second half, as I mentioned just previously on my comments, we're going to be look to trying to stem this and bring cash generation back over the last 6 months. So I think with this, we're putting our self in a place here where we’ve a good bridge to the Alstom transaction.

It's hard to call when that closes, but certainly same as we all expected, first half of '21 and that's continuing to progress very nicely. So long and short of it is I think we've got a runway to deal with liquidity.

Of course, we're looking at things as [technical difficulty]

Okay, perfect. And maybe just a quick one on the Transportation.

Have you experienced any cancellation or deferral at BT, given the drop in public transit demand? Or is there desire from customers to increase rail spending to as a government stimulus?

No. So far, we haven't, Benoit.

And we feel right now that, of course, the ridership being extremely low right now. You saw some of our major customers this week announcing some major loss.

But clearly, the Transportation business is a business that people will still need and we feel that everywhere right now, we have clear sign that the government are stepping in to support our customer.

Thank you very much for the time.

Thanks, Benoit.

Thank you. I guess the first question is on the free cash flow.

John, as you look at the second quarter free cash flow being similar to the first quarter and second half breakeven or positive. Which business is more negative in terms of free cash flow usage in the upcoming quarter and then in the second half?

So I'd say that the -- when you look at the first quarter, it was a pretty abrupt impact, right? I mean, when we came out of this thing in March and we were building up a lot of inventory across the board typically would do that in the first quarter anyway as you build off the year.

And we -- as Eric mentioned, we got caught with a lot of aircraft that logistically we couldn't deliver and a few also that were in the process of sales, that just got kind of distracted and interrupted. So it stayed behind.

So I'd say that at BA, it's really a jet delivery related. And coming out of that last couple of weeks.

At BT, I'd say that, we had a lot of milestones that in the first quarter were closing up. We were building up a lot of inventory as we have a big ramp in the second half on -- especially in U.K and Germany and France.

And so we were now trying to stem the inventories, especially we took decisions in March to actually slow down the supply chains on both sides of the businesses. So when you look at the second half, I would say that you'll see a benefit at BT from resetting the supply chains and kind of balancing out the production rate, which was destined for a big ramp and big deliveries in the second half.

So I think that will get the bigger benefit on BA. I expect a similar quarter as Q1.

So a little bit of improvement at BT in Q2, similar quarter in BA as we had in Q1 for the second quarter, because we're going to have quite a bit less delivery in -- of jets.

Thank you. And then I guess, the follow-up question will be around sort of the cost reduction efforts that you're putting in place.

I think as we look at sort of the second quarter, I think you talked about seeing some of the benefits. In terms of right sizing, the cost for demand, how should we be thinking about sort of that the second quarter and into the second half?

Maybe you can give us a little more color in terms of what the benefits are going to look like as we move on in next couple of quarters here?

Well, like I said, I mean, we're in the middle of planning and completing those kind of production adjustments, but we've made decisions on CapEx. I think that's something you can think about being pretty much now signed and sealed.

We'll get a couple of $100 million of savings in terms of just not needing the same kind of capacity rates and some other discretionary [indiscernible] spend that we could have -- we would have had this year. So that's kind of pushed out now and we will revisit that at a future date for 2020.

That's pretty much locked in. I'd say that the next piece of this is going to be, what kind of rate we set up to BA.

And then we'll make the right adjustments on the variable costs and production rates, I mean, it's as simple as that. So it'll be a really about sizing the output capability of the business and making sure that we're building the right amount of jets for the market demand.

I think we have some of that in the backlog, which is nice. And the rest of it we'll have to adjust to the market.

So I wouldn't say that there's more commentary on. We've got discretionary spend, pretty locked down.

My expectation here is that the second half under the circumstance I see today should be able to go back to generating some amount of cash. But it's really going to be about what kind of a rate we put out there.

And BT it's different. It's a $33 billion backlog.

BT, it's really all about just getting the supply chain and getting the operations up and running again productively. Then we've got a $33 billion backlog that we chew into.

So it's about working with the customers and making sure that we can reset contracts and schedules with them as to how they compete.

Thanks very much. That's all I had.

Thank you.

Great. Good morning, guys.

Good morning, Doug.

Thanks for the detail. I have a question around the CDPQ.

If you could shed any light of like how discussions went. I know you can't speak for them, but what was from their decision points to invest more equity in the train business?

And can one extrapolate that exactly kind of point to a more likely closing of the ultimate train sale? Is that kind of reaching too far?

I think [indiscernible] is reacting positively to that equity investment. I want to see if we can learn a little more about it.

Hey, Doug. Good morning.

So, I mean, I think that, first of all as you say, I can't speak for the case, but they were a partner -- they've been a partner since day one on our train, the transportation franchise. And honestly, it's been a very good partnership and we've been able successfully to bring the transaction, we will ask them to bear as well.

So you can see that there has been a lot of collaboration from the get go. I think that they just they're a significant minority interest shareholder.

They want to see their business be successful. We want to create flexibility at BT.

We knew we are coming into something challenging here. We didn't want to kind of short change the management of the liquidity that we want to make sure the business had.

We -- in the conversations with CDPQ and they've looked favorably upon making additional injection. Reading into the Alstom transaction, I think that notwithstanding what they may or may not be thinking at CDPQ, I think that it's fair to say that we continue to make good progress.

We have a very strong cadence of reviews on the transaction. And we still are very excited, we think it brings value to the market.

And I think it can speak for Alstom either, but I would believe that they continue to be equally engaged in their view of a very positive outcome of this.

Are there any covenants in that equity investment, if the transaction doesn't go through, the money goes back to them or I haven't really read all the details of that yet this morning. If there are any out there.

Are there any limitations to that equity investment?

No, I would keep it simple to say that it really it has the same terms that we had in the original investment. It increases their ownership.

And with that increased ownership. Whether we make the sale or not, I mean, they are a larger equity holder of BT.

Okay. If I could just ask one more question.

As I might out the cash flow, I wasn't expecting $1.6 billion burn, but I guess it's understandable given this crisis is unprecedented. And am I right in thinking that 2Q could be at a similar level of another $1.6 billion?

And that I think you talked about like a progression to a breakeven or positive cash flow in the second half, that seems to burn -- it seems like a lot of cash burn in the first half to get to a breakeven or positive in the second half. So I'm concerned about, like 3Q and 4Q.

I know you can't give guidance on that, but how would you expect to go from such a huge cash negative to a breakeven or cash positive in the second half?

Yes. So I think, Doug, the first thing is that good or bad, it's our seasonal pattern is that we tend to burn …

Right.

… quite a bit of cash in Q1 and we tend to have a very strong Q4. And so we're working through, obviously, all the operational logistics of making sure that we sustain kind of the ability to move a lot of product out through the fourth quarter.

I speak to you now viewing the world as it is today, right? I mean, so as things progressed more and there's a level of unknown that's out there.

So -- but from our view of the business now, Q1, it's typically in absolute terms, pretty deep burn quarter anyway. We talked $600 million to $800 million here COVID related.

In fact, I think, probably Q2 has more COVID related burn than Q1 in it. And that as I’ve said and you mentioned, it gets this kind of a similar cash burn in absolute for Q1 and Q2.

But more of Q2 will be a COVID related. It's going to be about being down in operations here kind of like almost two months and low productivity and then getting back up and running and managing supply chains and outputs at the same time with customers.

So I think that that we're trying to be prudent and at the same time, realistic and making sure we are in front of the stuff where we can be. In Q3, we're assuming now some level of normalcy I think, and that's all I can say.

It doesn't mean it's business as usual, it just means that we're in a more normal environment. And with that, I think you get to pivot into Q4 and make sure that you move out a lot of the product that we have and we'll keep you guys posted.

But at this point in time, we're also being very, very, I think, strong on working capital management and how we set those rates is going to be responsible. So that's the kind of color I can give you.

CapEx, like I said, early decisions. So all those things will benefit us in the second half, as we -- adjusting the year the size of our operations as well.

So those are second half benefits. I think [indiscernible].

Takes a little bit of time to get everything in place.

Thanks, Doug.

That’s very helpful. That's very helpful color.

And I guess last one, I'll sneak in and I promise that will be it. A lot of big companies are hitting the market with liquidity measures, whether Boeing or Ford or like kind of just downside protection.

Have you guys anticipated potential, any kind of like a safety net liquidity that you may try to raise in the event that Alstom doesn't come through? You guys kind of thinking about that at all?

Yes. No, absolutely.

And I would say that we've already engaged discussion, in case we may have some need with the different government that we are working with. I would say, across the world, because we have, as you know, a vast operation.

So clearly, some discussions have already taken place to make sure that if ever we have a need, a -- and I will call it a temporary need because that's what we're talking about here to get through. Then, of course, those discussions will be advancing.

Great. All right.

Thanks, guys, for taking three of my questions.

Thanks. Doug.

Sorry, can you hear me?

Yes.

Yes. Good morning, Konark.

Thank you. Good morning and welcome, Eric.

Good morning. Thank you.

Yes. So first I wanted to ask you on the guidance are kind of indication you provided for aircraft deliveries down 30% to 35% and the full-year.

I just want to clarify, you had a lot of obviously CRJ's last year and you will have very few this year. So that 30% to 35%, should I assume that includes CRJ's in both years or it's just business jets?

It is business jets.

It was just business jet.

Yes, on this one, I think on the CRJ we are just managing out the remainder of the Skyline and delivering the backlog to [indiscernible] with the MHI transaction closing June 1, now that it kind of won't be a factor in the account.

Okay. It makes sense.

Thanks. And then secondly, on the cash, John, so thanks for providing a good color on quarterly cadence and stuff.

I mean, you obviously have some prevalence and some restrictions on the cash. So if you can help us understand what is in the new kind of structure, what is the minimum cash position at any time you had required, and then any goalposts you have set for a cash position at the end of 2020.

So just although I missed the last part of that question, can you just repeat, Konark? I just lost the …

Yes. It's a -- any goalposts for cash position at the end of 2020?

I know you have 2.1 at the end of March 20 -- March 31st. But nobody expect cash at the end of this year.

Okay. Okay.

So I think that the first thing is that it's important to note that there are no minimum liquidity cash requirements. We did have 1 point of covenant under the CDPQ arrangement, but that had expired with the fourth anniversary or I believe sort of in February this year.

So there is no requirement on a minimum cash basis for the company. On the covenants, maybe just a bit of color there.

I think that, the only covenants we have are at BT and that they support the revolver and some letters of credit we issued on performance and so on. And so the good news is that, we have a very supportive syndicate of banks.

We've been working very closely with them, particularly over this period of uncertainty. And in the first quarter, we were able to make some adjustments.

I think it's important that we came out of the gate. I mean, this hit everybody with pretty hard.

And we wanted to just make sure that we had the right flexibility. So we’ve taken care of that.

I would say for the first couple of quarters. What’s Important now is that, they also have BT, pretty good credit.

So it's important to know that they’ve kind of -- their balance sheet and their lending arrangement is under a pretty good credit back drop. So long and short of it is that we support with also CDPQ here, their financial covenant, the access through evolver is full.

It's not impacted journey into the quarters. We can borrow, all the way down to the $1.3 billion.

At the end of the quarter, we do have to make sure we make those covenants. The injection by CDPQ is helpful in that regard.

And of course the flexibility of the Banks are giving us relative to the situation is as well. So going forward, I got to stay close to that.

But at the end of day, I do believe that we will have that well managed. So it's not the biggest first piece of concern, but it's one that we're working.

On the full year. I do have to take, to be honest, to give out too many goalposts or expectations.

I did a little bit of math for you. If you just take that maybe, kind of concluded on yourself in terms of just overall liquidity.

We started the year with about four. We talked to you about the first half being, call it three from just [indiscernible] down.

We're adding two from all the activities that we're pursuing between the equity investments at CDPQ, the sale of $8 million to $20 million MHI and Spirit in combination, all of those. And then the second half, we expect that, probably we've turned the corner and start to have some generation.

I won't comment on the size and I'll break even or positive. And so if you do a bit of math there, you get a number that kind of says that we close the year-on-year with probably something in the neighborhood of maybe a $1.5 dollar, plus minus we are seeing.

Okay.. That's it for me.

Thanks so much.

Thank you.

Hi. Good morning.

This is [indiscernible] calling in for Walter Spracklin at RBC. Thanks for taking my questions.

Good morning.

Good morning.

Just wanted to quickly touch on covenants again. So you mentioned you kind of lease there, but indicated that it was temporary.

I was just curious, how long is the relief in place for and where are you in terms of your covenants right now?

We are in full compliance, and so that’s [indiscernible]. And when I say temporary ,it just means that the metrics of being adjusted for the early part of the year, year so into the first half.

And then that will be a monitoring situation and in fairness to the banks, I mean, we want to have an ongoing dialogue. So this is just a question of saying we'll give you guys an update at that point in time, we'll be working with them to look for what's appropriate in the second half.

Again, I don't want to get too far ahead here, but we also have the flexibility at corporate to make injections as necessary. But we do always in good control of our situation of the covenants.

And like I said, only at BT.

Great. That's helpful.

And I guess just one more for me. Looking -- maybe looking beyond COVID, what types of aircraft do you envision garnering the most significant customer demand, post the pandemic?

And do you see there being a potential for an acceleration in demand for certain aircraft models?

Actually it's interesting. So, of course, there is still discussion, I would say, as we speak, going on with our customers.

So our typical customer right now may have some time available. So they're calling us and getting inform on what's going on and what airplane could be available.

So -- and we haven't seen a major -- actually we haven't seen much cancellation, which is a great news. I think everybody is in assessing right now, our customer are doing the same thing.

What will be the outcome of this pandemic? When will be the outcome of that -- this pandemic?

So clearly, it is moving at a slow pace. There's no decision being made.

And hopefully -- and that's what we're starting to see is that we're seeing that when we have more visibility on the pandemic that the activity level will be restarting. So, so far there is little activity.

It's more information. But those customer are approaching us right now to understand, what could be possible when delivery, what airplane could be available.

So that's positive. And hopefully when everybody has more solid ground in understanding the real impact, we foresee that the activity level will start to pick up again.

That's great. Thanks a lot.

That's it for me. I will pass it on.

Thank you.

Hey, guys, good morning.

Good morning.

Good morning, John.

Good morning. Maybe -- John, maybe just a couple of questions following up on some of the previous.

First, I believe you've mentioned in your prepared remarks that the sale of the additional equity to CDPQ wouldn't change the net proceeds back to you guys. Could you maybe walk us through that a bit more detail how that mechanism works?

I guess a bit of a follow on to that, would those proceeds to you move if you had a significant revolver draw at transportation, at closing? I get the sense that there's still some market contingent, if you will, around how that $1 billion transportation cash relates to the $8.2 billion enterprise value.

So any help on that would be great. And I have one follow-up.

Thanks.

Sure. Well, let me try to keep it simple here and see if this does the trick, but you can ask a follow on if it doesn't.

I think that at the end of the day, there's a minimum cash requirement at the end of the year when you're closing for BT, so struck at December 31, 2020. And essentially it's ensuring that we have positive cash on the books there.

So what it means is that to the extent that we generate cash from the business sufficient to have positive cash on hand at the end of the year, then the injection of CDPQ either one is paid out from that cash on hand and maintains that positive balance. So with sufficient cash there, including the equity injection that you restore or two, the cash stays there, but it is added to the total sales proceeds received because it's new cash into the business.

So I think that's the way to think about it, right? When we go back to the announcement of the transaction, I think we signaled up to about a $1 billion of cash on the balance sheet at BT that would go with BT.

So maybe if I can simplify it again, just kind of keeping it simple. To the extent that you don't have a burn of more than a $1 billion incremental to that view, you would protect the proceeds at BT.

Does that make sense?

Got it. Okay.

Yes, I guess, I mean, it is -- maybe I'm alone in this, but it is a little confusing relative to the total enterprise value. But I'm happy to follow-up the debt off line, if that’s okay.

That’s absolutely [indiscernible].

And then maybe my second one. Just more broadly and I know you touch on this a couple times, but -- and I appreciate all the proactive work on the liquidity front.

But still with so much uncertainty, could you -- to a question earlier, could you expand on maybe what pools of liquidity from government support specifically that you might be able to access? And I don't believe that you have kind of a typical secured debt access, given the negative pledging your indentures, I guess is one, is that correct?

And does that change how you think about future issuance and how potential pools of liquidity could develop if you did, in fact need them, if this progresses longer than weakness last longer etcetera.

So you're correct in what you say. It's also true, though, just as a matter of fact, that we can use working capital, essentially inventory as a form of security.

So that is an option that we do have with respect to our ability to generate any additional of that, so we could look at securing any kind of temporary support if we needed with some kind of a working capital facility. And just think about the nature of what we're going through here, right?

And that's just be very pragmatic about it, is that we're going through a kind of a system shock and that system shock is causing us to build up working capital. So if there was an area where we wanted to get some additional flexibility, we would do so, could do so through the working capital that we have in making sure we got some financing against that.

I think in terms of government support and so on, I don't want to speculate here on any specifics, but the reality is that I think that all of the major jurisdictions where we operate want to see our business go back to some form of normal. We are a big employer in many of the regions that we operate.

We have great businesses that make products that make a difference in all those communities, particularly on the train side. The aircraft business, a very important industry for Canada and Quebec as well.

So those are just important parts of the sector and we're important part of just getting the general economy started. So I think to the extent that it was important for us to have some support, we would have open lines of communication and dialogue.

And I think that people have been getting educated on just how we're managing through this and making sure that they know where we are. And at the same time, we're being responsible on our own.

And at the same time, I think, all of that will play itself out over the next few months based on what's the right thing to do. That's some of the optionality we have.

Thanks, Brian.

Got it.

We will -- operator, we'll take our last question before some concluding remarks.

Hi, guys. This is Kate [Indiscernible] on for David.

Thanks for taking the question. I wanted to ask Eric, I know that he was at aircraft during the prior aircraft downturn.

So now that you're back, Eric, just kind of what do you see as different about the business this time? How do you see kind of decremental margins being different?

And then just another related question. Do you think Global 7500 volumes, are those still targeted at kind of the prior ultimate 35 to 40 annually, or could that be less?

Thank you.

Thanks, Katie. That's a good question.

Actually, there's clearly some similarities between this to use your expression, this shop right now that is happening, to use John's expression. The -- I'm going back forward and I remember the -- when the price of oil drop in December 14 by about half, we had a major reaction from our customer base.

And what was interesting at the time is that we saw this -- we saw a major cancellation right away. I would say what is different today is that, as I mentioned earlier, we haven't seen that rush of cancellation, despite the shock that is evident, but in 2014, we did.

The -- also we have limited exposure today on the light jet versus either 2008 or even 2014. But we always felt going through those crisis that the large segment market was much more robust.

And today, as you know, we are much more dependent on that segment. So which makes me believe that our backlog will remain much more solid.

I'm not saying there will be no cancellation, I'm sure there will be. But I think it will be minimal compared to what we may have seen as an example in 2018.

That market, by the way, never really completely recovered since then on the light market. But we feel that our large market segment is very robust.

As John said earlier, the backlog -- our backlog is extremely solid, especially in the 7500. And we are just coming out also with a brand new product, the 6500, which is also an amazing product out there.

So hope it answer your question.

Yes, yes. And then could you just comment on Global 7500 volumes?

Are you guys -- do you guys think that you could still get to that 35 to 40, or I guess you're kind of making decisions now for kind of how much capacity and how much kind of what your cost base is going to be. So are you guys considering a lower rate than previously targeted?

On the 7500 today because the backlog is strong, we do anticipate the same rate moving forward.

Okay, great. Thanks, guys.

Of course, we're going to be losing a couple of planes probably this year, because of the weeks we haven't produced, but then we should go back to normal. So, I would like to just say a few word and thank -- first of all to thank you for joining us this morning.

I do appreciate your question, but also interest too in Bombardier. I'm also looking forward to spending more time with you as soon as travel restrictions will allow.

I'm interested in hearing your concerns, also share more on my vision and also my priorities for Bombardier. I think that you will find that I am a strong believer in open two way communication with all stakeholders.

While the current environment is extremely challenging right now, I am optimistic about our future and also excited about -- excited to be leading a company, with such a strong product portfolio, but also so many great people. I am looking forward to working with this team to advance the priorities, I outlined at the beginning of the call.

Of course, I recognize one thing is that our action, not our words, will dictate your views and confidence in our future. I have given the clear message inside the company that we have not met the expectation and must become much more predictable.

Going forward, we will fully -- be fully transparent and set clear priorities among them, of course, restoring our reputation and culture around operational excellence. And finally, and most importantly, in closing, I hope that you and your families remain safe and healthy in the days ahead.

So thank you and thanks for participating this morning.