Bombardier Inc.

Good morning, everyone, and welcome to Bombardier’s earnings call for the second quarter ended June 30, 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 President and Chief Executive Officer, Eric Martel; and our Chief Financial Officer, John Di Bert, to review our operations and financial results for the second quarter of 2020.

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

Hello Mr. Patrick.

Good morning, everyone and thank you for joining us this morning. Let me start this morning by recognizing at first how difficult the past quarter has been for all of us.

I certainly did not expect my first quarter back to be so challenging with the COVID-19 pandemic affecting nearly every aspect of our operation, our end markets, and our financial performance. The first half of 2020 also marked a number of historic low points for our industries.

We saw the sharpest decline in passenger rail traffic ever, and business jet users fell to levels far worse than during the financial crisis or after the 9/11 terrorist attack. During this time, our number one concern of course was the health and safety of our employees and communities, and I am extremely proud of how the bombardier team responded to this challenge.

So this morning, I want to thank our employees for their support and dedication to the company, to each other and to our customer during this extremely challenging period. I also want to highlight and recognize how quickly weekly our employees have embraced the six near-term priorities that I set out when I joined Bombardier in April and which I shared with you during our last call.

Before John goes through the details of our second quarter financial performance, I want to share my perspective on our progress in achieving these priorities. In the second quarter, we made significant progress on our first priority, proactively managing the business through the COVID-19 crisis to secure all long-term sustainability.

This includes taking swift actions to reduce costs and preserve cash as our operation work temporarily shutdown. It also included a complete reset of our production rates and global supply chains when we resume our operation to align with the new market condition and customer requirements.

This was a massive undertaking. It requires close daily coordination with thousands of supplier and customers as well as the rapid implementation of a new set of things, safety protocol at all our sites and extensive employee training.

Today we are operating at our targeted rates in all 51 of our manufacturing sites and across our service center network and we are cautiously optimistic about some of the early positive trends we are seeing across our industries. We recently secured major rail contract in India, North America and Europe.

Passenger rail traffic is starting to recover in Europe and business jet utilization in the U.S. has rebounded from its record setting low in April and May.

However, even with these early signs of stabilization, we expect the next few quarters will be challenging and difficult to predict, as it is still unclear how the pandemic will unfold and what path the economic recovery will take. While we can control the course of the pandemic, there are many things that are within our control, and that is where we are focusing.

And the results of our efforts are clear. Our significantly better than expected cash usage in Q2 combined with our new billion dollar credit facility provide us with additional flexibility, allowing us to continue to execute on our priorities during the ongoing pandemic.

Turning to our second priority, last quarter I told you that making our rail business more predictable was a top priority and the new charge we took this quarter highlight the urgency of achieving this objective. While we are disappointed with the need to take additional write-downs on our well-known legacy project, clear progress is being made addressing the remaining challenges.

Moreover, we are making the right structural changes to allow us to deliver more predictable performance in the future. This includes going back to the basics and ensuring that we have the right project management tools and processes in place to proactively manage the business.

We are also relooking at how we deploy project management talent across the organization and we've established a new senior project management position reporting directly to Danny to help us better manage resources, risk and opportunities across the portfolio, and to ensure we regain clear visibility and control of projects [ph]. As I conduct my own deep dive reviews of our large legacy project, it's clear that we became a build and retrofit operation, either because of late issue identification, our lack of clear accountability or because we cut engineer resources too deeply in certain areas to meet misguided and term targets.

As a result, we incurred significant cost overruns and customer penalties. Going forward and with our new platform now reaching maturity, our goal is clear, eliminate rework and build trains right the first time to fully leverage past investment and unlock the value of BT's $34 billion backlog.

Turning now to Bombardier Aviation specific priorities, in the second quarter Bombardier Aviation successfully resumed all manufacturing operations and was able to manage onerous travel restriction and border closure to deliver 20 aircrafts, including five Global 7500. We also took the difficult step of announcing a significant workforce adjustment as we needed to realign our production rate to the current COVID impacted market condition.

Today, we still see 2020 business jet deliveries industry-wide down approximately 30% year-over-year. Longer-term the emerging trends are encouraging.

Ed business jet traffic is recovering at a much faster rate than commercial traffic. Pre-owned inventory level remained healthy.

Cancellations are very limited and new interest in private air travel is generating sales activity. At Bombardier we delivered 46 air planes including 11 Global 7500 in the first half of the year, despite losing two months of production.

We expect to do better in the second half of the year including delivering at least twice as many Global 7500s as we did in the first half. This of course assumes no new business interruption from a potential second COVID-19 wave.

From an aftermarket perspective, our service centers remained full and are operating at normal capacity with most maintenance activities being performed on schedule. Longer-term we remain committed to pursuing aftermarket growth opportunities as we complete our transition to a pure play business jet company and expect higher business jet utilization rates due to new demand for private air travel and the enhanced safety it provides.

A few words on our fifth priority where we continue to make steady progress. As you know, we closed the sale of the CRJ program to MHI in the second quarter as planned and we now expect the aerostructures business sale to Spirit to close later this fall.

We also continue to make very good progress working with Alstom to complete the sale of our Transportation business. Despite the pandemic, our senior leaders and planning teams have remained in constant contact and have kept the process moving forward to its original timeline.

Last week we achieved a significant milestone when the European Commission provided their conditional approval of the sale, clearing one of the biggest regulatory hurdles. With this milestone behind us, our attention is now focused on completing the Work Council consultation which will allow us to convert to the current nonbinding MOU into a definitive sales and purchase agreement.

Our final near-term priority involved defining a clear vision for the future and building a winning culture, a culture that is above all people centric. And given the current conversations happening around the world on the need to confront systemic fascism, I think it is appropriate to use this opportunity to reaffirm our commitment to diversity, inclusion and equality as an integral part of Bombardier's culture.

Let me be clear, fully embracing these principles, diversity, inclusion and treating people all employees with the utmost respect are requirement forward together at Bombardier. Moreover, we are committed to the following actions.

We will intensify our focus on recruiting and developing a more diverse workforce. We will further invest in creating a workplace environment where all employees feel supported, respected and included.

And we will continue to evolve our community relation program and partnership to promote greater opportunities for all. This is an area where I am personally committed, and in my new position I will ensure that we put this commitment into action.

Okay, let me stop here and turn it over to John to discuss the detail of our second quarter results and provide more color on our outlook for the remainder of the year. John?

Thank you Eric, and good morning everyone. As you heard from Eric, the first half of 2020 was very challenging.

We managed through COVID-19 related shutdowns and disruptions and implement a whole new set of safety protocols across our operations. We also reset our production levels and delivery schedules with customers and suppliers around the world.

At the same time, we took actions to ensure we added additional flexibility and liquidity to execute our strategic plan despite the ongoing and unpredictable situation As I shared with you in early May, gaining financial flexibility was one of our key priorities going into the second quarter. We achieved this objective in different ways, by tightly managing the resumption of our activities to limit Q2 cash usage to $1 billion, by working on a new $1 billion secured credit facility announced a couple of weeks ago, by further amending our banking covenants notably to extend financial relief into the third quarter, and finally, by closing the sale of the CRJ with net proceeds of $575 million and making progress towards our remaining divestitures which position us to reshape our capital structure next year.

As we start the third quarter, pro forma liquidity stands at $3.5 billion. With this liquidity and assuming continued recovery of our operations and markets into the back half of the year, we feel we have the financial flexibility to operate our business through the challenges caused by the COVID pandemic as well as complete the sale of BT to Alstom.

Let me now provide some details on the new $1 billion working capital facility. This is a secured loan guaranteed by certain aviation subsidiaries to be used by aviation mainly to manage working capital as we realign production to market demand.

Closing is expected in the coming days and we expect to draw the minimum amount of $750 million adding to our balance sheet cash. An additional $250 million is available to us on a delayed draw basis should it be required for operations and subject to having the right borrowing base.

It is important to note that the facility carries no financial covenants, supporting our objective of increasing our financial flexibility. While half of the amount withdrawn will be repaid from the Transportation sales proceed at closing, we have the flexibility to continue with the remaining portion of the facility for up to three years.

This loan is meant to be a temporary facility to allow us to bridge to a stronger capital structure following the sale of BT. Should more attractive sources of capital be available after the closing, we could choose to repay the entire facility early.

Turning now to Q2 results, which reflect the significant impact from COVID-19 on our businesses. Consolidated revenues reached $2.7 million, 37% lower year-over-year and a significant shortfall to our plan as we originally expected double-digit growth for the full year 2020.

For Aviation, these revenues include 20 business aircraft deliveries compared to 35 one year earlier as demand declined and travel restrictions postponed deliveries. Specifically, on the Global 7500, the production ramp up returned to plan as operations restarted in May and we managed to deliver five aircraft during the quarter.

On aftermarket services, lower revenues were due to lower customer flying hours, although the service centers remained fully operational even during the crisis. At BT revenues for the quarter were approximately $700 million lower year-over-year mainly due to lost production time.

These revenues largely remain in the backlog and are simply deferred in time. On earnings, adjusted EBITDA was in a loss position at $319 million and the adjusted EBIT loss was $427 million, driven materially lower by $435 million charge recorded at Transportation mainly on late stage loss making contracts.

Before the impact of the charge of Transportation, consolidated EBIT was closer to breakeven mainly due to facility shutdowns across both businesses. This caused a reduction in revenues, produced higher than normal unabsorbed costs and generated significant disruption cost.

The Q2 charge reflects continued cost pressure as we moved key Transportation projects mainly in the UK and Germany passed critical engineering and operational milestones. Specifically on these contracts we achieved or are in the process of achieving this quarter the homologation and entry-into-service on two more applications of the Aventra platform in the UK and on certain other projects in Germany.

Further, during the quarter, we recorded a restructuring charge of $28 million as we adjusted our workforce to new production levels. This charge was recorded as a special item.

Our free cash flow usage was $1 billion for the quarter and again includes a significant shortfall associated with the pandemic, estimated at between $700 and $900 million. Over the last few weeks we were able to mitigate the impact of COVID on our cash flow usage which came in approximately $500 million better than initial expectations.

We achieved this by temporarily reducing our workforce while plants were idle, followed by a timely recovery of operations once the situation had stabilized resulting in higher than expected deliveries, and by benefiting from wage subsidy programs in multiple jurisdictions, as well as by reducing our inventory intake as we adjusted rates and finally by tightly managing costs. On a year-to-date basis, free cash usage totaled $2.7 billion of which an estimated $1.5 billion is COVID related.

While a small portion of this shortfall, approximately $90 million is the net impact of direct and incremental costs in our operations from managing the pandemic, a larger share sits in higher inventory and contract assets on our balance sheet. This higher working capital is directly attributable to lower deliveries and lower advances on lower orders.

Looking closer at sources of cash shortfall, BT accounts for a third of this amount and is expected to recover most of the lost production time and deferred orders over the next 18 to 24 months as operations return to normal and production schedules are fully realigned. The other two thirds of the cash shortfall is related to the current lower demand environment in Business Aviation markets.

In this case we lowered our production rates and will maintain them at this level until we see clear signs of improving demand, which remains relatively difficult to assess at this stage. We also entered into the new credit facility to support this working capital build up.

Looking at the remainder of the year, while the global situation continues to be difficult to predict, we are continuing to prudently manage our business towards breakeven free cash flow in the second half of the year. This assumes that our operations continue to stabilize and implies that we are carrying the benefit of better free cash flow from the second quarter into the full year.

Our full year free cash flow is expected to include an impact of approximately $2.25 billion from COVID, $1.5 billion of which is now behind us. Of the estimated $750 million impact remaining for the second half of the year, approximately half is due to the wind down of a reverse factoring facility originally created to support inventory ramp up on the Global 7500.

Disruptions to the financial markets have rendered this facility too expensive. While a drag on 2020 free cash flow this wind down should benefit our financial flexibility as a standalone Aviation business in 2021 and beyond.

In addition to the $2.25 billion COVID impact, we also now expect $300 million to $350 million of cash outflows against the charge recorded this past quarter at BT. It also includes as originally anticipated, approximately $200 million against the remaining CRJ RBG [ph] balance, reducing these nontrade liabilities to less than $200 million by year end and this to be paid over the next three years.

This will reduce free cash flow drag by approximately $100 million or more starting in 2021. Now breaking down the outlook by quarter and consistent with prior years, the third quarter cash flow usage should improve sequentially over Q2.

We then expect free cash flow to turn positive into the last three months as we release working capital, mainly at BT. At BA, the typical working capital release in the fourth quarter is expected to be lower than prior years, given recent disruptions and rate adjustments.

So to wrap up, as we stabilize the operations following the successful restart of facilities worldwide, we remain cautious in our approach. We are focused on managing end market volatility by staying close to our customers, and delivering on our backlogs.

We are also working to protect the level of liquidity and the financial flexibility that we have built. And we are dedicated to executing on the strategic roadmap we created by completing the remaining two divestitures and emerging with a stronger balance sheet.

With that operator, we're ready for our first question.

Thanks very much, and good morning. I was wondering if you could talk a little bit about the reduction that you made to the workforce in Aviation and how that makes you think about what the appropriate level of production should be going forward as we as we head into 2021?

Yes, so Seth may be, thanks for your question. Clearly, as I stated earlier, we see the market being reduced by roughly 30%.

We made that decision early June, after furlough to reduce on a more permanent basis our rate to align to that market. So far, being a couple of months into it, we think that we are at the right place right now.

It is still a little early to call for a long-term outlook right now as I stated earlier, because we still have a bit of uncertainty ahead of us. But as of today, I would say that we feel comfortable with the rates we have adjusted last June.

There is nice activity. As I said earlier the airplanes are flying again.

We're not exactly back to pre-COVID but getting very close to, in terms of the flying of the business jet. And at the same time there is sale activity, not further than yesterday, I was in touch with our salespeople and we've seen activity more than expected in Q2, and this continue also.

So, we are encouraged by that, because as the first priority will be to fill our backlog, make sure we have enough airplanes, but so far we feel comfortable to where we stand.

Okay, great. And then, I guess, as a follow up, if we think about probably in 2021, 2022, a little bit less level of activity on the business jet side in terms of sales than maybe it was expected at the beginning of the year, and a little bit different cash flow profile this year that kind of changes the Cap structure, a little bit.

How do you think about when a standalone business jet entity can be free cash flow positive?

It's a fair question. I would say that our intent here is to have our businesses moving forward regularly in a free cash flow positive.

I don't see, no reason unless we have major investments going or major ramp up, why our business should not be in a position to deliver free cash flow on a regular basis. We've made major investments.

We have an amazing portfolio right now in every segment where we are competing. And I think that moving forward our airplanes are extremely attractive.

As I mentioned earlier, despite the COVID-19 we still have a lot of activity in sales. And we expect, if we made the right rate decisions and operating with an optimal backlog, that our business should be producing cash on a regular basis.

There will be exception, as we ramp up or do adjustment of the rates, but I guess that's the plan we have in mind.

Great, thank you very much.

Thank you, Seth.

Hi, good morning, it is Ryall Stroud calling in for Walter Spracklin from RBC.

Good morning.

I just wanted to quickly touch on the Global 7500, you had mentioned expectations to deliver at least twice as any many Global 7500 in the second half. So looking at what you guys are in the first half, it looks like at least 22 in the second half.

Looking forward, should we expect that another full or the prior full production run rate of roughly 40 is achievable, potentially, as early as next year?

So I think that we have always indicated that our desire was to get to a ramp rate of 35 to 40 aircraft and that would be kind of a steady state mature production line. And also well matched with our current backlog and the expectations we have for current customer deliveries.

And I think that the aircraft has an extremely bright future, and it's well positioned to continue to be able to sustain that kind of a mature rate. So, to your point, I mean, we're looking at something over 30 aircrafts this year.

That's all from the backlog, and I would say that that 35 bus aircraft mature rates is clearly our objective.

Okay, awesome that's helpful, and then one last one from me, just on the timing of the aerostructures sale, you had mentioned in the fall, but just for modeling purposes, do you think that's more likely to occur in Q3 or in Q4?

Yes, I think you know it'll be probably somewhere in the late fall, which could straddle the two quarters, I'm not sure, I mean, we're working with Spirit, and I think that transaction, September October timeframe is probably realistic.

Okay, awesome. That's everything from me and I'll pass the line, thank you.

Thank you.

Thanks, good morning. So, following up aerostructures and the sale there has been, Airbus has made some announcements with regard to what they're going to do with the A320 cross reversal program, which I think was supposed to go to aerostructures.

Can you comment on that, and how that could potentially impact the sale process?

Yes, so clearly Airbus has not made any completely public yet, and there is discussion. We are monitoring that situation, and we are as we speak, remaining in discussion with either Airbus and Spirit.

But there was nothing much right now, what the commercial aircraft status is right now, there's a lot of moving parts. And I think, there's a lot of discussion happening at in all kinds of platforms.

So that's one of those discussions taking place, but right now, I would say the discussion, the thing remains in discussion with Airbus and Spirit.

Okay, John I guess a follow up for you on working capital and the improvement that you expect there in the second half. Can you maybe give us some help of what to expect in terms of some of the moving pieces?

I know in the first half, you saw a big drag on the advances side and payable side. What happens there maybe along with inventory and specifically in the second half?

Thanks.

Sure, so you know that even seasonally typically we have a build of working capital in the front end of the year that is affecting half of the year. Particularly in Q4 we do reduce working capital significantly.

I think what you can expect is that delivery rate should especially on the BA side, assuming kind of a normalized return of markets here expect to improve. With respect to the trains, we've been building a significant amount of inventory and this also proceeds 2020.

And that is an important part of us moving through the backlog. I mean, it's all sold backlog with the significant train finished trains in inventory which are now awaiting homologation particularly in places like the UK and Germany.

And so, our view there is that BT will be able to as they've now resumed operations, start to deliver product to customers in a more rapid way which would then release some important delivery payments. So I guess, I mean for us at this point in time to be frank, the target is to drive that breakeven second half.

We're typically better in Q3 than we are in Q2 even on a normal basis cash flow is down in this particular situation, given the stress on Q2, we do expect to see economical improvement, and then Q3 and Q4 we've been in the past somewhere between, $750 and $1 billion of cash generation. I think that in this case here, I mean, there's going to be a muted impact probably from what kind of release we have.

But certainly, we are expecting to be able to recover whatever burn is in Q4.

Thank you very much.

Thank you.

Yes. Hi, good morning, guys.

Can you hear me okay?

Yes, we can hear you well, Ron. Thank you.

Great. So maybe a couple questions.

It seems like one on Business Aviation. You guys have benefited from a large installed fleet, right?

And that fleet is aging right? I mean how do you think about that?

And one of the things we worry about is as that fleet ages, your aftermarket for that is going to slowdown. I mean, your maintenance, repair, overhaul, all the services that you do on that fleet.

I mean, and if you think about that particularly being the case with Learjet, that fleet hasn’t been renewed in a while. So, first question, how do you think about that?

So let me, so there's a couple of points here that are important to make. We have about an installed base of roughly 5,000 airplanes flying out there.

And I think I clearly indicated that one of our priority was to grow our services there, and you're absolutely right. A lot of the airplanes are starting to mature right now.

They need some major sea check inspections and we are planning to attract those into our service centers. Our service centers have shown amazing resilience.

I was just sharing with you earlier that our service centers were full pretty much through the whole COVID period. We've maintained a high level of activity everywhere and the revenue mainly on over-the-counter their parts also we were doing extremely well there during the COVID period.

So, we are also looking at new service center expansion. As you know, we are building right now capabilities in other countries to better serve our customers, but to also capture a bigger share of those revenues in service.

So, so we are moving. Sorry, there is a bit of noise, so we are moving full steam ahead on this clearly and at the same time, we have renewed our portfolio.

So we are in a position also, especially on the Global, especially on the Challenger, we are refreshing our product. We've been refreshing our Learjet also as things move along to have a more accurate, more a new avionic upgrade and different things like that.

So we feel that you've - we've always been refreshing our cabin. So we are extremely happy with the position product wise that we're in.

And we believe that we have an amazing product portfolio to offer for those customers who will want to replace their aging airplanes, but we also have the base to capture the aftermarket more and more over the next few years.

Okay, then maybe next just an - more of an accounting question for John. It seems like every quarter you guys report you burn $1 billion cash.

And yes, we hear a lot of the same narrative and we're going to be working capital release, it's going to, it's going to change, but I think if you have any of the self [ph] analysts who follow you, if we were to throw darts at a board and the target was a billion dollar burn in a quarter, that's probably what you guys would do. I mean, how can we have any confidence in the second half that it's actually going to get better?

Because if you look back at recent history, I mean, the cash burn for you guys has been, pretty astonishingly awful and surprising. So I mean, how are you going to get the investment community to believe that you can actually do this?

Well, listen, I think, Ron, I mean, for I'm not going to do a historical here, but I think that we've come out of a major investment cycle that did take a toll on cash burn, and that's clear. I mean, with respect to our biggest challenge has been clearly releasing, train inventory, and finished goods to customers.

And we've built a significant amount of finished trains that do, are depressing our ability to convert cash at rail. And the real catalyst for that is completing the homologation customer acceptance, and then the entry-into-service of those trains.

And that's what we're focused on. With respect to, I'd say the aerospace side of the house, the aero has actually delivered the expected cash flows for the business over the last three, four years.

And really, it's been a question of investment cycle in aerospace programs. And so, that's really I mean, the cash flow profile that we've carried and we've baked in a cash flow profile with the investment cycle.

And just may be one last follow-up on that, on the train side, is there a way to restructure the contracts that you guys don't have to carry all this working capital? When you - when I think about, some of the defense companies that some of the analysts who follow you like myself, follow, I mean they've structured their contracts with their customers, so they don't have to carry all that working capital and so on and so forth.

I mean, like, on a go forward basis, is there a way to change how you do your contracts? So, if there's a delay on the customer side, you guys don't have to carry it?

Do you know what I mean? Like it just seems like you're getting unfairly penalized in some of these cases or issues that you're having with your customers, because then you have all these trains that are piled up and you understand what I am saying, is there a way you can renew your contract that, the burden of this isn't so much on you guys?

Look I mean, of course, buy we've got like 300 to 400 contracts in the backlog and so by and large they do track spend and inventory with inflows, and so we do typically get a deposit on signing. We do get some payments for heavily engineered projects, and then we get paid for milestones.

The hard reality is that over the last 18 months, some of that, some of those milestones for various reasons, and yes, in some cases working with our customers, and they may or may not be part of that, but the reality is that that's what's hurting us. What's hurting us is the buildup of the trains, and the delay in hitting homologation and critical engineering milestones.

And that's left us carrying, to your point, fairly or unfairly significant amount of inventory. The ability to change?

Yes, of course, there's probably significant lessons learned that have already been put into our contracting. But at this point in time, I think we've got to work through what we have.

And I think - what John is saying, it's very important to understand the issue we're facing right now at BT that we face are not related, really to the contract structure. Usually, when you signed a contract at the beginning those are either cash neutral or they become positive.

But clearly, we did face and I said it earlier some major performance issues and then when you have those performance issues and you're getting late and you have to do any work, this is when you create inventory and you don't get the cash because you don't deliver the car. So, we are - we have a major push in the next coming quarters to unlock exactly what I just said, because we've been successful on the three to four programs that we're - on which we were sitting on a lot of inventory to be able to deliver our first car, so now it's unlocked and we're going to be capturing that cash inflow.

Okay, thank you.

Welcome, Ron.

Hi, good morning.

Good morning.

Good morning.

Just staying on free cash flow in two years, so you're out of this year, you're beyond next year, which is maybe a transition here at least to a degree. When I'm looking at just the remaining Aerospace business, and it's a more normal environment, you've reset production, the 7500 ramped, its margin has ramped.

So everything is reasonably normal. Presumably there is not still working capital build at that point in time.

What is the free cash flow margin of the Aerospace business in that environment?

I think it's early to make that call, Noah. I think it's a bit hypothetical for me to look at that now I'd rather see what our rates are, what we set our production and market demand looks like.

I think the second half of this year is what is going to give us some color as to how we actually work out ‘21 and then enter 2022.

But John, you've had all those inputs that I just described in the business before and to Ron's point, it's just impossible to model the cash flow statement?

Yes, I understand that. But you're asking me to give you a speculative number for 2022.

I mean we are in the middle of…

Well, I'm not really specifying 2022. I'm just saying when things are normal again, and I'm sure you have some visibility into production and costs given the business jet market isn't - I mean, it's obviously bad this year, but it's not nearly as bad as the last downturn, and you have a product cycle that's actually growing.

So I appreciate if it's too speculative, but I was - the question was assuming maybe it wasn't that speculative?

I think Noah, the fundamentals as you've mentioned earlier, we have refreshed our portfolio of products. So we have very competitive products, if not in most of them of being the leader in that category in terms of performance, in terms of availability, in terms of many aspects.

So we are starting on the right foot clearly when you look at the next coming years. The 7500 has ramped up.

So we have the inventory we need to carry on with that the platform. And I think what John is alluding to is, we need to better understand right now what's ahead of us in terms of the pandemic, the cycles, so which will help us to better understand the rates, pricing, that we'll be able to get.

And those are tools, still an important variable that we need to sort out before being in a position to provide a more accurate guidance.

Okay. I respect all of those uncertainties.

Just one other question. Can you speak a little bit to the bifurcation or what are you seeing between your high net worth individual customer versus your corporate customers in speaking to some of the folks that transact in your airplanes in the secondary market?

And it sounded like the former was really moving significantly positively, but it sounds like maybe the latter is off completely. And so it sounds like in the near term it's still a net negative maybe, I don’t know if you think that high net worth change is sustainable to be a net positive long-term.

But we'd just love to hear what you're seeing across the two customer sets and if you can also just remind us your split in your business, that'd be helpful?

So right now we see amazing activity, I would say in the large and medium segment. A little less, but still a little bit in the smaller in the lighter jet.

So that's what we've been expecting here. Interesting in Q2, our assumption was that the - we're going to have a net order of zero, and we've been doing better than that.

As you know, we've delivered 20 airplanes with roughly a book-to-bill, which is gross minus cancellation of about 0.3. So this was better than expected and that momentum still carries on in this quarter.

So we see activity, amazing activity actually at the large segment, amazing activity at the medium segment, which is again a good place to be. So we reduced the rate.

We are foreseeing the opportunity to rebuild some backlog in those businesses. And then we continue to monitor that, but so far - and the activity is good and also actually very strong on the used airplanes.

So used airplanes are also at levels that are very normal right now, even as slightly improving in some of the segments.

Okay, thanks everyone.

Thank you, Noah.

Thanks, good morning. Just a couple of quick questions, just on the sale of BT to Alstom.

Can you just run through what the remaining regulatory approvals are, now that you've got the EU, what's left that needs to be completed?

So first of all, I'll say that you're aware that the EU commission was a major milestone and an important one. So we are still expecting a deal closing in H1 2021.

We had the EC approval, which was a positive. We still have other regulatory to achieve, so we're working diligently with Alstom.

We have U.S. Canada, Australia, and, and other countries like China.

But we need to get those approvals too, but it's heading everywhere in the right direction without speculating here, but we're having very capable people on both sides, working these through. We have also later this summer we are expecting the Work Council approval.

So this is also tracking well. And in the coming months, we are expecting signing a purchase agreement, because you realize that today we are still working on an MOU and again when we have those conditions, we should get to an SBU [ph] in the coming months.

I think after that also an important milestone will be Alstom shareholder vote and we're getting through that. So far things are progressing super well as per plan.

Okay. And so if things sort of progress as per the schedule that you've got there right now, is there any reason why this couldn't close in Q1 of 2021?

I mean, you've indicated H1, but it seems to me like an earlier close might be possible?

Well, you know, this is a speculative at this stage. So we're not in full control of all those things and there is a lot of things to do.

As you know, as an example we have got regulatory approval, we may consider that it's going to take one month, but it may take four. So there is too much things that are out of our control, but I can tell you that the team are engaged to make this happening as soon as possible, but we still - it's too early right now to predict.

And we are looking into H1 next year still, and that we'll be happy report if we can do better than that course.

Okay, great. Thanks very much.

Hi, good morning. Two questions, one for Eric first, and then one for John.

Eric in answering Noah just a moment ago, you mentioned positive trends for mid heavy jets and used. The only thing you didn't talk about was light.

I'm just wondering if COVID is bringing some new customers to private jet travel through, let's say charter, card, fractional, might we see renewed interest in the light jet and renewed interest for the first time in maybe a decade at Lear?

It's a very good question, Rob. So you are absolutely right that I did not maybe mention light.

Light is - there is activity, but not as much as medium and large right now, so that's a reality, but what you are exactly right is to point to the direction of the fleet operator. So as you know, we are a major supplier to the fleet to those fleets.

And I know for a fact that those fleets right now are doing extremely well. So they are still recovering, but at the same time, they have a lot of activity in terms of sales, in terms of interests for their business, which has not translated yet into order for us.

But if that momentum, and there is a theory here that we are studying very carefully, that if people that used to fly commercial are now considering, and we believe it's going to happen, we'll be probably starting at the - working with the fleet operator, which will eventually translate in orders probably for our business. And eventually these people often they fly for a while with the fleet operator and then they sometime they become - they want to own their own airplane.

So it's too soon to assess and visualize that right now. But clearly, the one piece that we can visualize today is the level of sales activity at the fleet operator.

So more and more, and we see also their flight picking up a little bit everywhere. So it's a fair assessment and it we will continue to monitor that, but eventually we think that this could translate into more business for us.

Okay, okay. And then John, I'm afraid I'm going to take another crack at the question that both Noah and Seth were attempting to ask you, but I'll be a little more specific.

Down the road when things normalize, is it reasonable to look at biz jet as a $6 billion revenue business, maybe 120 to 130 or 140 deliveries per year, plus aftermarket with a free cash flow return of about 4% to 5% on sales?

I mean, look, it's not that - I mean, I can do the math with you guys and that's fine, but I think what I'm trying to tell you is that I am not going to make a call on a two, three-year business projection today. It's just, you know I mean we're going to go through what we're going to go through here and look at the second half of the year.

It might be a $6 billion business. It might be a $7 billion business.

It might be 150, it might be 120. You know, today is not the day for those comments.

And with respect to the ability of the business to generate cash, the business generates cash it does today. We have a balance sheet that needs to be deleveraged.

That's going to come with an interest costs reduction. The size of that reduction needs to be assessed.

We need to be able to manage through these transactions and the current year to be able to do that. The ability for us to go out and then identify rate reduction opportunities against the cost of our debt is important as well.

And with respect to the ability of the aircraft business to generate cash, this is a business that has and can show the ability to be certainly double-digit EBITDA margins as it goes forward with the 7500 and with a discipline capital allocation plan, should be able to convert $0.80, $0.90 on the dollar of earnings to cash. And I think that's really what the future of that aircraft business will look like, but it's dependent on rates as Eric said, the environment that we're operating in, pricing, and the variables around our balance sheet.

Okay, well, that's helpful. Thank you.

Thank you both.

Okay.

Thank you.

Thanks. I was hoping John, you could maybe give us a little bit of color underlying the 2020 numbers we're looking at, the $2.7 billion cash burn you're implying for the year.

How much realistically would you attribute to business aviation in that burn? I think you said the total impact to be $2.25 billion for the year is BA at $1.5 billion of that.

So may be if you could parse the 2.7 this year by the $0.02?

The way I would think about it is that, you've got about $1.5 billion that comes out of BA. Now don't forget part of the reason that we went out and secured the financing facility was to absorb a lot of that working capital build.

We came into the year obviously with higher expectations for deliveries, and that creates a production rate than a working capital build that gets adjusted with a pretty severe adjustment to demand that's occurred. So we've managed out some of it, but not all of it will be absorbable.

And I also mentioned in my comments that we're unwinding some supplier extension and financing solutions that we had in place to support the 7500 ramp up. So that does create drag on the BA number.

So as I mentioned about $1.5 billion and order advances that contribute to that working capital build contributes to that, probably I would say, a third to the advance is two thirds to the fact that a reduced the reason and as we manage the production rates. And then of course within that the implication of the wind down of the extension facility, when you look at the train side of the house, again if you kind of just look overall where $2.7 billion mid-year now and we're trying to drive a breakeven second half, which would suggest a 2.7 full-year.

So the train side of the house is probably 7.50 of the COVID related impact, and then you've got the drag from the train projects that we've described this quarter. So that's another 3, 3.50 of kind of cash funding of that charge.

So think about, you know, something approaching $1 billion.

Okay, so roughly a half to two-thirds is BA driven in terms of the cash burn for the year, but you've laid out all the reasons. And then just the factoring piece, is that a headwind to ’21 as well, is this one quarter or one half effect or does that then add increase seasonality to your cash performance, which that 1H next year would be impacted?

No, the way we were managing this is that as things kind of got dislocated in April and May, we decided to wind down the facility. And so, that's going to take the remainder of the year given the fact that whatever payable extensions are in there get paid out normally.

We're not introducing new ones in there. So it's kind of got an effect largely in the second half of the year.

And as a result, I would say that by and large, as we go into 2021, it's pretty much wound down. I mean, there may be some small residual left, but that's kind of it.

So I would say the impacts are to the current year in that kind of a one-time effect, and then for ’21, ‘22 would be neutral.

Okay, all right. Thank you.

Thanks Myles. Operator, we have time for the final question.

Yes, thanks so much. So to follow up on Myles, you mentioned $2.2 billion COVID impact, $300 billion, $350 billion basically goes to the charges you took advantage.

But you also talked about a lot of this inventory build-up that will release next year. How much of the remaining $1.9 billion of full-year COVID is just expense that you will not recover and roughly how much is inventory that could turn into cash next year?

So, on the earnings side, I would say that by and large, you've got the direct costs associated with the actual pandemic, and then there is a probably in the neighborhood of another few hundred million dollars that comes from the lost revenue, right. So you're looking at probably somewhere in the neighborhood of $2.5billion to $3 billion of lower revenue, you've got probably mid-teens gross margins on that.

So the component of that is, I would say earnings impact is somewhere in the neighborhood of $400 million or $500 million. There is a component of this, which is about the order book as well.

So I'm not going to forecast a kind of a full recovery of our backlog. In other words, we in 2020 are going to have significantly less orders than we would have expected.

That's going to contract the backlog. That cash, that typically in the backlog is going to be at this point in time assumed to be a kind of a permanent reduction when we come back and we'll see if we can outpace deliveries with the orders, but that's to be seen.

So, in terms of inventories themselves, if you think along the lines of the working capital facility that we went out and secured, we're looking at $752 billion of usage on that facility. And I think, you know, by and large, that's what's going to be the inventory that will have to come out of this system over the period of probably the next 12 to 18 months or so.

And it's really a question of what we do with production rates next year and how we see the market and what we want to do with respect to fully burning off the excess.

Thank you very much.

Okay, Cai thanks for your questions. So, I'd like to thank you again for joining the call this morning.

We do appreciate your continued interest in Bombardier. And as always, Patrick will be available if you have further questions about today's release.

We look forward to talking with you again in the next quarter and until then, please stay safe and healthy. Thank you.