Q2 2021 Bombardier Inc Earnings Call

August 5, 2021

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Please standby your meeting is about to begin.

Good morning, ladies and gentlemen, and welcome to the Bon Bouchie second quarter 2021 earnings Conference call. Please be advised that this call is being recorded at this time I would like to turn the discussion over to you Mr. Cautious Shigella flesh Vice President Investor Relations for bold Bouchie.

Please go ahead, Mr Fisher deal of cash.

Good morning, everyone and welcome to Bombardier is earning call for the second quarter ended June 30th 2021.

I wish to remind you that during the course of this call we may make projections or other forward looking statements regarding future events for the financial performance for 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 M. D N a.

Making this cautionary statement on behalf of each speaker on this call.

With me today is our president and Chief Executive Officer, Eric and myself, and our executive Vice President and Chief Financial Officer, Bart Demasi to review, our operations and financial results for the second quarter of 2021.

I'd now like to turn it over the discussions with Inc.

Thank you for a fifth bone and show that to us.

Good morning, everyone and thank you for joining us.

We certainly have a lot to cover today and we are excited to share our progress.

And a few moments.

<unk> will provide more detail about the improved guidance, we issued earlier this morning.

And talked about our proactive debt management action.

But first and foremost I am proud to share that the second quarter was exceptional on all front.

I want to particularly I like the $91 million and free cash flow the business generated.

And besides the fact, it's an improvement of more than $840 million year over year, it's a window into the longer term potential of our business as we continue to drive our strategic plan and grow earnings and reduce interest costs.

So year over year Q2 can be summarized simply is much better.

Net revenue better profitability, better cash generation and better service revenue and perhaps most importantly, better aircraft sales.

Reaching and in quarter book to Bill of 1.8 on units is something we haven't seen in a few years.

I've had activity within all our customer segments to achieve this demand in North America with traditional customer is strong.

We are also very engaged with our fleet customer where C new customer of their own.

And finally, we are very active on the specialized aircraft front.

I've kept a close eye on rebuilding backlog across our portfolio.

It is the foundation to predictable success.

Just as much as the better cost base, we are creating through our work on the global 7.5 under and learning curve.

And our target for $400 million and recurring savings by 2023.

I am very proud of the team's performance resilience and engagement and weathering the storm throughout dependent.

The market and always certainly starting to give us.

Good.

I'll speak to this and a few moment because there is room for optimism.

But our plan as we mentioned on Investor day is designed to perform without extra market boost.

We will continue to focus on being predictable and discipline in our operations.

That said the market landscape and maintain an upward trend.

And 2 noted we noted when we last spoke.

The macroeconomic indicators continue to point to favorable condition and certain cases, the trends of evolve into strong rebounds.

We have seen a strong rebound and business flying but border restrictions are still in place between ketones repairs that larger aircraft typically connect.

There is still room for activity to improve in markets like Asia.

All signs point to further potential and business aircraft utilization as we progress through the next few months.

At this stage, though it's important that we continue to maintain a prudent approach and focus on what we control.

We do however have increased confidence both in our plan and the market's available easy to sustain this momentum.

We are confident and our path to deliver approximately 120 aircraft as well as higher margin than planned this year.

This stems from our all around and solid execution in the first half of the year.

Our greater confidence and market momentum and most importantly, our ability to accelerate our cost reduction initiative implementation.

Before I speak to the rest of our plan I'd like to circle back to 1 of the most notable market indicator, which is pre owned aircraft availability.

It is not outperforming pre pandemic levels with most recent reports showing around 4% to 5% of the worldwide fleet for sales. We have reached a 2 decade, low and availability with very little if not and the younger vintage aircraft being available.

We see this pre owned trends as an important leading indicator to new aircraft them and.

It's also helps create a better pricing landscape for new transactions, all while helping asset value retention for existing aircraft owners.

We also see the pre owned segment is unfortunately to further diversify our revenue as we outlined in our Investor day.

And with that and we have recently launched a certified preowned aircraft program, which is a win win and this market slide.

This program C. Bombardier leveraging our service network to seek out and transfer them available aircraft into a more desirable offering for customer shopping and Thats here.

We also continue to expand our service network reach and footprint during.

During the second quarter, we received the keys to our Singapore Service Center expansion with construction complete.

We're now turning our focus to staffing and upper rationalizing the center.

Nearly quadruple physical capacity in line with strong demand.

Our similar project and do U K, Miami and Australia also remain on track.

Before I pass the floor to Bart I'd like to quickly touch on progress toward the other opportunities we outlined at Investor day.

We have excellent line of sight on our cost reduction target.

And 1 on thread global 7500 aircraft is moving toward the entire completion phase now and we like the progress we're seeing from the team.

And if anything we are working the learning curve slightly ahead of plan.

On a recurring cost savings plan as we previously mentioned we had a small portion of the 401 billion left to identify and we've made great progress on that front.

We also have begun identifying and actioning further ties and projects, but more importantly, this will become the foundation of our continuous improvement lean mindset.

With all of this debt.

And the team's work is already contributing more than originally planned to our bottom line. This year as youll see when Bart detail the guidance.

And finally.

Deleveraging, we have spent a lot on this over the past 3 months, we have responsibly deploy capital towards clearing the 3 year runway, we set out with only 1 billion left to go towards that objective.

We have also ceased refinancing a fortunate these where it makes sense.

So let me stop here and turn it over to Bart to provide the details of our exceptional second quarter results. Our raised full year expectation and what we've accomplished in terms of deleveraging our balance sheet mark over to you.

Thank you very much Eric and and good morning, everyone.

As we as we turned the page on the first half of 2021 I am very pleased with what we've achieved so far this year.

As Eric just outlined we've made considerable progress on all of our priorities for.

<unk>, we've had strong performance to date, which includes a 9.3% first half adjusted EBITDA margin and positive free cash flow generation and the second quarter.

We've also announced today that we are revising our full year guidance upwards.

Ross all metrics and.

And I'll provide you with a little bit more color on this shortly.

That said, we are taking nothing for granted our management team knows there was a lot more work ahead of us and.

And we remain fully focused on creating long term value and reaching our 2025 objectives.

Our strategic plan remains intact and we are confident that we will continue to generate strong results and the future.

Before we dive into our Q2 results and guidance for vision.

I'd like to begin by adding to Eric's comments regarding the progress on the 4 strategic priorities, we outlined during our Investor day.

First the global 7500 learning curve is performing to plan.

We remain on track to our objective of 20% unit cost reduction between the 50 and 100 aircraft.

And we continue to have cost visibility well into next year.

Program margins are improving quarter over quarter, and we expect margins to be accretive by the end of the year.

Second our $400 million cost reduction plan is continuing to pick up speed we.

We are now expecting to exceed the $100 million objective, we set for ourselves for this year and.

And remain on track for the full $400 million and run rate savings by 2023.

To that and we have already identified and are implementing actions to capture $325 million and $400 million target.

And we expect to launch a number of initiatives and the coming months to close the remaining $75 million GAAP.

Regarding our aftermarket expansion our plan remains on track our fleet flying hours are back to pre COVID-19 levels, which bodes well for our business entering the second half of this year as.

And as flight hours translate to more service events as well as an increase and pay per hour revenue streams.

Finally, we have continued to make significant progress over the last few months on deleveraging our balance sheet.

Now I do know that there have been many press releases and the second quarter with regards to our capital structure. So let me give you a summary of where we stand as of today.

First we have reduced our gross debt by $2.7 billion since the start of the year and have also cleared for 75% of the maturities we were facing and the 'twenty 1 to 'twenty 3 window.

As Eric said, we now have approximately $1 billion remaining to clear and maturity runway there.

And that will be there until December of 2024.

And our bondholders have been very supportive of our plan, allowing us to successfully issued $1.5 billion of new debt of which $1.2 billion matures in 2026 and $260 million matures in 2034.

When combining all of the actions taken so far we have increased our average years to maturity almost 50% from 3.4 years to 5 years currently.

We have also reduced annual interest cost by more than $200 million, so far and.

And we still have room to further optimize.

With over $2.1 billion of pro forma liquidity at our disposal.

We have optionality going forward.

Overall, our plan continues to progress our objective is to build a 3 plus year maturity runway seek opportunistic refinancing of our existing debt and work to optimize liquidity.

Now during our Investor day, I mentioned that our capital structure approach would be phased.

We continue to consider all of our options and also take into account changing market conditions as well as the performance of our own bonds.

And you should expect us to continue this methodical and phased approach and the future as we progress towards our long term goals.

So with that let's move on to our Q2 results, which continue to build off our strong Q1 performance.

Total revenues for the quarter reached 1.5 billion, resulting from 29 aircraft deliveries and $295 million and aftermarket revenues.

Reported revenues are up 25% year over year, and more importantly up 50% when adjusting for the impact from the divestitures, we made and commercial aviation and Aerostructures.

Our business aircraft year over year revenue growth was the result of 9 incremental deliveries.

And as well as improved mix.

Large cabin aircraft accounted for a higher content of deliveries going from 9 and $2022.17 this year.

This includes 11 global 7500 aircraft demonstrating that we continue to smoothed out the delivery profile for this platform.

For the aftermarket business revenues continued their quarter over quarter recovery towards pre COVID-19 levels.

Increasing from $269 million and in Q1 to $295 million and Q2.

This represents an increase of 29% versus Q2 of last year, demonstrating a strong recovery year over year.

Overall flight hours for the Bombardier fleet and the Q2 back at pre Covid levels, with North America, going strong and hours and Europe, starting to ramp up.

As I mentioned earlier divestitures did have an impact when comparing year over year reported results.

Revenues from Aerostructures and commercial aviation accounted for $225 million year over year reduction in revenues in Q2.

And $625 million year to date.

Moving to earnings total adjusted EBITDA for the quarter was $143 million Rep.

Representing and EBITDA margin of 9.4%.

Adjusted EBIT was $32 million for and EBIT margin of 2.1%.

Our adjusted EBITDA increased $112 million year over year.

When looking at EBITDA margins. This marks an improvement of 690 basis points.

9.4% versus the 2.5% and the same quarter of last year.

We also saw sequential quarter improvements versus Q1 of this year the.

For year over year improvement is attributable to the following factors.

First on the new aircraft side, we delivered more aircraft and in 2020.

We also benefited from an improved delivery mix due to a higher content of large cabin aircraft, which typically come with higher margins.

On top of this the global 7500 aircraft margin contribution is a significant tailwind versus 2020.

And continues to sequentially improve versus the first quarter.

Of this year on track with our objective for margins to be accretive to bombarded by the end of the year.

Turning to our cost reduction efforts, we have already seen more than half of the $100 million savings targeted for this year materialize.

And we now expect savings from the cost reduction efforts to be approximately $115 million for the full year.

Partially contributing to the increase and our EBIT and EBITDA guidance.

Continuing with free cash flow, we saw consolidated cash generation of $91 million and Q2.

Which included approximately $60 million of nonrecurring charges, adding to the 100 million we spent in Q1.

As a reminder, we are planning for approximately 200 million and nonrecurring cash charges for the full year of 'twenty 1.

Our Q2 free cash flow result was underpinned by strong earnings as well as positive working capital performance stemming from strong order activity.

And disciplined inventory management.

Advanced levels increased by $318 million to Q2, sorry in Q2 as our unit book to Bill reached approximately 1.8 and our overall backlog grew by 300 million to $10.7 billion.

As expected global 7500 deliveries continued to outpace orders, but we expect this to stabilize as we near that targeted 18 to 24 month backlog window.

It is important to also note that interest payments remained high at $237 million and the second quarter, which is comparable to the 243 million we paid in Q2 of last year.

This is the result of paying the accrued interest on debt, which was being retired.

And however, we will begin to see meaningful reductions to our cash interest costs and the second half of this year as we start benefiting from the deleveraging actions we have taken.

Now onto full year objectives.

After a strong first half based on solid execution and positive market momentum. We have made tremendous progress on building backlog and also find our production nearly sold out for the remainder of the year.

As such we expect aircraft deliveries to come in at the high end of our original guidance at approximately 120 <unk>.

Impacts from seasonality over the summer months will result in a calmer Q3 versus Q2 before and expected strong delivery output and Q4.

This increase and deliveries coupled with the positive trends and aftermarket flying hours is driving an increase and our topline expectations to now be greater than $5.8 billion up from prior guidance.

Looking at EBITDA margins, the combination of our nearly sold out skyline for the second half of the year.

Faster achievement of our cost reduction actions and year to date EBITDA margin of 9.3%.

Give us increased confidence and our full year EBITDA performance.

As a result, we are raising the expectation to greater than $575 million and EBIT to greater than $175 million.

And this implies EBITDA margins for the full year and the 10% range versus 9% based on our original guidance.

Q3, EBITDA margins should again be and the 9% range as mentioned last quarter, but for a stronger finish to the year.

Finally, we have raised our free cash flow guidance by 200 million to better than $300 million of free cash flow usage, which does include the $200 million and nonrecurring outflows.

This is the product of the increase and our profitability guidance, coupled with stronger working capital performance and increased certainty surrounding interest costs.

Given our year to date free cash flow usage is $314 million, we expect to be positive for the second half of the year.

Now despite all the encouraging signs we are seeing there does remain many uncertainties, mostly around economic recovery and reopening.

And for this reason, we continue to be prudent and our free cash flow estimates again, considering the summer seasonality, we expect Q3 to be quieter than Q2 before a stronger finish to the year.

So to conclude we have achieved a lot so far this year, but it remains a transition year for.

And the plan we shared in early March remains on track and we continue to focus on becoming a more predictable profitable and resilient business Aviation company.

We remain focused on executing our strategic priorities and have made significant progress this year.

We will keep clear transparent communication with all of our stakeholders as we continue to reach milestones and the future.

Thank you very much with that I'll turn it back over to Francis to begin the Q&A session.

Thanks Mark.

Like to remind you that the Bombardier Investor Relations team is available following the call to answer any questions you may have.

And that will open up the lines.

Operator, we're ready for our first question.

Thank you.

And do you have a question. Please press star 1 on your telephone and touch Touchtone telephone and so are you seeing and.

Speaker phone. Please go ahead, Sir and then Chris Darwin and <unk>.

Mr. Ken for your question, Please press Star Tim.

And <unk> time for all participants please limit yourself to 1 question and 1 follow up question and.

Our first question is from Kamran direction from National Bank Financial. Please go ahead.

Thanks, very much and good morning.

Good morning, gentlemen.

So just wondering if you could talk a little bit more about I guess, the new order activity that youre seeing for for business Jets. How has that trended I guess into Q3 are you seeing similar strength and Im also wonder if you can comment a little bit about the pricing that youre seeing on new orders and how that compares to what's in the backlog.

Okay.

Great question camera and so first of all we are foreseeing.

The same momentum in Q3 that we've seen in Q2.

So the level of activity.

Especially in North America remains very strong.

And the rest of the world is picking up.

I think we've mentioned also are successful I think the fleet operator are and the current environment and.

As you know Bombardier is probably better positioned than any OEM with the fleet operators, so clearly for us.

And an interesting journey and that sense. So.

And in terms of pricing on your question on pricing.

We are very happy to what we're seeing right now so pricing is firming up.

And we've seen it going through Q2 and.

Clearly the backlog that we've been able to 2.2 to generate and the last quarter, which was a.

Over 50 airplane is giving us good confidence that's 1 of the reason to date.

Why we are capable of.

Improving our guidance.

Towards the rest of the year.

Okay, great great and just to follow on that.

And just also wondering what you're seeing on kind of on trade and so is there any kind of changes that youre seeing there are you being less aggressive or you're feeling and how do we less aggressive on taking trade ins.

And we there is not many airplane as I said earlier being available out there, but when we have and unfortunate and pizza trade in and we look at them 1 by 1.

And if it makes economic sense for us, especially with the new pre owned program that we've just launched a couple of weeks ago.

We show probably interest there of bringing an airplane in.

Re certifying that airplane and offer them for the market, which needs. It right now so so and clearly it's a case by case, depending on the state of the airplane, but again theres not that many available, but we are very selective and being careful there, but we believe that we are probably better positioned than anyone to add value to those legacy airplane.

Okay, great. Thanks very much.

Thank you. The next question is from corner group debt.

And from Scotiabank. Please go ahead.

Good morning, and thanks for taking my question.

1 the book to Bill ratio from 1.8 times and was pretty strong growth and as you mentioned Eric.

And the best you have seen and many many.

Months or years, maybe.

How much of this strong demand is driven by new think travelers who were previously flying commercial and what are your customers, especially fleet customers, telling you about sustainability and the demand.

And so.

And as we indicated before thanks for that color for your question.

We clearly see new.

Net customer a fair a bigger percentage probably than usual and new customer, but clearly I think where there is much more momentum right now is with the fleet operator, So I think that the people that used to fly commercial right now for safety reason, mainly and also availability of connection I think and.

And those that can afford it and they are shifting towards.

Fleet, operator, more and more and which creates quite a bit of demand for for the fleet operators. So I would say broadly that this is where there is strong momentum right now and as I. Just said, we are very well positioned bombardier towards the major fleet operator across the globe. So so that's great for our business. While also at the same time on those.

Non fleet operator.

Personal user we see.

New entrants, but we also see people renewing their fleets and they've been with us for a long time and are refreshing their airplane and debt market.

That's great. Thanks, and then just a follow up on the backlog here.

Class up $300 million sequentially.

The book to build ratio and the units was pretty strong so I'm assuming.

And more order activity, perhaps and and the smaller or medium sized jet sources globally and is that correct and it.

And again I'm going to provide any color on the splits from these things.

Okay. So.

Clearly we are extremely happy with.

Backlog strengthening and I think I've said it before we had.

Clearly some program, where our backlog was very low now right in front of US we have good backlog on every single program.

Which which give us debt.

Predictable level and better visibility and again, I think having better visibility is giving us predictable success on the delivery on pricing on a lot of front. So clearly the backlog right now is better distributed if I can say this week on all fronts on all program.

Okay. Thank you.

Thank you.

Thank you. The next question is from Ben <unk> from Danielle Bank capital markets. Please go ahead, yes, yes.

Yes, good morning, everyone. Good morning.

So first question Mojo and once again, yes.

On the back of the good backlog and good visibility you have on all of the specific programs.

<unk> 2 C before revisiting your production rates upward.

Yes, great question.

Asking ourselves that question every day, but that.

To be fully transparent with you I think right now we are very focused on growing our backlog and.

And you know there is we have internal target in terms of number of months of backlog that we like to C.

On the airplane and of course, there is a minimum number you'll give us more comfort and more predictability, but having too much backlog also can become a problem because you don't have the availability for customer if the market is strong so we have to.

Our target of a minimum and a maximum.

Which obviously for competitive reasons, I'm not going to share but clearly.

We will revisit you know if we ever achieved those maximum or exceed those maximum target of backlog. So clearly.

We are having conversation, but there's no decision right now we're really focused on.

Filling the backlog, making us more predictable at the same time and parallel to that and I think we've mentioned that earlier on this call. We have 222 B Unbilled also the market is very strong right now but.

And you've been following that.

And industry long enough.

And that sometimes things can change rapidly so we have to be careful.

And assess also the impact of what's happening right now we see as we all know.

Wave for probably picking up clearly and some other country starting here. So we have to assess what this could mean.

And so far the momentum gave momentum the pandemic has given momentum to the business jet industry, but at the same time.

The economy is being affected at large and then we have to assess that so between you know, adding our own target on backlog, but also our view on the long term of the market and especially on the financial point of view.

It will be key and that decision.

Okay, that's great color and just for the follow up could you maybe talk a little bit about the C.

Strategy for the remaining <unk>.

How much.

Thank you Sir.

Thank you and.

And the next question is from Walter Spratlin from RBC capital markets. Please go ahead.

Thanks, very much good morning, everyone.

Good morning, Walter So I just.

Like the follow up on the NY question on production rates and and assuming that the strong book to Bill continues and demand.

Continues despite any any challenges.

Regarding the fourth wave and so on what what is the highest production rate that you can deliver without any major.

Capex spend and I know there was some indications before about what that level might be.

But obviously you've done a lot of reconfiguration, just just looking for the the new production capacity that exists with your current footprint without any major.

Capex spend too.

And to change it.

And.

And I would suggest that we do have and.

And of course that Walter I won't give a precise number here for competitive reason, but and I'm sure you understand but.

If you look and the challenger.

We have without investment capability to improve.

Quite a bit or production rate.

As you know we've always kept the space, we've minimize our space and the last year and and we don't you to do that but we still have quite a bit of room on the challenger.

It's a bit.

Last 1 of the global but we still have.

For his years, where we used to produce.

80, global a year and it was still have that footprint.

And so overall, we're and a good position and we have other side also that we could always use if we would like to do more than that so so the capability is there to answer your question to to increase the rate with the actual footprint, okay, and that's very encouraging and looking out for your guidance and 2025 and.

And given your trajectory here and the early part and the early year of that.

Of that path, you're achieving results ahead of expectations ahead of your own.

Your own guidance on the near term does that mean that the that the curve is just the shape of the curve is changing and the end result is the same in terms of 2025 or are you seeing new avenues that were unexpected that wood is now pushing.

And are putting upward pressure upward support to your 2025 guidance and what would have to happen before you adjust your 2025 guide.

So those are great question.

I believe right now as for the too early to assess and a 2025 is still for years away.

There's a lot of thing you and I know that there's a lot of things that can happen between now and then but to your point, it's great to be on the positive side of the curve. We've already design, but you know to answer also your next question, which is what would that day of course, you know who would see that momentum you know on the positive side for couple.

[noise] of years and the role then I think there is there is there is a case to be made that we should revisit potentially that guidance, but I don't think we're there yet.

Right now we are happy to be ahead of the curve if I may say it this way, but in the long run.

It's too far ahead, right now to be able to predict debt. So that would take a boost of the market really and too early to assess right now.

Okay. Thank you very much for the time and ache and congratulations on a good quarter. Thank you Sir.

Thank you and the next question and somehow Robert Spingarn from Credit Suisse. Please go ahead.

Hi, good morning and for that.

Nice numbers today I do have a few questions or clarification and I wanted to ask about.

Bar just on the backlog being slapped December to June I know, what's up from March.

And I am sure you talked about this last quarter, but could you just remind us what what happened there given the book to Bill has been good all year so far.

Is it the services business that's included there.

Yes, yes, absolutely. So so we started the year with with a strong backlog of.

Close to where we are currently at $10 and 7 billion, we did see an increase.

And backlog over the quarter and all that was on the back of of strong.

And strong new order activity in the first quarter and the second quarter. We did have a significant number of deliveries of our larger aircraft and so that that's why we C. A bit of the of the shape of the curve that you're probably looking at.

However, we also have been able to now build strong backlog on all of our other platforms as Eric was mentioning earlier, we've got good distribution across across all the platforms now and.

With the book to Bill at 1.8 being across all of them, we aren't going to speculate on targeting backlog level of obviously you can probably appreciate for for competitive reasons, but.

Pleased with where we're at hopefully that gives you a bit of a bit of color as to why the shape of the curve is what it is got it and it sounds like it's mix.

So yes. The next thing I wanted to ask Eric just.

High level of strategically obviously the high end of the market is very attractive.

Attractive and now a desk and I was going to jump in with the Tenex, you've got the 700 coming and all of this happens towards the end of your forecast for your guidance period, but what do you think about the high end of the market may be getting a little bit crowded and does that per.

Perhaps affect the profitability at some point and not not in the near term, but down the road down the road, but that's a fair question, but first of all the new the Falcon Tenex right now is a pay per plane. So we're still years away before we really C. This hit the ground.

But.

The more important part is we are very much pleased with the performance of our global 7500. So the global 75 run right now is receiving a very favorable and though.

Is very favorable to our customer.

As the airplane that is the leading edge airplane of the industry right now and that just to bombard C but of the industry.

And so it's flying higher and faster further than any other airplane and.

And the most important thing too is the reliability wise.

We are outpacing pretty much all everybody so that airplane, even if it's still a young program, it's already performing extremely well and the reliability fronts.

So.

We do believe also that our airplane specs or.

Outperforming everything as of it that is available right now to compete with us.

Customer buys the airplane and the principal most of the time that buys the airplane. The interior design is always 1 of the most important thing. So there's the airplane performance and this was still continue to lead but also Bombardier has a clear clear trade.

Part of our trademark debt, we do the best and Terrier.

We always refresh our design, we always offer the best technology on board and that's something that is that is extremely important and so.

We are planning also with new entrants coming and yes, there'll be but it was already taken care of and made it as an assumption part of our plan for 25.

Okay and then just just thank you for that for just a finished shop I wanted to delve into this pre owned venture that you are talking about just make sure I understand what it is you're going to do is this simply a focus on some trade and aircraft are you actually going out into the secondhand market.

And then we're going to do both actually so you know of course.

We have access and more easily on what's coming our way with trade and but you do we do believe and we've studied debt and we actually did a couple of airplane. This year and there's things that are exclusive and terms that and the way and can do on an airplane that nobody else can in terms of.

Resetting.

A few a few things on the airplane so that it reads value. So we are positioned to create value on every 1 of those airplane more than anyone and we believe it is and we and we.

There is a market for that and people like the idea that that airplane came to the OEM was completely reset and refresh with new technology put on board and we have the capability of course, and our service center across the world to do that so that's.

And we're having in mind.

This will be strictly Bombardier aircraft not anything else.

Strictly Bombardier airplane.

Okay excellent excellent. Thank you thank you and.

Thank you the next question and Noah Popinac from Goldman Sachs. Please go ahead.

Hey, good morning, everybody.

Good morning.

And it just it wasn't clear to me what the answer was.

There too the.

Backlog being considerably higher than.

Or I'm, sorry, the unit book to Bill versus the book to Bill implied by the change and the backlog. There's a big differential here is that his challenger stronger than global or is it just having a 7500 and the denominator, but not the numerator.

And I just want to make sure I understand that and then I for 1 of the M.

I'm sorry go ahead and put the orphanage no no no go ahead and I'll leave it there so.

1 of the thing that and said earlier and this meeting and earlier and the year is that we had a very strong backlog multiyear backlog on the global 7500. The reality is that and we also said that the delivery on the 75 and will be outpacing doesn't rose order this year.

So and so if you're strictly look at the 7500 and as you know every 1 of those airplane.

As you and any of the other airplane and the backlog.

B the bleeding a little bit this year, but this was something that we saw and Q1 and Q2.

But we've seen every other single platform, increasing so that's that's the reality but.

As I mentioned earlier and we are always we have a minimum and a maximum target in terms of number of months for every product and the good news right now is under 75 and Red.

You know a long backlog now we're getting into the zone, where people will be more comfortable because the delivery date is and reach I would say this weight and and more visible to them. So.

It was normal when we have a huge backlog you're starting delivery to see that backlog depleting for a couple of quarters, even a couple of years, but now as I mentioned, we're getting into the zone that we like to B and we believe that we between now and year and we're going to C order picking up on the 7500.

Book to Eric It sounds like.

Putting the 7500 aside it doesn't sound like you're seeing a big difference and mid versus large and 7500 and challenger versus 50, 560.500, it sounds fairly broad base is that share.

If you are talking about the growth order, it's well distributed and turns on the reward and demands yes, yes, the new order demands were and the medium and large.

Business right now and we see the order demand strong on both on both category.

Okay, and then just on the cash flow.

And it's been awhile since the company had positive free cash flow and the second quarter.

And.

The guidance for the year implies.

The back half is kind of breakeven, although I think maybe he said slightly positive could you maybe just talk us through if there was any.

Advances or other working capital helping.

Helping the second quarter third quarter stay positive and fourthquarter doesn't have its usual seasonality or 3 Hugo negative and for if you guys got seasonality any incremental color on that pacing would be really helpful.

Sure No yes, it's part here I think you've hit actually all of the all of the themes and it's a bit of all of that so let me try and just walk you through this a little bit. So we had the $91 million of a free cash flow positive generation and the second quarter and you are right that was that was ahead of our plans. So a very positive outcome that does it.

Include the absorption of about $60 million and non recurring charges. So if you think of future years going forward. It was it translates more and they're like a $150 million.

Positive cash flow.

Now if I just kind of walk you through it if.

If you look at the guidance we had originally.

Said, we'd have better than $500 million of usage, we are now forecasting incremental profit of about 75 million.

To your point, we did have strong working capital in the quarter better than better than plan, so better inventory management as well as the strong new order activity and that contributed to to hire working or better working capital than we had planned and we are now looking at.

Increased certainty and the back half of the year and going forward on interest costs. So that the remaining 125 million approximately that gets us to the better than $300 million usage.

Correct and the and the assumption I think I said this and my comments as well that that we expect to be breakeven and the back half so you've got that right and.

And with the the 7500 deliveries outpacing and strong performance on the other platforms that thing we're focused on still is circle bill.

Building backlog and.

And we expect to reduce inventories and the second half of the year as well.

So click and you took our color on it.

And.

I appreciate it. Thank you for today, Thank you know.

Thank you day next question is from it.

J P. Morgan. Please go ahead.

Thanks, very much and.

Good morning, and good results.

I guess aeroquip when you spoke a little while ago and spoke about kind of taking.

A long term for you.

And that.

Demand is fairly strong right now is stronger than it's been in a while but now I have to think about thing kind of threw cycle and.

Through cycle.

Business chats has been and.

And industry that at times this will like it like it's had to overcapacity, So I guess maybe.

If you update us on your and any thoughts you have kind of.

Long term about.

The potential for or new for consolidation and the industry.

Mmk and good point so.

And I want to speculate about consolidation of the industry. You know those are things that are being looked into by a lot of people all the time, but at this stage.

We do remain focus on our own.

We do have an amazing portfolio of product ourselves and.

In the field, where we're competing and we're competing and the large medium, but also our services business. As you know we have great ambition there of growing debt business significantly over the next coming year. So so that remains our focus and our plan is clear and clearly will come to you as I said earlier to monitor the longterm trend of the and.

History.

But so far the trends are positive which which.

We are super happy with and we will see I think and the next 2 to 3 quarter.

And if that trend solidify and then we hit those targets that we gave ourselves internally in terms of backlog, we will be reassessing.

What we do moving forward, but we are happy we're ahead of the curve right now and the plan we communicated and.

We're not speculating on any potential consolidation at this stage because we believe the market is strong and there's a lot of new customer coming and the fleet, operator, and rolling and I think there'll be room for for Ah.

A lot of business aircraft, Iowa.

And in the next 5 years so.

Great. Thanks, very much and then I am just to follow up real quick on the cash flow dynamics from from noticed.

And those question.

With regard to the second half.

So.

And we think about Q for especially with.

Some improvement and deliveries.

Interest costs and it seems like should be better.

Cash flow is positive and the second quarter.

Is there.

Good performance of a C and maybe.

There is potential to be better than breakeven and second half but is there.

Is there anything that on limiting there in terms of headwinds versus the quarter.

We just had.

Yeah. Thanks.

So.

What I would say is that when we when we came out with our Investor day.

In March of this year, 1 of the things that we we said we wanted to try and do for our company and for the market was to B B.

B reasonable and B somewhat conservative on our on our and providing our outlooks and guidance.

And so I would say that on free cash flow, we are in our in our current and guidance probably being a bit a bit conservatives for being consistent with that strategy. We do feel very confident on executing on our plan for the remainder of the year.

And I think it's Eric highlighted and his comments earlier were basically sold out on on all of our aircraft for the year.

Or very near and so having the high confidence in our aircraft are aircraft sales until and deliveries as well puts us and a great position.

We have executed on plan for debt reduction.

And and recapitalization strategy. So you are right that will give us tailwind on on cash flow is going forward, because we're going to start to C. Lower interest expense contributing and the second half of this year and go forward, we're now over $200 million and reduced interest expense and and the first half of the year we didn't.

Really get to see the benefit of that just yet because we had to pay accrued interest on.

On some of the bonds that we were retiring so those things all of those things are contributing now I will say as well I think we're being prudent by being a bit conservative we all know there is and.

Certainty still out there.

Quite rate volatility can occur and so we want to remain a bit conservative Delta variant. For example, so we'll continue to monitor markets, but very confident and and our forecast for the for the back half of the year.

Great. Thanks very much.

Okay. Thanks.

Thank you and I.

Next question and some Stephen trend from city. Please go ahead.

Hi, Yes, good morning, and and thank you for taking my question.

I just wanted to think further out so certainly.

B presented.

Selling.

Trajectory through 2025, and when you think about the investment cycle.

Looking across global aviation certainly on the commercial airlines side.

There's a lot of discussion about sustainable aviation fuel.

And new generations of of aircraft electric takeoff vehicles and what have you.

Just from a high level perspective, I'd love to get your thoughts on how you would come down and all of that.

No. This is a great question, Steven and thanks for for asking debt, but.

<unk>.

I rejoined the company a year ago, and clearly my focus with the team here was was the first 5 year and the first.

Strategic plan cycle.

Now we're in the middle of the second 1 and clearly we're now thinking about year I will call it year 5 to 15.

And all of those great question are in front of US right now and we already spend money on research and development on how can we get you know a and airplane flying with using a lot less.

Fueled and it is for the and there's different answer that yes, we are working with the engine people, but us from <unk>. There's a lot we can do there and it's.

Not even thinking here of sustainable fuel and also engine performing better and I'm just thinking about the airplane itself. So RMP right now is very focus.

All are pretty much all our R&D money spend right now is focus on thinking about airplane of the future being greener and being B, a more favorable to the environment. So so that's clearly how we are approaching it at this stage to to shape of the future and having a.

A greener business aircraft contribution a better contribution and then we have to do.

Okay, I appreciate that and and just as a very quick follow up I believe Mister booked asked earlier from not mistaken.

And when we think about let's say non traditional business jet customers.

And any sort of high level sense.

Kind of.

Roughly.

What proportion of your your new business is coming from.

Customers new usually.

Typically wouldn't C.

I think that the.

And that percentage was traditionally and the 5.6% zone.

But clearly this year in terms of new entrant.

And we've seen that number increasing.

To to a larger extent.

But we also have as I said and a lot of new entrants are using the channel of going to a fleet, operator, which ended up being good for us too. So it's difficult for me to put a precise number but we clearly see that we do ourselves as some sales that are are coming from people that are.

Joining I would see the business aircraft way of traveling and also probably the majority of them are going towards a fleet operated.

Okay. That's very helpful. Let me leave it there and thank you.

Thank you Sir.

Thank you.

Yeah, and what kind of questions at this time I'd like to turn the meeting back over to Mister Martinez.

Okay. So thanks to all of you for for attending this morning, and it's a real pleasure for us to exchange with you all.

We are building good momentum and like I've said, many times, our main focus is transparency and predictability.

We're very excited about the market and the product we are competing and the space but.

Heart of our plan is our customer and our people.

We will continue to remain disciplined and prudent and I look forward to speaking with you also so stay safe and healthy and thank you for attending again.

Thank you.

Conference have now and it. Please disconnect your lines at this time and thank you for your participation.

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This conference is no longer being recorded so it called for Hudson at Blue Zone Hershey's Te.

Okay.

Thank you.

Yes.

Okay.

Thank you.

Thanks.

Thank you.

Okay.

Great.

Yes.

Okay.

Thanks.

Okay.

Yes.

Thank you.

Hum.

All participants please continue to standby the conference will begin momentarily. Once again. Please continue to standby we thank you for your patience.

And you wouldn't have fielded and we want to hilty Deca feels the VITAS soup the level pre owned the business. We will have the only get it gives us the renewable and assume that best guilty.

Okay.

And.

Uh huh.

Okay.

Yeah.

Okay.

Yeah.

Okay.

Yes.

Thanks.

Right.

Thank you.

And.

Okay.

[music].

Good morning, ladies and gentlemen, and welcome to the bone Bouchie second quarter 2021 and earnings conference call. Please be advised that this call is being recorded at this time and I'd like to try and the discussion over to you Mr cautious because she della flesh Vice President Investor Relations of football Vouchee. Please go ahead and and stuff they should allow for that.

Good morning, everyone and welcome to Bombardier is earning call for the second quarter ended June 30th 2021.

I wish to remind you that during the course of this call we may make projections or other forward looking statements regarding future events for the financial performance of the Corporation and.

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

For additional information and forward looking statements and underlying assumptions. Please refer to the M. D N 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, and Hook myself, and our executive Vice President and Chief Financial Officer, but the mosques and to review our operations and financial results for the second quarter of 2021.

And now like to turn over the discussion to a hick.

Oh, Thank you for fifth Bozo that too is good.

Good morning, everyone and thank you for joining us.

We certainly have a lot to cover today and we are excited to share our progress.

And a few moments barked will provide more detail about the improved guidance we issued earlier this morning.

And and talked about or proactive debt management ash.

But first and foremost I am proud to share that the second quarter was exceptional on all fronts.

I want to particularly I liked the 91 million dollar and free cash flow the business generated.

Besides the fact, it's and improvement of more than $840 million a year over a year.

It's a window into the longer term potential of our business as we continue to drive our strategic plan grow Ernie and reduce interest costs.

So a year over year, you too can be summarized simply as much better.

Better revenue.

And our profitability better cash generation better service revenue and for apps, most importantly, better aircraft sales.

Reaching and and quarter book to Bill of 1.8 on units is something we haven't seen in a few years.

I've had activity within all our customers settlement to achieve this demand in North America with traditional customer is strong and.

We are also very engage with our fleet customer where C new customer of their own.

And finally, we are very active on the specialized aircraft from.

I've kept a close eye on rebuilding backlog across our portfolio.

It is the foundation too predictable success, just as much as the better cause base, we are creating through our work on the global 75 under and learning curve and are targets for 400 million dollar and a recurring saving by 2023.

I am very proud of the team's performance resilience and engagement and weathering the storm throughout dependent.

The market now is certainly starting to give us tailwind.

I'll speak to this and a few moment because there is room for optimism.

But our plan as we mentioned and Investor day is designed to perform without extra market boost.

We will continue to focus on b predictable and discipline and our operations.

That said the market landscape as maintain and upward trend.

<unk> noted we noted when we last spoke.

Macroeconomic indicator country, you to 0.2 favourable condition, and certainly cases, the trends and evolve into strong rebounds.

We have seen a strong rebound and business flying but border restriction are still and plays between ketones repairs that larger aircraft typically connect.

There is still room for activity to improve and market like Asia.

All signs for it to further potential and business aircraft utilization as we progress through the next few months.

At this stage, though it's important and we continued to maintain a prudent approach and focus on what we control.

We do Ah wherever I have increased confidence both in our plan and the market's availability to sustain this momentum.

We are confident and our path to deliver approximately 120 aircraft as well as higher margin and planned this year.

This stems from our all around solid execution and the first half of the year or.

Greater confidence and market momentum and most importantly, our ability to accelerate our cost reduction initiative implementation.

Before I speak to the rest of our plan and I'd like to circle back to 1 of the most notable market indicator, which is pre owned aircraft availability.

It is not outperforming prepandemic levels with most recent reports showing around 4% to 5% of the worldwide fleet for sale. We have reached a 2 decade, low and availability with very little if not and the younger vintage aircraft being available.

We see this pre owned trends as an important leading indicator 2 new aircraft and man.

It's also helps create a better pricing landscape for new transactions, all while helping asset value retention for his existing aircraft owners.

We also see the pre owned settlement as and a fortunate to further diversify our revenue as we outline and our Investor day.

Do that and we recently launched a certified pre owned aircraft program, which is a win win and this market line.

This program C. Bombardier leveraging our service network to seek out and transform available aircraft into a more desirable offering for customer shopping and that's here.

We also continue to expand our services network reach and footprint Jeremy.

During the second quarter, we received the keys to our Singapore Service Center expansion with construction complete.

We are now turning our focus to staffing and Operationalizing The center nearly quadrupled physical capacity in line with strong demand.

And are similar project and the UK, Miami and Australia also remain on track.

Before I pass the flow of the Bart I'd like to quickly touch on progress toward the other a portion of these we all client and Investor day.

We have excellent line of sight on our customer reduction target the.

The 1 on the Red Global 7500 aircraft is moving toward the and sort of completion phase now and we liked the progress we're seeing from the team.

If anything we are working the learning curve slightly ahead of plan.

On a recurring cost saving plan as we previously mentioned we had a small portion of the $401 billion left to identify we've made great progress on that front.

We also have begun identifying and actioning further ties and projects, but more importantly, this will become the foundation of our country and improvement Leanne mindset.

With all of this.

The teams to work is already contributing more than originally planned to our bottom line. This year as you'll see when bar detail the guidance.

And finally.

Deleveraging we.

We have spent a lot on this over the past 3 months, we've responsibly deployed capital towards clearing the 3 year run the way we set out with only 1 day to go toward that objective. We've also C refinancing Unfortunately, where it makes sense.

So let me stop here and and turn it over at the bar to provide the details of our exceptional second quarter results are raised full year expectation and what we've accomplished in terms of deleveraging our balance sheet bark over team.

Thank you very much Eric and and good morning, everyone.

As we as we turn the page on the first half of 2021 and I am very pleased with what we've achieved so far this year.

As Eric just outlines we've made considerable progress on all of our priorities.

Financially we've had strong performance to date, which includes a 9.3% first have adjusted EBITDA margin and positive free cash flow generation and the second quarter.

We've also announced today that we are revising our full year guidance upwards across all Netflix.

And I will provide you with a little bit more color on this shortly.

That said, we are taking nothing for granted.

Our management team knows there was a lot more work ahead of us and we remained fully focused on creating long term value and reaching our 2025 objectives are.

Our strategic plan remains intact and we are confident that we will continue to generate strong results and the future.

Before we dive into our queue to results and guidance for vision I'd like to begin by adding to Eric's comments regarding the progress on the for strategic priorities, we outline during our Investor day.

First the goal 7500 learning curve is performing to plan.

We remain on track to our objective of 20% unit cost reduction between the 50th and 100 aircraft and.

And we continue to have cost visibility well into next year.

Program margins are improving quarter over quarter, and we expect margins to be accretive by the end of the year.

Second or $400 million cost reduction plan is continuing to pick up speed we.

We are now expecting to exceed the $100 million objected, we set for ourselves for this year.

And remain on track for the for $400 million and run rate savings by 2023.

To that and we have already identified and are implementing actions to capture $325 million for the 400 million and target and.

And we expect to launch and number of initiatives and the coming months to close the remaining $75 million gap.

Regarding our aftermarket expansion our plan remains on track our fleet flying hours or back to pre COVID-19 levels, which bodes well for our business entering the second half of this year and.

His flight hours translate to more service events as well as an increase and pay per hour revenue streams.

Finally, we have continued to make significant progress over the last few months on deleveraged and our balance sheet.

Now I do know that there have been many press releases and the second quarter with regards to our capital structure. So let me give you a summary of where we stand as of today.

First we have reduced our gross debt by $2.7 billion since the start of the year and have also cleared 75% of the maturities we were facing and the 21 to 2003 windows.

As Eric said, we know of approximately $1 billion remaining to clear and maturity runway that.

And that will be there until December of 2024.

Our bondholders have been very supportive of our plan, allowing us to successfully issue 1.5 billion of new debt of which 1.2 billion matures and 2026 and $260 million matures and 2034.

When combining all of the actions taken so far we have increased our average years to maturity almost 50% from 3 for years to 5 years currently.

We have also reduced annual interest costs by more than $200 million, so far and.

And we still have room to further optimize.

With over 2.1 billion of pro forma liquidity at our disposal, we have optionality going forward.

Overall, our plan continues to progress our objective is to build a 3 plus year maturity runway seek opportunistic refinancing of our existing debt and work to optimize liquidity.

Now during our Investor day, I mentioned that our capital structure approach would be phased.

And we continue to consider all of our options and also take into account and changing market conditions as well as the performance of our own bonds.

And you should expect us to continue this and methodical and phased approach and the future as we progress towards our long term goals.

So with that let's move on to our queue to results, which continue to build off our strong Q1 performance.

Total revenues for the quarter reached $1.5 billion, resulting from 29 aircraft deliveries and $295 million and aftermarket revenues.

Reported revenues are up 25% year over year, and more importantly up 50% when adjusted for the impact from the divestitures, we've made and commercial aviation and Aerostructures.

Our business aircraft year over year revenue growth was a result of 9 incremental deliveries.

As well as improved mix.

Large cabin aircraft accounted for a higher content of deliveries going from 9 and 2022.17 this year.

This includes 11 global 7500 aircraft demonstrating that we continue to smooth out for delivery profile for this platform.

For the aftermarket business revenues continued their quarter over quarter recovery towards pre COVID-19 levels.

Increasing from $269 million, and and Q1 to $295 million and Q2.

This represents an increase of 29% versus Q2 of last year, demonstrating a strong recovery year over year.

Overall flight hours for the Bombardier fleet and Q2 back at pre Covid levels, with North America, going strong and hours and Europe's starting to ramp up.

As I mentioned earlier divestitures did have an impact when comparing year over year reported results.

<unk> from Aerostructures and commercial aviation accounted for $225 million year over year reduction and revenues and Q2.

And $625 million a year to date.

Moving to earnings total adjusted EBITDA for the quarter was $143 million Rep.

Representing and EBITDA margin of 9.4% and <unk>.

Dusted EBIT $32 million for and EBIT margin of $2 and 1%.

Our adjusted EBITDA increased $112 million year over year.

When looking at EBITDA margins, this marks and improvement of 690 basis points.

294% versus the 2.5% and the same quarter of last year.

We also saw sequential quarter improvements versus Q1 of this year.

The year over year improvement is attributable to the following factors.

First on the new aircraft side, we delivered more aircraft and and 2020.

We also benefited from and improve delivery mix due to a higher content of large to have an aircraft, which typically come with higher margins.

On top of this the global 7500 aircraft margin contribution is a significant tailwind versus 2020 and.

And continues to sequentially improve versus the first quarter.

Of this year on track with our objective for margins to be accretive to bombarded by the end of the year.

Turning to our cost reduction efforts, we've already seen more than half of the $100 million savings targeted for this year materialize and.

And we now expect savings from the cost reduction efforts to be approximately $115 million for the full year.

Partially contributing to the increase and our EBIT and EBITDA guidance.

Continuing with free cash flow, we saw consolidated cash generation of $91 million and Q2.

Which included approximately 60 million of nonrecurring charges, adding to the $100 million, we spent and Q1.

As a reminder, we are planning for approximately $200 million and non-recurring cash charges for the full year of 21.

R Q2 free cash flow result was underpinned by strong earnings as well as positive working capital performance stemming from strong quarter activity.

And disciplined inventory management.

Advanced levels increased by $318 million to cute too sorry, and Q2 as our unit book to Bill reached approximately 1.8 and our overall backlog grew by $300 million to $10 and $7 billion.

As expected global 7500 deliveries continued to outpace orders, but we expect this to stabilize as we near the targeted 18 to 24 month backlog window.

It's important to also note that interest payments remained high at $237 million and the second quarter, which is comparable to the 243 million and we paid and Q2 of last year.

This is the result of paying the accrued interest on debt, which was being retired.

And however, we will begin to C meaningful reductions to our cash interest costs and the second half of this year as we start benefiting from the deleveraging actions we have taken.

Now onto full year objectives.

As such we expect aircraft deliveries to come in at the high end of our original guidance at approximately 120 and.

Impacts from seasonality over the summer months will result in a calmer Q3 versus Q2 before and expected strong delivery output and queue for.

This increase and deliveries coupled with the positive trends and aftermarket flying hours is driving and increase in our top line expectation to now be greater than 5.8 billion up from prior guidance.

Looking at EBITDA margins, the combination of and nearly sold out skyline for the second half of the year.

Faster achievement of our cost reduction actions and year to date, EBITDA margins and 9.3%.

Give us increased confidence and our full year EBITDA performance.

As a result, we are raising the expectation to greater than $575 million and EBIT to greater than $175 million.

And this implies EBITDA margins for the full year and the 10% range versus 9% based on our original guidance.

Q3, EBITDA margins should again, b and the 9% range as mentioned last quarter before a stronger finished for the year.

Finally, we have raised our free cash flow guidance by $200 million to better than $300 million of free cash flow usage, which does include the $200 million and non-recurring outflows.

This is the product of the increase and our profitability guidance, coupled with stronger working capital performance and increased certainty surrounding interest costs.

Given our year to date free cash flow usage is $314 million, we expect to be positive for the second half of the year and.

Despite all the encouraging signs we're seeing there does remain many uncertainties, mostly around economic recovery and Reopenings and for this reason, we continued to be prudent and our free cash flow estimates again, considering the summer seasonality, we expect Q3 to be quieter than Q2 before a stronger finished for the year.

So to conclude we have achieved a lot so far this year, but it remains a transition year. The plan, we shared and early March remains on track and we continue to focus on becoming a more predictable profitable and resilient business Aviation company.

We remain focused on executing our strategic priorities and have made significant progress this year.

We will keep clear transparent communication with all of our stakeholders as we continue to reach milestones and the future.

Thank you very much with that I'll turn it back over to France us to begin the Q&A session.

Thanks part and.

Like to remind you that the commodity Investor relations team is available following the call to answer any questions you may have.

That will open up the line operator, we're ready for our first question.

Thank you.

And do you have a question please price Darwin and your telephone touch Touchtone telephone if you're using a speaker phone handset and then press Darwin and <unk>.

Would you wish to camp and your question. Please press Star 10 to allocate time for all participants. Please let me and shelves to 1 question and 1 follow up question and.

And our first question and from camera and direction from National Bank Financial. Please go ahead.

Thanks, very much have a good morning.

Good morning comment.

So I'm just wondering if you could talk a little bit more about against the new order activity that you're seeing for for business Jets. How is that trended I guess into Q3 are you seeing similar strength and I'm also wonder if you can comment and a little bit about the pricing that you're seeing on new orders and how that compares to what's in the backlog.

Okay.

Great question camera and so first of all we all for seeing.

The same momentum and to treat as we've seen each you too so the level of activity, especially in North America remains very strong.

The rest of the world is picking up.

I think we've mentioned also all successful I think the fleet operator R and the current environment.

And as you know Bombardier is probably better positioned and any OEM with the fleet operators, so clearly for us.

And it's been an interesting journey and in that sense, so and.

In terms of pricing on your question on pricing.

And we are very happy to what we're seeing right now so pricing is firming up.

We have seen is going through Q too and.

And you know clearly the backlog that we've been able to to to to generate and the last quarter, which was over 50 airplane is giving us good confidence. That's 1 of the reason to date why we are capable of.

Improving our guidance.

Towards the rest of the year.

Okay, Great and just just to follow on that just.

Just also wondering what you're seeing on kind of on trade and so is there any kind of changes and you're seeing there you being less aggressive or you're feeling and you have to be less aggressive on taking trade and.

And we there's not many airplane as I said earlier being available out there, but when we have an abortion for you to trade in and we look at them 1 by 1 and.

And if it makes economic sense for us, especially with the new pre owned program that we've just.

Lunch a couple of weeks ago.

She'll probably interest there of bringing an airplane in.

Recertifying that airplane for the for.

The market, which needs it right now so so clearly.

Case by case and depending on the state of the airplane, but again, there's not that many available, but we are very selective and being careful there, but we believe that we are probably better position that anyone to add value to those legacy airplane.

Okay, great. Thanks very much.

Thank you. The next question is from Carnac bouquet from Scotiabank. Please go ahead.

And the money and and thanks for taking my question.

So and wanting the book to Bill ratio from 1.8 times and was pretty strong and as you mentioned, Eric being the best you have seen and many many.

Months or years, maybe.

How much of this strong demand driven by travelers who were previously flying commercial and what are your customers specialty fleet customers, telling you about sustainability and the demand.

Yeah.

So as we indicated before thanks for color for your question.

And we clearly C new.

Customer a fair a bigger percentage probably than usual and new customer, but clearly I think where there is much more momentum right now is with the fleet operator, So I think that the people that used to fly commercial right now for safety reasons, and mainly and also availability of connection I think and those that can afford a day.

Are shifting to words.

And will fleed, operator, more and more and which creates a quite a bit of demand for for the fleet operators. So I would say probably that this is where there is strong momentum right now and as I. Just said, we are very well positioned bombardier towards the major fleet operator across the globe. So so that's that's great for our business, but also at the same time on.

Non fleet operator.

Personal user.

No new entrant, but we also C b.

Renewing their fleet channel and they've been with us for a long time, and a refreshing the airplane and debt market.

Sounds great down and thanks, I come and just to follow up on the backlog here.

Say class up $300 million sequentially.

Book to bold ratio and units for a pretty strong.

Assuming.

There's been more orders of activity, perhaps and and the smaller or medium sized jets losses global is that correct and it.

Again for.

White and colored ones, let's do these things.

Okay. So.

Clearly we are extremely happy with with our backlog strengthening and I think I've said it before we had.

Clearly some program, where we are backlog was very low now right in front of US we have good backlog on every single program.

Which which give us debt.

Predictable level and better visibility and.

And again, I think I think better visibility is giving us predictable success on the delivery on pricing on a lot of from so clearly the backlog right now is better distributed if I can see this week on all from an old program.

Thank you.

And the next question is from <unk> from day, I'll think capital markets. Please class yes, yes.

Yes, good morning, everyone and good morning.

So first question and both of them and 1 yeah.

Yeah.

On the back of the grid backlog and good visibility you add on all of the specific programs, what do you need to C before revisiting and your production rates up for.

And and a great question.

Asking ourselves that question every day, but that to be fully transparent with you I think right. Now we are very focused on growing our backlog and you know there is we have internal target in terms of number of months of backlog that we like to see.

On the airplane and of course, there is the minimum number yet give us more comfort and more predictability, but having too much backlog also can become a problem. Because you don't have the availability for customer of the market is strong. So we have a clear target of a minimum and a maximum.

Which obviously for competitive reasons, I'm not going to share but clearly.

We we will revisit you know if we ever achieved those maximum or exceed those maximum target of backlog. So clearly.

We're having conversation, but there's no decision right now we're really focused on.

Filling the backlog, making us more predictable at the same time and parallel to that and I think we've mentioned that urge room. The skull. We have 222 B Umble also the market is very strong right now but.

You've been following debt and industry long enough.

By the way that sometimes things can change rapidly so we have to be careful and.

And assess also the impact of what's happening right now we C. As as we all know.

<unk> waved for probably picking up for clearly and some other countries starting here. So we have to assess what this could mean.

So far the momentum gave momentum depends I think has given momentum to the business jet industry, but at the same time, if the economy is being affected at large then we have to assess that so between you know, adding our own target on backlog, but also our view on the long term of the market and especially on the financial.

Point of view.

And will be key and that decision.

Okay, that's great color and just for the follow up could you maybe talk a little bit step out the C.

Strategy for the remaining M vulgar over the next 3 years and whether the free cash flow and we should expect somewhat of a reversal and Q3 before seeing a strong finish the work day year in queue for and.

So I think and what you're alluding to a cost saving programme and the next 3 year and your first question. So if that's the case we've made great.

Great progress on our cost saving programme.

And the remaining part is is getting smaller and smaller so we have lear clear.

Visibility on how we will be achieving the majority of that $400 million saving in terms of maturity and.

I wasn't too sure. If you were also covering the maturity we have a $1 billion left to be addressed so that we clear the hall runway.

To the next maturity of 2023, which will put us and a great position that was what we've announced that was our intent and Ah.

Our target when we have and investor the early March and we're inside of achieving this so so clearly that will make us put us and a great position because if we achieve that and that's our goal and.

That the next maturity will be of December 2024 now.

Perfect. Thank you very much.

Thank you Sir.

Thank you.

The next question is from Walter Spratlin from RBC capital markets. Please go ahead.

Okay. Thanks, very much good morning, everyone.

Good morning, Walter So I'd, just like to follow up on the NY question on production rates and and assuming that the strong book to Bill continues and demand.

Continues despite any any challenges.

Regarding the fourth wave and so on.

What is the highest production rate that you can deliver without any major cap.

Capex spent and I know there were some indications before about what that level might be.

But obviously you have done a lot of reconfiguration, just just looking for the the new production capacity that exists with your current footprint without any major.

Capex spend 222.

To change it and.

And.

And I would suggest that we do have and.

And of course that Walter I won't give a precise number here for competitive reasons, but and I'm sure you understand but.

If you look at the challenger.

You know, we have without investment capability to improve quite.

Quite a bit of production rate.

As you know we've always kept the space, we've minimize our space and the last year and and we continue to do that but we still have quite a bit of room on the challenger.

It said bit.

Last on the global but we still have root moving there's years, where we used to produce.

80, global a year and and we still have debt footprint.

And given your trajectory here and the early part and the early year of that.

Of that path, you're achieving results ahead of expectations ahead of your own.

Are putting upward pressure.

Upward support to your 2025 guidance and what would have to happen before you adjust your 2025 guidance.

So those are great question.

I believe right now, it's probably too early to assess and a 2025 is still for years away.

There's a lot of thing you and I know that there's a lot of things that can happen between now and then but to your point, it's great to be on the positive side of the curve, we've already design, but you know.

To answer also your next question, which is what would that take.

Course, you know if we would see that momentum you know on the positive side for a couple of years and the role then I think there is there is there is a case to be made that we should revisit potentially that guidance, but I don't think we're there yet.

Right now we are happy to be ahead of the curve if I may say it this way, but in the long run.

It's too far ahead, right now to be able to predict debt. So that would take a boost of the market really and too early to assess right now.

Okay. Thank you very much for the time and ache and congratulations on a good quarter. Thank you Sir.

Thank you and the next question is somehow Robert Spingarn from credit for me. Please go ahead.

Hi, good morning, and good morning, and kind of that.

Nice nice numbers today I do have a few questions or clarification I wanted to ask about.

Bar just on the backlog B flat December to June I know, what's up from March.

And I am sure you talked about this last quarter, but could you just remind us what what happened there given the book to Bill has been good all year so far.

Is it the services business that's included there.

Yes, yes, absolutely. So so we started the year with with a strong backlog of.

Close to where we are currently at $10 and 7 billion, we did see an increase.

And backlog over the quarter and all that was on the back of of strong.

And strong new order activity in the first quarter and the second quarter. We did have a significant number of deliveries of our larger aircraft and so that that's why we C. A bit of the shape of the curve that you're probably looking at.

However, we also have been able to now build strong backlog on all of our other platforms as Eric was mentioning earlier, we've got good distribution across across all the platforms now and.

With the book to Bill at 1.8 being across all of them, we aren't going to speculate on targeting backlog level of obviously you can probably appreciate for for competitive reasons, but.

Pleased with where we're at hopefully that gives you a bit of a bit of color as to why the shape of the curve is what it is got it and it sounds like it's mix.

So yes. The next thing I wanted to ask Eric just.

High level of strategically obviously the high end of the market is very attractive.

Attractive and now that I was going to jump in with the Tenex, you've got the 700 coming and all of this happens towards the end of your forecast for your guidance period, but what do you think about the high end of the market may be getting a little bit crowded and does that.

Perhaps affect the profitability at some point not not in the near term, but down the road down the road, but that's a fair question, but first of all the new the Falcon Tenex right now is a pay per plane. So we're still years away before we really C. This hit the ground but.

The more important part is we are very much pleased with the performance of our global 7500, So the global 75 run under it and right now is receiving a very favorable and though.

Very favorable to our customer.

This is the airplane debt is the leading edge airplane of the industry right now and that just to bombard C but of the industry.

So, it's flying higher and faster and further than any other airplane and.

And the most important thing too is the reliability wise.

We are outpacing pretty much all everybody so that airplane, even if it's still a young program, it's already performing extremely well and the reliability front. So.

We do believe also that our airplane specs or.

All performing everything as of it that is available right now to compete with us.

Customer buys the airplane the principal most of the debt by the airplane. The interior design is all the way is 1 of the most important thing. So there's the airplane performance and this was still continue to lead but also Bombardier has a clear Ah clear trade.

Part of our trademark debt, we do the best and Terrier.

We always refresh our design, we always offered the best technology on board and that's something that is that is extremely important so.

We are planning also with new entrants coming in and yes, they will be but it was already taken care of and May have made it as an assumption part of our plan for 25.

Okay and then just just thank you for that for just a finished shop I wanted to delve into this pre owned venture that you are talking about just to make sure I understand what it is you're going to do is this simply a focus on some trade and aircraft are you actually going out into the secondhand market.

And now we're going to do both actually so you know of course.

We have access and more easily on what's coming our way with trade and but you do we do believe and we've studied debt and we actually did a couple of airplane. This year and there's things that are exclusive and terms that and we and can do on an airplane that nobody else Ken in terms of.

You know resetting.

A few a few things on the airplane so that it reads value. So we are positioned to create value on every 1 of those airplane more than anyone and we believe it is and we and we.

There is a market for that and people like the idea that that airplane came to the OEM was completely reset and and refresh with new technology put on board and we have the capability of course, and our service center across the world to do that so that this is what we're having in mind.

And this will be strictly Bombardier aircraft not anything else.

Streaky Bombardier airplane.

Okay.

Excellent excellent. Thank you thank you and.

And you.

Thank you and.

Next question and try and that no laptop.

<unk> from Goldman Sachs. Please go ahead.

Hey, good morning, everybody.

Good morning.

And it just it wasn't.

Clear to me what the answer was.

They're too b.

Backlog being considerably higher than.

The unit book to Bill versus the book to Bill implied by the change and the backlog and there's a big differential here is that.

His challenger stronger than global or is it just having a 7500 and the denominator, but not the numerator and.

And I just want to make sure I understand that and and then I for 1 of the M.

I'm sorry go ahead and I thought you were finished no no no.

Go ahead and I'll leave it there so.

1 of the thing that and said earlier and this meeting and earlier and the year is that we had a very strong backlog multi year backlog on the global 7500. The reality is that and we also said that the delivery on the 75 and whether it will be outpacing doesn't rose order this year.

So and so if you're strictly and look at the 7500 and as you know every 1 of those airplane as as more value than any of the other airplane and the backlog.

B the bleeding a little bit this year, but this was something that we saw and Q1 and and Q2.

But we've seen every other single platform, increasing so that's that's the reality but.

As I mentioned earlier and we are always we have a minimum and a maximum target in terms of number of months for every product and the good news right now is under 75 and Red we add your new a long backlog now we're getting into the zone, where people will be more comfortable because.

The delivery date is and reach I would say this weight and and more visible to them. So.

Okay, Eric it sounds like.

Putting the 7500 aside it doesn't sound like you're seeing a big difference and mid versus large X 7500, and challenger versus 50, 560, 500, it sounds fairly broad base with that for sure.

If you are talking about the growth order, it's well distributed and turns out maybe rewarded demand suggest yet the new order demands were and the medium and large b.

Business right now and we see the order demand strong on both on both category.

Okay, and then just on the cash flow.

And it's been awhile since the company had positive free cash flow and the second quarter.

The guidance for the year implies.

The back half is kind of breakeven, although I think maybe he said slightly positive could you maybe just talk us during if there was any.

Advances or other working capital.

Helping the second quarter third quarter stay positive and fourth quarter doesn't have its usual seasonality or 3 Hugo negative and for for you guys got seasonality any incremental color on that pacing would be really helpful.

Include the absorption of about $60 million and non-recurring charges. So if you think it's future years going forward or is it translates more and more like a $150 million a.

Positive cash flow.

Now.

I, just kind of walk you through it and.

If you look at the guidance we had originally.

Said, we'd have better than $500 million and usage and we're now forecasting incremental profit of about 75 million.

Increased certainty and the back half of the year and going forward on interest costs. So that the remaining and 125 million approximately that gets us to the better the and then $300 million usage, you are correct and the and the assumption I think I said this and my comments as well that that we expect to be breakeven and.

And the back half so you've got that right and.

And with that.

7500 deliveries outpacing and strong performance on the other platforms that thing we're focused on still is our goal a.

And 1 building backlog and and we expect to reduce inventories and the second half of the year as well.

So hopefully like and you took our color on it.

And I appreciate it thank you for today.

Aw.

Thank you day next question is from.

J P. Morgan. Please go ahead.

Hey, Thanks, very much and good morning, and good results.

I guess that Aeroquip, when you spoke a little while ago and.

About kind of taking a long term for you.

And that.

Demand and.

Fairly strong right now is stronger than it's been in awhile, but and you have to think about things kind of through cycle and.

New cycle.

Business Jets has been and.

And industry that about a time and this will like it like it had to overcapacity, So I guess maybe.

If you update us on your and any thoughts you have kind of.

Long term about.

The potential for or need for consolidation and the industry.

Mmk and a good point.

And.

And I want to speculate about consolidation of the industry. You know those are things that are being looked into by a lot of people all the time, but at this stage you know we do remain focus on our own.

We do have an amazing portfolio of product ourselves and.

In the field, where we're competing and we're competing and the large medium, but also our services business. As you know we have great ambition there of growing debt business significantly over the next coming year. So so that it remains our focus and our plan is clear and clearly.

Country, you as I said earlier to monitor the longterm trend of the industry.

But so far the trends are positive which which.

We are super happy with and we'll see I think and the next 2 to 3 quarter.

If that trend solidify and then we hit those targets that we gave ourselves internally in terms of backlog, we will be reassessing.

What we do moving forward, but we are happy we're ahead of the curve right now and the plan, we communicated and we were not speculating on any potential consolidation at this stage because we believe the market is strong and there's a lot of new customer coming and the fleet, operator and rolling and.

And I think there'll be room for for.

A lot of business aircraft airplane and and the next 5 years so.

Great great. Thanks, very much and then I am just to follow up real quick on the cash flow dynamics from from and.

And I was question.

With regard to the second half.

So.

And when we think about Q for especially with some.

Some improvement and delivery is.

Interest costs and seems like should be better.

Cash flow is positive and the second quarter.

Is there.

Good performance of a C and maybe.

There is potential to be better than breakeven and second half but is there.

Is there anything that on limiting there in terms of headwinds versus the quarter.

We just had.

Yeah. Thanks.

So.

What I would say that when we when we came out with our Investor day.

In March of this year, 1 of the things that we we said we wanted to try and do for our company and for the market was to B b reasonable and B somewhat conservative on our on our and providing our outlooks and guidance.

And so I would say that on free cash flow, we are in our and our current and guidance probably being a bit a bit conservative for being consistent with that strategy. We do feel very confident on executing on our plan for the remainder of the year.

And I think his hair highlighted and his comments earlier were basically sold out on on all of our aircraft for the year.

Or very near and so having the high confidence in our aircraft are aircraft sales until and deliveries as well puts us and a great position.

We have executed on plan for our debt reduction.

And and recapitalization strategy. So you are right that will give us tailwind on on cash flow is going forward, because we're going to start to C. Low.

Your interest expense contributing and the second half of this year and go forward, we're now over $200 million and reduced interest expense and and the first half of the year, we didn't really get to see the benefit of that just yet because we had to pay accrued interest on.

On some of the bonds that we were retiring and so those things all of those things are contributing now I will say as well I think we're being prudent by being a bit conservative. We all know there is uncertainty still out there are quite rate volatility can occur and so we want to remain a bit conservative delta variant for.

Example, so we'll continue to monitor markets, but very confident and and our forecast for the for the back half of the year.

Great. Thanks very much.

Thanks.

Thank you and I.

Question and some Stephen trend from city. Please go ahead.

Hi, Yes, good morning, and and thank you for taking my question.

I just wanted to think further out so certainly.

B presented compelling.

Trajectory through 2025, and when you think about the investment cycle.

Looking across global aviation certainly on the commercial airlines side.

There's a lot of discussion about sustainable aviation fuel.

And new generations of of aircraft electric takeoff vehicles and what have you.

Just from a high level perspective, I'd love to get your thoughts on how you would come down and all of that.

Yeah.

No. This is a great question, Steven and thanks for for asking debt, but you know I.

I rejoined the company a year ago, and clearly my focus with the team here was was the first 5 year and our first strategic plan cycle and.

Now we're in the middle of the second 1 and clearly we're now thinking about year I will call it year 5 to 15.

And all of those great question are in front of US right now and we already spend money on research and development on how can we get you know a a an airplane flying with using a lot less.

Fueled and it is to the and there's different answer that yes, we are working with the engine people, but us from <unk>. There's a lot we can do there and it's.

Not even thinking here of sustainable fuel and also engine performing better and I'm just thinking about the airplane itself. So RMC right now is very focus.

All are pretty much all R&D money spend right now is focus on thinking about airplane of the future being greener and and being made more favorable to the environment. So so that's clearly how we are approaching it at this stage to to shape up the future and having a a <unk>.

Leaner business aircraft contribution better contribution and then we have today.

Okay, I appreciate that and and just as a very quick follow up I believe Mister book asked earlier from not mistaken.

When we think about let's say non traditional business jet customers.

And any sort of high level sense.

Kind of.

Roughly what proportion of your your new business is coming from.

Customers you usually tip.

Typically wouldn't C.

I think that the.

You know that percentage was traditionally and the 5.6% zone.

But clearly this year in terms of new entrant.

We've seen that number increasing.

To to a larger extent.

But we also have as I said and a lot of new entrants are using the channel of going to a fleet, operator, which ends up being good for us too. So it's difficult for me to put a precise number but we clearly see that we do ourselves asked some sales that are are coming from people that are.

Joining I would see the business aircraft way of traveling and also probably the majority of them are going towards a fleet operator.

Okay. That's very helpful. Let me leave it there and thank you.

Thank you Sir.

Thank you and.

There are no for the questions at this time and I'd like to turn the meeting back over to Mister Martinez.

Okay. So thanks to all of you for for attending this morning, and it's a real pleasure for us to exchange with you all.

We are building good momentum and like I've said, many times, our main focus is transparency and predictability.

We're very excited about the market and the product we are competing and the space but.

Of our plan is our customer and our people.

We will country, you remain disciplined and prudent and I look forward to speaking with you also so stay safe and healthy and thank you for attending again.

Thank you.

And France have now and it. Please disconnect your lines at this time and thank you for your price.

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