Q3 2019 Earnings Call

October 31, 2019

Operator: Good morning, ladies and gentlemen, and welcome to the Bombardier’s Q3 2019 conference call. Please be advised that this call is being recorded. At this time, I’d like to turn the discussion over to Mr. Patrick Ghoche, Vice President, Corporate Strategy and Investor Relations for Bombardier. Please go ahead, Mr. Ghoche.

It's been speed standby, you've gone fences ready to begin good morning, ladies and gentlemen, and welcome to the Bumbarger <unk> third quarter 2019 conference call.

Please be advised that this call is being recorded at this time I'd like to turn the discussion over to Mr. Vetri goes Vice President corporate strategy and Investor Relations Football Magee. Please go ahead Mr. goes.

Patrick Ghoche: Good morning, everyone, and welcome to Bombardier's Q3 2019 earnings call. 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, Alain Bellemare, and our Chief Financial Officer, John Deibert, to review the transaction announced today and our financial results for the Q3 ended 30 September 2019. I would now like to turn over the discussion to Alain.

Good morning, everyone. Welcome to both parties third quarter 2019 earnings call 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 to financial performance of the corporation.

There are risks that actual events or results may differ materially from these statements.

Additional information on forward looking statements that underlying assumptions. Please refer to the M. DNA and making this cautionary statement on behalf of each speaker on this call.

With me today is our president and Chief Executive Officer, Alabama, and our Chief Financial Officer, John The Bird to review the transaction announced today and our financial results for the third quarter ended September Thirtyth 2019.

I would now like to turn over to discussion to wedding.

Alain Bellemare: Thanks, Patrick. Good morning, everyone, and thank you for joining us again today. As you saw in the press release this morning, we continue to drive our transformation plan. In Aviation, the certification of our new Global 5500 and 6500, combined with the remarkable performance of our new Global 7500, is strengthening this amazing Global franchise. At Transportation, we are turning the corner. We are making steady progress working through our challenging legacy projects and ramping up deliveries. At the same time, we are growing and improving the quality of our backlog. With the sale of our Belfast and Morocco aerostructures businesses to Spirit, we achieved another key strategic milestone towards building a lean, efficient, and strong business aircraft franchise.

Thanks, that's very good morning, everyone and thank you for joining us again today.

As you said the press release. This morning, we continue to drive our transformation plan.

If you mentioned the certification of our new Google 55 on grid and six to 500 combined with a remarkable performance, although our new billable assuming that 500 is strengthening this amazing global franchise.

At transportation.

Turning the corner.

We are making steady progress working through our challenging the legacy projects and ramping up deliveries.

At the same time, we are growing and improving the quality of our back.

With this out of our Belfast, and Morocco, Aerostructure businesses to spirit, we achieved and other key strategic milestones.

Towards building and lean in fishing and strong business aircraft franchise.

Alain Bellemare: At Bombardier Aviation, David and his team are on plan to deliver our full year guidance of 175 to 180 aircraft, including 15 or more Global 7500. We now have over 20 Global 7500 in our completion center. Our assembly operation in Toronto is also full with over 20 aircraft at different stages of completion, and we are on track to meet our 2020 run rate by year-end. Our Global 7500 flagship is simply the best business aircraft, size, cabin comfort, range, and performance. The in-service performance is outstanding, and customer feedback is very positive. Earlier in the quarter, we clearly demonstrated our range advantage with a record-setting over 8,200 nautical miles non-stop flight from Sydney, Australia to Detroit, connecting the longest distance city pair in business aviation history.

At Bharti education.

David and his team our own plan to divert our full year guidance of 175 to 280 aircraft, including 15 are more Google soon at 500.

We now have over 20 go both somebody to 500 in our completion center.

Our assembly operation Intermodal is also fool with over 20 aircraft at different stages of completion.

And we are on track to meet our 2020 run rate by year end.

Our go so many 500 flagship is simply that this business aircraft side.

It had been gone for range and performance.

The in service performance is outstanding and customer feedback is very positive.

Early hurting on the quarter.

Clearly demonstrated our range advantage when a record setting over 8200 nautical miles nonstop flight from Sydney, Australia to Detroit connecting the long because this then sedate bear in business aviation history.

Alain Bellemare: We also announced more range, 5,900 nautical miles for our newly certified Global 5500. This is not only better than our original commitment, it is 700 nautical miles more than our nearest competitor. Year-to-date, book-to-bill remains strong at 1.3, and our backlog of $15.3 billion continues to lead the industry. The growth and expansion of our aftermarket operations remain on track. We just announced new line maintenance station at Van Nuys, California and Teterboro, New Jersey, two important airports for our customers. Earlier this month, we launched a new initiative with GE, bringing big data to business aviation. Our new Smart Link Plus program will use fleet-wide data to help customers make better operational and maintenance decisions. We will provide real value for our customers while diversifying and expanding our aftermarket offerings.

We also announced more range 5900 medical Myles.

For our newly certified Google 5500.

This is not only better than our original commitment.

It is 700 medical miles more in our nearest competitor.

Year to date book to Bill remains strong at 1.3.

And our backlog of 15.3 billion continues to lead the industry.

The growth and expense expansion of our aftermarket operations remain on track.

We just announced new line meant that maintenance station advent Nines, California, and Teterboro, New Jersey, two important airports for our customers.

Earlier this month, we launched a new initiative with GE, bringing big data to business education.

Our new Smart Smartlink plus program will use fleet wide data to alpha customers make better operational and maintenance maintenance decisions.

We will.

Provide real value for customers, while diversifying and expanding our after market offerings.

Hi transportation.

Alain Bellemare: At Transportation, we are focused on completing our transformation and fully unlocking the value of this great business. As you know, in Q3 last year, we experienced a setback driven by our legacy projects. This had a ripple effect on the portfolio, which led to additional investments, and more resources to protect the schedule and the backlog. We took the right actions for the business, and we are now starting to recover. Software issues are being resolved, in-service reliability is quickly improving, and most importantly, customers are recognizing our efforts. Specifically, we are making solid progress with our complex legacy projects. MTA in New York, all deliveries should be completed before year-end, and the in-service reliability is now exceeding requirements. For Crossrail UK, production will be completed next month with final deliveries expected before year-end. For Low Train in the UK, production should be completed in November.

We are focused on completing our transformation and fully unlocking the value of this great business.

As you know in Q3 last year, we experience as said back driven by our legacy projects.

This had a ripple effect on the portfolio, which led to additional investments and more resources to protect the schedule and the backlog.

We took the right actions for the business.

And we are now starting to recover.

Software issues are being resolved.

In service reliability as quickly improving.

And most importantly customers are recognizing our efforts.

Specifically.

We are making solid progress with our complex legacy projects.

Empty New York.

Oh deliveries should be completed before year end and the in service reliability is now exceeding requirements.

For Crossrail UK production will be completed next month with final deliveries expected before yearend.

For a little train in the UK.

Production should be completed in November .

Alain Bellemare: Deliveries to customer is being paced by software development, which is now tracking for completion before year-end. A bit longer than expected, which means deliveries will slip into early 2020. For Düsseldorf, Germany, we are tracking to plan. At SBB, Switzerland, from zero less than one year ago, we now have 23 trains in revenue service and reliability has improved by 500%. We are now tracking in line with typical reliability learning curves. Finally, for TTC in Toronto, we will complete this contract by year-end. A strong recovery. Reliability of the fleet continues to improve and is currently above contractual requirements. Overall, very good progress on these contracts and across the portfolio. Of course, there is still a lot of work to do with some volatility in the timing of train deliveries. As such, the recovery will be gradual over the next 12 months.

Deliveries to customer is being paid by software development.

Which is now tracking for completions before year end.

A bit longer than expected, which means deliveries will slip into early 2020.

For does still Germany.

We are tracking to plan.

At SBB, Switzerland.

From zero. There then one year ago. We now have 23 trains in revenue service and reliability as improved by 500 per se.

We are now tracking in line with typical reliability learning curves.

And finally for PTC in Toronto, We will complete this contract by year end a strong recovery.

Reliability of the fleet continues to improve and is currently above contractual requirements.

Overall very good progress on this contract and across the portfolio.

Of course.

There is still a lot of work to do.

With some volatility in the timing of train deliveries.

As such the recovery will be gradual over next 12 months.

Alain Bellemare: Danny and his team have done a very good job tackling the challenges. They fully understand the situation and are driving detailed action plans to complete the recovery. Moving forward, we expect more consistent results with margins and free cash flow gradually improving. Stronger performance should also be driven by improvements in our backlog. We ended Q3 with a record backlog of $35 billion. Our year-to-date book-to-bill stands at 1.3. Equally important, the quality of the backlog is improving, driven by a better mix. Year-to-date, two-thirds of new orders are coming from signaling, services, and options being exercised. This order intake is accretive to margins. In addition, we've continued to drive for a much higher reuse content in rolling stock projects, such as the latest win in Cairo, where we are using an existing design.

Then he and his team have done a very good job tackling the challenges didn't fully understand the situation and are driving detailed action plans to complete their recovery.

Moving forward, we expect more consistent results with margins and free cash will gradually improving.

Stronger performance should also be driven by improvements in our backlog.

We ended Q3 would have a record backlog of $35 billion.

Our year to date book to Bill stands at 1.3.

Equally important the quality of the backlog is improving driven by a better mix.

Year to date.

Two thirds.

Of new orders are coming from signaling services and options being exercised.

This order intake is accretive to margins.

In addition.

We've continued to drive for a much higher reuse content in rolling stock projects.

Such as the latest win and Carol where we are using an existing design.

Alain Bellemare: All of this gives us confidence in BT's ability to deliver stronger financial performance in the coming years. Let me conclude by saying that we are fully focused on delivering the Q4. As we are executing the Global 7500 ramp-up and the legacy projects at BT, we have decided to provide 2020 guidance in February with our Q4 results. Having said that, directionally for 2020, we will have two strong businesses expected to deliver higher revenues, better margins, and positive cash generation. Okay, let me stop here and turn it over to John to review the Q3 results.

Out of this.

Gives us confidence and visibility to deliver stronger financial performance in the coming years.

Let me conclude by saying that we are fully focused on delivering the fourth quarter.

As we are executing the global 7500 ramp up and the legacy projects at BT.

We have decided to provide 2020 guidance in February with our Q4 results.

Having said that.

Directionally for 2020, we will have to strong businesses.

Expected to delivered higher revenues better margins and positive cash generation.

Okay, Let me step here and turn it over to John to review the third quarter results.

Thank you will and good morning, everyone.

John Di Bert: Thank you, Alain. Good morning, everyone. The Q3 results reflect our continued production ramp-up, both at BA and BT. Today, 12 Global 7500 aircraft are in the final stages of completion, while our rail segment is on track to complete and deliver large projects in New York, Toronto, and London. As we move forward, executing on our new aviation programs as well as our large transportation projects, we are entering the Q4 in a position to release working capital and generate above average free cash flows. As we continue to drive stronger financial performance, we are also simplifying the business and strengthening our balance sheet, as demonstrated by the transaction announced today with Spirit. This is another step towards creating a stronger and more focused aviation franchise. At 10x enterprise value to EBITDA, this transaction captures the full value of the business.

The third quarter results reflect our continued production ramp up both it'd be a NBT.

Today doesn't global 7500 aircraft are in the final stages of completion, while our rail segment is on track to complete and deliver large projects in New York, Toronto and London.

As we move forward executing on our new aviation programs as well as our large transportation projects. We are entering the fourth quarter in a position to release working capital and generate above average free cash flows.

And as we continue to drive stronger financial performance. We're also simplifying the business and strengthening our balance sheet as demonstrated by the transaction announced today with spirit.

This is another step towards creating a stronger and more focused aviation franchise.

At 10 next enterprise value to EBITDA. This transaction captures the full value of the business and after deducting transferred liabilities, we will receive $500 million of net cash proceeds.

John Di Bert: After deducting transferred liabilities, we will receive $500 million of net cash proceeds. This transaction, together with the sale of the CRJ, will add more than $1 billion of cash to our already solid liquidity position by mid-2020. Let me now summarize the Q3 numbers. Consolidated revenues totaled $3.7 billion, featuring 8% organic growth year-over-year, excluding the effect of divestitures, and currency translation. This growth reflects a double-digit increase in aviation revenues, and 5% growth at transportation. Overall, we continue to see full year revenues of approximately $16.5 to 17 billion, driven mainly by an acceleration of Global 7500 deliveries heading into the Q4.

This transaction together with the sale of the Crj will add more than $1 billion of cash to our already solid liquidity position by mid 2020.

Let me now summarized third quarter numbers.

Consolidated revenues totaled $3.7 billion, featuring 8% organic growth year over year, excluding the effect of divestitures and currency translation.

This growth for this growth reflects a double digit increase in aviation revenues and 5% growth I transportation.

So overall, we continue to see full year revenues of approximately 16, and a half to $17 billion driven mainly by an acceleration of global 7500 deliveries heading into the fourth quarter.

John Di Bert: On the earnings front, Q3 profitability was in line with expectations, with adjusted EBITDA and EBIT of $255 million and $159 million, respectively. This level of profitability is aligned to full year margin guidance of approximately 7% and 5% respectively at BA and BT. On a consolidated basis, as the segment's quarter-over-quarter adjusted EBIT margins stabilize in Q4, full year guidance remains unchanged at $700 to 800 million. Adjusted EBITDA is expected to grow in Q4, mainly as the Global 7500 deliveries increase at BA, reaching full year guidance of $1.2 to 1.3 billion. We also reported a $0.04 EPS loss in Q3, lower year-over-year as a result of lower operating earnings and previously capitalized interest now being expensed.

On the earnings front third quarter profitability was inline with expectations with adjusted EBITDA, and EBITDA of 255 and $159 million respectively.

This level of profitability is aligned to full year margin guidance of approximately 7% and 5% respectively at BA and BT.

On a consolidated basis as a segments quarter over quarter adjusted EBIT margins stabilize in the fourth quarter full year guidance remains unchanged at 700 to 800 million.

Adjusted EBITDA is expected to grow in the fourth quarter, mainly as a global 7500 deliveries increased da reaching full year guidance of 1.2 to 1.3 billion.

We also reported a four cents EPS loss in the third quarter.

Lower year over year as a result of lower operating earnings and previously capitalized interest now be expensed.

John Di Bert: On free cash flow, usage was $682 million during the quarter, higher than the $200 to $400 million anticipated for the period, mainly resulting from timing of cash flows. The incremental cash usage was driven by lower cash inflows associated with train deliveries and milestone payments that have moved into the Q4. Looking at the full year, to reach the approximately $500 million of free cash flow usage guidance, we anticipate to generate approximately $1.6 billion of free cash flow in the upcoming quarter. While this is a significant undertaking for the team, we have a well-defined roadmap to deliver on this goal. Let me explain. As a baseline, our Q4 is generally significantly cash flow positive, generating between $900 million and $1 billion in each of the last two years.

On free cash flow you should usage was 682 million during the quarter.

Higher than the two to 400 million anticipated for the period, mainly resulting from timing of cash flows.

The incremental cash usage was driven by lower cash inflows associated with train deliveries and milestone payments that have moved into the fourth quarter.

Looking at the full year to reach the approximately $500 million of free cash flow usage guidance, we anticipate to generate approximately 1.6 billion of free cash flow in the upcoming quarter.

While this is a significant undertaking for the team we have a well defined roadmap to deliver on this goal.

Let me explain.

As a baseline our fourth quarter is generally significantly cash flow positive generating between 900 million and $1 billion in each of the last two years.

John Di Bert: We expect this trend to continue this year, particularly as capital investments are coming down. In addition, as mentioned, we expect to recover some $300 million of cash inflows originally expected in Q3. In fact, we've already secured some of these inflows in October. There are two positive free cash flow catalysts that contribute incrementally to our normal seasonal Q4 cash flow generation. First, Global 7500 aircraft deliveries contribute to cash meaningfully for the first time, with each delivery carrying an important final payment. Second, we are accelerating train car deliveries. This will release excess finished goods inventory that is held back as we complete software certification and acceptance requirements. This phase has started in Q3, with more than 15% sequential increase in deliveries, and customer acceptances versus Q2.

We expect this trend to continue this year, particularly as capital investments are coming down.

In addition, as mentioned we expect to recover some $300 million of cash inflows originally expected in Q3.

In fact, we've already secured some of these inflows in October .

Then there are two positive free cash flow catalysts that contribute incrementally to our normal seasonal Q4 cash flow generation.

First.

Global 7500 aircraft deliveries contributed to cash meaningfully for the first time with each delivery carrying an important final payment.

Second we are accelerating train car deliveries. This will receive this will release excess finished goods inventory that is held back as we complete softer certification and acceptance requirements.

This phase has started in the third quarter with more than 15% sequential increase in deliveries and customer acceptances versus Q2.

John Di Bert: We see continued momentum in Q4 and through 2020 and 2021. Our leadership teams at both BA and BT are focused on meeting customer deliveries and producing the Q4 cash generation to reach our $500 million free cash flow usage target for the year. Let me now turn to each unit's performance and outlook. Our rail business recorded revenues of $2.2 billion in Q3. On a constant currency basis, revenues grew by 5% year over year, mainly from services. This revenue level is stable over the prior two quarters, consistent with the production resynchronization implemented earlier this year as we addressed production and delivery challenges. For the quarter, adjusted EBIT was $110 million, representing a 5.1% margin.

We see continued momentum in Q4 and through 2020 and 2021.

Our leadership teams at both BA and VTR focused on meeting customer deliveries and producing the Q4 cash generation to reach our 500 million dollar free cash flow usage target for the year.

Let me now turn to each units performance and outlook.

Our real business reported revenues of $2.2 billion in the third quarter.

On a constant currency basis revenues grew by 5% year over year, mainly from services.

This revenue level is stable over the prior two quarters.

Consistent with the production re synchronization implemented earlier this year as we addressed production and delivery challenges.

For the quarter adjusted EBIT was 110 million, representing a 5.1% margin.

John Di Bert: This margin reflects the current mix of dilutive projects and the cost of investments being made to increase capacity to ramp up production. We expect the Q4 performance to be similar to Q3, with stable revenues and earnings, and aligned to full year guidance for BT. As we look forward to 2020 and beyond, we expect revenues to grow on the basis of a strong backlog and the associated production ramp-up. With higher and more stabilized production rates, we would expect margins to improve given better fixed cost absorption. While we continue to expect to burn down most of the larger dilutive projects by the end of 2020, we do see a drag on profitability through the end of next year. Overall, we believe we have seen the low point on BT margins in 2019.

This margin reflects the current mix of dilutive projects and the cost of investments being made to increase capacity to ramp up production.

We expect the fourth quarter performance to be similar to Q3 with stable revenues and earnings and aligned to full year guidance for BT.

As we look forward to 2020 and beyond we expect revenues to grow on the basis of a strong backlog and the associated production ramp up.

With higher and more stabilized production rates, we would expect margins to improve given better fixed cost absorption.

And while we continue to expect to burn down most of the larger dilutive projects by the end of 2020, we do see a drag on profitability through the end of next year.

Overall, we believe we have seen the low point on BT margins in 2019.

John Di Bert: Finally, we expect BT free cash flow conversion to gradually return to more normal levels and benefit from net working capital tailwind in 2020 and 2021 as we reduce our abnormally high finished goods inventory levels. Although the last 4 quarters at BT have presented challenges and resulted in some volatility, we are confident we are taking the right actions to recover and improve performance and put the business back on a path to profitable growth. We believe that our strong product portfolio and our commitment to customers is a solid foundation to continue winning in the market. At Aviation, we've made good progress on our growth programs. Total deliveries reached 37 aircraft, including 31 business aircraft and 6 CRJs. These deliveries included 2 more Global 7500 and the entry into service of the first Global 6500.

Finally, we expect VT free cash flow conversion to gradually return to more normal levels and benefit from net working capital tailwind in 2020, and 2021 as we reduced our of normally high finished goods inventory levels.

Although the last four quarters at VT presented challenges and resulted in some volatility. We're confident we are making the right Act, we're taking the right actions to recover and improved performance and put the business back on a path to profitable growth.

We believe that our strong product portfolio and our commitment to customers is a solid foundation to continue winning in the market.

At Aviation, we've made good progress on our growth programs.

Total deliveries reached 37 aircraft, including 31 business aircraft and six Crj.

These deliveries included two more global 7500, and the entry into service of the first global 6500.

John Di Bert: With an acceleration of deliveries in Q4 driven by the Global 7500, BA is on plan to deliver 175 to 180 aircraft this year. Revenues for Aviation, which include for the first time the amalgamation of business aircraft, commercial aircraft, and aerostructures, totaled $1.6 billion in the quarter. This represents growth of more than 10% when adjusting for the divestitures of commercial aircraft programs and the training business over the past year. This increase in revenues came from more global deliveries, higher external aerostructure revenues, mainly in support of the A220 ramp-up, and was further fueled by the expansion of business aircraft aftermarket activities. With year-to-date revenues of $5.1 billion, we continue to expect full-year revenues at approximately $8 billion, with the growth mainly coming from our backlog.

With an acceleration of deliveries in the fourth quarter driven by the global 7500 B is on plan to deliver 175 to 180 aircraft this year.

Revenues for aviation, which include for the first time, the amalgamation of business aircraft commercial aircraft and Aerostructures totaled $1.6 billion in the quarter.

This represents growth of more than 10% when adjusting for the divestitures of commercial aircraft programs and the training business over the past year.

This increase in revenues came from more global deliveries higher external aerostructure revenues, mainly in support of the eight to 20 ramp up and it was further fueled by the expansion of business aircraft aftermarket activities.

With year to date revenues of $5.1 billion. We continue to expect full year revenues at approximately 8 billion with the growth mainly coming from our backlog.

John Di Bert: Looking at this segment's operating performance during the quarter, adjusted EBIT was $93 million or 6%, reflecting, as expected, some dilution coming from early Global production units and the CRJ program. With year-to-date adjusted EBIT margin at 7.6% and Q4 margins expected in line with Q3, we are reiterating our guidance of approximately 7% for the year. Let me now wrap up. BA is making meaningful progress ramping up the Global 7500 and introducing the 5500 and 6500 on time while executing on the learning curve. At BT, while 2019 has proven to be more challenging, we have taken actions to exit the year stronger. We are working closely with our customers. We have strengthened the leadership team. We are investing to build more capacity, and we are building a stronger backlog. Transportation's business fundamentals are intact.

Looking at this segment's operating performance during the quarter.

Adjusted EBIT was 93 million or 6%, reflecting as expected some dilution coming from early global production units and the Crj program.

With year to date, adjusted EBIT margin at 7.6% and Q4 margins expected inline with the third quarter.

We are reiterating our guidance of approximately 7% for the year.

Let me now wrap up.

He is making meaningful progress ramping up the global 7500, and introducing the 55 and 6500 on time, while executing on the learning curve.

Add BT, while 2019 has proven to be more challenging we have taken actions to exit the year stronger.

We are working closely with our customers we have strengthened the leadership team we are investing to build more capacity and we are building a stronger backlog.

Transportation's business fundamentals are intact.

John Di Bert: Moving beyond the short-term challenges will put us on a growth trajectory in Aviation and on a path to earnings and cash flow recovery at Transportation. To conclude, with $3 billion of cash on hand expected at the end of this year, combined with over $1 billion of upcoming M&A proceeds, and with positive free cash flow expected in 2020, we expect to be in an even stronger liquidity position as we complete the last year of our turnaround plan. With that, operator, we're ready for our first question.

Moving beyond the short term challenges will put us on a growth trajectory in aviation and on a path to earnings and cash flow recovery I transportation.

To conclude.

With $3 billion of cash on hand expected at the end of this year.

Combined with over $1 billion, a upcoming M&A proceeds and with positive free cash flow expected in 2020.

We expect to be in an even stronger liquidity position as we complete the last year of our turnaround plan.

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

Operator: Thank you. If you have a question, please press star one on your touchtone telephone. If you are using a speakerphone, please lift your handset and then press star one. Should you wish to cancel your question, please press the pound sign. To allocate time for all participants, please limit yourself to one question and one follow-up. Our first question is from Myles Walton from UBS Securities. Please go ahead.

Thank you.

He had a question.

Thats Tawang on you touched on kind of phone. If you are using a speaker phone. Please ask your handset and then press star one should you wish to cancel your question. Please press the pound fine.

Okay time for all participants please limit yourself to one question and one follow up.

Our first question is from Myles Walton from you'll be at Securities. Please go ahead.

Myles Walton: Thanks. Good morning. Hey, Alain, I think, you know, the question I have, and I think I'm getting a lot of, is why do you have more confidence now that obviously the cash flow has been a pretty big moving target for you? Last quarter, $1.3 billion was, you kind of gave us the roadmap of why that was the Q4 implied, and that was reasonable. Now, John, you walk through why $1.6 billion is reasonable for Q4. I guess the question I'm getting is, you know, do you guys have confidence in that or is it that you don't want to bring down the number again? I guess on that related note, maybe you can talk about why the $300 million slipped from Q3 to Q4.

Thanks, Good morning.

<unk> Elena think of the question I have and I think I'm getting a lot of is why why do you have more confidence now that obviously the cash flow has been a pretty big moving target for you and and last quarter 1.3 billion was you kind of gave US roadmap of why that was the Fourq you implied in that was reasonable and now.

John you walk through why 1.6 as reasonable for the fourth quarter and it's a question I'm getting is you know do you guys have confidence in that or is it that you you don't want to bring down the number again and I guess it on the related note. Maybe you can talk about why the 300 million slips from Threeq to Fourq you.

Yes, sure I I'll take that one miles. So we did have some some milestone pay a payments in the in the third quarter as well some deliveries, particularly in the UK that we're a target for late Q3, they did slip into the fourth quarter that has lots of do with the certificate.

John Di Bert: Yeah, sure. I'll take that one, Miles. We did have some milestone payments in Q3, as well as some deliveries, particularly in the UK that were targeted for late Q3. They did slip into Q4. That has a lot to do with the certification on the software and the early deliveries of trains in a couple of UK projects on Aventra. Some of the places where we've been working to catch up. The good news on the Q3 slip is that we see most of that coming through here in Q4, and some of that has come through in October already.

As shown on the software and the the early deliveries of of trains in a in a couple of UK projects on eventual so some of the place where we've been.

Working to it to catch up the good news on on on the Q3 slip is that we see most of that coming through here in the fourth quarter and some of that has come through in October already so from from that point of view I think you know we did expressed the fact that there were some volatility and that so there is some chunky payments that do move around.

John Di Bert: From that point of view, I think, you know, we did express the fact that there is some volatility and that there is some chunky payments that do move around. That being said, I'd say that we also did expect that we'd have usage here in Q3 as we load up for both aviation and BT big deliveries in Q4. That does set up for a big Q4. The $1.3 to $1.6 is really the movement from Q3 into Q4. Largely that's what the increment is there.

That being said I'd say that we also expect that we'd have usage here in Q3, as we load up for both aviation and ER and and BT Big deliveries in Q4, So does that does set up.

For a big fourth quarter. So the one three to the Onesix is really the movement from a from Q3 into Q4, a larger that's what are the increment is there and you know as I said in my comments and not to to be repetitive but.

John Di Bert: You know, as I said in my comments, not to be repetitive, but the teams, you know, have a well-defined roadmap, both at BA and BT, on what needs to get done. It's in line with what we're doing in terms of also achieving our customer commitments, both on aerospace and on the transportation side. We did build a plan this year that was gonna have a pretty big load in Q4 on Global 7500. This is not new. You know that the aircraft really represents the first time that you have a Q4 with Global 7500 of any magnitude. This is all incremental cash flow to what we typically do in Q4.

We the teams know have oh, well defined roadmap both that to be NBT on what gets what needs to get done.

It's it's in line with what we what we're doing a in terms of also achieving our customer commitments both on the aerospace and on on the transportation side. We did build the planned this year that was going to have a pretty big load in the fourth quarter. On 7500. This is not new you know that the aircraft.

Really represents the first time that you have a Q4 with 75 hundreds of any magnitude. So this is all incremental cash flow through what we typically do in the fourth quarter and it's over the last couple of years, we've shown about $900 million of Q4 seasonal cash so with a 7500, you're talking year, you know probably a dozen or more aircraft coming through.

John Di Bert: It's, you know, the last couple of years, we've shown about $900 million of Q4 seasonal cash. With the Global 7500, you're talking here, you know, probably a dozen or more aircraft coming through. That means that there's going to be a lot of final payments. That gives us pretty good confidence. The team knows what has to be done. Lots of aircraft in the completion center. Right now about 20 aircraft in completion. We also have a full operating line in Toronto where we complete the green, so already well-stocked for next year. On that front, progressing well. Of course, lots of work to be done, but we know exactly what has to be done, and we actually feel pretty good about how the ramp has been going so far.

And that means that.

There's going to be a lot of the final payments. So that gives us pretty good confidence the team knows what has to be done lots of aircraft in the completion center. So right now about 20 aircraft in completion.

We also have a full a full operating line in in Toronto, where we complete the greensville already well stocked for next year. So on that front progressing well of course lots of work to be done but we.

We know exactly what has to be done we actually feel pretty good about how the wrapped has been going so far so we feel pretty good about 7500 at VT. Some recovery from Q3 as I explained a into Q4 and then from that point on its really a it's a it's a series of a lot of finished goods inventory that starts to move both.

John Di Bert: We feel pretty good about 7,500. At BT, some recovery from Q3, as I explained, into Q4. From that point on, it's a series of a lot of finished goods inventory that starts to move, both in Germany, Switzerland, and also the UK, as we mentioned. We do have a lot of finished goods. The good news here is that there's catalyst events that we're tracking very closely, we know how to achieve. That gives us confidence that inventory starts to deplete in Q4. Being very transparent, we've said it in the past, and I'll say it again today, is that there is and there has been some volatility in how those payments come through and how we hit those dates.

In the Germany, Switzerland, and also the UK as we mentioned we do have a lot of finished goods.

The good news here is that to there's catalyst events that were tracking very closely we know how to achieve and that gives us confidence that that inventory. We started the fleet in the fourth quarter.

Being very transparent we said it in the past and I'll say it again today is that.

There isn't there has been some volatility in how you know those payments come through and how we we had a those dates we've never had more clarity than we do today on the on the other progress and and are believed to have milestones that being said these things do have it tends to move around a little bit we've got eight weeks to be ended the year here, we're fully focused.

John Di Bert: We've never had more clarity than we do today on the progress and our ability to hit milestones. That being said, these things do have a tendency to move around a little bit. We've got eight weeks to the end of the year here. We're fully focused. I think that the roadmap is clear. We know what we have to do. If it slips around a little bit, it's gonna be a slip into Q1, but it's not. This is something that right now we believe cash will generate strongly from here on in, frankly, from deleveraging the inventory at BT. We'll keep an eye on it and we go from here.

I think the road map is clear we know we have to do a if it slips around the little bit it's going to be a slip into Q1, but it's not a this is something that that right now we believe cash will generate a strongly.

From year on and frankly from a de leveraging the inventory it BT. So we'll keep an eye on it and and we go from here, but you know the good news I think because there were seeing the other side of a lot of this working capital build.

John Di Bert: you know, the good news, I think, is that we're seeing the other side of a lot of this working capital build.

Okay I like you mentioned one program was slipping I guess, the low trend, but I guess, what you're saying is that the way. The advanced are coming in doesn't disturb the full year free cash flow at the same time and then if you got to the end of the year into December or January or February I guess, when you present your outlook for next year and you didn't make the number.

Myles Walton: Okay. Alain, you mentioned one program was slipping, I guess, the low train. I guess what you're saying is that the way the advances are coming in doesn't disturb the full year free cash flow at the same time. If you got to the end of the year into December or January or February, I guess, when you present your outlook for next year and you didn't make the number, is it more likely to be advances from one of these train contracts, or is it more likely to be you couldn't get the Global 7500s out the door?

As a more likely to be advances from one of these train contracts or is it more likely to be you couldn't get the 75 hundreds out the door.

Well I think that you know I mean, it's a it's tough handicapping too I mean, we were pretty clear about what has to get on both sides I would say that.

John Di Bert: Well, I think that's, you know, I mean, it's tough handicapping. I mean, we're pretty clear about what has to get on both sides. I would say that the reality is, you know, at this point in time, we have a pretty good line of sight to all the milestones and what has to get done. It's a matter of moving trains into service, right? From that point of view, we work with our customers, and you can't enter, you know, an infinite amount of trains into service. There's a coordination and a timing of all that.

The reality is no idea at this point in time, we have a pretty a pretty a good line of sight to all the milestones and what has to get done and then it's a matter of moving trains into service right and so from that point of view.

We work with our customers and they can't or you can enter.

Infinite amount the streams into service. So there's a there's a coordination and the timing of all that so I would say that that we know we have to do from a a milestone and and Ah certification point of view I'm moving trends into a into service becomes you know a its own that kind of work stream, we feel pretty good about how we're taking.

John Di Bert: I would say that we know we have to do from a milestone and certification point of view, moving trains into service becomes, you know, its own kind of work stream. We feel pretty good about how we're taking care of that. On the Global 7500, obviously every one of those aircraft is sold. It's a matter of completing them. Like I said, we have 20 in the completion center, so I'm not going to handicap one or the other. We have a clear, you know, roadmap of what has to get done. At this point in time, we're just focused on doing it.

Care that and under 7500, obviously every one of those aircraft sold.

It's a matter of completing them like I said, we have 20 in the completion center, so I'm not going to handicap, one or the other we have a clear you know a clear roadmap of what has to get done and at this point in time was focused on doing it.

Myles Walton: Okay. I'll leave it there. Thanks.

Okay I'll ever there thanks.

Operator: Thank you. The following question is from Seth Seifman from J.P. Morgan. Please go ahead.

Thank you.

Following question is from Seth Seifman from JP Morgan. Please go ahead.

Mike Rednor: Good morning. This is Mike Rednor on for Seth.

Good morning, this is Mike Rednor on herself.

John Di Bert: Hey, Mike.

Hey, Mike.

Mike Rednor: With the medium jet category running about 10 deliveries lower year to date versus last year, can you talk through some of the market challenges you're seeing there and kind of what you're seeing on the demand side?

What's the medium jet category running about and deliveries lower year to date versus last year can you.

Talk through some of the market.

Challenges you're seeing there.

And kind of what you're seeing on the mantra.

Hi, Good morning, it's had I can you just repeat that as piece of your <unk> as part of your question.

John Di Bert: Good morning. It's Alain. Can you just repeat the last piece of your, last part of your question?

Alain Bellemare: Good morning. It's Alain. Can you just repeat the last piece of your, last part of your question?

Sure what kind of what are you seeing on the demand side for the medium jet category.

Mike Rednor: Sure. What are you seeing on the demand side for the medium jet category?

Alain Bellemare: Okay. Overall, it's pretty stable year-over-year. We're in the same ballpark. We're seeing the demand being stable to good in the US. It's really driven by North America. Rest of the world is relatively flattish. Things have not changed much. I think that, you know, what is driving growth in our case are the new platforms, especially the Global 7500. And as we introduce the Global 5500 and 6500, I mean, this gives us, you know, confidence in our ability to keep winning in the marketplace in business aircraft. The mid-size, super mid-size, the Challenger 350 is, you know, best-in-class product, still doing extremely well. And there's, like, maybe some slight variation here and there, but by and large, I would say relatively stable.

Okay. So overall, it's pretty stable year over year.

Yeah, we're in the same ballpark.

We're seeing that demand being stable to two good end and they you asked it's really driven by North America rest of the world is relatively flattish.

And things have not changed much I think that and or what is driving growth in our case, our new menu platforms, especially as it was 2500 and as we introduce that global 5500, 6500, I mean does gives us.

Confidence in our ability to keep pointing in the marketplace and business aircraft. The amid the mid size. So permit size. The Challenger Trust 50 is you know best in class product still doing extremely well and there's like maybe some slight variation you are in there, but by and large I would say relatively stable.

Okay.

Mike Rednor: Okay, thanks.

Thank you.

Operator: Thank you. Our following question is from Walter Spracklin from RBC Capital Markets. Please go ahead.

Following question is from Walter Spracklin from.

Well Thanks, Canada. Please go ahead.

Walter Spracklin: Yeah, thanks very much. Good morning, everyone. So just focusing on the Global 7500 here, I know that there's a little bit of aberration here with the very first, you know, bunch coming out, and they're all coming out all at once in the Q4. My question is, does that signal what you can do on a quarterly run? Like, what would a normalized cadence for your deliveries be as we look into 2020 and beyond, compared to what it seems it's all jammed into obviously in the Q4 here. How would we look at the cadence, and is your ability to deliver-

Walter Spracklin [Managing Director, Equity Research Analyst: Yeah, thanks very much. Good morning, everyone. So just focusing on the Global 7500 here, I know that there's a little bit of aberration here with the very first, you know, bunch coming out, and they're all coming out all at once in the Q4. My question is, does that signal what you can do on a quarterly run? Like, what would a normalized cadence for your deliveries be as we look into 2020 and beyond, compared to what it seems it's all jammed into obviously in the Q4 here. How would we look at the cadence, and is your ability to deliver-

Thanks, very much I. Good morning, everyone should so just focusing on a 7500 here I know there's.

A little bit of aberration here with the very first you bunch coming out there all coming at all at once in the in the fourth quarter.

My question is it does that signal what you can do on a on a quarterly run rate what would what would the normalized cadence for your deliveries b.

As we look into 2002 to 2020 and below beyond compared to what it seem to its all jammed into obviously in the fourth quarter here, how would we look at the cadence and is your ability to deliver.

Hi.

John Di Bert: You know, moving towards their first deliveries in Q4. I do think that our ability, about 40, you know, odd aircraft in the total production line between green aircraft and completion aircraft, sets us up well for our stated objective of being a 35 to...

You know moving towards their first deliveries in Q4, so I do think that.

Our ability.

About 40 odd aircraft into total.

Production line between a green aircraft and a completion aircraft.

Oh sets us up well for our stated objective of being a 35 to.

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