Bombardier Inc.

Thank you. Good morning, everyone, and welcome to Bombardier’s fourth quarter 2018 earnings call.

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 Page 2 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. With me today is our President and Chief Executive Officer, Alain Bellemare; and our Chief Financial Officer, John Di Bert to review our financial results for the fourth quarter and year ended December 31, 2018.

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

Thank you, Patrick. Good morning everyone and thank you for joining us today.

As you all sign our press release, we closed 2018 in line with our revised guidance. This is another year of solid margin growth and free cash flow improvement.

We remain on track to achieve our 2020 targets. In 2018, earnings were up 42% year-over-year to over $1 billion at the top end of the guidance.

EBIT margins before special items were up 180 basis points year-over-year to 6.3%. In the fourth quarter, we generated $1 billion of cash.

Full-year free cash flow was $182 million including proceeds from the sale of non-core assets. We ended 2018 in a solid cash position with $3.2 billion on end.

The key take away this morning is that we begin the fourth year of our turnaround journey has a much stronger company. Since launching our turnaround plan three years ago, EBIT margins have increased 330 basis points.

Earnings nearly doubled from $550 million to over $1 billion. Our cash performance has improved significantly.

In 2015, we consumed $1.8 billion of cash. In 2018, we were cash flow positive including the sale of Downsview.

Revenue at our train business has grown by $700 million since 2015. BT margins have expanded from 5.6% to an industry leading 8.4%.

At Business Aircraft, margins have expanded from 4.4% to 8.4% even as we were set production levels. Beyond our much improved financial performance, we have fundamentally strengthened and reshaped the business.

We put the game-changing Global 7500 into service on schedule and with performance levels well above our original commitments. Our partnership with Airbus has placed the C Series, now the Airbus 220 on a strategic path to unlock its full potential.

And our investments and transformation actions have positioned our train business as a global leader. I am very proud of what we have accomplished as a team.

We have managed to stay the course in the face of many challenges. We now begin 2019 with our major program risks retired and our every investment cycle behind us, with strong franchises that are very well positioned for our growth with a new enterprise wide productivity initiative driving efficiencies with a much sharper focus on capturing aftermarket opportunities and with a strong liquidity position.

Now, a few words on each of the business units starting with Business Aircraft. The on-schedule entry-into-service of the Global 7500 was a major accomplishment.

It is a testament to the skill of our talented workforce. The aircraft is also setting a new standard for large business jets with its unmatched range, speed, comfort and cabin size.

Beyond the Global 7500, the launch of our new global 5500 and 6500 secures Bombardier’s leadership position and a large cabin segment. Along with our Challenger and Airjet production lines, Bombardier has the best product portfolio in the industry.

In 2018, we again led the industry and deliveries with 137 Business Aircraft. We also ended the year with a book-to-bill of 1.1 and we drew the backlog by $500 million to $14.3 billion reflecting healthy demand across the portfolio.

Given our refresh portfolio and continued aftermarket growth, Business Aircraft is very well positioned to achieve its 2020 revenue target of $8.5 billion. Of course, the focus in 2019 is to ensure a smooth ramp-up of the Global 7500.

The recent acquisition of the wing program from Triumph significantly derisks and supports the success of the program. This acquisition strategically fits with our goal of growing our Aerostructures segment, which is well positioned as a key supplier for the Airbus 220, the Airbus 320 and a Global 7500.

These are some of the largest growth programs in aerospace. Beyond these programs, our world-class research, design and manufacturing capabilities position us to capture additional third-party growth opportunities in a strong commercial aerospace market.

At Commercial Aircraft, we see tremendous potential with our Airbus partnership and the Airbus 220, the best aircraft 100 to 150 C Class. This year, we will continue to actively support Airbus in growing the backlog and reducing costs.

Beyond the Airbus 220, our focus in 2019 will be on reducing costs and improving profitability of [Technical Difficulty] platform as we continue to explore strategic options for the program. Last week, we announced the sale of nine CRJ900 to Chorus Aviation further strengthening our backlog.

We also announced the launch of this CRJ550 aircraft. This new model offers airlines a much better option for 50-seat aircraft missions.

Turning now to our rail business. This is a great franchise, a global leader.

We support some of the largest and most innovative rail projects around the world. The business fundamentals at BT are very strong.

We closed 2018 with a book-to-bill of 1.1, a backlog of more than $34.5 billion and margins of 8.4%. In 2019, our focus is on the ramp-up.

Today, we have hundreds of active projects; the vast majority of these are on time and on budget. Nonetheless, we have a handful of high profile projects that are facing challenges.

This has put pressure on cash flows. But it is important to know that for each of these projects, we fully understand the issues, we have clear action plans.

We have added resources. We are working closely with our customers and suppliers, and we are making solid progress.

The bottom line here is that we have the knowledge, the expertise, and the capability to fix these issues and this is exactly what we will do over a course of 2019. Last week, we appointed Danny Di Perna, as the new President of Bombardier Transportation.

Danny is the right person to lead the team. He has deep industrial engineering, manufacturing and supply chain expertise.

Danny will bring his expertise to build on the progress that we’ve made over the past three years and bring BT to that next level. Okay, I will stop here and conclude by saying that 2018 was another year of solid progress.

We have continued to execute our turnaround plan, position the company for profitable growth and proactively drive towards our 2020 objectives. With that, I will turn it over to John to review Q4 and full-year financial results.

Thank you, Alain, and good morning everyone. Let me start with some highlights that demonstrate the ongoing progress we are making on driving financial performance.

In 2018, consolidated revenues reached $16.2 billion growing 3% on average across Transportation, Business Aircraft and Aerostructures while BCA declined in part as a result of the C Series deconsolidation. EBITDA and EBIT before special items were $1.3 billion and over $1 billion respectively, well exceeding our original expectations for the year.

The 6.3% EBIT margin before special items is a long way from the 2015 levels, and better than the 5% to 6% range we targeted for 2018 when we first started the plan. This demonstrates the progress we have made in unleashing earnings power.

Underlying the consolidated EBIT margins are 8.4% adjusted margins at Transportation and Business Aircraft, boding well for our 2020 targets as we move beyond legacy train projects and the Global 7500 ramp-up. The fourth quarter earnings performance was particularly strong with adjusted EBIT reaching $286 million, doubling the $139 million for the same quarter in the prior year on a comparable IFRS 15 basis.

Adjusted EPS was positive for both the fourth quarter and the full year coming in at $0.05 and $0.14 respectively. Free cash flow generation in the fourth quarter was very strong at $1 billion enabling us to deliver at the top end of the revised free cash flow guidance range for the year at $182 million positive.

Free cash flow was driven by better earnings and strong order flow, but also included the monetization of training royalties associated with the CAE transaction announced earlier this year. The accelerated monetization contributed $155 million to the fourth quarter cash flows.

We closed the year with a solid cash on hand position at $3.2 billion and a full $1.2 billion available under our revolving credit facilities. We expect to add a further $750 million of liquidity from the closing of the sale of the training business and Q400 program.

We made good progress on the training activities, transaction and now expect to close earlier by the end of Q1. The greater financial flexibility built over the past three years positions us to ramp up the Global 7500 program, complete our transformation at BT and support our CSALP funding commitment.

And it also gives us confidence in our targeted cash on hand of over $3 billion at the end of 2019. Now, let me turn to a review of business unit performance, starting with our rail business.

transportation’s full-year revenues total $8.9 billion, up 4% year-over-year or 2% excluding foreign currency impact. on the earnings front, EBIT before special items that was $750 million resulting in an 8.4% margin for the year while revenue and earnings targets for the year were largely met, fourth quarter revenues of $2.2 billion, were partly managed lower as we slowed the production ramp up in Q4 of certain rolling stock contracts including cross rail.

This was done in partnership with customers as we realigned delivery schedules and focused our resources. these revenue deferrals remain in our backlog and will materialize as we move closer to deliveries.

for the quarter, we recorded a 7.7% margin before special items, up almost 200 basis points year-over-year or 19% in absolute dollars. While the margin improved over 2017, it was diluted by adjustments to estimates largely associated with the SBB project in Switzerland.

This EAC adjustment results from the product introduction in December and train upgrades matching final configuration. To round out the discussion on BT’s earnings, I want to highlight that we achieved the adjusted EBIT margins above 8% for the second consecutive year.

While we are now determined to reach 9% margins for this year, I want to emphasize that this earnings growth is being further derisked as we roll off the majority of legacy projects by the end of 2020. in fact, three out of the five projects on which we experienced delays in 2018, should be largely completed by the end of 2019, providing working capital relief and future margin upside.

On the ownership front, our share of BT is being diluted back to the original 70% with CDPQ now owning 30%. We have aggressive targets for the business, which are part of the CDPQ agreement.

These objectives demonstrate the value creation potential of the business as we complete our transformation and realize the full potential of the franchise. The short-term execution challenges we experienced in 2018 don’t change in any way, our confidence in reaching those ambitious goals.

In summary, as execution continues to improve and BT continues to win in the marketplace, we are confident in delivering steady revenue growth while reaching industry-leading margins. Turning to Business Aircraft.

During the past year, BBA continued to drive stronger financial performance while staying disciplined on production rates, deliveries, revenues and earnings guidance were all met. Deliveries reached 41 aircrafts in the quarter including a Global 7500 for a total of 137 deliveries in the year in line with last year.

Again in 2018, we led the industry in total Business Aircraft deliveries across our Global Challenger, and Learjet platforms. revenues were also in line with the last year at $5 billion.

This includes a 14% growth from aftermarket consistent with our strategy to broaden our offering and better serve customers. This growth was offset by lower pre-owned sales given limited inventory availability again, a good sign of market recovery.

On the earnings front, adjusted EBIT was stable year-over-year at $122 million for the quarter and $420 million for the year. The 8.4% margin for 2018 includes the expected dilution coming from entry into service costs of the Global 7500.

as production intensifies in 2019, we expect some 100 basis points of margin compression in line with our 2019 guidance at approximately 7.5%. We aim to return to the 8% EBIT margin range in 2020 as we progressed on the learning curve including the impact of the recently announced takeover of the wing program from Triumph, which added some additional ramp up costs in the early years.

In summary, our Business Aircraft franchise continues to operate with discipline supported by industry-leading $14.3 billion backlog. in 2019, we are opening a new chapter for growth with the introduction of the Global 7500 and continued expansion of our aftermarket offering.

Moving to Commercial Aircraft, deliveries at BCA for the year included 15 Q400 aircrafts and 20 CRJs inline with guidance of 35. from a financial standpoint, revenues for the fourth quarter reached $421 million on 12 deliveries, summing up to $1.7 billion for the year.

Full-year revenues reflect the deconsolidation of the C Series in the second half. BCA’s earnings loss was $9 million in Q4 including a $27 million net loss for our share of CSALP.

for the year, the adjusted loss was significantly better than guidance at $157 million as a result of lower than expected equity pickup. with all backlog of 45 CRJs and the additional nine aircraft order from Chorus Aviation signed earlier this month, BCA has a solid skyline for the next two years as it works to restore profitability.

At Aerostructures, progress on the Airbus 220 and Global 7500 ramp up drove significant growth in 2018. revenues increased materially in the fourth quarter by 46%.

for the year, the increase was 21% reaching revenues of $2 billion in line with guidance. for the second half of the year, external revenue accounted for over a third of sales at CSALP as CSALP became an external customer.

EBIT before special items increased to 7.7% in Q4 and expanded by more than 400 basis points to 9.6% on a full-year basis. This including a 50 basis point one-time benefit linked to the closing of the C Series transaction.

for 2019, aerostructures is taking over the production of the Global 7500 wing, increasing its revenues with limited earnings contribution. The teams are firmly in place at Red Oak to ensure a smooth transition to support the 7500 ramp up.

Looking at 2019, we continue making operational progress and remain on track to full-year guidance. Let me provide some color on how this year is shaping up.

We foresee the majority of the anticipated revenue increase in the second half of the year as growth is largely driven by Global 7500 deliveries. The bulk of these 15 to 20 aircrafts, we expect to deliver this year are scheduled for Q3 and Q4.

moreover, the acceleration of deliveries in the second half, both at BBA and at BT require a steep production ramp up in the first half of the year, putting pressure on margins and cash flows in Q1 and Q2. That being said, we expect free cash flow in 2019 to follow the typical quarterly pattern as we invest early in the year towards our 2019 free cash flow break-even objective.

We are expecting between $1.2 billion and $1.5 billion in free cash flow usage by mid-year as we support an intensification of the Global 7500 line and as we invest to ramp up the recently acquired wing program. At BT, the recovery of its excess working capital is more heavily weighted to the back half of the year.

Now, let me wrap up. As I look back at this past year’s achievements, I see tremendous progress on key pillars of our turnaround journey.

from derisking the C Series to concluding our investment cycle while also growing our backlog and our margins. in 2019, we expect to build on this momentum like growing profitably and releasing excess working capital.

In summary, we have a stronger company, which is well positioned for long-term success. Our priorities for 2019 are clear.

Our focus is on execution, delivering on the Global 7500 and real backlogs. We are also focused on preserving strong liquidity by driving disciplined capital allocation and being proactive with our balance sheet.

With that Operator, we’re ready for our first question.

Thanks. Good morning.

I guess, just I want to follow-up on John, your comments you made about the free cash flow usage in the first half of the year. I think you said something at $1.2 billion was your expectation by midyear?

I just want to clarify, does that include the – I guess roughly $500 million you expect to receive from the CAE, or the sale of the business aviation training business to CAE?

Hey Cameron. thanks for the question.

Yes, I said $1.2 billion to $1.5 billion first half usage. it doesn’t include the proceeds.

those proceeds are going to be a non-free cash flow.

Okay. That’s great.

And maybe just – the second question is just on the – I guess the free cash flow, I mean we’ve seen, I guess in the last month or so, some additional reports of delays with certain training contracts and potential for penalties. Is it safe to assume that these sort of incremental delays are kind of embedded in your margin and free cash flow guidance for BT or maybe other part of the sort of the cushion you’ve talked about in the free casual guidance overall.

Yes. So, maybe, I’ll take that, I mean I’ll take that with a few angles.

first of all, we have a good confidence in the full year. So, on the full year guidance reaffirming for 2019.

We have a really good growth plan, strong execution across the board. So, be it for the 7500 in the ramp up, integrating the wing as well into our production now from triumph.

and of course, the BT contracts that we’re working through. So across the board, that’s going to really be a lot of the production growth in the first half of the year and we do expect to see a strong revenue and with that delivery growth in the second half.

So, the consumption in the first half does include what is it now way a very clear plan to go and execute on those BT projects.

Okay. Great.

Thanks very much.

Good morning, and thanks for taking my question. John, I had a question on your free cash flow for 2019.

So, when you recently guided 2019 free cash flow, I think there was an assumption for a working capital cushion or call it, call it contingency plan. Just wanted to understand, I’m like, it’s early days, I know obviously, but based on the recent kind of developments in your train projects and the acquisition of the wing program from triumph, how are these train projects and the Global 7500 ramp up, are shaking out versus your expectations for the working capital contingency and do we expect to see some guidance update at some point in the middle of the year?

So, I’d say that, specifically first on the acquisition of the wing program, Red Oak, for the 7500. We feel very confident that the working capital contingency that we put aside specifically, we’ll deal with that.

So, the team now has been on the ground there for a little while and getting ready to really accelerate and to take costs out of the wing. So, we feel pretty good about how we’ve managed the cash plan relative to that.

With respect to the train projects, I think that we have pretty good clarity of what has to be done in the first half of the year here. And we have a pretty good a roadmap to a delivering a strong cash from BT in the second half, including that recovery that we talked about last year, the $300 million to $400 million.

So, all is intact and I think right now, we still feel confident with the guidance; we have a midpoint of break-even upside to $250 million and downside to $250 million. at this point in the year, we still feel pretty good about that guidance.

Okay. Thanks for that and just lastly on the liquidity side, I think you commented in the MD&A, you’re opportunistically looking to exercise the train, CDPQ’s call option.

I’m just wondering how are things on that debt refinancing side, I’m like, how do you intend to balance the refinancing for maturity next year as well as this acquisition?

So, I would say that, we have a very proactive approach to managing our debt. We’ve shown that over the last couple of years and we’ll continue to do so.

I like where the markets are starting to trend to now, including Bombardier and how our bonds are trading. So overall, we had confidence in early December when we talked to you at Investor Day.

I have even more confidence now that we have good access to markets when needed. With respect to the CDPQ, I think that the important thing here is that we have the option, it’s now what play is from 2019 on and we’ll continue to look at it’s an attractive opportunity, but there’s no immediate urgency here.

I’d say that, we’ll look at when the right time is and circumstances are available, but we have a very clear path here to maintain strong liquidity, looking for a value creation when it’s there and at this point in time, sitting on top of debt management.

Great. Thank you for the answers.

Thank you.

Thanks. Good morning.

John, can you – can you talk about exactly kind of how the BT working capital played out in Q4 relative to your expectations. I know you have this $150 million to $300 million kind of cushion or in 2019 with the idea that maybe, you were going to recover some of that working capital in 2018, but when the period that you actually did that?

No. you’re correct.

So, I would say that I won’t give you the number. We had a target for BT and Q4 in terms of cash and they hit it square on.

The numbers if you look at them are at $182 million for the full year. We guided break-even plus minus $150 million, $155 million of that is for training business accelerated royalty payments.

So bottom line is that we hit the numbers we expected across the board. So no incremental cash collection.

But I think the real positive is that we have a really good view on what has to be done on those projects and as Alain mentioned in his comments, we’ve fully aligned theirselves up to go and execute now. So that’ll take us through the next couple of quarters and then we’ll see the recovery come to the second half.

And on the CapEx side, it look – it looks like it came in a bit light that some of that push in the 2019, I think you have been talking about $1.3 billion gross this year came in light of that.

Yes. I’d say that I think, on a kind of an apple-to-apple basis about $1.2 billion, we – was what we came in.

But I’d say that for CapEx in 2019; we still feel pretty good about the number, I mean, about $800 million we’re looking forward that will come in that range. One thing just that now that I have your attention on CapEx, important to note is that in 2018, we had about $250 million of capitalized interest.

I mentioned that in Investor Day, and important to note that capitalized interest stops when we certify the program. So that’s kind of an automatic reduction there.

It doesn’t change any of the cash. It’s still interest paid, but what it will do is it’ll charge earnings.

So that’ll be a now cost of interest. So, you should look for that in EPS, probably about $0.10 on the EPS calc, but I’d say that overall CapEx, where we expected in 2019, as we suggested when we got to get it on Investor Day.

Thank you.

Thank you.

Yes. Hey, good morning guys.

There’s just a couple of questions. There’s the Global 7500 win as you bring, get back into Bombardier aerostructures, what gives you confidence that you’ll be able to execute it better than the triumph’s guys?

Good morning, Ron. We’re very pleased with what we decided; we could find a solution with triumph.

We’ve been working this and all for actually a few years, coming to a conclusion that we would own that operation is a good news. We have tremendous capability and knowledge on the aerostructures side as you know.

So, we have already redeployed people, top talent in Red Oak, to help improve the operation and we’re focused obviously on streaming – on streamlining our manufacturing operation, but also in working much more closely with suppliers. So, we’re bringing a lot of knowledge to the party and we feel very, very good that we will take it to the next level.

They did a good thing that we got is it’s a great facility. I mean we’re – the triumph’s guys did put a lot of money into this thing.

So, I mean we’re really starting with a good asset and by putting our great resources on it, I’m very confident that we’ll take it to the next level.

And then maybe just changing gears a little bit bringing Mr. Di Perna on to lead BT, what are your first margin orders to him?

I mean what’s the first projects that he’s got to be focused on?

Well, clearly, getting on top of all key projects. Mostly, the one that we’ve talked about at the Investor Day, getting closer to customers, spending a lot of time, listening to customers, reaching out to them and making sure that we have a clear action plan to delivered on our commitments.

The train business, Ron, is a very solid business and it’s very clear that we have had some issues would end forth projects. But in most cases, I mean we’re performing extremely well.

I think that Laurent took the business to a different level. I mean, it drove a major transformation project and through that, we significantly increased profitability at BT.

I mean, if you remember in 2015, I mean, ROS was in the range of 5.5% and we took it up to 8.4%, which is industry leading and what Danny is going to do, Danny is going to bring tremendous industrial experience to the role. He has got like deep knowledge in engineering, manufacturing, supply chain and links super complex project and he is very customer focused, customer oriented.

So I think that, that will be a good next step. And Danny will take BT to the next level.

And then maybe one last one, there’s a new COO in Wichita. Can you speak to why that change and how you’re thinking about where you are now?

There has been some rumor in the market that maybe you guys will do a new aircraft there. But with the new COO in Wichita, is that a signal that Wichita is going to become a bigger focus of the company?

Not clear that we have a new COO in Wichita. I think that what we did announce is like we were beating up and dedicating a team to the Learjet family that we’ve done that.

I mean the – what we’ve also announced as a replacement to Danny, we’ve named Paul Sislian, as the Head of the Aerostructures and to replace Paul Sislian, we have named Nancy Barber as the COO of the Business Aircraft. So, there was no such new COO role in Wichita.

Okay. So – but as the new COO of Business Aircraft, I guess what I’m asking is, is there a renewed focus on what your – or how do we think about Lear?

No. I think that we’ve – we are at the right level right now.

We’re producing about a dozen aircraft a year. I’ve been saying consistently for three years that this is a great platform.

It’s probably the best in the industry. We wanted to take the volume to a certain level, where we could protect pricing moving forward.

It is a premium product. So, it’s best-in-class, it’s offering great value.

It’s an amazing brand and we have over 2000 aircraft in service. So, so far, I mean our plan was to keep the production line going.

We have it about a dozen aircraft a year and we remain on that one.

Okay, great. Thank you very much.

Thanks, Ron.

Thanks. Good morning.

I was wondering if John circled back around to cash flow for just a second, you had the acceleration of the CAE royalties and you brought onboard the wing, which I imagine from Triumph's perspective was still losing cash. So, just when I think about your guidance range for 2019, you had the working capital and then you had the free cash flow cushion, are we now – those two items, the CAE acceleration to 2018 in the triumph.

Are those effectively eaten the cushion part of that guidance? Is that the way we should think about it or was that already anticipated?

So, I would say that the working capital cushion manages the Triumph acquisition of the wing and the rest of the plan stays intact, which means that we’re still operating in a little bit of volatility given the fact that we are in a heavy ramp up with the significant delivery growth and revenue growth in the second half of the year. So no changes for the guidance with respect to any of the kind of cushions or range, but I can tell you that I feel confident that we’re executing and then we have a clear plan on how to manage through the year and it’s really about delivering growth in the second half and we have a clear plan on how to do that.

Okay. And then in terms of the overall BT progress, you had a negative EAC on I guess the Swiss project, but one could you size it doesn’t look like it would have been that significant and given that the headlines versus the margin performance, I’m curious, is there significant EAC risk to go as you complete these programs in the second, I guess in 2019?

Myles, I would say that we do a quarterly review of all the EACs and we do a pretty good top-down, bottom-up. So, I would say that we have a pretty good read on everything that’s out there.

It’s a project portfolio. There’s always going to be movements.

For SBB in particular, I think we have a clear plan on how to take the – take on the issues that are on the service, trains that are there now and really get back to delivering trains probably sometime midyear. But I’d say that overall, we have a fair assessment of the portfolio, the margins I think reflects the quality of the portfolio overall.

And I don’t expect that to change and I don’t see any higher level of risk that clearly, were working through the five or six we talking about at Investor Day, but we do that review and we do it operationally as well as financially regularly.

Was that EAC is 100 basis points in the quarter, is that the way to think about it?

Yes. I don’t comment too much on it, but you saw, we were a little bit off probably what you guys expected for BT and that probably gives you a good read on, where we would have come in.

But ultimately, at this point in time, I mean, what I really feel good about is that we’ve made a lot of progress in the last 60, 90 days on how to work through it. And frankly, nothing there that we can’t – we can’t handle.

All right. Thanks.

Thank you.

Hey, good morning everyone.

Hey, good morning, everyone.

John, can you specifically quantify how much Global 7500 wing free cash burn you’ve absorbed in reiterating the 2019 and 2020 free cash flow guidance? And will that always be dilutive to the BBA margin or will it, one day, be accretive to it?

Yes. So I said, I think when you look at the working capital contingency, it’s a pretty good reflection of what we expect to use to – to ramp up the program under our watch in 2019.

So, right on that 250?

I mean, it’s a very good read. So, I mean, I’ll leave it at that.

Okay.

Yes. That’s my expectation.

The team has done pretty good assessments of the wing, the cost reduction plan and the learning curve. So, I think, you don’t have a little bit of residual impact in 2020 as well.

But I would say that from my point of view, really as you get past 2021, I’d say that the impact on margin starts to neutralize and then hopefully after that, you start to add a little bit of margin from our own expertise. But that will be a few years out yet.

So, I’d say that between 2019-2020, we’ll work through the learning curve. I think we’ve got it within the guidance that we’ve put out there.

I tightened up a little bit at BBA, because I think it’s going to put a bit of headwind next year. Thereafter, I think, we take it pretty neutral to original target.

And honestly, I think we can do better as we get out into the outer years 2022, 2023 and on.

Can you quantify residual in 2020?

In what terms?

In terms of precise millions of dollars of cash flow use.

Well, it’s in the range. I’d give you a range of $750 million to $1 billion of cash generation.

I think we’re square there. I mean nothing changed there.

No, I’m saying just the Global 7500 cash burn – the wing cash burn in 2020.

I won’t go specific. It’s much less than it was in 2019, but where cash flow is within the range of $750 to $1 billion, we feel pretty confident on that so.

Got it. On the Challenger, we keep regularly hearing from brokers and others that in that market that no pricing relatively well, that you have the best aircraft in the midsize portion of the market and it consistently wins even though there’s a lot of new competition there from especially from competitors that maybe weren’t always in that market, but also from those same folks that you are consistently $3 million to $5 million less than where those competitors are trying to hold price.

Why aren’t you raising prices, a decent amount on the Challenger line?

You’re saying that we are pricing above or pricing it. Can you just repeat your last…

Yes. Basically, what we keep hearing is you always win, but with significantly less price despite a better airplane, so why not raise prices?

Yes. I think that there’s a lot of speculation out there and people like to say that to put pricing pressure.

I’d tell you that, I mean the Challenger 350 is like the best Business Aircraft in its class nor by a long shot.

Yes.

And obliviously, a lot of people are trying to come at it. I mean we still only produce roughly, 60 aircraft a year.

We feel very strong about in all of this product line and we will continue to do what we need to protect in our market share. Having said that, we’ve also been very responsible when it comes to pricing.

And so far, we’ve been doing well and if you look at how we have preserved residual value versus our competitors, I think that it speaks for itself.

Okay. Thanks so much.

Yes. Good morning.

Question on Transportation. Alain, we’ve seen a lot of turnover at BT in the last kind of few years at the leadership position and ultimately some contract delays and some issues on the customer side.

Can you talk a little bit about how are the discussions like with customers, how do you – if this is impacting kind of the outlook for order and your expectation for the next couple of years from our book-to-bill point of view?

Thanks, Fadi. Let me start by saying BT is a very strong franchise.

And our ability to win is solid. We have a backlog of $34 billion; we keep winning with a book-to-bill of above one last year and the previous years?

So, our ability to be successful in the marketplace is solid. We have great products, we have great technology and we have a very global footprint.

When it comes to the leadership changes and under my watch, that was one at the early days, that was in 2015 with Laurent. And as I said earlier, I’m very pleased with the work that Laurent has done.

I mean he started a major profound, a transformation of the organization to generate better profitability and better execution. It took over multiple projects and all that were in that were very complex early stage and that we basically had a lot of work to do on the design front and he brought most of these projects to completion, but not totally done yet, because as we’ve shared with June and December, we have about half a dozen projects, which still need some attention.

Now, we’re doing another leadership change this time, because Laurent basically has informed us that he wanted to move on and do some something else. And since we have a very strong team through our succession planning process.

We identify Danny Di Perna and we believe that Danny is the right leader to take BT now to the next level. But I’ll just finish on that.

That what you hear about the different problems on the train and the media is no different than what we’ve talked to you about in December. We have about six projects, five, six projects that required a little bit more attention.

And I would say, today, we fully understand the issues. We have added resources.

We have correction action plan in place. We’re working very closely with customers and with suppliers as well, because there are big part of this and we have the knowledge and the expertise to actually fix these issues.

So whether it’s SBB, or Crossrail, or LOTRAIN or New York in all cases, we’re making significant improvement and we’re far along that path of either delivering trains or completing some of these big projects in 2019 and in 2020. So, I understand that there’s a lot of noise right now around the train business, but I want to reassure you that we feel very strongly about this franchise.

Okay. Appreciate that.

Thank you. One more question.

John, when you gave us guidance for 2019 and you presented this working capital contingency, did you have kind of in mind that the wing transaction will occur this year? I’m just wondering if there are other things you kind of concerned about in terms of the Global 7500 production ramp-up in 2019-2020.

Yes. It’s not specific to 2020 transaction.

What I had given you color on was that we were going to be focused on making sure that we didn’t face the program particularly through the supply chain or make sure that we didn’t put ourselves behind in terms of the capability of ramping up on the 7500. And so as a result, we felt it prudent to put aside the 250.

I mean, let’s put things in perspective. We were going into the first year of production of a clean-sheet aircraft and I think it was the right thing to do.

Now in there, of course, among the challenges we had looked at were the wing production, how it was going to be resolved at that time, who was to know. But I think we’ve made great progress and frankly, I’m very, very encouraged now.

The team has been there looking at this for the last couple of months. And it’s good to know that we have a very strong plan in place and that there were – we’ve planned for both the liquidity and the cash flow consideration to make sure that we execute, which was our intent from the get go.

I think that it’s also fair to say that we’ve been very transparent, when being asked about the challenges on the 7500; we’re always talking about the need to find a solution on the wing, a commercial solution on the wing. We have almost all the whip right now in the system for production in 2019 and we’re actually starting to ramp up 2020.

So, there’s no surprise here. It’s – we’ve been very clear as to what we needed to focus on.

And we did find a commercial agreement with Triumph. So, we’re taking over the wing.

It was like a major de-risking in our item in our plan and we’re done with that. So, I feel good, because I think that it’s good for the program, but it’s also good, because there’s a strategic fit with our Aerostructures business as well.

So overall, all in all pretty good.

Okay. Thank you.

Thank you gentlemen and appreciate you taking my question. Just two quick ones for you if I may.

When we think about the CRJ550, is the longer-term positioning at least somewhat predicated on a view that it will take some time for more meaningful scope clause relief in the U.S. market and do you see kind of good potential for the aircraft outside of the North American market?

I would say for sure, a scope clause, I mean, are not moving right now. And the feedback that we’re getting from airline customers is it’s not likely to change for quite a while.

So, I think that that CRJ550 is providing a great option, where there’s a lot of CRJ700 that can be upgraded, and retrofitted to have 50-seater aircraft and bring a much better experience for passengers. So, I think that this is very innovative, a great approach.

Obviously, we’re working with airlines on that clearly with United, they like it and we think that this is going to get traction in the marketplace. On the CRJ overall, I think that we’re now – we have a skyline that is relatively for the next two years, this year 2019 and 2020.

So, it provides some stability on the CRJ production line and we keep looking at all of our options.

Okay. Alain, thank you very much and just one at a very quick one.

We saw the news of course, with Alstom and Siemens, and getting dinged in Europe, how are you guys thinking about, how that positions, Bombardier transport as you’re going out for new business?

I would say the decision itself as I mean, is positive for rail users and for the market. But I don’t think that our strategic thinking has changed much.

We do see consolidation in the marketplace. As I’ve said many, many times, there was a dynamic that was created by the Chinese.

That’s something that I know we keep an eye on and we believe that we have an amazing franchise at BT. We will continue to make it great and even better moving forward, and we’ll continue to look at all options as part of our BT strategy moving forward.

Okay. Thanks very much gents and see you next week.

Thanks.

Okay. Thanks.

Good morning. A couple of things.

John, on the wing, just trying to further clarify here. How do we reconcile, you were $250 million contingency, which sounds like it’s all going to the wing, but I’m not sure I’m interpreting that right and Triumphs $150 million number for next year or does it have something to do with their figure was learning curve driven?

Yours is both learning curve in inventory build. I’d want to understand better, how we think about that $250 million in burn and whether there’s any excess contingency left for anything new?

And then I have a question for Alain on the BT.

Sure. Thanks, Rob.

So, I’m not going to comment on Triumph’s numbers. I mean those are their numbers and I have mine, and I’m very confident in mine and our team has done a lot of good work to make sure that we integrate the wing and that we have the right strategy to ramp it up and then take cost out.

And that’s what we’re going to focus on. So I pretty much now at this point in time, can tell you, I guess for to be the third time that the working capital $250 million pretty much covers in 2019.

So, I guess, if you wanted to get a number, you got it now and beyond that…

But is that inventory build? Is it learning curve?

Can we think about that at least?

Well, I mean for sure it is – there’s a learning curve element of this, right? I mean there is going to be some higher costs.

Ultimately, it’s an inventory. Those wings will go into our inventory at a higher cost then that we would have bought them for the contract in the early stages.

And then, like I said, once we get past 2021, I expect us to actually have equal or better costs than the original contract, but that’s still the way out. So, no need to get too far ahead of ourselves.

I think that the comment there is that we’re going to ramp up, we’ll probably put a little bit of a CapEx at this. We’ll put the learning curve cost to inventory.

And then you’ll see that we will – we’ll double rates by the time we get to 2020, and that’ll take cost out and we have the ability also to you to leverage our supply chain. So, for Bombardier, I think that’s the story.

Okay. And then on the train side for Alain, just kind of a high level question, Alain, but this isn’t the first time that you’ve talked about ring fencing the issues at BT, it sounds like it’s a complex business and serves up its share of challenges.

But back in 2015, we saw leadership change, obviously, the margins have improved. So that has been done.

But I think it was a little bit surprising to see a leadership change here just a month or so after the issues were addressed at the Analyst Day. So strategically, I want to understand better what is actually happening there?

Are there structural or systemic issues that just have yet to be resolved? It sounds like this latest appointment is an attempt to get to those issues.

And then I wanted to just ask as a component of that to John, has any of the $300 million to $400 million in recoverable working capital slipped beyond 2019 for example, Crossrail, you said three of the five projects looked pretty good, but the other two, and I just wonder if that whole amount is recovered?

No. So, I’ll take the first one first, and then I’ll turn it Alain, I’m sure you’ll have something to add there.

No, I mean, I think I said it clearly that the $300 million or $400 million remains our target and our expectation for the second half of the year. That’s where we think it will come in.

And I think we talked to three to five, we say three to five are actually going to be largely complete by the end of the year. The others have dates that extend beyond.

So the point here is that not only will we work through with them, but the contracts themselves will be completed, our deliveries will be complete. And then for the other two, they have the dates that the extent of 2020 and 2021.

So that was, I think was the comment on the three to five.

So, the other part of your question Rob let me be very clear again. There’s no systemic issue at BT, how took over in 2016, we had N4 projects that we’re selling design SBB.

We had that Crossrail, LOTRAIN, Dosto, New York and what Laurent did you know under his watch is basically brought all these projects and to completion from a design standpoint. And right now, we are in full production mode and we are experiencing normal technical operational issues that relate to early, and service and production.

So, there’s nothing that is a normal, I understand that it’s creating, this appointment we get that, but we understand the issues that we’re facing. We have some very minor redesigning shoes, there’s nothing major.

And we have, manufacturing process changes that we need to do. And then we need to fix some issues with some with some suppliers, so all in all, if you look at this, out of the five projects that we’ve talked about in December, three of them will fully delivered this year and on New York will deliver this year fully.

And we’re about 50% done. Crossrail will also fully delivered this year, at Crossrail 80% of the cars are produced and they’ve been produced and they’re ready to ship.

And the customer has taken delivery of about 50% of them. And the last one is LOTRAIN.

LOTRAIN, we have no bill completed 150 car out of a 222 car order. So all of these three projects should complete this year.

Then we’re going to be left with SBB and Dosto, which are like some of the biggest rental challenging, most complex project. And Dosto, we’re almost – we’re very well done, very much advance.

85% of the cars have been produced and 80% of them have been delivered to customers. But it has been a very, very complex project with multiple obligations along the way.

In fact, over 35 different obligations and there was one left this year to achieve it’s a Swiss, obligations to be able to move this train from Germany into Switzerland. So the last one is SBB, and SBB is the most complex project that we have right now under our watch.

And it’s a very high end train with very unique technology. It will provide passengers, would an amazing experience.

So today this we have 176 car produce on an order of 460 cars. So a lot of cars are already in the production system and we have been facing some, fleet and production issues.

But nothing normal again and we understand exactly what these issues are the customer has suspended, the intake of trains to give us time to go and fix the issues, which we are doing. And once we’re done over the next few months, then we will resume delivery to customers – to that customer.

But in the meantime we keep producing. So all in all here, there’s no systemic issue.

Design has been completed on all these major projects. We’re well in the production system and in many cases very far advanced on the delivery cycle.

And we need to understand, we have over a 150 major contracts. What we’re talking about here is like a hand full of projects that have been a drag and these project date back from 2010, 2011 and 2012 and we basically are going through that.

So that’s the reason why we said that we’re going through a very every production delivery cycle and we’re almost out of this.

Operator, we’ll take a time just for one final question please.

Thanks very much, and good morning everyone. I think, I’ve got a question last year.

So, Alain, maybe if you could talk a little bit about the business chat environment sort of ex Global 7500 where we know there’s a backlog. We look at BBA backlog and it’s kind of been, flattish the last couple of quarters, a little over $14 billion.

How sold are you relative to where you’ve been kind of in past years on the platforms ex Global 7500 for 2019. And how do you see the opportunity to kind of maybe build a little bit of backlog versus do you know what it’s been over the past year or so?

Good morning, Seth. I would see stable.

That’s all with tech characterized this. I think flat, stable, book-to-bill at 1.1, strong backlog at 14.3, but relatively as you said, stable.

So despite some great positive recovery indicators, that fact is, I mean the overall business, the overall market has remained relatively stable year-over-year for the past few years. So for us, I mean our growth is going to be supported by our brand new Global 7500, which is an amazing product.

And also, I mean, we’re strengthening our position, in our long range cabin segment with our new Global 5500 and 6500. So, we keep refreshing our product so that we can successfully compete in the market place.

But the market has been good. But we haven’t seen the recovery that we were expecting like two, three years ago.

So, we are monitoring it very closely. We have taken a very prudent and disciplined approach on the rate side, i.e.

and on the legacy we have kept this relatively stable. So drought again, it’s coming from the new Global 7500, but you need to monitor that and we would like to rebuild the backlog before and now taking the production rate up.

Great. Thank you.

Thank you everyone. That concludes the call.