Bombardier Inc.

Patrick Ghoche - Vice President, Investor Relations Alain Bellemare - President and Chief Executive Officer John Di Bert - Senior Vice President and Chief Financial Officer

Satish Amoon - BMO Capital Markets Ronald Epstein - Bank of America, Merrill Lynch Seth Seifman - JPMorgan Noah Poponak - Goldman Sachs Robert Spingarn - Credit Suisse Kevin Chiang - CIBC Steven Trent - Citi Benoit Poirier - Desjardins Capital Markets Cameron Doerksen - National Bank Financial Turan Quettawala - Scotia Bank Konark Gupta - Macquarie Capital Walter Spracklin – RBC

Thank you. Good morning, everyone.

And thank you for joining us for this review of our second quarter's performance. This conference call is broadcast live on the Internet.

For copies of our earnings release and supporting documents, in both English and French, or to retrieve the webcast archive of this call available later today, please visit our website at bombardier.com. All dollar values expressed during this call are in U.S.

dollars unless stated otherwise. I also 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.

I bring your attention to the second page of our presentation. Several assumptions were made in preparing these statements and we wish to emphasize that there are risks that actual events or results may differ materially from these statements.

For additional information on such assumptions, please refer to the MD&A. I'm making this cautionary statement on behalf of each speaker whose remarks today will contain forward-looking statements.

In a few moments, Alain Bellemare, our President and Chief Executive Officer, will address our performance and key achievements for this quarter. John Di Bert, our Chief Financial Officer, will then review our financial results for the second quarter ended June 30, 2017.

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

Well, thank you, Patrick and good morning, everyone and thank you for joining us today. As you saw in our press release, we delivered a strong second quarter in line with our turnaround plan.

Highlighting our performance in the quarter was margin expansion at Transportation and Business Aircraft, strong orders in our rail business, cash flow performance in line with our plan, and solid execution on our growth programs and on transforming our operation. So good progress across the portfolio as we continue to transform our company and build earnings power.

As we begin the second half of the year we are well positioned to achieve our full-year guidance, and we see a clear path to the upper half of our EBIT guidance. Before John goes through the Q2 financial results let we provide a few highlights from the business units, starting with Bombardier transportation, which had another strong quarter.

Our rail business continues to be both a top line and bottom-line growth story. For the second consecutive quarter, BT delivered organic revenue growth and improved margins.

They also delivered solid execution on key projects and grew the size and quality of their backlog. So a very good quarter demonstrating the early benefits of our transformation with more to come.

BT operational transformation is really gaining traction. We announced major restructuring agreements in Germany, Switzerland and Belgium.

We remain focused on workforce optimization at our new centers of excellence leveraging our global footprint and executing our product standardization strategy. In support of our revenue growth targets, BT delivered a strong book-to-bill of 1.4 in the quarter and its backlog grew to over $32 billion, and we expect this growth to continue as we actively pursue a number of large opportunities in the second half of the year.

Turning now to business aircraft, which also delivered strong margin performance. This was driven by a favorable product mix and by our transformation plan.

Given BBA’s strong performance in the first half of the year, we now expect full year business aircraft margins to be above our original guidance of 7.5%. Within an industry-leading 36 deliveries in the quarter, we are on track to achieve our full-year guidance of 135 aircraft.

Overall the business jet market is performing as expected with signs of stabilization. Business jet utilization is up both in the U.S.

and also in Europe. Markets sentiment for business aircraft is also up and preowned inventory continues to improve.

So, of course, as we have said before our focus on productivity will allow BBA to perform in any market environment and deliver strong earnings growth as the market recovers. Flight testing on the Global 7000 is going extremely well.

Our three flight test vehicles have logged more than 500 hours, and the aircraft continues to show a very high level of maturity. It is performing well in hot and cold weather testing, as well as in icing conditions, and during long-range power operation.

We have significantly expanded the flight test envelope reaching maximum altitude and speed while demonstrating the aircraft’s outstanding performance capabilities. The two remaining flight test vehicles are in advanced stages of pre-flight preparation, and [indiscernible] aircraft are starting to move through the assembly line.

So the program is on track for EIS in the second half of 2018 in support of our growth targets. At Commercial Aircraft, we recently celebrated one year of service for the C Series.

During its first year in service, the C Series performance has been just outstanding. It has delivered better-than-expected results in all key areas, fuel burn, range, operating cost and reliability.

We expect to announce significant improvements to the performance specifications for both C Series models in the third quarter. This means better operating cost and value for airlines.

Recent customer conversations, including at the Paris Air Show, confirm a growing interest in the aircraft. This comes from more and more people being exposed to the C Series and service performance, the very positive passenger feedback and the aircraft’s unmatched capabilities as demonstrated by the recent London City Airport certification.

There are now 16 C Series flying throughout Europe with our launch customers Swiss and Airbaltic, and over 1 million passengers have flown on over 12,000 flights. Of course, the story for the rest of 2017 will be the acceleration of the C Series deliveries.

As planned, the acceleration picks up in the second half of the year, and we remain on track to deliver around 30 aircraft as we work with our customers to finalize delivery schedules. I will stop here and conclude by saying we feel very good about where we are.

We had a very strong first half of the year and our turnaround plan is in full motion, and we are confident that we will be able to deliver on all of our commitments. With that, I will turn it over to John to review our Q2 financial results.

Thank you, Alain. Good morning, everyone.

As we reached the halfway point in the year, we continue to deliver on our plan to grow margins and manage free cash flow with discipline. In the second quarter, revenues across all business units increased over Q1 while we sustained early margin strength across BT and BBA.

We made progress on our site specialization strategy reaching agreements with work councils in key European countries giving us more confidence in achieving our 2020 rail business goals. As always free cash flow remains a priority.

We delivered usage in line with Q1 as anticipated and as highlighted in our last earnings call. With another solid quarter we are moving into the second half of the year confident in our execution, reiterating our overall guidance on revenues, EBIT, and free cash flow.

Let me summarize the second quarter numbers. Consolidated revenues totaled approximately $4.1 billion.

This number includes close to $2 billion of BT revenues, growing 3.6% organically year-over-year. On the aerospace side, volumes were consistent with market demand on all programs.

While C Series started contributing modestly to the top line with six deliveries. With year-to-date revenues of $7.7 billion we continue to see full-year revenues growing modestly over last year.

On the earnings front, EBIT before special items reached $164 million, or 4% of revenues. This is a 65% improvement over the same quarter in 2016.

Profitability was driven to a large extent by BT’s 8.2% margin and BBA’s impressive 8.9% margin and planned lowered volumes. Both units’ margins benefited from favorable mix, but also showcased the effect of our improving cost structure.

Looking out to the full year, we see EBIT pointing towards the top half of the $530 million to $630 million guidance range on continued strength from BT and BBA. Consolidated free cash flow usage for the quarter came in at $570 million, consistent with expectations.

Free cash flow usage was to a large degree in support of Global 7000 test program and its early working capital needs, as well as inventory investments in C Series production ramp up. Improving cash flows for the balance of the year are expected to come from seasonally stronger patterns at BT and BBA and from accelerating C Series deliveries mainly in Q4.

Free cash flow expectations for 2017 imply second half free cash flow generation ranging $150 million to $400 million. On a quarterly basis, Q3 should improve modestly while Q4 is expected to increase materially year-over-year as C Series becomes a greater contributor to cash inflows.

Finally, adjusted EPS was $0.02 in the quarter fueled by a one-time reversal of certain tax provisions. Excluding these tax benefits, EPS was breakeven for the quarter, improving over last year's $0.06 loss.

Let's now turn to a review of the business unit’s individual performances. Starting with our rail business.

Transportation is in the early stages of delivering on its revenue growth targets with top line revenues of $2 billion in the quarter and $3.9 billion year-to-date. The business is trending towards full-year revenues of approximately $8.5 billion.

As expected, growth in the second half of the year is driven by the ramp up of a handful of key projects, expected to gradually contribute $0.5 billion in additional second half revenues. In addition, our full-year revenue guidance is now supported by continued euro translation strength.

For the quarter, EBIT, before special items, was $161 million, increasing 30% year-over-year for the second consecutive quarter, representing a margin of 8.2%. In addition to more signaling revenues and positive project mix, we continue to see strong contributions from our Chinese JVs.

With a strong first half producing 8.1% EBIT margin before special items, we are in a position to raise full year EBIT expectations for transportation from 7.5% to 8%. This lift stems from improving project execution and transformation benefit, which are expected to offset the margin dilution from the handful of recovery projects ramping up through year-end.

As Alain mentioned, we remained focused on transformation at BT as we continue to reshape the business. In line with these actions, we recorded restructuring charges in the quarter of approximately $210 million comprised of severance payments of $180 million and $30 million of associated asset write-down as we reorganize production facilities in line with our site specialization strategy.

This piece of our transformation represents the bulk of the $250 million to $300 million in restructuring expense expected companywide for 2017. In summary, BT continued to outperform while executing on projects and securing future growth through a 1.4 book-to-bill.

Business aircraft also continued its strong performance and execution, delivering 36 aircraft in the quarter. With 65 deliveries at the halfway point, we have shipped almost 50% of our full year target.

Q2 deliveries included three Learjets, 18 Challengers and a peak of 15 Globals for 2017. Solid deliveries and favorable mix drove revenue up to $1.4 billion for the quarter, near the level recorded in Q2 last year as Globals represented a greater share of our overall deliveries.

With year-to-date revenues of $2.4 billion, we continue to expect to deliver 135 aircraft for the full year and record approximately $5 billion in revenues. During the period, we recorded EBIT before special items of $123 million, or 8.9%, representing a 220 basis point margin improvement versus a year ago.

The positive delivery mix combined with good performance from the pre-owned aircraft activities compounded the benefit from ongoing transformation initiatives. Similar to BT, we now anticipate full year margins to reach 8% as mix normalizes in the second half, up from the previous guidance at 7.5%.

Finally, backlog at quarter-end continued to be industry-leading at $14.7 billion with the variation since March mainly on the account of stronger global deliveries. We are seeing the right order activity on the right products with production aligned to the market.

Moving to Commercial Aircraft. C Series production moved higher in Q2 with a total of six aircraft recorded in revenues, including two deliveries from Q1 recognized in Q2 revenues.

As expected, the second half of the year will see growing revenues with deliveries expected to double sequentially in each of Q3 and Q4. With the pace gradually accelerating we anticipate 2017 total deliveries to reach approximately 30 aircraft within the original delivery range.

On our established programs, seven CRJs and seven Q400s were delivered in the quarter reaching a total of 20 deliveries year-to-date, tracking ahead of our full-year target of 50 deliveries. Revenues for BCA totaled $640 million, driven lower versus last year as we managed CRJ and Q400 production to current markets.

Most recently, order activity on the Q400 help to rebuild the backlog and provide further visibility into our planning process for 2018 and beyond. For the full year, we are maintaining BCA revenue guidance at $2.9 billion.

After six months, BCA EBIT loss is $141 million related to the production ramp up of the C Series. Combined with approximately $40 million of year-to-date losses from inter-company NRV on C Series reported in eliminations.

We remain on track to full-year loss of approximately $400 million for the unit. We expect this NRV loss to migrate to BCA as inventory is shipped from aerostructures over the next two quarters.

So bottom-line is that we are on track to achieve full-year EBIT in line with 2016, but with substantially more volume pointing to the gradual progress on the C Series production learning curve. Now, looking at Aerostructures.

Revenues for the quarter totaled $426 million, stable over last year. In this quarter, we have seen intercompany revenue increasing to 75% as Global 7000 production ramp up is added to the already growing C Series volumes.

On the profitability side, second quarter EBIT before special items was 7.7%, improving year-over-year and growing 60 basis points over the previous quarter. With volumes increasing and as we experienced step changes to production curve during the rest of the year we expect full-year margins around 8%.

This change from 8.5% is marginal in dollar terms representing less than $10 million of internal profit. Now to summarize the outlook for the year.

We have a clear path to this year's revenue, EBIT and free cash flow objectives. On revenues, we expect transportation to drive top line improvement in Q3, while BBA resets in line with more normal aircraft mix.

Then more intense growth is expected in the fourth quarter as all business segments contribute. This will be driven by first, BT’s gradual delivery ramp-up of key projects.

Second, C Series deliveries heavily skewed to Q4 and third, BBA’s following typical seasonal pattern. On the EBIT front, we now have 8% targets across BT, BBA and aerostructures.

As mix at BBA normalizes and BCA catches up to the $400 million loss for the year, we expect the quarterly pattern to be somewhat different. The second half should be roughly in line with the first six months at $300 million of cumulative EBIT with Q4 stronger than Q3.

As I mentioned in my introduction, free cash flow will be heavily tilted towards the fourth quarter. We expect continued investments in growth programs, including higher CapEx to build Global 7000 production capabilities and still limited cash inflows from C Series deliveries to drive Q3 free cash flow usage higher relative to last year.

To conclude, we are delivering on our plan. We are seeing clear progress in our margins, driving our competitiveness and building earnings power as we capture growth from new programs and from executing on our industry-leading backlogs.

In the near-term, we remain focused on creating long-term value by executing on those programs milestones and driving transformation while ensuring we hit our free cash flow target. With that operator, we are ready for our first question.

Yes, good morning.

Good morning. Amoon.

So, my first question is sort of how do you feel about prior sort of pacing was delivery expectations that you just lined up for the second half of the year. Visibility into that sort of delivery pacing from Pratt on the engine side?

Good morning, Alain. I think that so far that has been on the revised schedule that they have provided us last year.

So, we feel confident to be able to deliver roughly 30 aircraft as predicted. So, we're tracking obviously the back half is more loaded than the first half and that was by design based largely on the Pratt engine delivery.

Okay. Thanks for that.

And just one more quick one. On the foreign exchange side, so we've seen sort of the Canadian dollar make a very quick move in the last few months.

Can you John, maybe sort of walk us through what kind of effect assumption you have in your long term plan and how does this sort of impact the sort of your 12, 18, months maybe outlook?

Sure. Okay, Satish.

So, we have a hedging program and the hedging program now covers us through the range of this year. Largely next year, highly had covered us well.

In terms of just assumptions how we view our five year plan, we have an 80% assumption and that's been the case now since we have and originally issued that plan in '15. So, we maintain that $0.80 assumption for the dollar or watch it as we go here and that we continue to obviously buy positions on a rolling basis going forward.

So, we'll have enough foresight to FX on any implications to the plan. But for now, we don’t consider to be a big variant in the short term or medium term.

Okay, thank you.

Yes, hi. Good morning.

Good morning, Ron.

Strategically, when you think about all your jet, right, what you delivered two airplanes in the quarter? That's cutty talk.

That's got to --.

No, go ahead, sorry Ron.

Yes. That's got to be causing you guys a fortune.

I mean, how do you think about where going forward?

I think that we've been consistent on that one. I mean, we took the rate down because the market was soft.

It is costing us a little bit of money on the OE front. But there is a very large install base out there.

So, we've got 100s of near flying and we've increased focus on aftermarket and trading new value preposition for customers where the existing leers. So, we keep on driving sales, the team is doing a good job.

And actually we've seen a little bit of a pickup in the past few months. So, we'll see where it goes for it we've always said that we like the brand, it's a great aircraft, it's got like way more value than its competitors.

We just need to make sure that we can know entrees, volume over time. That's where we are.

I mean business aircraft market is all bits also. It's we decided not to make a decision now.

Okay. Yes, you're fair enough.

Another aerospace question if I may. When we think about the relationship between Bombardier aerospace and COMAC/EVAC.

Now, there was an agreement signed years ago previous management team. How do we think about it today, I mean what is the relationship between you guys and call it COMAC?

I mean, relationship with both is very good. I mean, obviously specially EVAC very significant supplier on the Swiss Airways.

I mean, they produce the bulk of the fuselage. So, very tight on that side and we've been adding good discussion with COMAC for many years and some potential collaboration.

So, we like where we are and in our dark partnership with especially EVAC now.

Okay. And then, maybe one transportation question.

When we look out over this call in the next say six to nine months, what they were always looking at aviation. Are there any big competitions, anything we can kind of keep an eye on stuff coming down the road in terms of our pipeline of potential new wins or just if you could walk through that.

This is the beauty of the real business. As like you don’t have just one major project pumping up once in a while, is you have like dozens of them always on the go.

So, we have 100s of projects that we work on at any one point in time. And we have like dozens of projects that are like in the sales pipeline.

So, it's a very good steady growing business and I like to see that it's not recession proved but it's close to okay because it's infrastructure driven. So, even in tough times, governments, cities, keep investing in urban transportation.

So, in that sense, I think that you need to look at the real business as a steady growth driven obviously by key projects and that's what we do. So, we have a good pipeline of projects that we work on.

We had a very good first half in term of backlog, increasing the backlog and that we feel confident about the second half.

Okay, great. Thank you, so much.

Thanks, Ron.

Thanks very much and good morning.

Good morning.

John, I wonder if you could talk a little bit about, it looks like the investment level on the globals really stepped up to a kind of a new level here close to 400 million I think of cash investment in the quarter. And maybe we could talk about maybe what's happening in the program that's driving that right now and how we think about that evolving over the next couple of quarters here?

So, I think the first to the point answer that we kind of gave in the case in which we spent about a $1 billion in the year and I think that's more or less or going to be so stays right on track. We like the progress we're making.

So, the aircraft is doing really well, and I made some comments before that we are into some significant testing. And we have three aircraft in service, we're building the fourth and fifth.

So, obviously that's attracting to link spare investments. And we're also ramping up production units, so there is some usage there with respective cash on building our production units for the backend of '18.

I think we're into the fourth unit now with inventory components coming in on the line. So, I would just say that right now we continue to track our plan very good progress with respective performance.

It's doing really well on testing, it's going to be the best aircraft in the industry. For us right now it's management in our cash flows and we feel good about the continued progress.

Rest of the year like I said you look at it and maybe a little take down in Q3, Q4 with respect then but we still have a high level this year.

Great. And then maybe a quick follow-up on the same topic.

You noted a settlement on the MDNA with the supplier, presumably on the global. Is that issue pretty much done as far as you're concerned in terms of you're getting the ship side content that you feel you need right now.

And the why the things are going in their factory is pretty much consistent with what you need now going forward?

Yes. I think that the really positive news here is that we've been working with them very closely over the last year, year and a half, and came through a reshaping of the agreement that I think works for everybody.

Working very well together, honestly they're very excited about the program. We are very excited about the program and we at this point in time it's also towards what entrance and certification entrance for service and we have a very good relationship.

Right. Thank you, very much.

Hey, good morning everyone.

Good morning, Noah.

Good morning.

Maybe staying on business jet on the margins, you're basically operating to where your 2020 target is and that's in a relatively weak market both volume and pricing before the 7000 which I imagine should be a pretty high margin product. I'm assuming you still have a cost and efficiency to achieve in the business you're investing today.

So, any change in your thought about where that segments margin can go over the long term?

Yes. First of all you know what you got it bang on.

So, I think this sum is the right one. I think that we feel good about the performance, to be honest you got to look also to the pretty good mix in Q2.

So, we had a nice content of globals relative to overall deliveries and probably uptake for '17 in terms of number of globals they're going to be delivered next quarter. So, that does help obviously.

And the other thing that we talk often at the beginning of this process some 18, 24 months ago about reshaping the business. We've done a good job with respect to the overall sales and commission's structure.

We've done a good job with respect to preowned aircraft. And so, those have been now staples of continuing to deliver margin.

And when you look at it as you said coming out for almost a $1 billion of sale, in this tough market we're fully aligned and we're producing better margins. So, all of it is strong positive.

I would say that grain of salt on Q2, there really high margin because of a bit of a content mix. When you look longer term, 7000 will come on in backend '18, I expect that '19 will then start some significant production.

'20 we still have a little bit of in terms of long term margins on the 7000 won't be full rate yet. I think that will come more in '21 and '22.

But we said 8% to 10%. We still are holding that for the 2020 plan.

I think it's the right number. It gives us the right range, we're at the bottom end of that range on a consistent basis now.

And then, as you get past 2020, I think there's more runway. So, we keep going and we'll be looking for double digits and better as we get into those years but towards now we have that conversation.

Okay. That's really helpful, John.

And just as a follow-up to that. When the 7000 comes on end of '18 and as you're ramping '19, is that dilutive to the segment margin and initially just because it's really low of all human error and you're early in the learning curve or can it actually be kind of immediately accretive just because presumably the run rate margin of that airplane is much higher than where the segment is.

Yes. I still think that when you look overall 19, 20, you still have a little bit of delusion I think in getting the margins, that's the way we look at the plan.

And if there's any opportunity to make that better, we will, but I think now it's realistically we still get a bit of drag. Which is why we said 8% to 10% although we have ambitions probably in the longer term to do better and close gaps with competitors.

But ultimately you probably going to need 21, 22, deliveries and kind of maturity and the steady volumes to be able to do to drive and be at the full potential of the margin.

Great. And then just one more for me on transportation, any color you can give us on how the sub-5% stuff in the business flowed through in the quarter and how it paces from here because similarly there the margins keep coming in better and now the guidance assumes it doesn't really change in the back half.

So, I'm just I'm wondering if you're achieving that while flowing those things through the sort of tougher contracts through or if we need to expect those to come on later meantime?

Yes. So, again well said because it's exactly what's happening.

As we expect if you look at the revenue, they'll have to kick up in the second half of the year and we kind of estimate about a $0.5 billion of acceleration. Don’t forget again when we go back 18 months here we talked about making sure that we delivered in the light of our customers, so we've invested in projects and make sure that we final design we had some large framework agreement that needed some attention, we've made investments there.

And now, we're in the stage where we're building up hardware, so the deliveries will start to accelerate in the second half on those big projects which include some of the drag projects we discussed with respect to the margin. So, second half, if you think about accelerating revenues and about a $0.5 billion of that coming from the sub-5%, that's going to be a bit of a push back.

So, what we like is that the business is performing well enough that we can bring up guidance 8%, but we can also manage the increase in volume from those large framework agreement. I think that'll still be true through '18, so what we know when we talk again next year we will give some color there.

But what’s positive is that we’re at 8% now and the business is still improving, we did announce some restructuring in the quarter that’s again bang on with the plan, we gave guidance for the full year 250 to 300 most of it was going to come from trains and we’ve largely executed that in first half. So that will be goodness for probably 2019 and beyond.

Terrific thanks so much.

Thank you, good morning. I have two things and they are unrelated so I’ll just throw them both out there, maybe you can take them in order.

Still on bizjet, your primary competitor at the global level saw a decent demand in the quarter and interestingly for what they’ve got the 500, 600 coming also apparently solid demand for the 550. So I was wondering if you could speak to the demand environment for the 6,000 and how that’s doing right now, it’s question one?

Question two is on BT and your long stated interest in participating in whatever consolidation might happen in that market and while I know you can’t comment today on some of the deal speculation it’s been out there in the news. But I was wondering if you could comment on how you might view consolidation that excludes Bombardier in other words if two other competitors were to get together how would you view that development?

Thank you.

Let me start with the second one. I think that we’ve been super consistent since I joined the organization saying that we will be watching the industry consolidation largely driven by China ICRC and that we would take a proactive approach with our strategic option and that’s what we’ve been doing and we keep looking at this.

Now whether we’re part of it like one player, two players as you said, I don’t if it matters that much because we’re a standalone plan that is rock sided right now and we’re executing on this. At the same time we’re proactive and we’re looking at options and opportunities and we will do what is right for the business.

So, on your first question that said 5000 and 6000 are actually doing much better than 550 I mean, just to be clear I mean, that’s where we’ve had like very solid sales and we had good solid market leadership. If you look at the residual value of aircraft you will see that the 6000 is the only one going up slightly right now while the other one are coming down.

So we feel very good about what we’ve done in terms of we’re positioning in our volume under the 5000, 6000 to preserve value for customers. And when it comes to you’re coming on the 650 it’s the only very ultra large cabin aircraft out there today.

But as John said, when our Global 7 comes into market it will be in all by a long shot that biz business aircraft in the world, we’ve a solid background. The flight test program is going extremely well and we’re very confident about the future of the Global 7000 moving forward.

As all in all, we’ve done, we took some very tough actions as John just mentioned in business aircraft, we’ve reset the base, we’ve a much lower cost base, we’ve the right touch in volume, we’re focused on delivering value to customers by preserving the residual value of the aircraft moving forward. So all in all we feel good about what we’ve done, where we are and what is in front of us.

Alain thank you for that. I just want to clarify part of your answer to the first question if I may, but you mentioned Asia and China and I just want to make sure I interpreted this right.

Does that mean that it would not affect your strategy of the other two European players were to get together?

No, I think that by and large we’ve multiple options that we’re pursuing. We’re a very large player in China, we’ve close to 6,000 people on the ground in China, we’re the largest western rail manufacturer in China so we’re part of the fabric there.

We’ve continued to doing projects with them, I mean that was announced last year outside of China, so we’ve got strong relationship. Having said that and my comment was that we have consolidated the rail business on their one significant company which is called CRRC, we’re watching this.

And as a result of this we’ve been looking at what are the real strategic option to make our rail business strong moving forward from a scale standpoint, from an efficiency standpoint, from a technology standpoint. So, we feel that we’ve multiple options in front of us and we will continue to proceed them.

Okay, thank you.

Hi, thanks for taking my question here. Just a follow up on, I guess the consolidation in transportation, when you look back over the past year or so.

Have you seen the competitive environment change at all to increase urgency around consolidation as CRCC or CRRC become more aggressive in the marketplace, if any comments there would be helpful?

Well, I think that there is clearly a change in the company [indiscernible] I think that everybody know that it’s well known that CRC has become a very strong player not just in China, within China but also outside of China. Having said that we do have the best product offering in the industry today, we’ve the best technology, market access, we’re drawing the backlog as we continued to win and we believe that we’re a very good solid transportation business and that is the reason why I just said that we feel good about where we’re, where we’ve multiple options in front of us and we will do what is right to keep on drawing the great franchise that we have.

That’s helpful. And then just secondly, this is the second year where you provided a positive earnings guidance update and I’m just wondering when you look at the restructuring that you have, do you feel that this is coming in faster than originally expected or maybe the overall potential cost savings maybe bigger than you originally expected, is that playing a role here when you look at your medium term earnings expectations?

Yes, I would say first and foremost we built a five year plan it was a turnaround plan it had three very intense years we described the phases of de-risking and then rebuilding earnings and cash flow. And then eventually we were taking advantage of the top line growth and leveraging the business.

And that plan is largely intact and we’re pacing it very well, but I think at the same time there was many moving parts and we’ve been executing in all front. So, I just think that it’s a balance view here, right.

We knew the job we had to do and we’ve been focused on executing it and we’ve also been very responsive and agile in changing markets. So, I think the comment of are they coming in faster or is it better than, I think it is just straight on solid execution that as we get confidence we transfer that confidence to you to just have commentary in our adjusted order changes and guidance.

But fundamentally, the original plan is the one that we’re tracking.

Thank you for the color.

Thank you very much gentlemen and thanks for talking my question. Just a quick one from me, certainly as you look at your five year plan and you continue to execute well.

As we move to 2020, how are you thinking about potential R&D in the commercial aircraft segment looking at programs like Q400, any sort of long term thoughts as to what you might be thinking about in that sub segment\?

Thanks for the question. as we’ve said, we have in our five year plan a place all there for future investment in aerospace in the 2019, 2020 timeframe pause completion of Global 7000.

We’ve not made any decision at this time, we’re looking at what our competitors are doing, what are the customer asking for and then we’ll decide. The good news is we’ve a bit of time, I mean, we’ve contingencies in place and then we will do the proper capital allocation moving forward based on the business need.

So that’s kind of where we’re right now. We’ve very strong product development engineering organization, we’ve learnt a ton over the past few years and should get the performance of C series services extremely good.

So I mean, all these earnings are now moving onto the Global 7000 which is really out paying in a major way. So we want to also make sure that we protect this moving forward and that we retain like our engineering talent and the learnings that we’ve built over the past few years.

So right now, we’re roughly about a $1 billion over two years that is unallocated and we’re in no rush to make a decision. We will do as I said proper capital allocation moving forward.

That’s very kind and very helpful, I’ll let someone else ask a question. Thanks Alain.

Thank you.

Yes, good morning. I was wondering if you could provide color about an update on the current marketing campaigns for commercial aircrafts so not only for the C series but also if you could touch about the Qs and also the CRJs especially in light of the Boeing petition?

Thank you very much.

Okay, thank you Benoit. I would say, right now the sales pipeline is put again, there is good level on activity on the C series.

On the Q as you saw at the Paris air show we had some pretty announcement there, some in the backlog which was actually drawing nicely. We do have some ongoing activities, current discussion on the CRG so overall I think that the team is working pretty hard and we have a few opportunities that we are pursuing aggressively.

So I think that's kind of it for the commercial aircraft as we speak. Your question when it relates the Boeing petition, we find this very disappointing that going Boeing would take an action like that I mean, the fact are pretty simple, I mean Boeing didn't even compete at Delta, so there was really no harm and no harm to the aerospace industry.

The C series has got a very strong U.S. content on top of this, so obviously, I mean we are working the process with DOC and ITC and hopefully I mean we will see the right outcome out of this process.

Okay. Thanks Alain and maybe very quickly for John, just in terms of CapEx for the year how should we be thinking and also whether you feel, where do you feel about the free cash flow range for the year?

What are – you could move more toward the bottom or the top end of the range?

And so, I would say for CapEx we had indicated I think about 1.4 I think that's the range, we may see a little bit more in that. We will try to continue to push development that the 7000 so I would say it's within that range 1.4, 1.5 no big changes there.

And then with respect to cash flow I think right now we are just being very mindful, I mean we are trying to manage the ramp-up of both the global and the C series effectively here, the train business is trying to deliver hardware big in the second half and through next year in terms of trains and service. So that's what we are just driving execution and operation.

My expectation of 750 to a billion still stand and I think at this point in time we have the plan to get there, but we will give you guys more color as we get into later into the second half here and we move product and inventory.

Okay. Thank you very much.

Thanks, good morning. Just as a quick question from me on transportation.

You talked about M&A a little bit earlier and then I know you don't want to comment on specific rumors that are out there but I just wanted to know if you can sort of confirm that your goal in any potential M&A especially with regards maybe creating joint ventures would be to essentially maintain the cash flow that you are generating from the current business?

I think, I mean it goes without saying that broader question and that is that we are very focused on cash flow and are continuing to create the opportunities for us to generate the cash and then as well overtime de-levers the business. So I would say that just on a general basis whether that be M&A related or otherwise that is one of the key objectives we have.

And so it will be part of all the strategic decisions but no more comment on that I would say.

Okay. Thanks very much.

Yes. Good morning and thank you.

I guess maybe I will try the M&A question once again as well. Do you think that from a European standpoint there is, within the government there is any, would there be any major issues if there was sort of a European consolidation on the transportation side?

Good morning Turan. Again, I mean we are not going to speculate on things like that and I think the only thing that I would say is like is what I said, I’ll repeat what I said before.

We understand that eventually there will be industry consolidation, we have decided to take a proactive role into this, we have I know multiple options that we are looking at and when the time comes I mean we will enter the process that are required for approval. But I mean at this stage I mean that would be pure speculation.

Okay, fair enough. And I guess maybe I will ask one more quickly on the turnaround as well, I know you talked the margin progression obviously going in better than expected initially.

I am wondering if you can give us a bit of sense in terms of fundamentally what's happening on the ground like a lot of the turnaround was based on improvements and changes in the employee levels and in terms of process improvements and so on and so forth. Are you sort of progressing ahead of schedule there or are you progressing in line with schedule there and some of this margin improvement is sort of more mix and other things that John alluded to earlier in the call?

Thank you.

Hi Turan. No, I would say that when you look at it we haven't if you look, I mean we made some very deliberate decisions in terms of sizing the top line so that hasn't been the source of any margin improvement.

We’ve kind of sized the business but what we have done when we sized that it also forced the organization to make the right choices and look for operational efficiencies and productivity and that's come on very nicely. We also restructured some of the commercial practice we had.

So when you look at BT and BBA aftermarket revenues improving, how we handle our sales and commissions also on improvement. So I think just overall we had a very systematic set of steps that we wanted to go through at the very beginning and I think the organization has responded very nicely and all of those transformation programs and initiatives that we had are delivering.

There is something that are also happening in the background, you look at inventories that BVA it's come down tremendously and then in a certain way we’ve used that to reinvest and ramp-up on the 7000 and C series and then the train business that becomes a catalyst for sales growth backend of this year but then into 18 and 19. So it was a plan that had several dimensions and initiatives and that plan is executing, the restructuring of our organization and reshaping our organization I think is on plan, on track and the margins reflect that.

Okay great. Thank you very much.

Thanks and congrats on good quarter guys. Couple of questions for some C series how have your discussions with U.S.

customers changed given the uncertainty around Boeing dispute and potential DOTs, I mean I don't know if Boeing little than the case because they did not have a competing jet in the delta campaign but let's say they win what would be your course of action defend or accept and restructure cost?

Yes, I would say that the discussions are still ongoing, they’ve not been affected at all right now by this. People understand that these are long processes and as to what will be the outcome to understand that it's very difficult right now.

We would be speculating, I will just say that we believe that the facts really support us. We have very strong support from the Canadian government and also from our customers including Delta.

And as responsible leaders we always do contingency part and this one is no exception. So if we ever need to take an alternative road we will, for the time being we stay focused on fighting this.

Okay thanks Alain. And then on business jet Alain, how should we think about delivery mix in second half and can you share the unit book-to-bill ratio for first half because the dollar book-to-bill seems below one in the first half?

Thanks.

So, the first deliveries were good. The net orders were actually pretty good.

We had the few consolation of smaller aircraft. The second half is, we still have some work to do but our team is all at work and the level of activity is pretty good.

So we feel good. It's a different market than it used to be, I think that it's important, I think that everybody understand it's a market that has been soft for many, many years now and it has not been atypical aerospace cycle for business aircraft.

So what we are starting to see stabilization. But what it means is you don't have the same strong backlog at all that push you or help you in 12 to 18 months out so that's something that we have to deal with and I think that we have been dealing with it very successfully over the past like 18 to 24 months as we have adjusted production levels at the right place in line with market demand.

So, I am very careful when it comes to orders and order backlog the fact is we have a fairly stable overall backlog of $14.7 billion and if we look at the level of activities that we have I feel good. So still a market that we keep an eye on and we hope to see little bit of a bounce back in 2018.

So far I would characterize it as the market is stabilizing.

Operator we will have time for one very quick last question.

Thanks for sneaking me in there. I know you have talked about the C series and the order campaign and the successes and events that you had there and talked very contractually even though we didn't see any orders in the air show that they are percolating.

My question is whether the content of those discussions has shifted at all I know at the beginning you really sold the aircraft on the merits of its costs, the cost savings the fuel burn savings, the overall operating cost savings. And I am hearing from airlines now some of the PO is in the applicability of the aircraft on routes that might be too thin for 737 but outside of the range of a regional and early indications from some of your initial customers are in fact putting those new aircraft not in replacement for the aircraft that they are subbing in for but rather on longer thinner routes.

Can you talk a bit about whether that is changing the tone and if that's going to lead to orders among airlines where you might not have a replacement campaign in place but rather one where strategically we have to respond some of the new markets that the customers that you have now are using on with these aircraft?

Walter, I wish I could, I’ve recorded your comments and I would just play them back again. You are buying on this is exactly what is happening.

I mean it's the first time in 30 years that there is a clean sheet new aircraft in the 100 to 150 seat class. And that is also one of the reasons why it's taking a little bit of time and I mean we are building this aircraft for the next 20 to 30 years.

But now the airlines have to see how it fit in their fleet planning strategy and this what you said there is exactly what we are seeing. Now that we have aircraft flying out there and now that the performance is not a question anymore for all the reason that you said that cost is even better than expected I mean we are seeing even opportunities to do more in the second half of this year.

I mean, the people are now looking at okay, how does that fit in my network, how can I optimize my network by using this very unique aircraft in the 100 to 150 seat class that got very good seat mile cost and very low trip cost. So this is exactly what is going on and that is the reason why I am saying the quality of discussions with airlines has really shifted I mean now we have very serious discussion I mean we are looking at fleet optimization, network optimization and how does the C series fit within these airlines and we have the highest level of activities that I’ve seen since I joined the company.

So I think that you have done a very good summary and I think that you just nail this.

Okay that's very encouraging and if I might just slip in a housekeeping for John. John you did increase your guidance on a number of division in EBIT.

No change on free cash flow can you talk about how that trickles down, does it mean CapEx from the back half are coming a little bit higher than expected or is it just something that given the ranges that you did you didn't feel the need to change your free cash flow guidance?

Yes, I would say, one is we put the range out there because we need, there is a little bit of play one way or the other. But the other one as I would say that I go back with where, in a certain sense we building ramp here and that means that timing of inventories and so on and so forth is, the play in the second half we have increased our investments in working capital for the train business as we get ready to make big deliveries there.

And we are investing in 7000s for early production and then we have a lot of C series delivery in Q4 and so as a result I think that range still applies because those are ramp-ups that were planned. They will take some working capital but they will also lead to sales and the revenue growth back end of this year and into next year.

Okay, understood, thanks very much for the time.

Thank you very much.

Very well, thank you very much. That concludes our call.

Thank you.