Q4 2019 Earnings Call

February 13, 2020

[noise] all participants please standby youre going for us is ready to begin.

Operator: Good morning, ladies and gentlemen, and welcome to Bombardier's Q4 and full year 2019 earnings 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 Gobeil, Vice President, Corporate Strategy and Investor Relations for Bombardier. Please go ahead, Mr. Gobeil.

Good morning, Ladies and gentlemen was gone to the board <unk> fourth quarter in 40 years 2019 earnings Conference call.

Please be advised that this call is being recorded.

Finally, I'd like your turned in discussion over to Mr., Patrick goes Vice President corporate strategy and Investor Relations Football Buggy. Please go ahead Mr. goes.

Patrick Gobeil: Good morning, everyone, and welcome to Bombardier's Q4 and full year 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 Di Bert, to review our financial results for the Q4 and year-end 2019. I would now like to turn over the discussion to Alain.

Good morning, everyone and welcome to both parties fourth quarter and full year 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.

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 M.D. any I'm, making this cautionary statement on behalf of each speaker on this call.

With me today is our president and Chief Executive Officer.

And our Chief Financial Officer, John The Bird reviewer financial results for the fourth quarter and yearend.

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I would now like to turn over to discussion today.

Alain Bellemare: Well, thank you, Patrick. Good morning, everyone, and thank you for joining us today. Let me start by saying that it is a busy time at Bombardier. We continue to make steady progress towards completing our turnaround journey, including finalizing our exit from commercial aerospace, successfully executing the last stages of the ramp-up at Business Aviation, and addressing our challenging projects at Transportation while completing the transformation. Before I talk about our outlook for 2020, I want to first recap the significant progress made in 2019. While financial performance at Transportation was disappointing, Bombardier ended 2019 in a much stronger position than we started. Our transformation in aerospace is largely completed. Last night, we announced an agreement with Airbus and Investissement Québec to exit the A220 partnership. This is the final step to exit commercial aerospace, and it is a big deal.

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

Let me start by saying that it is a busy time at Walmart.

We continue to make steady progress towards completing our turnaround journey, including.

Our exit from commercial aerospace.

Successfully executing the last stages of their ramp up at business.

Aviation and addressing our challenging projects at transportation, while completing their transformation.

Before I talk about our outlook for 2020 I want to first recap the significant progress made in 2019.

Well financial performance Transportation was disappointing Barbara <unk> ended 29 gene you know much stronger position then we started or transformation in aerospace is largely completed.

Last night, we announced an agreement with Airbus and in this market and the smoke get back to exit the age of 20 partnership.

It's just a final step to exit commercial aerospace and it is a big deal.

Alain Bellemare: You will recall in 2016, our commercial aerospace business lost approximately $400 million and was consuming over $1 billion in cash. Addressing this was critical to our turnaround, and it is now behind us. Over the past few years, we have successfully dealt with our underperforming assets, selling the Q400 and CRJ programs. We positioned the C Series, now the Airbus A220, to achieve its full potential under Airbus control, and we monetized our commercial aerostructures business with the sale to Spirit. With our exit from the A220, we have improved Bombardier's cash position by roughly $1.3 billion, and we have completely eliminated any future funding obligations for the A220 program.

Recall, and 2016 or commercial aerospace business lost approximately 400 million daughters, and whats consuming over 1 billion daughters and gosh.

Addressing this was critical to our turned around and it is now behind us over the past few years, we have successfully though what our underperforming assets setting to Q4 hundred and she archer programs.

Position the C series now the Airbus to 22 achieved its full potential onto <unk> Airbus control.

And we monetized our commercial Aero structures business with this out to spirit.

Exit from the eight to 20, we are improve wallboard geese cash position by roughly $1.3 billion.

And we have completely eliminated any future funding obligations 48 to 20 program.

Alain Bellemare: This transaction, combined with the previously announced aerospace divestitures, will generate more than $1.6 billion in cash proceeds and eliminate close to $2 billion in liabilities and future commitments. Our liquidity position remains strong, with pro forma cash on hand of more than $4 billion and $5.5 billion in liquidity. This gives us the necessary flexibility to complete the turnaround. A few thoughts as we turn the page on commercial aerospace. First, we are incredibly proud of the many achievements and tremendous impact Bombardier has had on the commercial aerospace industry. We are equally proud of the responsible manner in which we have exited commercial aerospace, preserving jobs and reinforcing the aerospace cluster in Quebec and Canada. We are confident that the Airbus two twenty program will enjoy a long and successful run under Airbus and Quebec's leadership.

This transaction.

Fine with the previously announced aerospace divestitures.

Well generate more than $1.6 billion in cash proceeds.

And eliminate close to $2 billion in liabilities and future commitments.

Our liquidity position remained strong.

Pro forma cash on hand of more than $4 billion and 5.5 billion in liquidity.

This gives us the necessary flexibility to complete the turnaround.

A few thoughts as we turn to page on commercial aerospace.

First.

We are incredibly proud of them, many achievements and tremendous impact well boggy outside on the commercial aerospace industry.

We are equally proud of their responsible manner in which we have exited commercial aerospace.

Preserving jobs and reinforcing the aerospace cluster in Quebec in Canada.

And we are confident that the Airbus to 20 program well enjoy long and success will run on <unk> Airbus and Quebec's leadership.

Alain Bellemare: Our Bombardier employees, who have played a key role in designing and bringing this incredible aircraft into the market, should be very proud, and we thank them for their many contributions and hard work. For Bombardier, our future in aerospace is with our industry-leading business jet franchise, and we see tremendous opportunities. As you saw with our Q4 results, business aviation performance is tracking right on plan, and 2020 will be another year of significant growth. In 2019, we completed the consolidation and streamlining of our aerospace assets and capabilities into a single Bombardier Aviation business unit. We successfully ramp up production of our flagship Global 7500. David and the team have successfully navigated the transition to full-scale production. This included the full integration of the wing operations acquired from Triumph last year.

Billboard employees with played a key role in designing and bring this incredible aircraft into that market should be very proud and we think then for her many contributions and hard work.

Furthermore, buggy our future in aerospace is when our industry, leading business jet franchise, and we see tremendous opportunities.

As you saw what our Q4 results.

Business execution performance is striking right on plan.

2020 will be another year of significant growth in 2019, we completed the consolidation and streamlining of our aerospace assets and capabilities into a single well barkeep infusion business unit.

And we successfully ramp up production of our flagship they'll go 7500.

David and that team have successfully navigated the transition to full scale production.

This included the full integration of the wing operations.

Word from trounced last year.

Alain Bellemare: In 2020, we expect that deliveries will accelerate, roughly tripling our 2019 output. We currently have 12 Global 7500 in service. The fleet leader has logged more than 1,000 flight hours and flown almost 500,000 nautical miles. In-service performance and reliability have been outstanding. The aircraft continues to set records and win awards for performance, fuel efficiency, and cabin comfort. In 2019, we also certified and brought into service the Global 5500 and 6500 on time, on budget, and with better than expected performance. Bombardier has the best product portfolio in the industry with our new Globals, Learjet 75 Liberty, and the market-leading Challenger family.

And 2020, we expect that deliveries will accelerate roughly tripling or 2019 output.

We covered jointly Abbott doesn't go. So then if I wondered in service the fleet leader as logged more than 1000 flight hours and flown almost.

Million nautical miles.

In service performance and reliability I've been outstanding.

The aircraft continues to set records and when I words for performance should have been should.

Fuel efficiency and cabin gone for.

In 2019, we also certified and brought into service their global 55, and 6500 on time on budget and with better than expected performance.

Robert de as the best product portfolio and industry. What are you go goes.

Jet Liberty 75, and a market leading challenger family.

Alain Bellemare: Our aftermarket growth strategy also remains on track, delivering double-digit organic growth in 2019, and we are successfully executing on major expansion projects around the world, including new facilities in Singapore, London, and Miami to better support our customer worldwide and our large in-service fleet of over 4,800 aircraft. Bombardier Aviation has great momentum, and we expect another strong year in 2020 with very solid organic growth. Turning now to transportation, where we are focused on completing the transformation. While our financial performance in Q4 was disappointing, we continue to make significant progress addressing our legacy projects. We have completed deliveries in New York, Toronto, and Crossrail. We have nearly completed production for the LOTRAIN projects and deliveries have just started. At SBB, we have 31 trains in service up from 0 a year ago.

Our aftermarket growth strategy also remains on track.

Delivering double digit organic growth and 29 team.

And we are successfully executing on major expense expansion projects around the world, including new facilities in Singapore, London, and May Miami to better support our customer well worldwide and our large in service fleet of over 4800 aircraft.

Nobody had fusion as great momentum and we expect another strong year and 2020 with very solid organic growth.

Turning now to transportation well, we are focused on completing the transformation.

Well our financial performance in Q4 was disappointing we continued to make significant progress addressing our legacy projects.

We have completed deliveries in New York, Toronto and Crossrail.

We have nearly completed production, Florida loads rain projects and deliveries I've just started.

As baby, we have 31 trains and service.

Well from zero a year ago.

Alain Bellemare: This has been a very complex project, and we now have delivered half of the order. The trains are performing very well, and we continue to work very closely with the customer. In Q4, the team was driving heavy workload to achieve key technical milestones, resolve outstanding commercial claims, and rebaseline our delivery schedule in the UK and Germany. We ran into a number of challenges. For example, the LOTRAIN multi-unit software certification came later than expected, pacing the schedule reset. As I just said, these trains are now being delivered. Commercial settlement costs also came in higher than anticipated as we took action to put a number of outstanding claims behind us.

This has been a very complex project and we now have delivered Oh Dear order.

The trains are performing very well and we continue to work very closely with a customer.

In the fourth quarter.

Our team was writing heavy workload to achieve key technical milestones resin resolved outstanding commercial claims and re baseline or delivery schedule in the UK and Germany.

And we run into a number of challenges for example, they don't drain multi unit software certification game later than expected pacing the schedule risk reset as I. Just said these trains are now being done have hurt.

Commercial settlement costs also came in higher than anticipated as we took action to put a number of outstanding claims behind us.

Alain Bellemare: As we told you in Q3, there would be some volatility in the near term as we work to complete our large challenging projects and reposition BT for more stable earnings growth and cash generation. We are confident in the growth fundamentals at BT, and we continue to win in the marketplace. In fact, total order intake in 2019 reached a record $10 billion. Almost 70% of these orders came from service contracts, signaling projects, IRA use platforms, or options on existing rolling stock contracts. These carry higher margin and much lower execution risk. In closing, Danny and his team are executing on all projects with discipline, and they are focused on completing the turnaround at BT. For our 2020 outlook, we expect strong double-digit revenue growth to more than $15 billion.

As we told you in Q3.

Be some volatility in the near term as we work to compete or large challenging project and reposition BT for more stable earnings growth and cash generation.

We are confident in the gross fundamentals at B G and we continue to win in the marketplace in fact.

Total order intake and 29 gene reached a record $10 billion.

Almost 70% of these orders came from service contracts signaling projects I reuse platforms, our options on existing rolling stock contracts.

<unk> carry higher margin and much lower execution risk.

In closing Danny and his team are executing on all projects with discipline and are focused on completing the turnaround at BT.

400, 2020 outlook, we expect strong double digit revenue growth to more than $15 billion.

Alain Bellemare: We are driving margin expansion in both businesses, and we expect consolidated free cash flow to be positive excluding RVGs. Let me stop here and turn it over to John to review our Q4 results and walk you through our 2020 outlook.

We are driving margin expansion in both businesses.

And we expect gone so they did free cash flow to be positive excluding rpgs.

Let me start air and turn it over to John to review, our Q4 results and walks you through our 2020 out.

John Di Bert: Thank you, Alain. Good morning, everyone. We had a busy year at Aviation. We successfully ramped up the Global 7500, certified the Global 5500 and 6500, and continued to grow our backlog and aftermarket business. We also reshaped the portfolio by exiting commercial aircraft and monetizing underperforming assets, generating total proceeds of over $2 billion from deals announced over the last 12 to 18 months. With a focused aviation franchise, we were able to simplify our cost structure and integrate all of our engineering and manufacturing activities, creating synergies and allowing for margin expansion as we grow. At Transportation, although financial performance did not meet our expectations, we stabilized production, achieved important technical milestones, improved customer relationships, and resolved commercial issues on key contracts. Achieving these goals came with significant volatility, and this continued through the Q4.

Hi, Joe and good morning, everyone.

We had a busy year at aviation, we successfully ramped up the global 7500 certified the global 55, and 6500 and continue to grow our backlog and aftermarket business.

We also received the portfolio by exiting commercial aircraft and monetizing underperforming assets generating total proceeds of over $2 billion from deals announced over the last 12 to 18 months.

With a focus aviation franchise, we were able to simplify our cost structure and integrate all of our engineering and manufacturing activities, creating synergies and allowing for margin expansion as we grow.

I transportation, although financial performance did not meet our expectations, we stabilize production achieved important technical milestones improve customer relationships and result commercial issues on key contracts.

Achieving these goals came with significant volatility and discontinued through the fourth quarter.

John Di Bert: Our prudent cash and liquidity approach has served us well in navigating this volatility, and our proactive management of debt maturities continues to offer the necessary runway to turn the business to positive free cash flow. With the announcement on the ACLP, we are further increasing our liquidity by adding close to $600 million of cash on hand, providing us with even more operating flexibility. The sale of our remaining stake in the A220 also preserves approximately $700 million in additional cash over the next 24 months, eliminates liabilities associated with our existing position as an aerostructure supplier to the JV, and cancels the $100 million warrants that were issued to Airbus in 2017.

Our prudent cash and liquidity approach has served us well in navigating this volatility.

And our proactive management of debt maturities continues to offer the necessary runway to turn the business to positive free cash flow.

And with the announcement on the CLP, we're further increasing our liquidity by adding close to $600 million of cash on hand.

Providing us with even more operating flexibility.

The sale of our remaining stake in day to 20 also preserves approximately $700 million in additional cash over the next 24 months.

Eliminates liabilities associated with our existing position as an aerostructure supplier to the JV and canceled the 100 million all 100 million warrants that were issued to Airbus in 2017.

John Di Bert: While this transaction comes at a $1.6 billion accounting write down, it improves our overall liquidity position by close to $1.3 billion. Let me be clear: We are in solid liquidity position with over $4 billion of pro forma cash, including proceeds from announced transactions, and $5.5 billion of available liquidity with no meaningful bond maturities until December 2021. Let me now turn to a review of our two segments and our 2020 outlook. Starting with Aviation, where again this past year, we continued to drive stronger financial performance. When looking at the business aircraft activities alone, revenue in 2019 accounted for $5.4 billion of the total $7.5 billion at Aviation. These activities grew 8.5% organically, despite some year-end deliveries shifting into 2020.

So while this transaction comes at a 1.6 billion dollar accounting write down it improves overall liquidity position like close to $1.3 billion.

Let me be clear, we are in solid liquidity position with over $4 billion of pro forma cash, including proceeds from announced transactions and 5.5 billion of available liquidity with no meaningful bond maturities until December 2021.

Let me now turn to a review of our two segments in our 2020 outlook.

Starting with aviation, where again this past year, we continue to drive stronger financial performance.

When looking at the business aircraft activities alone revenue in 2019 accounted for 5.4 billion of the totaled 7.5 billion at aviation.

These activities grew 8.5% organically despite some year end deliveries shifting into 20 twond.

John Di Bert: The remaining $2.1 billion in revenues are mostly non-recurring as we expect to close the transactions with MHI, Spirit, and Airbus at various points in 2020. Growth in Aviation in 2019 was driven by business aircraft with Global 7500 deliveries and increasing aftermarket activities. These same two drivers are expected to significantly grow Aviation's revenues in 2020 on a comparable basis, meaning excluding revenues from ongoing divestitures. This assumes 160 or more aircraft deliveries, including a significant acceleration of Global 7500s. Turning to earnings. In Q4, as deliveries of early Global 7500 production aircraft picked up, our adjusted EBIT margin was 5.9%. For the year, the margin was 7.1%, in line with guidance, and 70 basis points better than 2018, including higher amortization driven by Global 7500 deliveries.

The remaining 2.1 billion in revenues are mostly nonrecurring as we expect to close the transactions with <unk> spirit and Airbus at various points in 2020.

Growth in aviation in 2019 was driven by business aircraft with global 7500 deliveries and increasing aftermarket activities.

You seem to drivers are expected to significantly grow aviations revenues in 2020 on a comparable basis, meaning excluding revenues from ongoing divestitures.

This assumes 160 or more aircraft deliveries, including a significant acceleration of global 75 hundreds.

Turning to earnings.

In the fourth quarter deliveries of early global 7500 production aircraft picked up our adjusted EBIT margin was 5.9%.

For the year, the margin was 7.1% inline with guidance and 70 basis points better than 2018.

Including higher amortization, driven by global 7500 deliveries.

John Di Bert: On EBITDA, the 2019 earnings improvement is even more meaningful, with Aviation's margins increasing 200 basis points year over year to 10.8%. Looking forward to 2020, we expect the EBITDA margin expansion to continue at a similar pace. As new Global aircraft production continues to intensify, we expect Aviation's EBIT margin in H1 2020 to remain in the mid-single-digit range. By mid-year, as we move beyond the 25th production aircraft, we expect the production learning curve to drive higher margins, supporting an expansion of full year EBIT margins over 2019. In summary, our Aviation business continues to operate with discipline and is supported by its industry-leading $14.4 billion backlog. In 2020, we are completing the reshaping of the portfolio, fully ramping up production, and continuing to streamline the operations in line with our turnaround goals.

On EBITDA. The 2900 earnings improvement is even more meaningful with aviations margins, increasing 200 basis points year over year to 10.8%.

Looking forward to 2020, we expect EBITDA margin expansion to continue at a similar pace.

As new global aircraft production continues to intensify we expect Aviations EBIT margin into first half 2020 to remain in the mid single digit range.

By mid year as we move beyond the 25th production aircraft, we expect the production learning curve to drive higher margins supporting an expansion full year EBIT margins over 29 team.

In summary, our aviation business continues to operate with discipline and is supported by its industry, leading 14.4 billion dollar backlog.

In 2020, we're completing the reshaping of the portfolio fully ramping up production and continuing to streamline the operations in line with our turnaround goals.

Moving to our real business.

John Di Bert: Moving to our Rail business. Our priority in 2020 is to largely complete challenging legacy projects and gradually restore the business's earning power and ability to generate cash. Our backlog today supports the stronger financial performance goal as we have been winning a healthier mix of higher margin and lower risk projects. In 2019, the achievement of milestones on challenging projects in the UK, Switzerland, and Germany required significant investments and additional costs, which had a meaningful impact on revenues and earnings. These investments and costs ultimately supported project delivery schedules, improved in-service reliability of trains, and customer resolutions. They led to charges of more than $500 million in 2019, including $350 million in Q4, significantly diluting adjusted EBIT margins down to a low of approximately 1% for the year.

Our priority in 2022, largely complete challenging legacy projects and gradually restore to businesses, earning power and ability to generate cash.

Our backlog today supports the stronger financial performance goal as we have been Winnie unhealthier mix of higher margin and lower as projects.

In 2019, the achievement of milestones on challenging projects in the UK, Switzerland, and Germany required significant investments and additional costs, which had a meaningful impact on revenues and earnings.

These investments and cost ultimately supported project delivery schedules improved in service reliability of trends and customer resolutions.

Let the charges of more than $500 million in 2019.

Putting 350 million in the fourth quarter significantly diluting adjusted EBIT margins to allow to a low approximately 1% for the year.

John Di Bert: These charges increased the share of projects with neutral or negative margins. In fact, 30% of the $8.2 billion revenue recorded in 2019 were significantly dilutive to margins. As we move to complete these projects in 2020 and 2021, we expect some gradual margin expansion even as the share of revenue from dilutive projects remains elevated. Looking at the 2020 outlook on a consolidated basis, we expect revenues to grow organically at double-digit rate to more than $15 billion compared to $13.7 billion realized from our sustaining activities in 2019. Most of this growth is anticipated from the planned increase of the Global 7500 deliveries at BA and from projects in the backlog at BT.

These charges increased the share of projects with neutral or negative margins.

In fact, 30% of 8.2 billion dollar revenue recorded in 2019 were significantly dilutive to margins.

And as we move to complete these projects in 2020 and 21, we expect some gradual margin expansion even at the show revenue from dilutive projects remains elevated.

Looking at a 2020 outlook on a consolidated basis, we expect revenues to grow organically double digit rate to more than $15 billion compared to 13.7 realized from our sustaining activities in 2019.

Most of this growth is anticipated from the planned increase of the global 7500 deliveries DBA and from projects in the backlog BT.

John Di Bert: EBITDA margin is forecasted to grow from 5.7% to approximately 7%, while EBIT margin expansion is expected to be closer to 50 basis points as a result of the additional amortization charge associated with higher aircraft deliveries. Our plan is supported by growing margins at BA, the elimination of the A220 equity pickup starting today, and a conservative view of BT's earnings as we complete the turnaround. Before I discuss the free cash flow outlook for 2020, let me give color on the Q4. We generated +$1 billion of cash in three months leading to 31 December, a typical solid Q4. However, with a $1.6 billion Q4 target, we knew our plan was a significant undertaking.

EBITDA margin is forecasted to grow from 5.7% to approximately 7%, while EBIT margin expansion expected to be closer to 50 basis points as a result of the additional amortization charge associated with higher aircraft deliveries.

Our pipeline is supported by growing margins it'd be a elimination of the eight to 20 equity pickup starting today and a conservative view views earnings as we complete the turnaround.

Before I discuss the free cash flow outlook for 2020, let me give color on the fourth quarter.

We generated $1 billion of positive cash in three months, leading to December 31, a difficult solid fourth quarter.

However, with a 1.6 billion dollar Q4 target when you are applying it was a significant undertaking.

John Di Bert: While we released $1.3 billion in working capital in Q4 by achieving many of our objectives, we did come up short due to timing of milestones and deliveries, primarily at BT. 2020 cash flows should benefit from these delayed cash inflows, but they will also be affected by the cash cost of the Q4 charges at BT. Our free cash flow expectations for 2020 remain unchanged versus three months ago. We expect to be marginally positive, excluding close to $200 million of RVG payments due in 2020. We view these payments as exit costs of our CRJ program, and they will be funded from the proceeds of its sale.

While we released $1.3 billion and working capital in Q4 by achieving many of our objectives. We did come up short due to timing of milestones and deliveries primarily BT.

2020 cash flows should benefit from these delayed cash inflows, but there will also be affected by the cash cost the Q4 charges BT.

And so our free cash flow expectations for 2020 remain unchanged versus three months ago.

We expect to be marginally positive excluding close to $200 million RPG payments you in 2020.

We view these payments as exit costs of our strategic Crj program and there will be funded from the proceeds of itself.

John Di Bert: Our 2020 free cash flow plan assumes stable CapEx year over year and a working capital release of CAD 300 to 500 million from the delivery of finished train inventory. We also expect free cash flow in 2020 to follow the typical quarterly pattern, with cash generation concentrated in Q4. For H1 of the year, cash usage is expected to be slightly better than last year, although it will absorb most of the CAD 200 million of RVG payments for the year. Let me now wrap up. We are committed to a stronger balance sheet and creating long-term sustainable value from the businesses. To achieve this goal, we have clear priorities in 2020. Continue to grow our business aircraft franchise by increasing deliveries and driving the learning curve.

Our 2020 free cash flow plan assumes stable capex year over year, and working capital release of $300 million to $500 million from the delivery of finished train inventory.

We also expect free cash went 2020 to follow typical quarterly pattern with cash generation concentrated in the fourth quarter.

For the first half of the year cash usage is expected to be slightly better than last year.

Although it will absorbed most of the $200 million of RBC payments for the year.

Let me now wrap up we're committed to a stronger balance sheet and creating long term sustainable value from the businesses.

To achieve this goal we have clear priorities in 2020.

Continued to grow our business aircraft franchise by increasing deliveries and driving the learning curve.

John Di Bert: Complete the ongoing commercial aircraft divestitures by mid-year, generating over CAD 1.6 billion in cash. Secure the industrial ramp-up at BT while we burn down challenging projects. As we've demonstrated, we will continue to manage liquidity prudently to protect and complete the turnaround and position ourselves for deleveraging. With that, operator, we're ready for our first question.

Complete the ongoing commercial aircraft divestitures by mid year generating over $1.6 billion in cash.

Security industrial wrap up at BT, what we burned down challenging projects.

And as we've demonstrated.

We will continue to manage liquidity currently to protect and complete the turnaround and position ourselves for de leveraging.

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

Operator 2: Thank you. Our first question is from David Strauss from Barclays. Please go ahead.

John Di Bert: Thank you. Our first question is from David Strauss from Barclays. Please go ahead.

Thank you.

If you have your question. Please press star one on your Touchstone telephone if you are using the speaker phone. Please lift your handset and then press star one.

Do you wish to Ken. So your question. Please press the pound selling sort of takes time for all participants please limit yourself to one question and one follow up.

First question is from David Strauss from Barclays. Please go ahead.

Good morning, Thanks for taking the question.

David Strauss: Good morning. Thanks for taking the question.

John Di Bert: Morning.

Good morning.

Alain Bellemare: Morning.

David Strauss: I just wanted to, I think, Alain, you said your future is aviation. Obviously, a lot of speculation out there in the press with regard to what you might do with BT. I guess, what has changed to kind of drive these potential divestitures, you know, given that you're still forecasting positive free cash flow in 2020, and you don't have any debt maturities until 2021?

So I just wanted to I. I think Alain you said your your future is is aviation, obviously, a lot of speculation and they're out there in the press with regard to.

Ted to what you might do with BP I guess, what what is change to kind of drive the the needs the potential divestitures given that you're still forecasting positive free cash flow in 20, and you don't have any maturity debt maturities until 2021.

Alain Bellemare: Good morning, David. We feel very good about where we are from a cash position. It gives us, like, plenty of options. Optionality is a good thing. What we've said is, like, we're looking at opportunities to accelerate the deleveraging phase of the turnaround plan. That is in that context that we've talked about looking at strategic options.

We feel good morning, and we feel very good about where we are where we are from a cash position. It gives us like get plenty of options. So optionality is a good thing what we've said is that we're looking at opportunities to accelerate that de leveraging phase of the turnaround plan. So that's that that is.

In that context that we've talked about looking at strategic options.

Okay.

David Strauss: Okay. On the Global 7500, I think previously you had been talking about 35 to 40 deliveries in 2020. Can you give us what that forecast is now, and what issues are you seeing in terms of getting Global 7500s out the doors? Thanks.

On the on that 7500, I think previously you had been talking about 35 to four need deliveries in 2020.

Can you can you give us what that forecast is now and what what issues are you seeing in terms of a of getting 75 hundreds out the doors.

Alain Bellemare: I think that, you know, 35 to 40 is still in the range. You know, that's for 2020. The production ramp-up is going extremely well right now. I mean, most of the aircraft are in the system for 2020. Last year, obviously, the challenges were on the integration of the acquisition wing from Triumph. A lot of work was deployed on that front. A lot of focus on the green side of the aircraft. This year, you know, towards the end of the year, was more on the completion side, and it's still the case today. The team is actively working at increasing capacity on completion. By and large, you know, most of the assets that we need for 2020 are somewhere in the system.

I think that you know sort of five to 47 arranged that's for that for 2020.

The production ramp up is going extremely well right now I mean, most of the aircraft R&D and assist them for a 420 20 and that you're obviously at a challenges where on the integration.

Of the acquisition wing from trial. So a lot of work was depending on that front. So a lot to focus on their dream a side of the aircraft. This year you know towards the end up there was more in the completion side and it's still the case today. So that team is actively working at increasing capacity on completion.

But by and large no most of the asset that we need for 2020 are somewhere in the system.

Alright, thanks very much.

David Strauss: All right. Thanks very much.

Alain Bellemare: Thanks.

Thanks.

Operator 2: Thank you. Our following question is from Cameron Doerksen from National Bank Financial. Please go ahead.

Alain Bellemare: Thank you. Our following question is from Cameron Doerksen from National Bank Financial. Please go ahead.

Thank you.

Following question, it's on the Cameron Doerksen some National Bank financial Please go ahead.

Cameron Doerksen: Yeah, thanks. Just to follow up on the, I guess, the potential divestiture or additional divestiture question. I mean, can you just talk about that at all about the process? I mean, maybe discussions on timing, when you might expect to make a decision here, or is this sort of a fluid situation and, you know, you're just exploring all of your options?

Yes. Thanks, So just a follow up on the I guess, the potential divestiture or additional divestiture question.

Just can you talk about.

Although the process I mean, maybe discussions on timing when you might expect to make a decision here or is this sort of a fluid situation and you just exploring all of your options.

Alain Bellemare: Well, as I said before, I think that we feel very good now with the completion of the move of our A220 to Airbus. It gives us, like, plenty of liquidity to do the right things. We are looking at our strategic options. As you understand, I mean, this is very sensitive. We believe that we have, like, very strong assets. We have a strong cash position now, and we're going to do it the right way.

As I said before I think that we feel very good now with.

The completion of the move of our at eight to 22 to Airbus. It gives us like cat plenty of liquidity to do that right things. So we are looking at our strategic options as you understand I mean this is very sensitive.

We believe that we have like very strong assets.

We have a strong cash position, though and now we're going to do it right away.

Cameron Doerksen: Okay. Just, I mean, maybe just a quick question on the, on your, the pension deficit. I mean, I see at the end of 2019, CAD 2.25 billion. I think that excludes the Belfast, Morocco, Aerostructures related pension deficit. I'm just wondering if you could talk at all about what the split is on the pension deficit between, I guess, the Transportation and then the remaining Aviation segments. Is it, just any kind of breakdown of that CAD 2.25 billion?

Okay, I just I mean.

Maybe just a quick question on the on your pension deficits Eminase at the end of the 2019.

2.25 billion I think that excludes the Belfast, Morocco aerostructures related to pension deficit I just wonder if you could talk at all that what the split is on the pension deficit between I guess, the transportation and then the remaining aviation segments of the.

Any kind of break down about 2.25 billion.

John Di Bert: Yeah. It's roughly, I'd say 40% BT, 60% BA in that ballpark.

That's a roughly 40% BTD, 60% in that ballpark.

Cameron Doerksen: Okay, perfect. Thanks very much.

Okay perfect. Thanks very much.

John Di Bert: No problem.

No problem.

Operator 2: Thank you. Our following question is from Robert Spingarn from Credit Suisse. Please go ahead.

John Di Bert: Thank you. Our following question is from Robert Spingarn from Credit Suisse. Please go ahead.

Thank you.

The following question is from a Rebecca thing going from credit Suisse. Please go ahead.

Robert Spingarn: Hey. Good morning.

Good morning.

John Di Bert: Morning.

Alain Bellemare: Morning, Rob.

Good morning, Ron I wanted.

Robert Spingarn: Hi, guys. Just John for you, a lot of moving pieces. You talked about $4 billion in cash, but given the timing on some of these moving pieces, if we just look forward to the end of 2020, if you keep the two primary businesses, BT and BA, you know, I think you're guiding to about $1 billion in EBITDA. What's the net debt position pro forma for everything, RVGs, cash out, pensions? What's your net debt to EBITDA pro forma for the two businesses for 2020 year-end?

Hi, guys just gone for you lot of moving pieces.

You're talking about $4 billion.

In cash and and but given the timing on somebody's moving pieces. If we just look towards the end to 2020.

You keep the two primary businesses BT and be a.

Yeah, I think you're guiding to about 1 billion in EBITDA, what's the net debt position pro forma for everything Rpgs cash out pensions, what's your net debt to EBITDA pro forma for the two businesses for 2020 year end.

John Di Bert: Well, you've got about $9 billion of debt, as you know, pension liability, $2 billion. I'd say that, you know, the total exit costs of all the commercial liabilities in the neighborhood of about half a billion dollars. So that's kind of your top number. We expect probably at the end of next year to be in the ballpark at the end of 2020 of, you know, I'd say approximately $4 billion. So you kinda get a number there. If you add the 3, you're somewhere probably around 12 versus 5.

You've got a you've got about $9 billion of that as you know pension liability $4 billion and I'd say that you know the total exit costs of all the.

The commercial liabilities in the neighborhood about half a billion dollar so that's kind of year.

Your your its up number and we expect probably at the end of next year.

To be in the ballpark or the end of 2020 of <unk> Prox $4 billion. So you've got to get a number there.

You are somewhere probably around 12 versus five.

Robert Spingarn: Okay. All right. That's very helpful. The other question's on the wing. Alain, you just talked about.

Okay, all right that's very helpful and the other questions on the way you just talked about 700 wing.

John Di Bert: It should be 12 versus 4.

Robert Spingarn: The 7,500 wing.

John Di Bert: Yeah. Just a correction there.

Robert Spingarn: Okay.

Just a correction there just okay just speak 12 versus four right. This at five I meant for.

John Di Bert: Want to just speak. 12 versus 4, right? I said 5, but I meant 4.

Robert Spingarn: Right. Okay. Just on the Global 7500, you mentioned, you know, the wing has been a gating factor. You took it from Triumph. Before you acquired it was losing about $200+ million in cash, US. How do we think about the progress there? What's the status of that wing and the cash burn there?

Right Okay.

Just on the 7500 you mentioned the wing has been a gating factor you took it from triumph.

Before you acquired it it was it was losing about 200 plus million in cash U.S.

How do we think about the progress there, what's the status of that weighing and the cash burn there.

John Di Bert: Yeah, you're absolutely right. I mean, and this did put pressure on us in 2019 as we're coming down the learning curve. As we took over, the team put a cost reduction plan in place to bring the cost of the wing down, and that's exactly what we're doing. That was additional pressure in 2019, and it is part of the Global 7500, you know, overall learning curve coming down over the next, like, 2 to 3 years. We're tracking as per plan right now. We're very pleased, you know, that we took over the wing. The most critical thing was to stabilize production and ensure security of supply, which we did in 2019, and it came with a bit of pain.

Yeah, you're absolutely right I mean does that put pressure on us in a in 2019 as work coming down the learning curve. So as we took over that team put a cost reduction plan in place to bring the costs of the wing at down and that's exactly what we're doing so that was additional pressure in 20 and a into it.

In 19, and it is part of the couple of 7500, no overall learning curve coming down over the next like two to three years. So we're tracking as per plan right. Now we're very pleased that we took over to the wing.

Most critical thing was to stabilize production and ensure security of certified which we did and 2019 and it came would have been of pain, but right now we're very pleased with.

John Di Bert: Right now we're very pleased with this, with the fact that we're owning the wing and that we're managing it. Hopefully moving forward, you know, we'll start reaping the benefits from this.

With this a with the fact that were owning the wing and that we're managing it. So openly moving forward. This will will start reaping the benefits from this.

Robert Spingarn: Can it get to break even in a couple of years?

Can't get to break even in a couple of years.

John Di Bert: That's the plan. On the wing and do better. The key is at the aircraft level, we are driving the learning cost, as per plan. That's the key here.

That's the plan on the on the on the wing and do it and do better and the key or is that at the aircraft level. We are driving the learning curves as per plan does that year.

Robert Spingarn: Okay. Thank you. Thank you both.

Okay. Thank you. Thank you both.

Yeah.

John Di Bert: Thank you.

Thank you.

Operator 2: Thank you. Our following question is from Seth Seifman from JP Morgan. Please go ahead.

John Di Bert: Thank you. Our following question is from Seth Seifman from JP Morgan. Please go ahead.

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

Seth Seifman: Thanks very much, and good morning. I think that you know you had mentioned kind of a similar pace of EBITDA margin expansion at aviation in 2020 versus 2019. Just to verify that, you know, that would take the EBITDA margin in aviation up to, you know, something in the high 12s, as you got about 200 basis points of expansion year on year in 2019. We can think about, you know, that margin on maybe a $7 billion business jet revenue base, and that's the contribution of business jets to that $1 billion of company-wide EBITDA.

Thanks, very much and good morning.

I think that I think you'd mentioned kind of a similar pace of EBIT dollar margin expansion at aviation.

In 2020 versus 2019 to just to verified that that would take.

EBITDA margin and aviation up to you know something in the eye in the high 12, it's got to about 200 basis points of expansion year on year in 2019, and we can think about that margin on maybe a 7 billion dollar business jet revenue base and that's the contribution of business jets to that billion dollars of company.

While EBITDA.

John Di Bert: Yeah, it's pretty good math, Seth.

Yeah, it's pretty good Matt said.

Seth Seifman: Okay. Just, I guess, the program, when we think about program tooling going forward, I think it was about CAD 280 million of kind of capitalized development costs in 2019. Where is that number in 2020, and what is it like at a normalized level?

Okay, Okay, and then just the.

I guess the program when we think about program tooling going forward I think it was about 280 million of kind of capitalized development costs in 2019, where does that number in 2020 and what is it like it a normalized level.

John Di Bert: I think you're gonna see a period here of, you know, some, flat spend. I think 2020, you should expect something very similar to 2019. I think that's, you know, kind of the expectation we have here over the next, let's say, you know, probably 18 to 24 months at least.

I think you're going to see if you're you know some are flat spend so I think 2020, you should expect something very similar in 19, and I think Thats you know kind of the the expectation we have you over the next Oh, probably can 24 months at least.

Seth Seifman: Okay, great. Thanks. Thanks very much.

Okay, great. Thanks, Thanks very much.

Operator 2: Thank you. The following question is from Walter Spracklin from RBC Capital Markets. Please go ahead.

Seth Seifman: Thank you. The following question is from Walter Spracklin from RBC Capital Markets. Please go ahead.

Thank you.

Following question from Walter Spracklin from RBC capital markets. Please go ahead, thanks very much good morning, everyone.

Walter Spracklin: Well, thanks very much. Good morning, everyone. Turning to your business jet margin cadence, John, you mentioned, I think it was mid-single digit EBIT in the H1, and then full year something greater than 20%. Can you talk a bit about what are the major hurdles that will or risks that would allow you to achieve those levels? Then as we go into 2021 and onward, what would kind of be the step function ramp that you would see from this business longer term?

So turning to your business jet emergent cadence John you mentioned I think it was mid single digit EBIT in the first half and then full year something greater than than 2020 can you can you talk a bit about what are the major hurdles that will or risks that would would.

I would allow you to achieve those levels and then as we go into 2021 and onward, what would kind of be the step function ramp that you would see.

From this business from this business longer term.

John Di Bert: I'd say that, in terms of 2020, it's really a matter of, you know, as we get through every tail, every unit, the first 25, 30 units, and then we start to really see some margin production from the aircraft as we get closer to the end of the year. I think that 2020 still is a ramp up year, a transition year, learning curve, but, you know, we see some tails, especially in the back end of the year, start to produce some profit. As you go forward, I would say that 2021 starts to get some normalized production, as you'll expect we get to a mature rate.

So I'd say that in terms of 2020 is really a matter of you know as we get through a every tail every units. So the first a 20 530 units and then you start to really see some margin production from the aircraft as you get closer to the ended the year I think that 2020 still is a ramp up year transition year learning.

Curve.

But you know we see some deals, especially in the back into the are set to produce some some profit as you go forward I would say that a 2021 starts to get some a normalized production as you will expect who gets what mature rate and then from that point on I think you've gotta business, including aftermarket, so which is a growing.

John Di Bert: From that point on, I think you've got a business including aftermarket, which is a growing part of the portfolio. Continued just good cost management and synergies in the portfolio. We have two great aircraft, the Global 5500 and Global 6500, that have come into service this year. Those are gonna be great aircraft as well that will produce, I think, some expansion. Overall, I think it's a solid double digit margin business when you look out longer term.

Part of via the portfolio continued the just good cost management and synergies in the portfolio.

Good aircraft in the 55 and 6500 have come into service. This year those are going to be great aircraft as well, though producing some expansion. So overall I think is a solid double digit margin business. So when you look out longer term.

Walter Spracklin: That's great. The second question here is similar on margins and BT. Once you're through these problem contracts, is it effectively when they're off the books, you can go right back to kind of your margin profile and you know, around the 8% level? Or is there some? You know, is it a more gradual process? Have you built in extra cost to deal with these that you'll have to get through? In other words, is 2020 gonna be a year that's still impacted by the problem contracts, and after that, could we see a fairly significant step up in 2021?

Great second question here similar emergence NBP once you're through these problem contracts is is it effectively when they're off the books you can go right back to kind of your your your margin profile and Oh, you know around the 8% level or is there some.

It was at a more gradual process have you built in extra cost to deal with these that you'll have to.

You'll have to to get through in other words is 2020.

Going to be a year, that's still impacted by the problem contracts and after that could we see a fairly significant step up in 2021.

John Di Bert: Yeah, it's a good question. You know, I mean, to be honest here, we have gone through some volatility, so it's been a bit tough. I think what you can see in our 2020 guide is that we expect that the portfolio still has that mid-single digit capability. You know, the bulk of the portfolio. In the short term, I mean, here over the next 12 to 18 months, we are continuing to work through some challenged projects, and those projects are largely margin neutral. At this point, what happens is that any true ups or adjustments go straight to the bottom line. It creates volatility, which is why we guide conservatively this year on a total margin for the business.

That's a good question then you don't need to be honest, your where we have gone through some volatility. So it's been a bit tough and I think what you can see an EUR 2020 guide is that we expected the portfolio still has a that mid single digits capability. So when you look at the bulk of the portfolio, but in the short term I mean, you're over the next 12 to 18 months, we are continuing to work.

Through some some challenge the projects and those projects are largely margin neutral.

His point, what happens is that any true ups or justin's go straight to the bottom line. So it creates volatility which is why we we got conservative this year on the total margin for the business will offer some room for BT volatility through 2020, and the fact that it matters that we put a lot behind us and we've got now to his work through the port.

John Di Bert: We allow for some room for that BT volatility through 2020. The fact of the matter is that, you know, we've put a lot behind us and we've got now to work through the portfolio through the next 18 months. When you look further out, very encouraged by the fact that we have built a strong backlog. It has a lot of follow-on work options and so on. We have good service components, signaling business. All of that, I mean, has been built over the last two, three years here on the strength of standardizing the platforms and improving the business. That's the benefit that we expect to get on a longer, more sustainable term.

Well go through the next 18 months when you look further out.

Very encouraged by the fact that Oh, we have built a strong backlog. It has a lot of a follow on work options and so on.

Good service components signaling business and all of that I mean, that's been built over the last two three years, you're on a on the strength of standardizing the platforms and improving the business and that the benefit that we expect to get on a longer more sustainable or term. So for a for BT I think that Oh, the objective here to be.

John Di Bert: For BT, I think that, you know, the objective here to be kind of mid to high single digit margins is still fully intact. We're working through 2020 and probably some parts of early 2021. Then after that, the portfolio should be, I say, much lower risk and more stable, and that should generate good cash, good earnings, and, you know, that's where we're completely focused, but we're also pretty excited.

Kind of mid to high single digit margins is still fully intact, we're working through a 2020 and probably some parts of really 21, and then after that the portfolio should be a seemed much lower risk and more stable and that should generate good cash good earnings and.

So.

The focus but we're also pretty excited.

Walter Spracklin: Okay. Appreciate the time.

I appreciate the time.

Thank you.

Operator 2: Thank you. Our following question is from Myles Walton from UBS. Please go ahead.

Walter Spracklin: Thank you. Our following question is from Myles Walton from UBS. Please go ahead.

Following question is from Myles Walton from you'll be yes. Please go ahead.

Myles Walton: Thanks. Good morning. I had a question for you on cash flow. I think free cash flow in the release talks about being positive in both businesses in 2020. Just making sure on a comparable basis, when I look at the free cash flow of BT Holdco, I think it was CAD -560 million in 2019. Are those kind of comparable numbers that you're gonna take BT to that level, or are they two different definitions?

Thanks, Good morning.

Yeah. That's a question for you on a cash so I think free cash flow in the release talks about being positive in both businesses in 2020.

And just making sure on a comparable basis when I look at the free cash flow of BT Holdco I think it was minus 560 million and 2019 those are those kinda comparable numbers that you're gonna take BT.

At that level or are the two different definitions.

John Di Bert: No, I'm not sure if I get this question fully, but we did have negative cash production at the BT in 2019, and that's very atypical. We did make some investments and as a result, that was a tough year for us, including some of the timing and the inventory that remains trapped at the end of 2019. With some of the work that was done through the year and particularly at the end of the year and kind of opening up and starting to be able to release product, we do expect to have release of the working capital through the year.

No I'm not sure if I get this question fully but we did have negative cash production.

In 2019, and that's very difficult.

We didnt make some investments.

As a result.

If you're for us.

The timing and the inventory there remains trap.

The end of 19, so with.

Some of the ER or the work that was on through the year and for the end of year kind of opening up.

These products, we do expect.

Release of working capital here.

John Di Bert: For us, that means that BT will go back to generating as it typically does, generating cash on a normal basis, but then also should benefit from the release of these projects and inventories that have not yet come through the system. BT really is a contributor to, I'd say, working capital relief in 2020.

For us that means that you will go back generating as it typically does generating cash a normal basis, but then also should benefit from the release of these.

Projects and inventories that have not yet for the system. So BT really is a is a distributed.

Working capital relief.

20.

Myles Walton: Mm-hmm.

John Di Bert: BA will continue to generate positive cash as it did in 2019, but also grow as the business continues to add top line, but also to improve margin with the learning curve on the 7500. Across the board, both businesses improving cash.

Yeah.

Generate positive fascism.

Yeah.

It will do to generate positive cash is that in my team, but also grill.

I top line, but also to improve margin with a with the the learning curve on the 75 on so across the board both businesses improving Josh.

Myles Walton: Mm-hmm. Okay. Just curious on cash taxes. I think all the cash taxes today are at BT. Just curious how far into the future does BA currently envision not having to have those cash taxes given all the divestitures that occurred?

Okay, and then just curious on ONTAP cash taxes, I think all the cash taxes today or at BT, just curious how how far into the future just be a currently envision not having to have those cash taxes, given all the investors that I've heard.

John Di Bert: Yeah. You're correct. The cash taxes are BT, and everything else is really de minimis. We expect that the positive tax situation for BA to sustain for quite a while. Nothing in the short term here that would generate any outflows of taxes for profitability at BA.

Yes, you're correct or the cash taxes or.

Everything else is really a de minimis, but oh, we expect that.

Positive tax situations for.

Or be a two to sustain for quite awhile. So nothing in the short term here, though it generates a outflows of taxes for profitability.

Myles Walton: Okay. Thanks.

Okay. Thanks.

John Di Bert: You're welcome.

Thank you.

Operator 2: Thank you. Our following question is from Fadi Chamoun from BMO Capital Markets. Please go ahead.

John Di Bert: Thank you. Our following question is from Fadi Chamoun from BMO Capital Markets. Please go ahead.

The following question is from Saudi Chamonix from BMO capital markets. Please go ahead.

Fadi Chamoun: Yes, good morning. Thank you. I apologize if these numbers were given out. There is just a lot of moving parts here. What's the CapEx for 2020 looking like?

Yes. Good morning, Thank you.

I apologize if anything on Brazil, given out they give just a lot of moving parts here, what's the capex was plenty plenty looking like.

John Di Bert: I'd say it's pretty stable to what we did this year. You're looking at about something in the 550 range.

I'd say, it's pretty stable to what we did this looking at about this in the five 550 range.

Fadi Chamoun: Okay, 5,550. Okay. The 160 aircraft you mentioned, this is all business jets?

Okay, if I could see okay and the the hundred 60 aircraft you mentioned this is all business Jeff.

Oh, we're going to have I think that Regis on a on the Crj side.

John Di Bert: We're gonna have, I think, three jets on the CRJ side, but you know, respectively the 160 is the jets, you know, on the business jet side, but it's the minimum is three.

Effectively the ones.

On the business jet side, but the minutes.

Fadi Chamoun: Okay. Last question on the I mean, given kind of the background we're hearing on divestiture and strategic initiative, how do you think of BA as a standalone company, and potentially from a cost of capital point of view? Obviously, this is a very cyclical business. Do you feel this is a business that can survive longer term as a standalone?

Okay and last question on the.

Given kind of the background, we're hearing on divestiture and strategic.

Initiative, how how do you think of via the Standalone company, a and potentially from a cost of capital point of view. Obviously this is a very.

Cyclical business or do you feel the this is the.

Business, it's going to survive longer time as a standalone.

Alain Bellemare: For sure we're not going to comment on that, Fadi. It's. I'll just say that this is an amazing business. It's like the best business aircraft franchise in the world with a very, you know, amazing product portfolio, you know, best brand in the industry, the Global, the Challenger, and Learjet. A very strong backlog. I mean, this is a very good business, and we're very excited by this business.

For sure we're not going to comment on that said he'd say, but let's just say that this is an amazing business. It's like the best business aircraft franchise in the world. What a very you know amazing product portfolio and on past brand and industry global the challenger and and here.

Very very strong backlog. So I mean this is a very good business and we're very excited by this business.

Fadi Chamoun: Okay. Thank you.

Okay. Thank you.

Thank you.

Operator 2: Thank you. Our following question is from Benoit Poirier from Desjardins. Please go ahead.

Fadi Chamoun: Thank you. Our following question is from Benoit Poirier from Desjardins. Please go ahead.

Following question is from then one well hear from Desjardins. Please go ahead, yeah. Good morning, everyone I'm just for a business solution could you maybe mention of provide some color about a weathered the booking in b was impacted by the noise around the strategic review and all.

Benoit Poirier: Yeah. Good morning, everyone. Just for business aviation, could you maybe provide some color about whether the booking in BA was impacted by the noise around the strategic review? Also, what was the specific reason that drove the slowdown in business jet services this quarter?

So what was the specific reason that drove the a slow down in the business just services this quarter.

On the on the overall March.

John Di Bert: On the overall market, I would say that nothing that we're seeing here. I mean, I think at the end of the day, we've got great products. They're well-positioned, and there's a lot of excitement around all the new aircraft we're putting out there. As you know, Challenger is the best value proposition in the industry as well. So our aircraft and our activity remains solid with the industry and given the new product entries that we have. You know, nothing to comment on the services. I think actually is doing very well.

No nothing nothing that we're seeing here I mean, I think at the end of the we've got great products to well positioned and there's lot of excitement around all the new aircraft, we're putting out there.

As you know challenger is is the the best value proposition and industry as well so our aircraft and our activity remains a solid within the industry and and given the new product. The entries that we have you know nothing to comment on the service that you actually is doing very well there they continue to grow.

John Di Bert: They continue to grow, making investments and, you know, there may be the impact of the fact that you had training businesses in the early part of the year and last year, but this year we did sell the training business somewhere early in the year. That might be a comparable explanation. Other than that, it's going well.

Making investments and there may be a the impact of the fact that you had training businesses.

The early part of the year in last year, but this year, we we did sell the training business somewhere in the years, so that might be a compare.

Explanation, but other than that so it's going well, okay and four to follow up John could you mention about the split in terms of free cash flow between the first stuff and the second half and also the split between be and BT.

Benoit Poirier: Okay. For the quick follow-up, John, could you mention about the split in terms of free cash flow between H1 and H2, and also the split between BA and BT overall for the corporate costs? Thank you.

Overall for the corporate costs. Thank you.

John Di Bert: Thanks, Benoit. No specific comments on BU cash generation. As I said before, it's a prior question. I think both will start to develop pretty good cash flows through 2020. That's an important part of how we get to our even positive cash flows for the full year. You know, with respect to H1, H2, I would just say that you know we will have the typical pattern here. Q1 we'll you know see some usage as we build up working cap and inventory for deliveries through the year.

Hi, Thanks have been why no specific comments on the you a cash generation as I said before it's a part question I think both will start to develop a pretty good cash flows.

Through 2020 in that so that's an important part of how we get to a two our even positive cash flows for a for the full year.

And with respect to first half second half I would just say that we will have the typical pattern here. So a Q1 or will that we'll see some the usage as we build up a working cap and inventory for deliveries through the year at the same time, we will have most of the RPG payments go through the first half of the or so.

John Di Bert: At the same time, we will have most of the RVG payments go through the H1, so that does put a drag as it's counted as part of free cash flow. In the H2, I think, you know, you're gonna see a lot of the release from BT start to move through the system, so that'll produce some solid cash flows from deliveries of working capital that's been trapped up. Of course, the Global 7500 continues to ramp through the year. It would be a good ramp, but at the same time, better in the H2. Q4 will be another big quarter, but I think, you know, more normalized this time around.

That does put a drag as its counted as part of free cash flow. The second half I think you're going to see a lot of the release from a from BT start to move through the system. So that will produce some solid cash flows from deliveries of working capital has been trapped up and then of course. The 7500 continues to ramp through the year would be a good rapidly.

I'm better in the second half so Q4 again, another big quarter, but I think in a more normalized this time around.

Benoit Poirier: Perfect. Thanks, John.

Perfect. Thanks, John.

[laughter]. Thank you I'm. Following question is from Noah Poponak from Goldman Sachs. Please go ahead.

Operator 2: Thank you. Our following question is from Noah Poponak from Goldman Sachs. Please go ahead.

Benoit Poirier: Thank you. Our following question is from Noah Poponak from Goldman Sachs. Please go ahead.

Hey, guys good morning.

Noah Poponak: Hey, guys. Good morning.

John Di Bert: Good morning.

Turning.

Noah Poponak: Hey, at this point, I'm actually just very confused as to what the strategy of the company is because, you know, your qualitative commentary sounds pretty good. You know, we're ending 2019 stronger than we started it. The BT challenged programs are making progress. The turnaround continues. But you've now sold several businesses, a few of which seemed kind of, you know, recurring revenue, high margin businesses. Rest of A220 out this morning at a number that I think was much lower than the market thought and certainly that you had on the books. You know, there's several media outlets reporting that you're in discussions on both sides of the remaining business. It's starting to look more like like an asset liquidation than a turnaround.

Hey, so at this point I'm I'm actually just very confused as to what the strategy of the company is because.

You know your qualitative commentary sounds pretty good. It's you know, we're ending 2019 stronger than we started at the BT challenged programs are making progress a the turnaround continues.

But you've now sold several businesses.

A few of which seemed kind of recurring revenue high margin businesses.

The rest of eight to 20 out. This morning. It had a number that I think was much lower than the market thought and certainly that you had on the books.

And you know there's there's.

Several media outlets.

Reporting that your though you're in discussions on both sides of the remaining business. So it it's starting to look more like like an asset liquidation then.

Noah Poponak: You know, I guess my question is, has this always been the plan? I mean, does this look like what the plan looked like when you started three years ago? Specifically, with the recent review of strategic alternatives, you know, why is there this sort of quick, you know, look to do all of this if the business is in fact getting better and turning around right now?

Then a turnaround so.

No I guess my question is is perhaps there's always been the plant I mean does this look like what the planned look like when you started three years ago.

And specifically with the recent review of strategic alternatives. You know why is there this sort of quick Oh, you know look to do all of this if if the business is in fact getting better and turning around right now.

John Di Bert: Well, in simple terms, Noah, it's like balance sheet. You know, that's it. It's not complicated. I will repeat that again. I mean, the reason why we're looking at strategic options is to accelerate, you know, the deleveraging of the business. That's the reason. That is the fundamental reason. We have, you know, a strong liquidity position. We have strong, you know, assets now. We have been doing a lot of cleanup over the past five years, you know, addressing some of the underperforming businesses, the Q400, the CRJ. You know, like, the C Series was the biggest challenge in 2015 when we joined the company. You know, we were losing a lot of money. It was a cash drain. Today, I mean, we've just, you know, finalized that, and the asset is at a good place.

Well in simple terms I know us like balance sheet and our that's it's complicated and I will repeat that again I mean, there reason why we're looking at strategic options is to accelerate.

That de leveraging of the business. That's the reason that is the fundamental reason and we have an all a strong liquidity position and we have strong you know assets now.

We had been doing a lot of clean up over the past five years, you know addressing some of the underperforming businesses that Q4 hundred Crj you know like the C series was the biggest challenge in 2015, when we joined the company we were losing a lot of money. It was a cash drain today.

I mean, we've just finalized that Andy asset is that a good place. So the strategy was always you know to exit commercial aircraft and we've done that very successfully and as I said in my comments, while protecting jobs. So would that we've done that in a very responsible manner. We.

Alain Bellemare: The strategy was always, you know, to exit commercial aircraft, and we've done that very successfully. As I said in my comments, while protecting, you know, jobs. With that, we've done that in a very responsible manner. We are now ending up with, like, two very strong franchises, the train side and the business aircraft side, a strong cash position, and we have options. We're gonna continue looking at our options to see if there's ways that we can accelerate the deleveraging phase of the turnaround plan.

Our no ending up with like two very strong franchises that train side and the business aircraft side as strong cash position and we have options and we're going to continue looking at our options to see if there's ways that we can accelerate de leveraging phase.

Phase of the turnaround plan.

Noah Poponak: Alain, why is there this urgency right now? If you've made the progress you've made, you're guiding to slightly positive free cash flow this year, you increased the liquidity already, you pushed out maturities. You know, the C Series program was several billion dollars to develop. You've now taken in $600 million. I guess I just don't understand the urgency right now on these asset moves relative to the progress that you are saying you have made in the underlying cash flows of good businesses.

But alain why why sort of the urgency right now.

You've made the progress you've made you're guiding to slightly positive free cash flow. This year you increased the liquidity already you pushed out maturities.

The C series program was several billion dollars to develop you've now taken in $600 million I guess I just don't understand the urgency right now on these asset moves relative to the progress that you are saying you have made in the underlying cash flows of good businesses.

Alain Bellemare: Yeah, no, it's not about urgency. It's about being proactive. It's very different. We have been managing this business in a very proactive way for five years straight now. We've always committed to preserving $2.5 billion of cash on hand and more as we were going through this very complex and all turnaround journey. Now we are sitting at a very good place, and we have options, and we're looking at all of the options. I guess this is what you would expect us to do, is to be proactive, you know, and look at how we can create value moving forward for shareholders.

No it's not about urgency, it's about being proactive it's very different and we had been managing this business in a very proactive way for five years straight no. We've always committed to preserving 2.5 billion daughters of cash on hand, and more as we were going to is very complex.

And I'll turn around journey and now we are sitting at a very good place and we have options and we're looking at all the all of the options and I guess. This this is what you would expect us to do is to be proactive.

And look at all we can trade value moving forward for shareholders.

Patrick Gobeil: We'll move on to our next question, please, operator.

Well move onto a or next question. Please oh.

Operator.

Operator 2: Thank you. Our following question is from Konark Gupta from Scotiabank. Please go ahead.

Patrick Gobeil: Thank you. Our following question is from Konark Gupta from Scotiabank. Please go ahead.

Thank you [laughter]. Following question, it's on the cardiac death from Scotiabank. Please go ahead.

Konark Gupta: Thank you, and good morning, everyone. Just wanted to follow up on the asset sales. You have C Series, CRJ, and Aerostructures, all three kind of divested here. You spoke about some of the debt numbers that you have on the balance sheet, and the pension and all those things. Just wanted to make sure these asset sales have they reduced some of the debt numbers on the balance sheet, including long-term debt or any other debt that you owe to the government or suppliers? I know about residual value guarantees, but anything else on the balance sheet that they have reduced? Is there any tax obligation that you owe from the sale proceeds?

Good morning, everyone, just or what to do a follow up on the asset sales. So see how C series C. Adrianne aerostructures, all three kind of divested here.

You spoke about some of the debt numbers that you had a lot about a sheet a AD and the bench and all the things just wanted to make sure these asset sales.

I have been reduced or some of the debt numbers on the balance sheet, including long term debt or any other debt that you go to the governmental suppliers I know about a restaurant better gotta piece, but anything else on the balance sheet that they have reduced and then is there any tax obligation that deal from the same policies.

John Di Bert: Yeah. Tax obligations, none. These were all the, you know, direct proceeds. We have plenty of tax attributes to absorb them. We've done an, you know, I think a tremendous job of de-risking the balance sheet through these divestitures, probably in excess of CAD 2 billion of liabilities. If you think about it, I mean, I'll just list them off. One is any future funding on the A220, and we talked about that today, CAD 700 million. We have significant pension plans for all these divested assets, and those have all been moved over to the buyer, probably in excess of CAD 400 million of liabilities reduced.

Yeah, So a tax a tax obligations and on a these were.

All the direct proceeds we have plenty of a tax attributes to absorb them.

We've done I think a tremendous job of de risking the balance sheet through these these divestitures probably in excess of 2 billion of a liability. So if you. If you think about it I'm you know just list them off one is any future funding on the 20, and we talked about that today 700 million.

We have a significant pension plans for all these are these divested assets and those have all been moved over to the wire probably in excess of 400 million of liabilities reduced government loans I would say on programs that.

John Di Bert: Government loans, I would say on programs that were supported for growth, and particularly the UK, you know, over $200 or 300 million there. I would say that on an RVG basis, I mean, if you recall in 2015, we started off with total potential exposure of over $2 billion. Today, essentially, we've moved off or settled or transferred all liabilities, except for about $400 or so million that we've retained, which are all settled and no longer moving. Of those $400 or so, about half of them come through in 2020 and the other half over the next couple of years, so between 2021 and 2023.

We're supported for growth in a particular, the the UK over a two $300 million, there and I would say that on RPG basis. I mean, if you recall in 2015, we started off with a total of potential exposure over $2 billion and today.

Essentially we've moved off for settled.

Or transferred all liabilities, except for about 400, or so million that we've retained which are all settled in the longer moving and of those 400 or so about half of them come through in 2020 in the other half over the next couple of years, so between 21 and 23.

John Di Bert: I feel very good actually about the de-risking of the balance sheet through all of the work that we've done. Essentially now I can focus on generating cash and using the liquidity on hand to start to work through the de-leveraging and the debt pay down phase eventually.

I feel very good actually about the de risking of the balance sheet through all of the work that we've done and essentially now can focus on generating cash and oh using the liquidity on hand to start to to work through the de leveraging and the that you don't fees eventually.

Konark Gupta: Okay. That's great, Nicola. John, thanks. Then secondly, on the liquidity position, obviously. You talk about more than $4 billion in cash position. Just wanted to understand. You have some free cash flow this year that's excluding the $200 million RVG payment. You are basically generating more cash, and then that should improve the cash position. Would you have any other cash outlay? You have preferred dividend. Would you have any dividends paid to the BT Holdco that you anticipate, and any other cash outlay that we have not factored in these numbers? Thanks.

Okay. That's good color John Thanks, and then secondly on the liquidity position. Obviously, so you talk about but more than four been another and cash position. So just wanted to understand so you have some free cash flow this year.

That's excluding the 200 dollar I read you payment. So you are missing the generating more cash and then so that should improve.

Cash position and then what do you have any other cash outlay you have preferred dividend.

Would you have any dividends paid to the BD holdco that do you anticipate and any other cash outlay that we have not factor. Then then they can be somewhat thanks.

John Di Bert: Yeah. Sure. No problem. I think below free cash flow, you, because of the way IFRS does accounting, there's probably somewhere around $75 to 100 million of lease liability payments that fall below the free cash flow line. We have probably somewhere in the neighborhood of $50 to 75 million of I call them separation or transition costs as we separate some of these businesses. That'll happen probably in 2020, and it'll probably happen again in 2021. We do some support in SLAs and other things as we move the assets to the new buyers. We put aside some cash for that. Essentially that's, you know, that's outside of free cash flow as well.

Yeah sure no problem I think below with free cash flow you because of the <unk> first as accounting Theres, probably somewhere around 75 to 100 million of or at least liability of payments that fall below the free cash flow line and then we have probably somewhere in the neighborhood of $50 million to $75 million of.

Yeah, I call them, a separation or transition costs as we a separate some of these businesses that'll happen probably in 2020 <unk> probably happened again 21, we do some support and facilities and the things as we move the assets to the new buyers. So we put aside some cash for that and essentially that's a that's the that's outside of.

John Di Bert: Long and short of it, I would say is that you've got lease liabilities, a couple of other payments for separation. The RVGs we talked about. That's kind of it. We had an initial payment at the beginning of the year for the C sale that we have made prior to it concluding the transaction. That's out of the system now. What's left is just the inbound, the divestitures that's gonna approximate about $1.05 billion to 1.06 billion.

Free cash flow as well, so long and short of it I would say is that a you've got a lease liabilities a couple of other payments for a separation.

Hi, good use we talked about.

And that's a that's kind of is we had a an initial payment at the beginning of year for the C. So.

That we've made a prior to its including the transaction.

That's out of the system now so what's left is just the inbound or the divestitures, that's going to approximate about a billion of 5 billion. So.

Konark Gupta: Just to be sure, nothing on BT, BTCDPQ, dividend payment?

So just to be sure nothing on beat the B D. C D. PQ a dividend Panna yeah. No. Good question. So we don't we don't expect a dividend payments in 2020, a we'll we'll reevaluate that during the year, but I expect probably as we improve the business will go back for dividend or probably 21, so for 2020 and don't expect any leach.

John Di Bert: Yeah, no, good question. We don't expect a dividend payment in 2020. We'll reevaluate that during the year, but I expect probably as we improve the business, we'll go back to a dividend, probably in 2021. For 2020, don't expect any leakage there. All this together, I'd say that, you know, we would say that, it's something around, approaching CAD 4 billion. If you think about the comment I made, said that we're about CAD 4 billion and change year pro forma. We had CAD 2.6 billion at the end of 2019. You add to that the divestitures, gets you to just about 4.

So all this together I'd say that you know, we would say that something around approaching four $4 billion. If you think about the comment I made so that we were about 4 billion a unchanged year, a pro forma with $2.6 billion at the end. The 19, you add to that the divestitures gets you just above four.

John Di Bert: I would say that if you take that, assume free cash flow, break even, deduct RVGs and maybe the other payments I mentioned, then you're still somewhere approaching CAD 4 billion end of year 2020.

I would say that if you take that assume free cash flow breakeven deduct RV g.'s and maybe the other payments I mentioned that you're still somewhere approaching $4 billion end of year 2020.

Konark Gupta: Perfect. Thanks for the call. Thank you.

Perfect. Thanks for the color. Thank you.

John Di Bert: Operator, we'll take our last question, please.

It or we'll take our less specialties.

Operator 2: Certainly. Our last question is from Stephen Trent from Citi. Please go ahead.

John Di Bert: Certainly. Our last question is from Stephen Trent from Citi. Please go ahead.

So to me.

Last question is from Stephen Chin from Citi. Please go ahead.

Thanks, very much guys. Good morning, just.

Stephen Trent: Thanks very much, guys. Good morning. Just two questions from me. Well, first question in terms of the transport segment, I'm wondering how you guys are thinking about marketing campaigns, you know, in terms of potential new business, especially in emerging markets. You know, kind of what's your view on what level of diversity we could see in that business longer term?

Two questions for me on first question in terms of the transport segment I'm wondering how you guys are thinking about marketing campaigns.

In terms of.

Potential new business.

Especially in emerging markets and do you know kind of what's your view on a what level of diversity, we could see in that business longer term.

Well good morning, as you as you heard this morning Theres like can we had a very very strong order intake in a in 20 or 2019 and one of the major project was a carol so we.

Alain Bellemare: Well, good morning. As you heard this morning, there was, like, we had a very, very strong order intake in 2019. One of the major projects was Cairo. We are competing around the world. That's the beauty of the train franchise. It's very global. We work in all parts of the world, sometimes alone and sometimes with partners in South Asia and China. We believe that the business is well positioned to keep growing, you know, on the top line front.

Our competing around the world. That's that's the beauty of the trained franchise franchise, it's very global and that we as we work and all part of the world.

Sometime alone and sometime with partners and a in a in South Asia and China. So we believe that business as well positioned to keep growing you know on to top line fraud.

Stephen Trent: Great. Thanks, Alain. Sorry, I had trouble getting onto your call, so I'd actually missed that comment. Just one last follow-up. You know, when we think about transport contracts in the EU versus outside of the EU, you know, is there anything more onerous about new contracts, either from a litigation perspective or government demands that maybe make those contracts a bit tougher versus other markets?

Great. Thanks, Atlanta, and I'm, sorry, I had trouble getting onto your call. So I'd actually miss that comment.

Just one last follow up when we think about.

The transport contracts and the versus outside of it you know.

Is there anything.

More onerous, how about you contracts either from a litigation perspective or.

The government demands that maybe make those contracts have been tougher versus other markets.

Alain Bellemare: I wouldn't say so. I think it's, you know, each customer, they have their own set of requirements and expectations. It's pretty much similar all over the world. It is a very global business. It's a solid business, solid growth. You know, it's like mid-single digit growth. It's big. Like, always, you know, a bit better than GDP grows. We are really focused right now on reuse, exercise of options. Working with the existing, you know, customer base that we have and new customers where they see the application of our existing platforms to suit their needs. I would say very global. I don't see a big difference between the EU and the rest of the world, whether it's like North America, Asia or other regions.

I wouldn't say so I think it's that you know each customer to add her own set of requirements and expectation. So Ah hey, it's pretty much similar over world.

It is a it is a very global business or it's a solid business. So that drove US you know it's like mid single digit add drove such a big it always know a bit better it and GDP growth and we aren't we didn't focus right now on reuse exercise.

Options, so working with the existing customer base that we have and new customers, where do you see the application of our existing platforms to suit their needs. So I would see very doable and there's no <unk> I don't see a big difference between you are to resume and the rest of the world.

What are is that like North America Asia.

Asia or or regions.

Stephen Trent: Okay. Let me leave it.

Oh, Okay, let me leave it.

Patrick Gobeil: Thank you, Steve.

Thank you Steve.

Stephen Trent: Thanks very much.

Alain Bellemare: Hey, thanks.

Thanks very much thanks.

Okay. Thank you operator that concludes our call.

Patrick Gobeil: Okay. Thank you, operator. That concludes our call. Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation. This conference is no longer being recorded.

Thank you.

The conference has now ended.

Please disconnect your lines at this time.

Thank you for your participation.

This conference is no longer being recorded.

Operator 3: Please note that this conference call has ended. Please disconnect your line at this time. Thank you. Please note that this conference call has ended. Please disconnect your line at this time. Thank you. Please note that this conference call has ended. Please disconnect your line at this time. Thank you. Please note that this conference call has ended. Please disconnect your line at this time. Thank you. Please note that this conference call has ended. Please disconnect your line at this time. Thank you. Un message en français suivra. Please note that this conference call has ended. Please disconnect your line at this time. Thank you. Un message en français suivra. Please note that this conference call has ended. Please disconnect your line at this time. Thank you. Note that this conference call has ended. Please disconnect your line at this time. Thank you.

Patrick Gobeil: Please note that this conference call has ended. Please disconnect your line at this time. Thank you. Please note that this conference call has ended. Please disconnect your line at this time. Thank you. Please note that this conference call has ended. Please disconnect your line at this time. Thank you. Please note that this conference call has ended. Please disconnect your line at this time. Thank you. Please note that this conference call has ended. Please disconnect your line at this time. Thank you. Un message en français suivra. Please note that this conference call has ended. Please disconnect your line at this time. Thank you. Un message en français suivra. Please note that this conference call has ended. Please disconnect your line at this time. Thank you. Note that this conference call has ended. Please disconnect your line at this time. Thank you.

Well this is pretty modest single family homes that WP.

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Opinion, that's good for that.

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Operator 3: S'il vous plaît, prenez note que cet appel conférence est terminé. S'il vous plaît, raccrochez votre ligne. Merci. Un message en français suivra. Please note that this conference call has ended. Please disconnect your line at this time. Thank you. S'il vous plaît, prenez note que cet appel conférence est terminé. S'il vous plaît, raccrochez votre ligne. Merci. Un message en français suivra. Please note that this conference call has ended. Please disconnect your line at this time. Thank you. S'il vous plaît, prenez note que cet appel conférence est terminé. S'il vous plaît, raccrochez votre ligne. Merci. Un message en français suivra. Please note that this conference call has ended. Please disconnect your line at this time. Thank you. S'il vous plaît, prenez note que cet appel conférence est terminé. S'il vous plaît, raccrochez votre ligne. Merci. Un message en français suivra.

Patrick Gobeil: S'il vous plaît, prenez note que cet appel conférence est terminé. S'il vous plaît, raccrochez votre ligne. Merci. Un message en français suivra. Please note that this conference call has ended. Please disconnect your line at this time. Thank you. S'il vous plaît, prenez note que cet appel conférence est terminé. S'il vous plaît, raccrochez votre ligne. Merci. Un message en français suivra. Please note that this conference call has ended. Please disconnect your line at this time. Thank you. S'il vous plaît, prenez note que cet appel conférence est terminé. S'il vous plaît, raccrochez votre ligne. Merci. Un message en français suivra. Please note that this conference call has ended. Please disconnect your line at this time. Thank you. S'il vous plaît, prenez note que cet appel conférence est terminé. S'il vous plaît, raccrochez votre ligne. Merci. Un message en français suivra.

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Operator 3: Please note that this conference call has ended. Please disconnect your line at this time. Thank you. S'il vous plaît, prenez note que cet appel conférence est

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This conference call has ended please disconnect your lines at this time. Thank you.

Okay.

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