Q4 2020 Bombardier Inc Earnings Call
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[music].
All participants please standby your conference is ready to begin good morning, ladies and gentlemen, and welcome to the Bombardier Fourthquarter and 40 and 2020 earnings conference call B.
We advise that this call is being recorded at this time I'd like to turn the discussion over to Mr. Patrick <unk>, Vice President Investor Relations for Bombardier. Please go ahead Mr. Gross.
Good morning, everyone and welcome to Bombardier as earnings from the fourth quarter and full year ended December 31 2020.
And 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 on the corporation. There are risks that actual events or results may differ materially from these statements.
For additional information on forward looking statements and the underlying assumptions please refer to the MD&A I'm.
I'm, making this cautionary statement on behalf of each speaker on this call.
With me today is our president and Chief Executive Officer, Inc.
And right.
And <unk>, Vice President and Chief Financial Officer, Mark The Muskie to review our operations and financial results for the fourth quarter and year ended December 31, 2000 and twice.
I would now like to turn over and the discussion to Eric.
Thank you Patrick good morning, everyone and thank you for joining us today.
Let me start this morning with a few general comments about the past year.
Clearly 2020 was one of the most difficult period for our company for our industry and for all of Us individually.
And Bombardier the year will be remembered from the challenges it brought but even more so for all our employees rose to meet those challenges and.
The onset of the pandemic our team acted swiftly to protect the health and safety of our employees to support government mandates to slow the spread of the virus and to support.
Our customer to the best of our ability.
As the crisis spread our people took immediate steps to reduce costs preserve cash and improve liquidity.
After absorbing the initial impact we moved quickly to reset our production rates and global supply chain to align with the new market condition and customer requirements.
This was a massive undertaking that would not have been possible without the commitment and hard work of many people across our company.
And I want to use the support unit to recognize and thank them all.
The past year was also a period of transformation from Bombardier.
As we worked through the crisis to complete our strategic repositioning to a pure play business Aviation company again. This was another huge undertaking.
And then a global pandemic, we successfully closed three of the largest industrial transaction of the year.
And the sale of our regional aircraft program to NHI.
The sale of our Aerostructures business to spirit.
And the sale of our.
Our rail business to all of them.
Completing three large transactions on.
Under the conditions, we experienced in 'twenty and 'twenty is a real testament to the skill and commitment of our people.
With these transactions behind US we are now entirely focused on designing building and servicing the world's best business jet.
So I'll focus my remarks this morning on.
On the business aviation market outlook and the steps, we're taking to increase profitability and cash generation as we continue to navigate the pandemic and prepare.
And for an eventual recovery.
As a starting point, we begin our journey with a solid foundation to build up on.
We have an unmatched product portfolio.
And our World class customer service, and that's work and incredibly talented employees.
And hopefully the worst of the pandemic is moving behind us with the global deployment of a vaccine now on the way.
We are further encourage by the momentum we saw in Q4.
As you saw in our press release. This morning, we ended 2020 with 44 deliveries, including a record 16 global 7500.
Cash generation was also strong at 523 million for aviation, which was ahead of plan.
And and order activity remained the LT with.
43 gross order in the quarter.
Key market indicators are also encouraging used inventory levels are coming down and pricing is trending and the right direction.
And if there is a silver lining to the pandemic. It is the attention it brought to the and and safety private air travel provides.
And the new customer it brought to our industry.
Of course, we are carefully looking at all these newcomers to private air travel will shape and drive day men when business and long range travel fully recovered.
Notwithstanding the positive momentum we are seeing it remains very difficult to predict the timeline to a fully to a full market recovery, which will not happen until borders reopen and international travel restrictions are lifted.
Assuming no major setback on vaccine deployment, we estimate it will likely take a few years for the industry to return to 2019 delivery level.
Given this outlook, we think it is best to be conservative and our planning, which is reflected in our 2000 and 'twenty one guidance as we see 'twenty 'twenty one to be a transition year.
For this year, we expect to see deliveries roughly in line with 2020.
Modest revenue growth, but incremental year over year improvement in EBITDA and free cash flow generation.
But the real story for Bombardier. This year is our return to profitability and the company wide initiatives, we're taking to transform the way we operate to drive productivity and efficiency and ensuring that we are profitable and the current market condition and prepared to scale up.
I have a lower cost basis at a lower cost basis, when the market recovers.
With our disclosure this morning, we announced a number of specific action with more to come.
Collectively we aim to generate 400 million in a recurring saving by 2023.
Specific actions include consolidating our global aircraft completion work in Montreal and Reeves.
<unk> option for our underutilized industrial space.
And reducing our workforce by approximately 16 on red position, bringing.
Bringing our global workforce to about 13000 people by year end.
Of course headcount reduction are always very difficult.
We regret seeing talented and dedicated employee leave the company for any reason.
But these reductions are absolutely necessary for us to rebuild our company.
While we continue to navigate through the pandemic.
We've also made the difficult decision to and the production of Learjet This year.
And this is a decision we did not take lightly.
With more than 3000 aircraft delivered since its entry into service and 1963, the iconic Lear jet has had a remarkable and lasting impact on business aviation.
And passengers all over the World Love to fly it as great aircraft and count on its unmatched performance and reliability.
However, given the number of new entrants in the light.
<unk> segment, and the challenging market dynamic we need to focus our future efforts on our more profitable global and challenger aircraft families.
Of course, we will talk to you to fully support the Lear jet fleet well into the future.
I lighting I lightning this more on this commitment today, we announced the launch of the Lear jet race or Remanufacturing program for the Lear jet 40, and the Learjet 45 aircraft. The racer. Remanufacturing program include a bundled set of announcements, including interior and exterior component you avionic I speed connectivity.
<unk> engine and enhancement and improved aircraft maintenance costs.
Even though we're winding down Lear jet production.
Bombardier is Wichita facility will come to you to serve.
As the company primary flight Test Center, and B key part of its global service and that's where.
We've also designated the Wichita as the center of excellence for our specialized aircraft business and expect the facility will play a leading role and the design and manufacture our future special mission and contract.
Beyond the action, we're taking to drive profitability in the coming years, we're focused on three things.
First and addressing our capital structure through debt debt reduction.
With all our divestiture now complete we're finalizing our debt management strategy and look forward to sharing the details with you shortly.
Second is growing our services business with the additional capacity, we're bringing on line with our major expansion project, and Singapore, London, Melbourne, and Miami will be well positioned for significant growth as the pandemic subsides.
And finally, we'll continue building and reinforce a winning culture to become an organization that is truly people and customer centric that value performance operational excellence and things spirit, a company that is transparent and authentic at all times and at every level.
And our upcoming Investor Day, we'll talk in more detail about each of these three areas and how we view 2021 as a transition year as we execute on our productivity actions.
Further mature the global 7500 production and begin to address our capital structure.
But for now let me stop here and turn it over the bar to discuss the details of our fourth quarter results and our 2021 guidance.
Thank you, Eric and good morning, everyone.
Let me start this morning by saying that I'm honored and excited to joined Bombardier at this point and its journey and.
I look forward to working with Eric and the entire leadership team to achieve the vision and the goals that Eric has described.
With all our divestitures now complete and the company strategically repositioned we.
And we now look forward to a period of stability to focus our attention on our operations.
And our capital structure.
As a starting point with the $3 6 billion and proceeds generated from the sale of B T <unk>.
C N opportunity to start healing our balance sheet.
Okay.
While at the same time.
We expect.
Pardon me just a moment please while at the same time positioning the company for a better long term future.
The restructuring actions, we announced this morning, our first step and that process.
They will eventually make our business stronger more profitable.
And importantly cash generative.
I know a lot hinges on our capital structure and.
And I believe that with significant cash on hand, and more to come as we monetize shares and all.
We have options.
And so I joined the December I've been looking at ways to optimize cash deployment.
And to reduce debt.
At this point I can tell you that we will be prudent disciplined.
And methodical and our deployment.
Perhaps even conservative recognizing that the business needs time to reach its full potential and.
And the path to a full economic recovery from the pandemic is still on Sir.
While we expect to finalize our cash deployment strategy and the coming weeks and to share it with you at our upcoming Investor day, we.
And we took our first step this past week towards repaying half of the $750 million drawn on the $1 billion secured facility and associated fees.
This repayment is required upon the sale of BT and represents a good use of our capital given the high cost of that facility.
So with that let's turn to our results and the outlook for 2021.
2020 was an unusual and challenging year in many ways, but the aviation business managed to finish strong and with significant momentum delivering 44 aircraft and the final quarter.
With business aircraft revenues of $5 6 billion for the year Bombardier is the only business aviation OEM to post growth for the full year with revenues up 3% year over year, driven by the global 7500.
Looking ahead, we are remaining conservative with our forecast and expect modest revenue growth for 2021.
Priority will be given to building backlog before increasing production rates as part of our goal to drive more predictability and better pricing, while reducing white tail exposure.
Consistent with these goals, we start 2021 with fewer open positions and a year ago.
And with early market activity pointing to improved order flow.
Potential upside to our 2021 plan comes from the services business.
Which could benefit from and early and sustained recovery and customer flight hours.
And are now hovering above 80% of pre pandemic levels.
From an earnings point of view 2020 margins were clearly suboptimal with adjusted EBITDA down to three 1% and negative adjusted EBIT.
While we expected earnings dilution from the ramp up of the global 7500.
And this was definitely compounded by the effects of the pandemic.
To offset the pandemic impact early measures were taken mid year to rightsize direct labor to match our reduced production rates.
But we also needed to revisit our entire operations and our manufacturing footprint to drive efficiency and productivity.
The actions Erik described earlier put us on a path to targeted cash savings of approximately $400 million by 2023.
For 2021, we expect approximately $100 million and contribution to EBITDA from these initiatives. While we also expect to spend approximately $50 million and restructuring charges.
As we start capitalizing on these savings and move down the global 7500 learning curve.
We are guiding to adjusted EBITDA of greater than $500 million for 2021.
And amortization stable at approximately $400 million.
The cost improvements expected on the global 7500 is the most meaningful earnings growth driver for the next two years and should contribute to gradual margin expansion as we progress through 2021.
This quarter, we are entering a steep portion of the learning curve as we move past the 50th production aircraft as.
As we do margin should gradually improve through the year.
Let's move on to free cash flow.
2020 was a very challenging year with cash usage from continuing operations, which excludes BT.
Approximately $1 9 billion.
This usage was largely driven by the impact of the pandemic on the order flow.
Particularly in the second and third quarters.
And on inventory as we reset our production rates.
It also included the full burden of interest cost on close to $10 billion of debt.
Fourth quarter free cash flow generation from continuing operations before interest and taxes was strong reached.
Reaching $523 million better than expected, despite repaying $160 million to support the wind down of aviation's reverse factoring facility.
We are encouraged by this performance led by record global and 7500 deliveries.
We now enter 2021 has a different less complex and more focused organization.
And with our cost optimization program stabilized production rates significantly.
Improving order environment, and reducing interest cost, we expect free cash flow usage from continuing operations of approximately $300 million for 2021 before onetime cash outflows, which I will describe shortly.
Our 2021 free cash flow plan includes working capital investments on the global 7500.
And factor stable capex year over year at around $200 million net of divestitures.
Our Capex plan for 2021 includes starting the construction of a new production facility in Toronto for the global launch.
And you'll recall that in 2018 Bombardier sold the downs of your complex, where green global aircraft are manufactured.
This required that we exited the building by 2023.
We plan to invest close to $150 million and 21 and a new state of the art building at Pearson Airport and.
And expected mostly fund this initial investment through proceeds from other building sales.
And as I mentioned, a minute ago, we do have some onetime cash outflows and 21.
That will reduce total cash usage to $500 million or better.
We estimate $200 million and nonrecurring outflows, which are largely tied to legacy issues.
They include the remaining balance of the reverse factoring program that is being wound down some RPG liabilities and finally, the restructuring cost I mentioned earlier.
While free cash flow usage and 'twenty, one as a meaningful improvement over 'twenty, we still have work to do as we look to reduce leverage to more sustainable levels.
This is clearly a priority for us and we will share more about our path to positive cash flow at our upcoming Investor day.
Looking at the current quarter were cash cash usage is typically highest during the year, we expect it to improve against the $760 million usage for the same quarter last year for continuing operations.
This quarter's free cash flow still includes most of the interest cost on $10 billion of debt.
And approximately $80 million out of this years 200 million onetime items I mentioned earlier.
So in conclusion, despite a difficult 2020.
And some continued uncertainty going into 2021, we are moving aggressively to restore margins and build the foundation to generate sustainable free cash flow and the future.
As Eric mentioned earlier, we will remain squarely focused on addressing our capital structure through debt reduction and growing our services business and building a culture focused on operational excellence.
I look forward to talking with you at our Investor Day on March 4th and sharing more about our plan for the next five years.
And with that I'll conclude my remarks, and we'll turn it back over to Patrick Patrick. Thank you. So we will now open up for questions I would ask you to keep these at a strategic level.
The IR team will be available throughout the day, Fred and modeling questions. So with that operator, we'll open it up for questions.
Thank you.
And if you have a question. Please press star one on your Touchtone telephone if you are using a speaker phone. Please lift your handset and then Chris one should you wish to cancel and your question. Please press the pound volume to allocate time for all participants please limit yourself to one question and one follow up.
Our first question is from Barnwell quantity.
<unk> capital markets. Please go ahead.
Yeah, Good morning, Eric Good morning bark.
First question on that day, but.
Good morning, Yeah, and in terms of EBITDA and longer term how should we be thinking you. You just mentioned some color about 'twenty and 'twenty, one, but with the potential to for further cost saving by 2023 should be.
Adding up the 400 million on couple of 500 million is it kind of the way investors should look at B.
Potential EBITDA generation and the longer term.
Yeah, So I think a better while your question is a very important one.
And the way, we foresee EBITDA right now as we are guiding this year, we're seeing a greater than 500 million for this year.
I think it's also important to recognize that the.
And cost saving program that we are talking about the day.
You know will bring us $400 million in 2023.
Part of the 500 this year, there's only a portion of it which is about 100, but theres also charges you know debt.
This year will happen that will not be recurring so.
From the program the net impact this year is around 50.
So so of course, the the program will have his full.
No impact in 2023 on top of it as you know.
And we are we've delivered already 50 airplane close to 50 airplane right now on the 7500. So the learning curve is b is getting behind us.
And the program learning curve is doing exactly that it is supposed to be a so it's going down airplane will will become more and more profitable moving forward. So that's going to be another significant brought a bucket of EBIT contribution.
And there is also the fact that we are growing our service business. So our service business.
We're looking for a different revenue mix and the future you know, where we have a bigger contribution from services and clearly also some some EBITDA again will come from debt from that business unit.
That's perfect that's great color thanks for the time.
Thank you.
Thank you.
Our following question is from David <unk> from Barclays. Please go ahead.
Thanks, Good morning.
Good morning, David.
So wanted to ask obviously you have yes.
And some onetime items and and free cash flow and in 2021.
How should we think about the longer term potential for the business to convert EBITDA.
And to free cash flow is it do you think this can be even more than a 20% 30% conversion business on an EBITDA longer term. Thank you.
Thank you yeah. Thank you. Thank you David and good morning and required here.
I think as Eric was describing.
With the on.
With the actions that are going to drive EBIT and youre going to have Keith obviously free cash flow move along.
And with the with the growth and EBIT as well.
One of the other factors.
And it's obviously point out is that as we deploy our cash to pay down debt, that's going to reduce interest costs and drive free cash flow as well.
The progress on the learning curve as Eric mentioned is going to drive both EBIT and free cash flow and we're going to continue to work on optimizing our cash structures as Eric was talking about Theres only $100 million of the 400 million benefit that we expect by 2023 that will come into that well.
Hit our numbers in 2021.
And we will continue to obviously watch our capex very carefully and keep it keep it relatively low as we benefit from having.
And aircraft fleet that is fully developed and well positioned without having to build new program.
I will have a bit more to say on that on your point on investor day around conversion, but hopefully that helps give you some color.
Thank you very much.
Thank you David.
Thank you.
Our following question is from Kamran Dirksen from National Bank Financial. Please go ahead.
Yes, Thank you and good morning.
First day, a clarification just on the $400 million and annualized cost savings or are you including in that number.
The benefit from moving down the learning curve on the global 7500 or is that.
Turning curve impact over and above the $400 million.
And the 4 million camera and so good morning first of all.
On the learning curve is not included.
The 400 million is really cost saving on different other field, but its not including the learning curve.
Is going to be over and above that $400 million. Okay. Perfect and then my I guess my main question here was just around the services business I mean Bombardier is made.
Fair amount of investment and expanding your service and network. What further investment is required I mean is there any significant capital that you need to invest over the next few years to grow that services business.
No.
And a nutshell, we pretty much announced everywhere, where we're building right now we are growing our facility in Singapore, we are already and the middle of finishing the year extension and the and big and.
We already announced Australia. So yes, there is it's part of our capital envelope that we have.
No mention so.
It's actually we're not planning any major investments. So so clearly those will be the investment that will allow us to capture more market, especially in those region and of course grew our business significantly.
Okay, that's great thanks very much.
Thank you.
Thank you our following.
And following question is from Robert Spingarn from Credit Suisse. Please go ahead.
Hi, good morning.
Good morning, Rob.
Following on the prior questions, maybe strategic like Patrick suggested but a little bit longer term, how do you see a few years out the mix of revenues between aircraft delivery and service and what sort of longer term and I'll be very direct here, what's the longer term EBITDA margin looked like so.
Once you get through all these learning curves all this cost savings.
Is this a 10% EBITDA margin is at 25, what are we looking at down the road.
So I think Rob clearly on the Investor Day, we'll give you a bit more color on to this but what I can see today is that you know we were guiding this year for 500 and more and we're announcing that we will have and extra contribution by 2023 or 400. So some of it will start impacting 'twenty one.
Some of it will be there'll be a further impact in 'twenty, two and the full impact in 'twenty three.
As we as we deliver more and more airplane and you saw we delivered 16 global 7500 last quarter. Our learning curve is going down very nicely and there'll be a bigger contribution of the margin there. So so.
I think just I am saying you know you can do the math and clearly you know we are focused right now on growing our EBITDA and having a nice cash flow generating coming from that business you know.
Year over year, So I guess.
We're on the management team here is very focused cash flow of course.
A significant part of the improvement also will come from our debt reduction as Mark just mentioned.
But clearly the EBIT right now and free cash flow is our main focus and we need to make.
Our number predictable as we know and that's what this management team is focused on right now so yesterday I said that we're conservative for this year as there is still a bit of uncertainty, but you know.
We foresee the future of being a lot more solid.
We should also be anticipating that the topline Bolton original equipment and and service would be somewhat higher two or three years out when youre doing that $900 million and.
Plus and EBITDA okay.
Yes.
Absolutely, yes, the service business will be a bigger piece of our business and as you know, it's a more resilient business. So it's a business we like.
And and I think it is represented right now and how we do allocate our capital we do capital allocation, where we believe we can have the best return and I think we foresee that are returning and services right now and this is why we're investing and that business you know with the with new site with growing our site and Singapore Miami.
And also Australia.
Okay, and then have you said of the 110 to 120 aircraft Youre going to deliver this year and 'twenty one what the mixes.
Yeah.
No for competitive reasons, we don't disclose exactly the product mix, but we feel pretty comfortable about our guidance between one seven and one point.
Okay. Thank you.
Thank you.
Thank you.
The following question is from Noah <unk> from Goldman Sachs. Please go ahead.
Hi, good morning, everyone.
Morning.
So in 'twenty and 'twenty, one or even after significant debt pay down.
With the cash you have the interest expense will still be higher than EBITDA and.
And so as we think through the forward and.
And are continuing to repair the balance sheet.
The challenge is you can't have positive free cash flow and Toby interest expenses last time, and EBITDA, but you cant pay down and the debt until you have positive free cash flow.
So.
One should do we need to think about a few years of cash flow, that's slightly negative or only slightly positive until you can ramp the EBITDA.
And or is there an opportunity to refinance what you have it seems like you could have significant interest savings, but I'm not sure where you are with.
The cost to refinance.
And I know, it's Bart. Thank you for the thank you for the question and it's a good question I mean, the first thing I would say is that our goal is to perform and generate free cash.
Cash flow positive.
The lower volumes that we're seeing today. So when you think about the cost reduction activities and the.
$400 million of benefit that we see by 2023 and that's the.
And the full $400 million and 2023, that's how we're describing it that will bring us a long way towards being free cash flow positive. So obviously, it's somewhere between this year and 2023 is when we start to see ourselves come into our free cash flow positive position.
There's a few factors other factors that are going to support this position, obviously, we plan to keep our capex relatively low and stable.
And in and around that $200 million level right. Now we do expect 22 on a free cash flow basis to be better than 'twenty, one and as we start to generate more positive and free cash flow will be and are positioned to pay down more of our debt and bring the interest expense down.
We're working today on our cash deployment plans and how we will use that money to reduce our debt and bring interest expense down and we will be and are positioned to share more on that with you.
At our Investor day on the fourth of March.
So hopefully that's helpful.
That's helpful and just one clarification and there for 2021.
You've mentioned I'm not all of the proceeds are available and it sounds like that's and we used all or partially related to shares from all stop how much of the proceeds are available to deploy in 'twenty and 'twenty one.
It'll be it'll be north of $3 billion will be available.
We've got.
The shares themselves today are worth about $600 million those become available to us in.
In may and we'll be deploying that cash at that time.
There is a little bit a little bit of the cash that will be tied up for a period of time and and in 'twenty, one as well, but we'll be working to to free that up and deploy into debt repayment as well.
It'll be north of 3 billion, but again, a little more a little more color probably on Investor day for you Okay.
Okay. Thanks, so much I appreciate it thank.
Thank you.
Thank you.
On <unk> question is from Tim James from TD Securities. Please go ahead.
Mr. James Your line is open you May proceed with your question.
Okay. Thank you and good morning.
And just wondering if you can talk about.
2020.
And this jet orders and and maybe as you look forward into 2021, how you're.
Pricing.
Aircraft, and and I mean, with a view to what type of margin profile longer term to the extent that you can.
And to help us shape.
And that.
Sort of long term thinking and that would be helpful.
Oh I see.
It's interesting here, it's Eric Thanks for the question Tim.
And clearly.
We had a solid sales activity in Q4. This was our best gross order activity and many years, but and in one quarter.
Our gross book to Bill is $1 43 versus <unk> 44.
The global 7500 deliveries accelerated much faster than orders of course.
And the backlog also decreased as we were claiming and all 12 position back from one of our customers, which eventually.
It will help us because we're going to be able to resolve those airplane and a better price and and obtain better margin on those airplanes, but clearly we saw also in Q4 with the level of activity.
Pricing already starting to come back. So this was very encouraging.
And we see that trend continuing and this quarter. So I guess you know.
And.
And beyond the pandemic unfold as we said earlier and.
We feel positive I think it's one of our objectives is to build backlog for us I think it brings stability to our business. So we are very focused on this right now and making sure that we keep the rate at the right level to rebuild backlog moving forward.
Thank you very much.
Thank you.
Thank you.
Following question is from Cai von <unk> from Cowen. Please go ahead.
Yes, thank you very much so.
Two questions on Biz jet first.
And what does your revenue estimate assume for growth and service you talk of the opportunity, but what have you assumed roughly for 'twenty 'twenty, one and secondly on the 7500.
Presumably it's going to start off the year being margin dilutive at what point do you think it can become.
Breakeven with the right margins equal to the rest of the portfolio and that better.
Good morning Kai, it's it's Bart here I'll, maybe address the second part of your question and then I'll ask you to repeat the first part because I just missed part of it but.
For the 7500, we're coming up on our 50th aircraft right away. So.
And so we're well along the learning curve now we do expect.
The aircraft to be turning profitable.
This year as we work through the significant learning curve improvements.
And by 2023, we see the 7500, reaching its at its full potential so we're going to be seeing benefit both this year and in 2022.
Could you just touch on the first your first.
Yes. The first part was on service you mentioned, all the opportunities and clearly departures are coming back. So so roughly what sort of a range should we look for service growth to be on this year.
So I guess.
One of the earning driver clearly will be.
Our growth and services this year and next year. So last year of course, we saw a bit of a slowdown because of the flying hours.
We are confident and the key driver of debt business.
We are.
We are expecting that the aftermarket to grow and and.
And in 2021 from from the bottom in 2020.
So I guess, you know and in a nutshell, we see more flying hours, which were very low last year, so which is important for us.
And I can tell you that our service center already pretty much pretty busy right now so which is a good thing for us we're pretty much fill up capacity right. Now. So we we we look at the at clearly 2020 was a bottom year and we see a growth in 'twenty, one and of course, our further growth and the 'twenty two and 'twenty three.
If I can follow up when do you expect to get back to 2019 levels.
Okay.
It is still a.
A bit of and unpredictable right now.
And as as you know the market and that's what we're seeing I think we're being prudent right now and potentially some of you will say, we're conservative and and that's all we want to look at the business right now but.
Clearly you know we see good sign but I think it's a little early to declare victory on the full market coming back but of course as the vaccine. You know is kicking in border are reopening international flight will happen today and look when.
When you look at business jet, we got about 87% at year end and we were back to about 80, 789% of the flight that we had pre COVID-19. If you compared the same period, which was very encouraging because there's pretty much very little low international flight. So I guess.
We are we feel that this is a recovering slowly but nicely and this of course will have an impact as airplanes are flying on our service business, which is already starting to see some positive signs.
Thank you very much thank.
Thank you.
Thank you.
<unk> question is from steady Shlomo from BMO. Please go ahead.
Thank you and good morning.
Okay.
A question on the services business when you when you kind of think about.
The active fleet that you have out there and.
How much youre doing and on that active fleet and the size of the opportunity obviously.
Made a lot of investment on the last two or three years too.
And I'm kind of expand the service and network and grab a bigger share and what this $1 billion and service business looked like five years out can it be a 1.5 like I'm just trying to understand the size of the opportunity going after and more services.
Yes.
So I think fairly this is a good question and of course, we've been putting a lot of <unk>.
Thinking through this right now, but when you look at our fleet today we.
And have about 4000 4800, almost 5000 airplane.
Flying out there.
We were not touching all of those airplane ourself and and we foresee a huge potential there and Thats why were building the capacity we've improve our service.
We want to make sure that we have the most competitive pricing and turnaround time, and the industry, which will attract business. So in terms of growing our market share there.
There is there's a there's clearly a nice potential for us to do that.
No. We are we have on.
Fly by the hour program called Smart part, which is also very popular.
And of course and offers us some some some also good potential we have also contract with some of the fleet operator.
Which are major and the fleet operator contract are growing right now in terms of number of airplane and of course as airplane aging they need more maintenance. So we do clearly see a nice upside potential there over the next.
Five years, so part of our Strat plan as I said and we will share more with you on March four we are we want to we're targeting a much bigger portion of our revenue to come from services and as and.
And as I mentioned earlier this is a more resilient business. This is a business that you know the <unk> is as much as it is pretty solid so we like that business and we want to grow with over the next over the next five years.
Okay. That's helpful and just a couple of quick follow ups.
If you can share with us what kind of book to sales.
And the cash flow guidance for.
2021 and.
And and.
This question came up a lot during this hour but.
If you can also share with us and maybe even a range.
What the global 7500 dilution effect on 'twenty and 'twenty, one guidance looks like and we can understand and on both the long term potential of the year I view mature this.
This non aircraft production line.
So we're targeting a book to Bill this year slightly higher than one.
And as things stabilize and so I think for the 7500, it's a bit lower than the one we have a bit of a reshuffle of our backlog right now one of the challenges and and I think we're making good progress. There is we had long lead time right now for a customer and a knock on our door right. Now you know there was not much availability.
And the next two years that was actually pretty much no availability on the 7500.
And and and on the other platform you know we had.
No.
Daily ability right away, so what we've been able to achieve and the last quarter and debt. We are continuing to progresses of course, we are reducing too.
Ah.
The backlog on the 7500, which is a good position to B and you know you want to be in and 18 to 24 months, which would be a normal window, which was higher than debt before and also you want to have more backlog on the other platform. So theres a bit of a shift and the backlog right now mix for us, which is good which will give us opportunity on the 75 on.
But we'll also.
And b more bring predictability for our business, having more backlog on the other platform. So that's how we're looking into that and we accelerated our delivery of course on the 7500 and and of course as we reduce the backlog will be able to pick up more orders. So overall and overall book to Bill Iron.
And then one but of course lower than the one on the 75 on that for this year.
I hope it's helpful value.
Thank you.
Thank you.
Thank you.
Blowing question is from Seth Knifeman from J P. Morgan. Please go ahead.
Okay, Thanks, very much and.
Good morning.
I guess just real quick on the we're I mean.
People have been asking for years about this.
Shutting down the production of the new chats and.
I assume there was a reason why that didn't happen and then kind of made the decision to go ahead.
Now so I guess what had been the advantage of maintaining that production and then why is it sort of no longer.
Necessary to have whatever that advantage was.
Okay. So I think one of the main reason right now is I want to make sure. The organization is very focused and.
And I think you know we have elected to compete and be a strong competitor on the challenger and global platform. So we'll bring focus this is where it's a question at some point when I say focus where do you allocate your capital what is your capital allocation strategy.
And and I think we are we believe right now that we have amazing product on the Lear jet but.
The product has a lot of competition. This is not the market segment that brings.
<unk>.
Profitability right now we are basically saying, let's focus on where we are.
Having a leading leading product and where basically you know we believe that the.
Margin will be will be better moving forward so and.
And again I think it's simple we're not abandoning.
On the customer support here, we will continue to maintain the thousands of airplane flying at their jet.
This morning, as I mentioned earlier were lunching, the Lear jet raised our program to.
To improve our arc.
And given opportunity to our customer to improve their debt 40 and 45.
But clearly that was the bulk of the decision focus and of course looking at the potential of that business moving forward.
And competitive landfill.
And we decided to make debt difficult decision, but to focus on the two product that brings most of the profitability.
Great. Thank you very much thank.
Thank you Seth.
Thank you. Our following question is from Kentucky Gupta from Scotiabank. Please go ahead.
Thanks, and good morning, everyone and welcome Bart.
And perhaps a question for you about here, what's the what's the minimum cash balance for the business do you think that's right.
Going forward and.
And can you suggest any cash transaction and so you anticipate this year outside of free cash flow, but you guided and the $1 $9 billion of debt that's due.
And I think pending from the recent sales so any other kind of cash payments that we have not kind of talked about on this call.
Yeah, Thank you Conor and and.
Good morning, Thank you for the welcome.
We are right now and the middle of working on what we believe to be the optimal amount of cash to hold on balance sheet.
We are on.
Monitoring the market recovery, obviously as Eric said, we're planning on a on a conservative basis and to be prudent and and not planning for.
<unk> much growth this year in terms of overall aircraft sales so.
We do need to obviously keep cash on the on the balance sheet to absorb our intra quarter fluctuations, we think that is likely and the 1 billion $5 to $2 billion range.
But we'll be able to provide a little more color on that on our investor day as well, we do expect though that.
And that over time that that number will go down as we move to become more free cash flow positive and we have additional cash to deploy into into debt repayment in terms of other sources of cash.
Cash that you mentioned other asset sales or things that might come in and I did mentioned and my comments that we do have.
A couple of.
And I'll call. It property sales that we're looking at this year.
That should bring and the order of somewhere north of $100 million.
Okay.
Yes, and that's absolutely that helps and just a clarification on the on the full year delivery guidance. I was just wondering if you guys have any loss to Lear jet deliveries there.
And I'm, sorry, I missed I missed the end of your questions on on what.
Yes, sorry for the full year delivery guidance 110 to 120 I was hoping if again.
And I suggest if there are any lear jet and and the reason that number.
Yeah, there is learjet and debt numbers so.
Announcing today that we're gonna be stopping production by year and so we still have our work and are in the and the in our facility right now we're going to complete those airplanes and sell them and then b strictly focus on starting next year on producing challenger and global.
Perfect. Thanks for the color. Thank you.
And kick on R&R.
Thank you.
<unk> question is from Walter.
And then from RBC. Please go ahead. Thank you very much good morning and.
And good morning, Barrett, it's great to reconnect with you here.
Yeah, Good morning Walter.
So my question really is and I think Eric you touched on it.
You were you hinted that you are kind of at capacity from a production standpoint for your.
Global 7500, but below capacity production capacity for the rest of your portfolio. What my question is what level of demand do you need to C.
For your global 7500, before you start to look at investing and instead of pushing them out further and further though that those orders.
And you look at either converting some of your existing capacity or building new capacity and into into 7500 production and.
And if you could ballpark what type of capital expenditure you would require to get what level of additional capacity I'm on it.
Assumption here that you're at about 40 aircraft per year, but correct me if I'm wrong.
No.
And that's about right so.
Of course, while there I mentioned, we have a multiyear backlog still ahead of us. Despite the fact that we took back about a dozen airplanes last quarter.
And.
We feel pretty good about the product. It is extremely well received I would see it is the flagship of Bombardier, but it's also the flagship of the industry.
We have close to 50 aircraft right now and service the customer feedback is excellent actually the reliability performance right now is at par with the legacy Global 60, 555, and Red which is amazing with the with shift after 50 airplane.
And we've reach right now youre right maturity of our production rate at 35, and 40 aircraft. So right now you know we are focus on on.
Of course, selling challenger and other global platform, because we have the capacity we need to grow that backlog, which we started to do and Q4 and it is also having some momentum so right now you know.
We have the production rate of 35 to 40 airplanes on the 7500, we will continue to assess the market.
You know over the next the next coming year, we are investing of course also and moving our facility in Toronto right now to the Pearson Airport and at which we're going to be up and running over there by the end of 2023. So that's that's happening.
But clearly right now we are.
And <unk>.
Keep those level of activity and 35 to 40 airplane and we will see what happened with the market moving forward.
That's great I appreciate that Eric and just to follow up on challenger, it's been a while since a refresh there as you mentioned you want to get.
The production and sales of that up to the capacity that it has.
And would a refresh b and order here to help kick start that and what again, what order of magnitude from a capex spend standpoint would you expect and challenger refresh to be.
You know, we're seeing extremely good interest for a challenge or 50 and 650 still.
Last year.
350, despite that it's competing with four airplanes and three other airplane and for airplane it is and as zone.
We had like 57% of the market share. So so our products continue to lead and I think it's part of Bombardier is DNA and this story that we are always looking at improving our product. It doesn't mean that you go from.
From always from a fresh start completely on our platform, but I think we've demonstrated that <unk> hundred 50 is the best example that airplane was certified and 1978 and I'm, telling you today, we've been refreshing the airplane to a $6 four to 601 646 or <unk> $650, a day and the airplane.
Remains very competitive this is probably the best cabin and the industry out there and the media market segment and still.
And being very attractive for a lot of our customer.
And so.
We're known as a company also for their reliability and the performance of our product. So we will continue to innovate refresh our product on this platform of course in due course, we will make the necessary announcement, but today I can reassure you on one thing is that we always refresh and innovate and those plan.
Form and of course, the 350 and <unk> hundred 50 and our.
Part of debt we are of course just refresh.
Our platform on the global.
And the global 5500, and the 6500 were awarded being the best airplane that went into service last year. So we're very pleased with that and those airplane again, we're we're a testimony of Bombardier always refreshing its product and new course.
I appreciate the time as always stay safe out there. Thanks.
Thanks, Walter and thank you Walter Operator, we'll take our last question. Please.
Thank you and.
And last question is from Myles Walton from UBS. Please go ahead.
Thanks, and good morning, Thanks for squeezing me on on demand.
And maybe I could just go back to the cost savings initiatives, Eric and you spun out and become a more pure play business Aviation company I mentioned theres cost savings associated with that Youre doing restructuring cost savings associated with that.
I'm surprised pleasantly that its only costing 50 million to achieve sort of the trajectory should we anticipate debt.
A couple of hundred million more to invest and 22 to achieve this 400 million goal or is this really does go to pay off to achieve that level of cost savings.
But we feel that the.
$50 million charge is enough to achieve the 400.
There is some project that I would see on auto finance.
And as an example, we need to reduce.
And the size of some of our factory, but in order to do that and we are selling a big portion of the land and.
And the money that this will generate will help us basically reducing the footprint that we have and and.
Thats just an example, but overall.
And we feel that with the $50 million will be and are positioned to achieve the 400.
Okay, and then just a modest one but the fourth quarter EBITDA margins were obviously breakeven and you are targeting 10% for the full year 'twenty one.
Can you give us a little bit of color as to why we should feel confident and that that level of ramp and the trajectory I know you have the.
7500 learning curve, but maybe.
Maybe just give us a little bit more of a foundation there to get from breakeven to 10% as our annualized run rate.
Yes.
Hi, Myles, it's Bart here.
There's a few factors at play.
B to B to B sure the.
On the global learning curve.
Given that we're just passing our 50th aircraft now is significant so you shouldnt shouldnt underestimate the benefit that that will bring.
We're also looking forward to some.
Aftermarket recovery as the.
The year progresses, and we start to see more flying time by the fleet in the marketplace.
We do have the cost savings.
And this year of about $100 million.
From the $400 million program and so when you start to look at those three factors are there.
There's a fairly significant ramp up and and.
And Bart EBIT margin for the year.
And I think there is.
We took some charges in Q4, which were significant did and that will benefit us in the future years. So that's also worth to mention.
And sorry for those in the adjusted EBITDA or excluded already.
Included included.
Okay. Thank you.
Thank you Mike good so.
To all of you. So thank you again for joining us this morning.
I guess, if you have any additional question Patrick will be available for your calls and I look forward to speaking with you all of you at the next month at our Investor Day on March four and so until then please stay healthy and take care. Thank you.
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