Bombardier Inc.

Good morning, everyone, and welcome to Bombardier’s earnings call for third quarter ended September 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 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 third quarter of 2020.

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

Well, thank you Patrick and good morning, everyone. And thank you for joining us this morning.

As you know, the COVID pandemic continues to have a broad and deep impact on the global economy and in our industries. Despite these challenges, I am encouraged by our progress, and by the market stabilization we've seen in the third quarter.

While there is still a great deal of uncertainty as to the path and timing for a full recovery, I am proud of our teams absorb the initial impact of the pandemic, and how we quickly adapted to the new reality. This includes taking all the actions necessary to protect the health and safety of our employees and communities.

And working together with our customer and suppliers, to not only navigate through the crisis, but also to prepare for the recovery. And to build momentum as we complete our strategic repositioning to a pure play business aviation company.

On that, one that is capable of delivering solid financial performance in any market conditions. Of course, none of this would be possible without the hard work and dedication of our incredible people.

So this morning, I want to thank our employees for their ongoing support and dedication to the company to each other and to our customer during this extremely challenging period. Throughout the pandemic, our people have risen to all challenges.

And that continued in the third quarter as we made solid progress on each of our priorities. This includes securing additional liquidity with the new $1 senior secured credit facility, keeping our strategic transaction moving forward and taking the right action to improve cash performance, which remains our IS [ph] financial priority.

Notwithstanding the uncertainty created by the pandemic, we are continuing to target breakeven cash flow for the second half of the year, as we achieve key milestone and ramp up deliveries across the business. At Aviation, we delivered 24 aircrafts in the third quarter, including a record 8 Global 7500.

Global 7500 deliveries are expected to further accelerate in the fourth quarter to approximately a dozen, a 50% increase over the third quarter. This delivery acceleration during the second half of 2020 demonstrates our continued progress ramping up the program, the word of more stable delivery profile.

The high level of deliveries concentrated in the last six months of the year, will outpace orders as we execute on our multiyear backlog. As we look at the market overall, we are confident that we took the right action earlier this year to realign our production rate to reflect the COVID impact, as we expect the market to remain stable for at least the next year.

Long term, the emerging trends are more encouraging. Pre-owned inventory level remains healthy.

And we're seeing sign of new interest in private air travel and DNS safety it provides. In the third quarter, order activity improved significantly over Q2, especially for our Challenger aircraft, with their market leading reliability and performance.

From an aftermarket perspective, with utilization rates now overing 85% of pre COVID level, we're seeing some impact on our smart part program. However, all service centers are operating at near normal capacity, and longer term we still see aftermarket as a strong growth opportunity.

To position ourselves to capture that growth, we've recently taken a number of actions. These include reaching an agreement to acquire full ownership of our Berlin service center.

Partnering with Jetex to establish an enhanced FBO experience as part of our Singapore expansion. Establishing a new service center in Australia.

And appointing new leadership to oversee our multiple expansion project including our Biggin Hill facility in London. At Transportation, our focus has been on improving project management and making the business more predictable.

With our new project management office firmly in place, we are making steady progress implementing the right tools and process to better manage commercial and technical requirements. This will provide greater visibility, better resource planning and lead to a more predictable results.

While the impact of these efforts is most visible on early stage projects, we're also seeing improvement on our legacy projects. Including our large contract in the UK and Germany, where we expect delivery to accelerate in the fourth quarter.

We also expect to see an acceleration of new order as transit agencies begin to look beyond immediate COVID related operating issue and award contract necessary to support their long term requirement. With respect to our strategic divestitures, we remained very much on schedule.

The sale of our Aerostructures business closed last week, and the definitive agreement we signed with Alstom in September and the approval of their shareholder last week put us on a solid path to close the BT sell in Q1 2021. This of course, assumes the few remaining regulatory approvals are received in time.

With the sale of Bombardier Transportation nearly completed, we're looking forward to our future as a purely business jet company. And I want to spend some time this morning talking about our strategy and path for creating stakeholder value.

Today, I'll give you a high level overview. And early next year after the BT transaction closes, we'll host an Analyst Day, where we'll provide a detailed plan, updated market outlook and give you an opportunity to meet hopefully in person with the leadership team.

Again, we are very excited about our future as a more focused company, and about the opportunities to grow our aftermarket business and leverage our industry leading product portfolio. At the same time, we are fully aware of the challenges we face.

This includes significant pandemic created headwind. Our company, like most aerospace and transportation company took a big hit in 2020.

Business ship delivery while recovering at a much faster rate than commercial aircraft deliveries are still down by more than 30%. And as I said earlier, we expect it will take a year to recover to pre-COVID level.

Looking at the number, the financial impact of the pandemic is roughly 2.25 billion on liquidity. This means we'll start operating as a pure play business jet company with 4.5 billion of net debt versus the 2.5 billion we estimated when we announced the BT sale.

Addressing this challenge is going to require two things. First, we'll need an effective debt management strategy, one that minimize interest costs while creating runway to execute our strategy.

Second, we're going to have to learn how to operate profitably in the current market condition. In other words, we need to have a cost structure and a backlog that allows us to make money at a current market condition, delivering 100 to 120 aircraft a year.

With these two actions, we ensure a sustainable business in the near-term and better position the company for profitable growth when the market turns. After conducting extensive deep dives into BA's operation, the opportunity and path forward is clear.

While the company has undertaken a number of restructuring action over the past few years. The truth is we still have an infrastructure design to support twice the capacity of the current market.

This needs to be addressed. And we are already taking actions.

This include establishing a new transformation office to bring a clean sheet mindset to address our cost structure. This will be a comprehensive company-wide initiative.

It is about re envisioning how we operate. And ensuring that we have the right scalable infrastructure to support growth at a much lower cost.

And finally, it's about building a company that can deliver stable and predictable returns. We look forward to talking in details about our plan for achieving this goal and our debt management strategy at the next year's Analyst Day.

Okay, let me stop here and turn it over to John to discuss detail of the third quarter results and the fourth quarter outlook. Over to you John.

Thank you, Eric and good morning, everyone. We've made good progress over the last few months towards our goal to reshape our balance sheet.

Starting with the implementation of the HPS loan to bridge short-term liquidity needs resulting from the pandemic to closing the Aerostructures and CRJ transactions, thereby fully exiting commercial aviation. And importantly, the signing of the SPA with Alstom now supported by their shareholder vote.

These achievements move us closer to becoming a more focused business aviation company and provide flexibility as we look to align our capital structure to our strategic and operating plan going forward. While we are still assessing the optimal deployment strategies for the proceeds of the sale of BT, our goal is clear.

We seek to strike the right balance between maintaining financial flexibility to operate the business through a recovery and minimizing our debt service costs. To achieve this goal in the current post pandemic -- post-COVID environment, we will need some time and therefore one objective will be to create the appropriate debt maturity runway.

This additional time will allow us to realign our cost structure with current markets to generate cash, even with low volumes to fully realize the earnings potential of the Global 7500 by progressing on the learning curve. And finally, to leverage our best-in-class products and services to benefit from growth as market conditions recover.

We are confident that achieving these objectives in the next two to three years will provide the business with a stronger financial foundation. More on this as we will close the BT transaction early next year.

Turning now to Q3 results, which reflect COVID related disruptions gradually subsiding and business returning to more normal operations. Total revenues reached $3.5 billion split $2.1 billion at BT and $1.4 billion at BA.

For Aviation these revenues include 24 business aircraft deliveries, a lower delivery count over the prior year, given production rate adjustments. Highlighting this quarter's results in business aircraft is a 10 year-over-year revenue -- a 10% year-over-year revenue growth.

This is driven by a significant dollar contribution of eight Global 7500 delivered partially offset by the lower services revenue due to reduced flight activity impacted by COVID-19. Against the second quarter, this growth represents a 23% revenue increase for business aircraft.

Finally, the wind down of commercial aviation activities following the completion of the sale of the CRJ program in the second quarter, also impacted comparability of results versus Q3 2019. At BT, revenues for the quarter excluding currency translation were 5% lower year-over-year, as BT operations gradually recover from disruptions due to the COVID-19 pandemic.

On earnings, total adjusted EBITDA for the quarter was $176 million, and the adjusted EBIT was $51 million. At BA, quarterly adjusted EBITDA and adjusted EBIT margins of 8.1% and 1.4% respectively, reflect lower volumes, lower service revenues, combined with lower contribution of early Global 7500 units as we progress down production learning curve.

At BT, adjusted EBITDA and EBIT margins were 4.3% and 2.9%, reflecting an unfavorable rolling stock contract mix, with approximately a third of revenues not contributing to earnings. While this is significant, the number of these major contracts are moving past the engineering and homologation phase, and into fleet acceptance and regular delivery phase, which should reduce future variability of results.

Our consolidated free cash flow usage was $706 million for the quarter. While BT free cash flow was nearly breakeven, Aviation's working capital increased in preparation for the sequentially stronger aircraft deliveries anticipated in the fourth quarter.

The new $1 billion secured facility was set up to support this seasonal surge in inventory, particularly as we accumulated excess inventories ahead of our production rate reductions due to COVID. Worth highlighting is approximately $170 million of cash usage during the third quarter tied to RBGs and the wind down of the reverse factoring facility used over prior years to ramp up the 7500.

In some respect, these outflows can be considered non-recurring and the pay downs do reduce non-trade liabilities. Also included in our Q3 cash burn is approximately $170 million of cash interest costs and corporate expenses.

These cash costs would be expected to reduce materially once we deploy the proceeds from the sale of BT and downside our corporate overhead. As we entered the final quarter of 2020 pro forma liquidity remains strong at approximately $3 billion when including the proceeds received last week from the sale of the Aerostructures business.

And we continue to manage our business towards free cash flow breakeven for the second half of the year. This implies approximately $700 million of cash generation in the fourth quarter.

This would further strengthen year-end liquidity, mainly driven by the release of working capital. At BA this expected working capital release comes from peak seasonal deliveries, including accelerating Global 7500, which are offsetting lower aircraft volumes on remaining platforms.

Overall, however, BA's Q4 cash flows are expected to be lower than last year as we anticipate approximately $160 million free cash flow headwind coming from the wind down of the remaining reverse factoring facility balance. At BT, while Q4 margins are expected to remain low, free cash flow generation is expected to be in line with prior year’s as we catch up on key projects with accelerated deliveries.

Strong order intake should also be an important contributor to Transportation’s, fourth quarter cash flows. With $672 million of cash on its balance sheet as of September 30th, and with anticipated cash generation in Q4, BT should be in a position to fully repay its revolver by year end.

And leave enough cash on the balance sheet to redeem by the time we close the sale to Alstom, a large share of the equity injections made earlier this year. When factoring those redemptions, we expect to be within a couple of hundred million dollars of the year-end minimum cash condition in the SPA with Alstom.

As such, we continue to expect the net proceeds from the BT sale to be approximately $4 billion. This said, we're mindful of the continuous evolution of the pandemic and any large scale lockdowns could negatively impact our expectations.

Before I conclude a few words on the significant changes to our financial statements, following the signing of the SPA with Alstom for the sale of Transportation. Based on the SPA and the positive shareholder vote in support of Alstom’s acquisition of BT, we now report BT as discontinued operations.

Our balance sheet position and results are now segregated, giving investors a clearer view of Aviation's balance sheet. This increased visibility shows that other than retained RBGs Aviation carries limited trade liabilities.

I also want to take this opportunity to mention that the continued operations results reported today are not representative of the future earnings. They include the full corporate costs, including both BA and BT, and the debt service costs of the current capital structure before any debt pay downs.

Obviously, as we reshape the capital structure and address our corporate cost structure, these charges are expected to reduce significantly improving future earnings. To wrap-up, we're moving closer to becoming a pure play business aviation company.

We haven't continued to surmount the challenges caused by the pandemic and have secured the liquidity to do so. There are key actions and decisions to take in the coming months.

And as we converge on the right strategy, we will look to create a sustainable business that can create long term value. With that operator, we're ready for our first question.

Thanks. Good morning.

I was wondering if you could maybe talk about the needs for investment of BA after as a pure play standalone. And Eric, I know you mentioned the facilitation about twice the size you need for that 100 to 120 per year aircraft production.

But more on the investment side and the engineering and the R&D. I guess I'm thinking that the business maybe needs still, $150 million to $200 million of CapEx in R&D.

Is that the right number or is it significantly higher or lower?

So, maybe I think that's when [indiscernible] so thanks Myles for your question. Our product portfolio right now has been a refresh, of course.

And I think we feel very comfortable with where we are. And this being said we will definitely keep certain investment light for the next few years.

We're thinking somewhere around a couple of hundred million dollar. We will provide debt reduction to position for future investment of course.

This is going to be our priority. But clearly we will continue to target investment equal to depreciation in the long run.

But I would say that today, I think we feel pretty good. Our complete global brand has been refreshed very recently, with the introduction, of course of the 7500, 6500 and 5500.

And, that's going to be important. So, yes, we're thinking of other products, some refresh on product.

But, over the next few years, I think we'll definitely be concentrating our effort on debt reduction.

And just maybe a follow up on this 100 to 120 aircraft per year. Is that a level that you're trying to be breakeven against on a free cash flow basis?

And how quickly can you get there?

So Myles, I guess, for us the 100 to 120 aircraft expectation kind of consistently matches to where we see the environment today. And I think that, the real focus there is going to be on cost reduction.

And so the goal for us is to target significant cost takeout over the next year or so. So that it allows us to find a way to be at least at those levels, breakeven or better.

Thank you.

We've talked about cost reduction program, and clearly I'm directly leading this initiative right now. We kicked it off a couple of weeks ago.

Just to give you the magnitude, we have probably about a 100 people working at every one of those initiative right now to make sure that we are moving fast, and that we understand exactly where we're going to be making those gains. So we're making -- we’re moving at full speed.

We are very structured in our approach, right now. And we have seven work stream covering all elements of the cost base that we have.

Okay, thanks again.

Thank you.

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

Just to start off, are you seeing evidence that corporations are starting to direct more dollars towards business jets as a result of COVID-19? And in an effort to have executives, maybe avoid commercial travel?

And is that trend into Q4 delivery acceleration that you're expecting?

So let me say it. Clearly we've seen some enthusiasm in the market recently.

Clearly, there is new customer coming in not really in the corporate world yet, but mainly so far more network individuals that are buying our airplane. Some people that we've never talked before.

But at the same time, I think we've seen mainly also across the board, all the fleet operators seeing a lot of new people coming to them to buy different program that they are offering. So there is clearly new customer coming to our business, either directly or indirectly via the fleet operator.

So, this is encouraging. And I think a lot of them are of course, concerned about flying commercial.

So that's why probably, we see a much faster pickup in our industry right now compared to commercial aircraft.

Okay, that's helpful. And then you commented in, or commented that the acceleration of deliveries in the second half of 2020, is expected to outpace quarters in the near term in the MD&A.

But from what you can tell right now, do you see the first half of 2021 deliveries exceeding what was done in the first half of 2020?

I think right now, what we were seeing is we've adjusted the rate this year. And as I said earlier we are planning to keep those rate going into 2021.

And we'll see how fast the markets recover. It's important in this industry to have a good backlog.

In some program we want to refill the backlog. And we're taking the opportunity of having the rate down and the market being good right now and picking up at a good pace.

To refill backlog, keep the rate lower. And we need to figure out our company to be able, as I said, to make money be profitable with a 100 to 120 airplane.

And when the market picks up, we need to have also build the agility to be able to come back and increase the rate when the market growth will allow us to do that. So that's what we're heading for next year.

Okay, thanks a lot. That's it for me.

I'll pass the line.

Thanks very much and good morning, everyone. I was wondering, when you talk about the increased demand from fleet operators.

Which segment you see that impacting the most in terms of the size of the jobs?

I would see right now we've seen clearly activity in the medium segment, but also in the large segment. So I would see between these two right now we've been seeing activity.

Okay. And then just as a quick follow-up.

John, when all sudden done exiting structures and beauty, how should we think about the remaining pension obligation for the aviation business?

Yeah, thanks. That's good question.

So, we -- another tough year, I mean it seems that it's been perpetual now for the better part of a decade, if not more, that the rates have been tough on pension plans. We started the year, I think it was somewhere in the neighborhood of probably $1.25 billion when we did the deal.

And today, I'd say that, if you look through the results, you'll see about a $1.6 billion liability. About 1 billion foreign change I think is a deficit on the plan itself.

And then there's some post retirement, other benefits and things that we have on the balance sheet for maybe a couple hundred million. So all in at this point we're kind of one-sixth, where we'll see where things take us, as I guess so the world shakes out here over the next year.

But one I'd say, very positive note, maybe is when we completed a deal here with our Belfast operations. There was a significant pension plan that was long dated there that we've been able to move with the assets and I feel very good about that, because that was additional volatility on asset management.

So think about $1.5 billion more or less for Aviation.

Thanks very much.

No problem.

Thanks. Good morning, everyone.

Good morning.

Good morning, David.

I think I heard you said future business jet will $4.5 billion in net debt. I guess, John, can you just walk us from where you sit today?

I guess around $8 billion in net debt to that $4.5 billion number, I mean, obviously the Alstom proceeds are big, big benefit, but just walk us through that number? Thanks.

Yes. So I'll try to do it big picture here.

And then we can always talk after as well. But if you just think today we're about 9.3, I think it is or so of long or high yield bond.

And then you've got the HPS facility that we've put in place is drawn about 750. So call that 10 just for math.

And our expectations are that -- as we said, I guess from the beginning about $4 billion worth of cash available for debt reduction from net proceeds of BT. So that gets you down to let's call it 6.

Expect to finish the year all things considered between 1.5 billion and 2 billion of cash, something like that. So that's where we'd probably hold it.

So if you take the 6 minus that kind of 1.5 plus you're looking at about 4.5. Does that make sense?

Yes. Okay.

Just want to make sure. And Eric 100 to 120 delivery level that you talked about targeting going forward.

What would you envision G-7500 accounting for within that number?

This will be a significant part of our delivery. And we're talking about 35 plus per year.

So this would be definitely what we would be targeting next year. As you know, we have a solid backlog on this platform multiyear and of course next year targeting 35 to 40 is what we're targeting.

So that would be a big part of the 100 to 120 that we've mentioned earlier.

Thanks very much.

Thank you.

Hi, good morning. I had a similar question to David's, but of the 100 to 120, if 35 to 40 are 7500s.

How did the rest shakeout between the segments? So the remaining 80-85 aircraft in terms of large, medium and light?

And then sort of longer term if services is running around 1 billion a year now Aviation services. How do you think about that as a percentage of revenue long-term as you continue to expand the business?

These are two good questions, Rob. So, let me start with the first one.

In terms of rate, next year, I just mentioned 35 on the Global 7500. And clearly, there will be another part of that will be significant on the remaining other global platform, which are doing extremely well market wise.

And of course, we will be continued to be in the market. We are anticipating to remain the market leader in the midsized segment, in the medium segment, and probably a smaller number on the Learjet franchise for the light jet business.

So clearly, strong. Remains very strong on the medium and on the large jet.

Okay, and then just as a quick clarification. There was some commentary in the Aerostructures transaction about trade agreements favorable to Bombardier.

And I think when we do the math that we were thinking, maybe that's about $100 million. But I wanted to check with you and see if we're reading through that correctly and what those favorable terms might be?

Yeah. I mean, I'd say that, Rob it's something a little bit less than probably 100 million bucks when it's all set and done.

And it relates to the fact that obviously that Spirit is going to be a critical and important partner to us in terms of supply agreements. And, I would say something probably around 75-ish is kind of the value.

Okay, thank you both.

No problem.

And Rob, may be on your second question that I did not answer on the aftermarket. Clearly, we are moving extremely quickly on this one.

I've talked earlier about the growth path that we have opening and growing our service center all around the world. And clearly, we want this to be a much bigger piece within the next five years of our revenue.

We know that this is a very resilient business for us and we're going to be definitely putting a strong focus on growing that aftermarket business.

So it's about 25% now, it could be maybe half in the future?

Half is a bit heavy, to be honest. But we're past 1 billion.

I think this year can be a bit off because of the fact yet two months, kind of just almost nothing happening with the lockdown. But, so I'd say that getting to half of revenue is probably a big order.

Thinking big picture, I don't know, maybe closer to a third would be kind of the right spot for us depending on aircraft delivery recovery over a few years.

Okay. Thank you.

Thanks. Good morning.

Just want to come back to I guess, the free cash flow question. Just looking at the year-to-date for Aviation $2.2 billion in free cash flow usage.

Obviously, an unusual year this year, but maybe you can sort of talk us through kind of the puts and takes of the free cash flow as we look ahead to 2020? And not necessarily wanting to do a number of different next year.

But just what impacted this year specifically to aviation and from working capital or COVID related things that we should not expect to see in 2021.

So the total impact we estimate about 2.25 billion for the business? But it's a pretty big hit to us.

And there's really, I'd say 2% components that are fundamental when you look at it. The orders you go through, I mean business jets, the business model is typically that you work around the one to one book to bill.

So as you deliver aircraft, you bring in supply chain, and so on and so forth, you bring in new orders. And that's been a big chunk of the 2 billion are sold out we're off this year.

And I'd say that that's probably split between BT and BA. BA is the one that in a typical recession environment, you'd feel that BT would kind of sale through this kind of non-cyclical.

But this year, because just a distraction, and it affected everything across the world, it also affected strangely enough, also the more non-cyclical BT environment. So think about that as being maybe a third of the 2 billion.

And then for the other two-thirds, I mean, there's not a lot of rocket science here. It's the reason also we went out and created the facility, particularly on the Aviation side.

You have supply chain coming in long lead time, components and parts, you've set the production rate at the higher levels and the market is able to give you in this environment. And so we're would have been expected to be probably 150 aircraft or more, we're looking something more like the 100 to 120 range.

And so you'd need to deal with that inventory influx. And on the train side, you almost lost three months’ worth of production.

I'm not saying that it was totally shut down, but the productivity levels, they have 70 factories around the world, and all that stuff does build up. So think about that as being another almost 1.5 billion.

And I would say that 1.5 billion over a billion of it is in BA. BT kind of once you get the machine back up and running we went through, whereas at BA, you also have the end market impact.

So that's where the HPS loan comes in security against the aircraft inventory. So I guess they viewed that's the bit of the color, but to summarize the answer.

Think about one third of this against new orders, split between BA and BETWEEN. And then two-thirds of it on working capital inventory accumulation.

The fact that we also on the BA side, don't forget, we have to wind down this facility that we have, which kind of supported the ramp up of the 7500. So with that, you've got might say almost a billion of working capital, and then the other 500 is on the train side.

Okay, that's helpful. And just did a quick follow-up on the questions around the Global 7500 and deliveries.

Can you just maybe talk about where we are on the learning curve for that model, when do we get to kind of a more normal margin?

I think that probably it improves every year. I mean, we've come a long way from the first units in ‘18 through ‘19, as well.

Probably, if you look for normal margins, I would say 2023 is the right year, but I would say I mean, it's better from here on in. The aircraft should start to be profitable as we get into 2021.

And then certainly, as ever unit goes by starts to expand profitability. And I think it's going to be premium margin for us as we get past the 2020.

Okay, thanks very much.

Hi, good morning, everyone.

Hi, good morning, Noah.

Just looking at the Aviation segments, the business jet orders in the quarter and year-to-date, I understand your comments that you're I guess you're delivering on the 7500 and it already had a backlog, so you're sort of working off the backlog there. But you know what I would have thought, maybe you could have some order activity on that, given that more tilted to the part of the market that seems stronger right now.

And then even if I stripped the 7500 revenues out, the book-to-bill still pretty light. So is there any competitive concern there or anything to take from that or is it just too short a period of time to read into?

Yes. So let me take a shot at this one Noah, and thanks for the question.

The 7500 right now we had a multiyear backlog, we've sold them a lot of those airplane in 2012 2013 2014 as we launch the program. So clearly right now, we are delivering that backlog.

Of course, we did not have much availability ahead of us for another couple of years, which is for most of the customer, they'd like to get the airplane ideally or in an 18 to 24 month period which were more than that right now. That's one of the reason why we, we actually, discuss with a customer.

And which had 12 airplane in 2023. So, those airplane are becoming back available to us right now giving us the opportunity to do better margin on those airplanes, because they were at a lunch price.

And of course, making availability for 2023 is becoming important in '21. So, I guess all this being said, this is a little bit what, we were saying earlier.

This year, we're going into the year altogether with certain assumption. Of course, our assumption, didn't work out after the end, after the month of March in terms of delivery.

And as in our industry, we make decision to build airplane, like almost a year before. And then we had that inventory that we needed to take care of.

So, we've done the right thing, we've reset the rate right away. So, that's why I feel much more confident that going into 2021, we have the rate lower and we are being prudent here.

And if the market picks-up as we think it's going to be then we're going to be in a position to refill backlog and on all platform. So and eventually, the market comes back, then we'll when we feel that we have the right level of backlog, then we could consider an acceleration.

But I think we are being prudent, I think we want to make sure that, we're not going to sacrifice also pricing of our product by building too many airplanes. And that's our strategy moving forward.

That's helpful. And then just John on standalone Aviation free cash flow.

Is 2021 positive or negative? And can you speak to, the longer term without putting a year on it free cash flow margin potential of that business?

Yes, I think, I mean, I'd love to, but I think it's better service for early next year. I think in terms of any commentary on '21, or long-term plan, I'll let the team complete all of our work here.

And over the next couple of months, I think we'll be able to give you guys clarity, including with Eric mentioned, which is a very active focus now on cost reduction and cost takeout. I think that, getting a good read on what the aftermarket will look like next year is important as well, it has recovered well.

But still not at levels that I would say, would be equal to 2019. So, those are all important elements of what I think we want to read into 2021.

I would say that for now, the real focus is going to be on completing the transaction that we have with BT deploying the proceeds effectively. As I mentioned in my comments, the balance runway with interest cost reduction are going to be important to that kind of standalone Aviation business.

And then also included in the cost adjustment is going to be the overall look at the size of the overhead on the corporate side. And how that can improve relative to a smaller, more focused business.

So not because I don't want to give you a more precise number. But I think in fairness, those pieces needs to be worked out.

And then we'll have a sense for '21 but also, hopefully over the next couple of years, the business then emerges as a cash generating and solid profit business.

That is fair enough. Okay.

Thank you.

Thank you.

Thanks. And good morning, everyone.

Just wanted to come in from wanting -- I think you guys said you have $1.5 million to $2 billion cash at the end of this year. Just wanted to get to the math behind that.

I guess you have some BT related the cash settlements before the deal goes into adult stem. So, if you can help us through what are the nuances in Q4 on cash drain or cash payments that you expect?

Obviously $700 million cash generation minus what do you intend to pay for RBGs and NBD settlements?

Well, let me just give you a little bit of simple breakdown, I guess. We were -- we mentioned in our comments that we expect to generate about 700 million of free cash flow.

That's kind of what we're targeting. We burned 700 million in Q3 and our objective here is to try to break even on the second half of the stabilized business.

If you just kind of maybe just big picture think about BT, last couple of years, about 600 million of cash generation in Q4. I think we'll be in the same ballpark this year as well.

I'd say that BA in the neighborhood of 500 million to 600 million of cash generation, probably the right spot. And that's a little bit lighter than the last couple years on a comparative basis for the BA franchise.

And as we work through the lower production and so on. So I think 1.1 billion-ish or so of cash from the two operating units, just in terms of the business and the operating output.

I mentioned also that we had -- we’re completing the pay down of this reverse factoring facility. So that's kind of 160 million bucks.

And then interest, the cash, as well as corporate costs are just call it another 230 million, 240 million, so let's just say 400 million there. So you've got, kind of 1.1 billion or so of cash from the businesses.

The pay down of the reverse factoring in the interest cost, another, let's say 400 million negative. That leaves you with about 700 million or so of cash generation.

RBGs have been complete in terms of this current year as the impact, I think it was about 225 million, 230 million. That's fully paid down as of Q3, so there's no expected new cash outflows for Q4.

And that positive 700 million would mitigate the -- I guess we're 3.3 billion or so now, negative cash after nine months. So that gets in the range of call it 2.7 billion or so.

And as I mentioned before, that 2.7 billion you got about 2.25 billion that's COVID direct impact as I described earlier. And the remaining 400 million or so, is largely because of the charges we took earlier this year on BT and the related cash effected impacts of those charges that we described as being largely consumed this year.

So that's kind of the breakdown of how we are where we are and where we're going in the next 90 days.

Okay, that makes make sense. Thanks for that.

So it seems like any BT related cash outflows for equity redemptions, and other things will happen next year before the deal closes?

It's depend, I mean, I won't comment on that now only because we'll see how this whole thing plays itself out. I mean, I would say that probably is largely right.

But it's not -- the good news is we have flexibility, right? So these provided that all parties are kind of aligned that we can -- depending on the cash on hand at BT and a whole bunch of other things.

And even our depending on what we'd like to do, it could either be before the end of the year, or it can be early next year, or it could be consistent with the transaction as well. And to be honest, I mean, I'm not overly stressed about that, as long as the liquidity is available, and we're able to out of all net out the 4 billion of proceeds.

That's really where my focus is.

Okay, that makes sense. Second one for me quickly, on your disclosures for continuing operations.

Just wanted to clarify. The Aviation continuing operations still include the Aerostructure business that you divested on October 30th, right?

So what would be the free cash year-to-date for the Aviation or business jets excluding the divested assets on our structure site?

Well, good question. I think that Aerostructure business is already separated as discontinued operations, because of the high probability of the sale as we close the quarter.

So I'd have to get back to--

It was an asset held for sale.

Yes. So maybe a follow-up call with that and you guys can work through that.

I don't want to give you a wrong answer.

Sure. Yes.

No, absolutely. I understand.

I think, the revenues included the Aerostructure. So I just wanted to make sure, I get the cash number, right for continuing arms.

But I'll follow-up on that.

If you can, please. Thanks.

And I think you wouldn't be material in the big picture. But please follow-up, so don't give me a wrong answer.

Yes. Okay.

Thank you so much.

Yes.

Yes, thanks so much. So if you start life as a standalone bizjet company with 4.5 billion in net debt.

It looks to me like your net debt will equal round numbers six times, your adjusted EBITDA in '21 in a capital intensive business where the product lasts 15 years and then you have to refresh. Given that, any thoughts about combining, doing a merger at some point with, one of your other peers of south of the border?

Because basically, that's a huge net debt-to-EBITDA given, kind of the volatility in your business, the capital requirements over a longer term. Thanks.

Okay. Cai thanks for the question.

No, there's no consideration right now for any consolidation with any people south the border at this stage. But if I follow your math and I mentioned that earlier.

That capital investment that are required to our platform, in the next five years, I would say will be very minimal. Because we've refreshed our product line, pretty much across the board, we are still leading in the medium market segment, the Global has been refreshed completely.

So, you have to make the assumption here that this is going to be a low number, in the next coming years. At the same time to improve our cash flow I mentioned earlier, I need with the team here to resize aggressively our business to reflect what the market conditions are.

So, that this translate into EBITDA. This translate into cash flow.

And we're going to be very aggressive. The other I think area we're going to improve significantly, in the next 12-months, is on our 7500 program.

As John mentioned earlier, with the learning curve getting behind us, with the margin, that we're expecting when we launched a program. Our service businesses growing.

This is going to be another area where we're going to be bringing also cash flow into our business. So, all this together, we have work to do.

And exactly, we understand the mission ahead of us. We’re going to have very aggressive target in our profitability.

I feel pretty good today that those are achievable. I'm working, as I said earlier, in great detail with the team right now, manage the business prudently to be aggressive on cost reduction.

And at the same time managing our backlog so that we are also managing our pricing well. So, all this is ahead of us.

We're working on this already, of course. But we're going to have more to communicate there, when we see you after the Alstom closing transaction.

So, sometime in the in July.

So, talking about you're talking about your opportunities, your report indicates that you have a lead customer for the 7500 with 12-orders that those maybe cancelled, and you will be able to sell them at a better price. Talk to us a bit about your backlog.

Are there other opportunities like that in the backlog? And what kind of risks do you have near-term that some customers, might leave?

So, this is a good question. I've mentioned the opportunity we had to repatriate and we did make put it into action for delivery '23, so that gives us plenty of time to sell these airplanes at better pricing.

But in the meantime, since the pandemic started, we had like, very few cancellation. The good news is the airplane is doing extremely well.

And when we had cancellation on this 7500, we have customers that are interested very quickly. So, our backlog remains very solid on that platform.

As the airplane is starting to deliver and we have 31 aircrafts in service right now, the airplane is showing-up. People see the airplane, fly the airplane.

And the airplane is performing extremely well. To be honest, better than expectation.

We already have achieved, reliability number on the airplane that are exceeding what we committed to and actually at the same level then our other global platform and challenges. So, we're pretty excited about the product.

The product sells well. So when we had a couple of cancellations left and right, mainly due to pandemic, we were able to replace with a new customer almost immediately.

And again the opportunity in 2023 is welcome right now, as it will help us to improve our margin moving forward.

Thank you. We'll let our last question please operator.

Good morning, guys. So last question is going to be more big picture.

I wonder if you could discuss your thoughts on being a standalone business jet company in the future. How do you set to deal with typicality and in particular, with a downturn so cyclicality?

Okay, now this is a very good question. And we're working as we speak on this [indiscernible] plan that we will share with you.

And clearly we are aiming and that's our goal right now to make sure that a bigger portion of our revenue over the next five years will come from businesses that are more resilient. And we've mentioned earlier, of course the aftermarket business, which we've been growing and where we have a lot more potential to do.

So we are, of course, all focused on that on this, as you see with the opening of multi service center around the world. And at the same time we are going to be also pushing other businesses part of our product portfolio, using our product portfolio that are much more resilient.

Thinking here of more missionized aircraft, as an example being part of our portfolio and other opportunities that the market brings to us right now. So we'll bring more clarity to that.

But clearly, we have in mind, a shift in our revenue over the next five year, which makes the new aircraft portion of course, still the most significant, but with other businesses that are generating good cash flow and good margin.

Thank you.

Thank you.

So I want to thank you again for joining the call this morning. We appreciate your continuing interest in Bombardier.

As always Patrick will be available if you have further question about today's release. We look forward to talking with you again in the next quarter.

Until then, please stay safe and healthy. And thank you for joining us again.