Q3 2022 Bombardier Inc Earnings Call
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Good morning, ladies and gentlemen, and welcome to the Bombardier third quarter 2020 financial results Conference call. Please be advised that this call is being recorded at this time.
I'd like to turn the discussion over to Mr. Li Yu.
Lovely.
Vice President of <unk>, and Investor Relations full blown buggy. Please go ahead, Mr. He should have a place.
Good morning, everyone and welcome to Bombardier as earnings call for the third quarter and the September 30th 2022.
I wish to remind you that during the course of this call we may make projections or other forward looking statements regarding future events or the financial performance of the Corporation.
There are risks that actual events or results may differ materially from these statements.
For additional information on forward looking statements and underlying assumptions. Please refer to the M. D N a.
This cautionary statement on behalf of each speaker on this call.
With me today is our president and Chief Executive Officer, Eric Martel, and our executive Vice President and Chief Financial Officer, Bart the Muskie.
To review, our operations and financial results for the third quarter of 2022.
I would now like to turn over the discussion to Eric.
Although it may seem a coupon assists the board.
Born Zoe, our new App to see a.
Good morning, everyone and you need to know that I'm speaking to you today from Miami, Florida, where we have just finished a very successful week. We inaugurated the latest edition to our service network a brand new Ultra mother and service Center.
This is one of the key pillars to our after market growth strategy.
Speak to how the seventh marked a key milestone in our expansion in a moment because it illustrates the types of initiatives. We have put in place to deliver service revenue growth, but first I wanted to reflect on the month that just passed.
The center opening came at the end of a busy October we introduced an innovative new interior option for the global 7500, and global 8000 called the executive cabin, which was very well received by corporate customers. Finally, we made one of the bigger.
<unk> commitment in business aviation to sustainable fuels.
Sustainability is at the art of all discussion when it comes to business aviation.
And the future.
This is why we took the bold and decisive step to transition all of our flight operation to see it.
Yes, we pay a slight premium to do.
But it is well worth the 25% annual net carbon emission reduction that will come with it.
We have found a capable partner in signature aviation to help us on this journey.
For anyone saying that we need higher demand before brother Scf production can begin let me make it clear the man easier and companies like Bombardier are signing the check when it comes to preserving our future.
We are all very passionate about this topic within our company and I can talk about it all morning, but first let's get to third quarter result, as I am also eager to show all well the team performed in the context of our greater plan.
You know when we began bombardier as journey as a company focus on business jet you heard me repeat that we were going to focus on building backlog and remaining disciplined.
We have just we have done just that and that's why I can confidentially tell you today.
That we are well equipped to face any market condition that we will be ahead that will be ahead of us.
Hi, I'm, even proud to see that the fundamentals you will see in our Q3 results.
Things like liquidity.
Free cash flow.
<unk> ability our debt management of all showed that the foundation for all we expect to perform in 2025 as being firmly set.
First let me start with that.
Simply put.
We have less of it.
We have less cost associated with it.
And we received another credit rating upgrade since we last spoke in August this time from S&P upgrading us to b minus with a stable outlook.
<unk> team as done an excellent job managing maturities and setting us up for success.
Mark will speak to some of this in detail shortly but being able to pay $100 million back during a quarter that is traditionally light on deliveries due to seasonality to me is very noteworthy.
Overall, we are on track to deliver more than 120 jets this year.
We saw a healthy and stable one 5 billion in revenue in Q3, and I would like to particularly I light.
The contribution from our service business.
We grew by 20% year over year, a portion of this can for sure be attribute it the flight hours continuing to increase but we are starting to see the benefits of our newly built.
Or expanded facilities coming online.
The team has kept all of these complex project on track through the pandemic.
And we are ready for them to come to you to give us tailwind as customers come to you to choose to bring their jets AUM to the OEM.
We have also seen very positive feedback on market acceptance on our certified pre owned offering.
Each aircraft is carefully cared for by Bombardier expert who create a product that is very appealing.
And he has been on average selling 50% faster that auto jet, helping keep our inventories at good levels and balance sheet clean and turn.
This is a margin accretive business and we will keep steadily progressing once again with discipline.
When it comes to the market as a whole we have seen activity stabilize after huge surge the past quarters and we have read we are reaching what I would call a cruising altitude of around one on our book to Bill going forward.
This is right, where we want to be to maintain a good balance of operational predictability and aircraft availability.
We now have the luxury of looking to the future with a $15 billion backlog to work with and can continue to make prudent and disciplined decision when it comes to production to continue protecting the pricing.
When it comes to macroeconomic factors.
We see a lot of varying prediction on what the coming months and years will bring.
But remember that we did.
We have gained some upside this year, especially on free cash flow, where we ended at <unk> million for the quarter and are well on track to meet the guidance. We raised just last August .
We have further given ourself flexibility by securing a revolver facility that Bart will detail shortly.
All in all we are well positioned to maintain our growth curve steadily as outlined in our Investor day this year towards 2025.
If you look at Bombardier is Q3 adjusted EBITDA, it's another encouraging statistic that boils down to execution.
It rose $210 million, which represents a 48 year over year improvement.
With an adjusted EBITDA margin of 14.4, we are in a great place and are seeing our artwork on the global 7500 learning curve mature, we are seeing service contribution grow and finalizing and implementing recurring savings initiatives.
I do want to reiterate that when it comes to capital allocation.
Debt reduction remains our top priority.
When you factor, our restricted cash, which we expect to have access to early next year.
We're already at $4 5 billion of adjusted net debt, which we initially thought we would reach in 2025, we are well ahead of schedule.
In regards to supply chain, we have a good visibility on what we have to achieve to meet our commitments.
This includes our planned 15% to 20% production increase next year, which we have previously discussed together.
Our teams continue to be deployed around the world to identify and mitigate risks.
It is not without its challenges, but bold and decisive moves to bring work in house continued to pay off for us in terms of stabilizing our product.
I am very proud of our performance looking at our balance sheet. It reflects the vision, we set out for our company and we have demonstrated we can perform.
I'll now hand, it over the Bart to dive deeper into the detail.
Thank you, Eric and good morning, everyone.
This is certainly an exciting time for Bombardier.
When I look at the state of our business I feel very good about how we've performed to date and I feel equally good about the road ahead.
Again in Q3, we had an outstanding quarter on many fronts.
First from a product and market standpoint, we continue to lead the industry and drive innovation as demonstrated by the announcements of our groundbreaking sustainable aviation fuel strategy.
And the three zone executive cabin auction on our global 70 508000 platforms.
We took another major step forward this quarter towards achieving our long term liquidity objectives through the establishment of our inaugural syndicated revolving credit facility.
This 300 million secured facility when combined with our greater than $1 7 billion of adjusted liquidity puts us at more than 2 billion and pro forma liquidity.
Our new revolver is a five year committed facility and as I said of up to 300 million to.
To be secured by working capital collateral.
We have been working on this for some time and I would like to thank all the teams involved as well as our banking syndicate.
This is an important step in continuing to strengthen our financial position and speaks to the work we have accomplished over the past two years.
Continuing with our balance sheet, we have remained active on debt management since our last earnings call.
Having repaid an incremental $100 million of our bonds through open market repurchases.
Our gross debt has now been reduced to $6 2 billion and.
And we are now approaching annualized savings of $300 million and cash interest via our debt reduction activities compared with December 2020.
As Eric said earlier, we have already reached our 2025 objectives in terms of net debt.
We have over $2 billion of pro forma liquidity, including restricted cash soon to be returned to us.
<unk> $6 2 billion of gross debt.
So we are not done here and.
And we expect to continue being active and opportunistic on our debt repayment in the coming quarters.
Operationally, we delivered very strong results in the quarter.
We continued to execute on our strategic priorities as planned and I am, particularly pleased with the pace of growth in our aftermarket business, where revenues are up 20% year over year.
Our margins also continue to improve as exemplified by our 460 basis point year over year adjusted EBITDA margin expansion.
Contributing to our sixth straight quarter of positive free cash flow and putting us on track to deliver our full year guidance across all metrics.
Finally, our backlog continues to grow.
After having another strong one three times book to Bill in Q3, our backlog now stands at $15 billion.
Clients and aftermarket.
This represents a 34% year over year increase and gives us plenty of visibility and predictability into our 2023 topline and financial performance.
So with that let's move on to our Q3 results.
Our revenues for the quarter stood at $1 5 billion, resulting from 25 aircraft deliveries and $372 million in aftermarket revenues.
Our manufacturing and other revenues were 5% lower year over year, mainly due to two fewer large aircraft deliveries.
In line with our expectations and production schedules.
Meanwhile, our aftermarket revenues saw a 20% growth year over year from $310 million in 'twenty $1 million to $372 million. This year and represented 26% of our overall revenues in the third quarter.
This is supported by growth in flight hours as well as execution of our expansion strategy to gain market share.
With our Miami facility inaugurated this week and the earlier openings of Australia, London, and Singapore, We now have the required footprint to deliver our 2025 growth objectives.
We will be aggressively ramping up these facilities over the next 12 to 18 months.
We had a very impressive quarter in terms of profitability.
Our adjusted EBITDA of $210 million is an increase of 48% year over year.
Even more impressive is our EBITDA margins, which rose 460 basis points to 14, 4% versus nine 8% a year earlier.
This margin expansion clearly demonstrates that our plan is working to significantly increase our profitability without the need for large increases in aircraft deliveries.
Free cash flow was also strong coming in at $52 million and bringing our year to date cash generation to $566 million.
Our working capital for the quarter was relatively neutral with higher inventories tied to our planned rate increases essentially offset by an increase in customer advances as well as an increase in our accounts payable balance.
Looking at the last months of this year, we're in a great place entering Q4.
And we are absolutely on track to meet or exceed our 2022 full year guidance.
We continue to expect deliveries of greater than 120 aircraft for the full year.
With 74 aircraft delivered in the first three quarters, we expect a strong output of at least seven deliveries in Q4.
With deliveries in line with our expectations and aftermarket continuing to perform.
We fully expect to meet our revenue and profitability objectives, though Q4, adjusted EBITDA margin percentage should retract a bit versus Q3 as new aircraft is expected to have a larger share of the revenue mix versus aftermarket.
Free cash flow has already met the revised guidance we provided in August .
And we expect to be cash positive in Q4.
So in conclusion Bombardier continues to deliver on its commitments and is well prepared to manage through potential volatility.
We are focusing on the things that we can control and are confident we will continue to see upside to our financial performance in the future.
Thank you very much with that let me turn it over to Frances to begin the Q&A.
Thanks, Mark I'd like to remind you that the bovard Investor Relations team is available following the call and in the coming days to answer any questions you may have.
With that we'll open it up for questions operator.
Thank you.
Have a question. Please press star one on your Touchtone telephone.
If you are using a speaker phone. Please lift your handset and then press star one so.
Should you wish to cancel your question. Please press star two.
Okay time for all participants.
Please limit yourself to one question and one follow up.
Our first question is from Noah <unk> from Goldman Sachs. Please go ahead.
Hi, good morning, everyone.
I wondered now that we're approaching the end of 2022 here.
And you have the degree of backlog and visibility that you do if you might just refresh us on how you.
Plan to load the delivery profile.
Over the medium term.
Okay. So.
You know probably definitely for Q4.
We're in a solid position.
I would say we have pretty.
Pretty much everything under the roof of our facility right now to be capable of delivering what we said we were going to do.
Great and what about 'twenty.
Sure Julian reach on both on both side and about next year I think we've reiterated.
Youre in a few weeks ago that we were still aiming for.
For a 15% to 20% increase in terms of delivery so.
Despite all the challenges that the supply chain is offering.
We've been extremely proactive for the last two years and a half managing the situation and where we're looking forward with with that confidence in terms of our deliveries.
Okay.
Eric you mentioned.
You mentioned kind of landing around book to Bill of one.
And I'm sort of trying to map out.
Where the bookings go from here versus the revenue.
If I take the bookings in the quarter.
And annualize that that would approximately equate the manufacturing or the new.
New aircraft revenue for the year.
<unk>.
So you would therefore need to grow bookings from the level they landed out in the third quarter to keep the book to Bill at one as you grow production.
And so is that correct and I guess, how much visibility do you have at this point into the future bookings.
You've extended backlog and gain visibility into production, but do.
Or do you now have a customer set that plans further in advance and gives you more visibility on that front end of the process as well.
Yeah, no we clearly have.
Some of our customers that are planning more ahead, even than what the booking we have today. So some.
Our specialty fleet, operator will have conversation about 'twenty five 'twenty six and even further.
In terms of.
We are being prudent going into when we forecast the future.
Especially <unk> starting next year, we are planning for a book to Bill of one okay. That's what we have been.
<unk> so.
We do have today, which is north.
Which is so close to two years pretty much on our platform. So so we're in a very good place. This gives us the confidence that if we maintain.
Our book to Bill of one we will preserve the backlog that we have today.
But also when I say that we are ready to face any situation.
Head of US is that if we would have a book to bill lower than one because there is a major recession going into next year. Dan you know, we would probably use some of the backlog. Okay. But you know may make an assumption that we may let's say, it's just that I put this year at <unk> 75.
Then you would lose probably three months of the two years, so which is still pretty good and gives you the visibility you need to manage the business with confidence and predictability.
Okay. Thanks very much.
Thank you.
Thank you I'm. Following question is from Walter Rochman from RBC capital markets. Please go ahead, yeah. Thanks, very much good morning, everyone.
And congrats on a good quarter.
I Wonder I wanted to zero in on on the certified pre owned market I know you covered this a lot Eric.
<unk>, but.
This is a really interesting opportunity in and correct me if I'm right. I mean this is this has been made possible by your investment in the aftermarket and the footprint that you've created hangar space that you've created with with that investment is now giving you the opportunity to go into a market that you couldnt address before and I'm just curious what.
Level of revenue opportunity are you are you targeting here.
You mentioned margin accretive.
Particularly what timeframe do you think you could ramp up to that level of.
Whatever market addressing whatever addressable market, you're targeting how quickly could you get to that level.
Thanks, Walter for the question I think Youre aware, if I talk about the business a bit that we're creating here.
First of all it's important to note is we have 5000 airplanes flying out there.
So which creates unfortunately, an enormous opportunity and we know from history and even during this during.
During the pandemic, there's around 400 airplane.
<unk> every year that are involved in a transaction.
So from there was 400 red pre owned transaction.
And then to capture a fair market share of those by bringing these airplane to us and Youre, absolutely right highlighting that today, adding additional capacity, we added 1 million square foot. This year to our facility in service, we are giving ourselves the ability to bring these airplanes and as an OEM.
Refresh the interior put a new avionics and air.
And basically.
Take these airplane after I don't know 15 years or 20 years or 10 years, they've been in service refresh them and put them back on the market because these airplane has a long lifecycle.
We are uniquely positioned to offer significant value to customers.
So I'm not going to state a percentage, but think about a market of 400 airplanes a year that our transit.
Are involved in a transaction and we intend to take market share.
Sure.
Of those transaction.
So this is a.
This brings us strong margin contribution we launched a program as you know.
<unk> 18 months ago now in July 2021, and we're starting to reach today double digit deliveries.
So that's that's a nice indicator but.
So we are you know.
We're well positioned we do believe in that business, we're going to continue to grow that business. We have the capability to do so and that's how we're thinking about.
Okay, that's great.
My follow up question here is on cash flow. This was for Bert obviously.
You hit your free cash flow guide your your multiyear free cash flow guide for 2025 in year one.
You kind of indicated when you raised your guidance last time that there was a lot of good.
Events that happened this year that that that helped you on that.
Naturally I think by maintaining your $500 million free cash flow guide for 2025.
I think you're.
Recently, saying, Okay, we had a bit of a windfall of this this year.
Maybe go back down to some some normalized level and then back off and then back up to 2025.
On a more sustainable level.
My question I guess is a.
The things that allowed you to get that free cash flow benefit this year won't a lot of those factors be in play going into next year as well.
And secondly, how soon.
That's happening how soon could you hit your leverage target your if youre getting your 2025 free cash flow target well in advance how much sooner do you see yourself as being able to achieve your leverage target. Your 2000 22025 leverage target.
Yes, great great questions, Walter and so let me, let me just start by saying.
We've been quite aggressive on our debt reduction plans and strategies to date.
We're well ahead and I'll give you a couple of metrics here in a moment on our debt reduction plan and Youre right.
Market dynamics, certainly helped accelerate.
Our debt reduction relative to the original targets that we produced that are provided to the market.
About a year and a half ago, just over a year and a half ago.
Proud to say that we have reimbursed almost $900 million of debt today from cash generated from the business.
Which is the most important thing.
I mentioned last quarter that we believe we have now reached a place where we will be cash flow positive at a one point or a book to bill quarter.
Quarter over quarter going forward obviously.
We can do better than that as our earnings continue to grow because the earnings growth is primarily coming from the.
The things that we control taking cost out and growing our aftermarket business in terms of the 2025 objective. We had said that we wanted to get to.
1.1 dollars 5 billion of EBITDA.
And $4 5 billion of grew.
Gross debt net debt in order to have a three times debt to EBITDA, we have already achieved the $4 5 billion of net debt this quarter.
$6 2 billion of net of sort of gross debt less about $1 4 billion of cash on hand, $400 million of restricted cash and $300 million.
The new revolver in place for us. So we have liquidity now in excess of $2 billion. So we've already achieved in fact exceeded our 2025 targets. So the expectations for us from here with higher deliveries coming as Eric mentioned next year.
And continued progress on all of the not only EBITDA, but cash flow improvement.
Activities that are underway right now that will in all likelihood.
Well exceed our 2025 targets by 'twenty, five and to be clear the $500 million of free cash flow.
Target that we set for 25.
The actual target is much higher than that we highlighted this in our investor day in March of this year.
That when you think about 1 billion and a half of of EBITDA less about $100 million of sustaining capex, a year and I'll call. It $400 million of interest costs annualized that leaves us with $1 billion.
Of of cash flow that we can we can put to work. So we're very excited about what the future is bringing and particularly about how the balance sheet and the free cash flow shaping up.
That helps Walter yes, it does indeed, thanks very much and.
Thanks for taking my question.
Terrific. Thank you Walter.
Thank you.
<unk> question is from Myles Walton from Wolfe Research. Please go ahead.
Thanks, Good morning.
Hoping you could drill in a little bit on the aftermarket enterprise and in particular I don't know if you can do this but I'll ask the question on a same stores basis that is sort of considering.
Taking aside the expansion of your aftermarket enterprise you have a sense as to how much of the growth is being driven by transactional.
Expansion versus square footage expansion.
And broadly.
Into 'twenty three.
How much square footage expansion.
On net basis would there be under a flat utilization criteria.
And that's a great question so.
Clearly.
The aftermarket profitability is driven by part sales and our strategies I think has been coming into from one full mainly was about having a presence in and we are growing the market share of the entire availability.
If you look at all the hours and maintenance and parts sales possible under 5000 airplanes flying out there.
We are basically grew.
Growing this year.
We had a million square feet to our facility in order to bring more airplanes in and channel more parts of course, and that's how we are.
We've been able to grow.
We as you know this week this year, we've announced the $1 billion.
No.
Always looking out further a fortunate <unk>. So we are thinking about other region, where we may we may do that so.
This is.
You saw the resolve this morning, we grew by 20% year over year versus three.
There is also the smartcard program.
That is growing as we have a bigger installed base.
And most of our customer when airplane as you.
The value of the program. That's another area, where we are growing also our our presence. So this program has been at <unk> for many many years, but it's been very successful in the last few years in terms of growing as people.
Understand that it also helps the residual value of the of the products. So.
Labor is a come back basically for incremental parts sales and thats been our strategy and it's working extremely well so just to picture that a little bit.
We usually have.
And average number of airplanes that number of airplane since we've had this space. This space has been fulfilled and.
Very rapidly, meaning that there is a demand there and that demand people like to come to the OEM and on top of it I think indicator as you know is clearly the flying hours. The fleet is today flying.
One four.
15% to 20% more hours than it was pre COVID-19 in 2000 in 2019.
19, if we compare pre COVID-19, so and we are.
In a very good place all the indicators are heading in the right place and we do believe that we will achieve the targets we have for growing that business.
Okay, and Mark maybe just a quick one for you with the $300 million revolver does that points you to being comfortable carrying just one point to $1 billion in cash versus the $1. Five I think you had a placeholder previously.
Yes, Myles thanks.
You've got it right.
The target for us for I'll call. It liquidity on hand, now rather than just cash on hand.
<unk> at about $1 5 billion, we've been we've been staying pretty close to that and but with the standby facility. We now have in place committed facility. It's a five year commitment.
Of $300 million that means we require less cash on hand to maintain that one five so youre right. Its one two plus 300 that would be the general target we would carry forward from here.
Thank you.
Okay. Thanks miles thank you.
Thank you.
Following question is from the Konak Gupta from Scotiabank. Please go ahead.
Thanks, operator, good morning, everyone.
Maybe just wanted to dig into the inventory levels here, but.
I think Q3 inventories went up by more than $300 million sequentially from Q2.
How much of that do you think could reverse in Q4 and are there any other notable cash flow items, we should be mindful off in Q4.
Yes.
As Youre, probably aware Conor and good morning, and thanks for the question.
As we're ramping up production to meet the higher delivery targets that we've set for 'twenty three.
And probably beyond as well, but we'll come to that when we get to guidance.
That requires us to build some inventory so youre definitely noticing that happening.
In terms of free cash flow Q4, we do expect to be positive in the quarter.
At least 47 deliveries to some of that should be reversed.
And then ultimately the working capital will again be influenced by at.
Advances depending on.
How many are new aircraft orders, we get and where.
Where a book to Bill lands. So those are all kind of the key factors that will.
Fluent things in the fourth quarter, and that's a lot of moving parts, but should be quite positive from what we're seeing.
That's great Colorado. Thanks, So much and then just one quick follow up on the leverage ratios I noticed.
<unk> sure you guys say five and a half times.
<unk>, I think and but obviously I'm like if you look at the inhibit the trailing ebeth, which is not a true reflection of <unk> kind of current operations. So would you say your EBITDA margin today.
Off the baking in all the improvement to you have a cheap so far.
Not notwithstanding the future government would you say the bidet margin would be closer to 15% today for the operation.
I hate doing the math [laughter] <unk>, so directionally yep, yeah, it's probably a little bit higher trailing <unk>.
Trailing is about 800, just over 800 million I believe 810 million trailing so yes. If you you look at the greater than 825, it would be a bit higher.
As as a margins so that that is that is correct.
And you know as we've outline we're looking to continue to grow <unk>.
Margins have been improving year over year, and we expect to continue to.
That will be a continuation from here on out I did mentioned Q3 will be a little bit later, just based on the you know the significant delivery book that we have for the quarter.
<unk> sorry to put you on the spot here, but thankfully no no that's okay Connor.
All good.
Thank you.
Thank you.
Following question you sometime then you want <unk> <unk>. Please go ahead.
Yeah, good morning, and congratulation for the good quarter, when we look at the quarter, we've seen some slack I P. O. So I would be curious to know about the booking activity in two four and whether it be the the the the spec type you we've seen whether it will transfer.
Right into strong booking activity and maybe if you could provide some color about the new insurance that you're still see so far 2324.
I think.
It's worth to note that we've seen quite a bit of consolidation on the fleet operator.
I think in the last year.
Year, or so you've seen acquisition.
There's been a lot of.
Small operator, that's best consolidated under the bigger one.
And I think by the way that this could be a <unk>.
<unk> moving forward also as everybody is looking for a capacity right now fleet, operator, I've seen a huge surge in demand.
They are looking for a capacity to by airplane to operate airplane to a charter them.
And I think the good news for <unk> into this is that we are extremely extremely well position with the biggest fleet operator, I'm thinking about the Flexjet Vista Gen and Flexjet ear.
And a few others so.
It's been I've said that before it's a fair percentage of our growth. They are happy with our product you know whatever if its reliability. The performance of is our ability also to maintain their airplane. So all this to see that.
We are in a good place, but I think we have to anticipate that there will be probably further consolidation, which could be to our advantage.
Okay, that's great father.
Yeah, and just as we add 2023 I understand you have <unk> Ah number so far but how should only be speaking in terms of free cash flow expectation versus 2022. It looks like obviously, there will be higher deliveries hire a good job, but potentially soffer booking delivery.
So without being pressed size, we should we expect free cash flow to be up or potentially down versus 2022.
Hi, Wanwa smart here. So yeah look we were going to stick to our guns and and bring out our guidance.
In the first quarter of next year, and we'll look forward to to sharing it with you then okay then well.
Perfect. Okay. Okay perfect. Thank you goodbye. Thank you.
Thank you.
Following question, if some man cave in Burma I'm Cohen. Please go ahead.
Is it expensive <unk>. Thanks for taking the question what impact should we expect barrios results from the U S dollar appreciating versus the Canadian dollar.
<unk>.
Yeah, the <unk>. Thanks.
We do a line and our financials, a kind of a sensitivity to each show one cent move.
In the exchange rate it's about.
15 million dollar tailwind when the Canadian dollar is R. U S dollar strengthening.
Against the Canadian dollar that's $50 million per one cent.
We have a hedging program in place we've had it in place for many years. So we do try to manage our our currency exposure going forward. We do have a fairly considerable amount. So while we expect to see some.
Benefit starting in 2003.
It'll it'll move to a more full benefit of the strong Canadian dollars starting in the beginning in 2024.
Thank you.
Okay. Thank you censor thanks.
Thank you.
The following question if I'm James from T. D Securities. Please go ahead.
Thanks, very much and good morning, Thank you for taking my call.
Just one question here.
For Eric I guess I'm wondering if you can talk and it's a little bit open window, but I'm curious to get your thoughts as you look at 2023.
What are you know what you'll have to pick the two most significant game kind of watch items for you in terms of risks as you enter 2023 and I'm thinking of the question just because the company.
Obviously, the momentum is strong you're executing you're hitting your results.
Obviously, they're kind of clouds on the horizon than from any other industry. So what are you thinking about we're watching most closely as we go into 2023.
I think it's a great question, Tim and we're asking ourselves that question every day.
The two that are different and keep coming on top of mine is our geopolitical okay. So clearly.
This could change, but I guess it it's gonna change it could change the world for a bombardier, but for everybody else, probably so I think this one is clearly a risk that we are all facing that is ahead of us but.
Despite the this one this is one that we don't have much control. The other one that we have partially control is supply chain, but I think we took the step as I said earlier, we are going to be we need to watch.
There was.
Quite a bit of shock induce in the supply chain. The last two years because of Covid and we are still.
Created other situations, but anyway I think this is recovering slowly but surely we are always watching if there is going to be further but I think those are the two main one that you know.
Keeping us on our toes and making sure that we're gonna be managing them proactively as much as we can but those were the two that that could have an impact but still the supply chain we feel.
Feel.
Comfortable and that's why we are reiterating our 15% to 20% increase the other one is.
I would say I think we can claim altogether that it's out of our control, but we'll see we'll see what happened there.
Great. Thank you very much.
Thank you.
Thank you.
Nine question you some Stephen transfer MCP. Please go ahead.
Good morning, gentlemen, and thanks very much for taking my question apologies if I missed it but I was just curious if you could provide a little more color on what you're doing with sustainable aviation fuel kind of.
What's the size of the investment.
And what sort of operational guide published should be we'd be watching and they're coming years. Thank you.
Perfect. Now this is a great question and this is something that the US brings a lot of interest in my management team, including myself, we've been <unk>.
Extremely proactive.
No on reducing our green gas emission ourselves first of all we're looking at a 25% reduction from 2019 2025 within within our company and we are well on our way to do that we had.
It was abolish announcement, we made to a couple of.
In Orlando about sustainable aviation fuel. So we had just announced a partnership with signature and basically bump <unk> all our demo slide that we do for when we sell airplane all the test flight that we do when we we we either test new program or test on there.
Plain, because we just built it.
All this certification flight will be running with Scf and we have a very comprehensive program with seeing it through which we call a book to claim which is.
Like it because it's it's pretty smart.
It means.
Sustainable fuel availability is always the challenge every airport as sustainable fuel available, but what we're gonna do is we're going to be paying a premium to put sustainable phew. It doesn't mean, it's going to go into our airplane, but somebody else close to a factory where.
Where they are producing the fuel will be putting it into another airplane, but so overall the benefits are there and you you avoid transporting the fuel throughout all North America or Europe . So I think it makes a lot of sense that helps to reduce a mission and we were doing the.
In terms of the investment it's I would say it's not material.
It is something we've put into our budget for next year. It doesn't change anything in the big scheme of things, but we thought that it was an investment that was worth to do.
As we are all facing a challenge that we all need to contribute to.
That's super helpful really appreciate that and from and you can follow up.
I was thinking about longer term.
It seems that.
You guys might get down to.
Typically low financial leverage fairly quickly you know any high level of thoughts with respect to.
Capital allocation, whether you think about new products down the road or maybe.
Big investment.
<unk>. Thank you.
No I think that's a great question and.
Clearly I think we've been extremely clear.
Capital allocation priority today remains reducing death, and we will do that country to do that and eventually you are right in the long run we're going to have to think about a new program. We're going to have to decide first of all but I think we as a management team has been I've been extremely disciplined.
And we would only launch a new program under certain conditions in terms of leverage ratio cash availability liquidity and I think that's that's going to be criteria number one we will not launch a program. If we don't have if we if we haven't achieved these very meter that we gave ourselves to do so.
Of course, there's other question that come into play like availability of technology of course, the market and everything and our ability to execute but clearly the discipline.
I think we've been showing as a management team for the last two years will also remain when.
When it's going to be time to facing you.
Okay, I appreciate that decade or capital to reduce debt.
Super and sorry to interrupt, but thank you very much for that.
You're welcome thank you.
Thank you. The following question from Chris Murray Hum ATB capsule market. Please go ahead.
Yeah. Thanks, good morning folks.
Maybe this is more for you a couple of thoughts around.
Near term debt repayment I guess first of all we didn't see a tender offer for $100 million. So I'm just wondering if you're actually fine spark back in the market are straight bonds back in the market.
<unk> got call. It a roster folks kalbach to you and then if you can also provide us with a little more color around that restricted cash and timing and when you think that it will become available to you that would be helpful.
Yeah, Thanks, Chris you're right, we this past quarter, we didn't.
Come out with a formal publicly announced tender instead, we purchased a repurchased bonds in the market in the open market.
Through through open market purchase activities.
It was a very productive repurchasing of bonds as you can imagine there was quite a bit of <unk>.
Volatility in all all capital markets and the quarter, which gave us.
The opportunity to buy $100 million face value of of notes back for for less than that amount.
So so it was a very productive repurchasing of bonds.
So we're very pleased with being able to execute on that in the quarter in.
In terms of the roughly $400 million U S of restricted cash.
That's out there right now the.
The letters of credit that that cash is supporting.
They expire.
Right towards the end of January of next year. So that's the timing of when we would expect to receive that cashback.
Alright, and that cash I'm, assuming once you've got it you can use it for debt repayment or any other corporate purposes as as you see fit right Yep, Yeah, absolutely, we'll stick to our plan of trying to stay about $1 billion five of liquidity now available and assuming that cash is excess.
Certainly it can be used for for debt repayment.
Okay and I'm, just looking forward just want to make sure on the timing of it sounds like at least from your indications.
Open I guess, a few of the the service centers I think if I read it correctly in your note <unk>, London should be kind of fully up maybe towards the end of this month or early in December .
Any any updates on timing on the Toronto facility in any thoughts on any additional capital needs in the next year or should be fairly modest.
Okay.
I think everything is on track right now. So we got you are absolutely right, we're going to be officially announcing London in the next month.
And.
The facility has already started actually it's filling very nicely with airplane right now, but we will officially announced the facility in a few in a few weeks and in regards to Pearson.
You know we're right on track I visited the facility myself.
A few weeks ago.
We build a structure we're closing the wall right now and we have a detailed plan to start moving.
Our equipment station by station starting.
Some time next year in the summer or in the fall and the plan is still to have everything moved and opened it.
Early in 2003.
Alright, it early and play for Us [laughter].
Okay. Thanks very much.
Okay. Thank you.
Thank you.
National Bank financial please go ahead.
Thanks, Good morning, or maybe just a quick I guess clarification question for Burton.
Just wondering if you could sort of indicate what youre run rate interest expense is today based on that kind of four and a half billion dollars in debt.
Yeah run right.
Today, So we've got $6.2 billion of gross debt our interest rate.
Average coupon rate on that that is just under 7.5%.
So the run rate is about 460 465 million interest expense, okay, perfect and that's down almost.
Pleased to say [laughter], but that's down almost $300 million for.
From December of 2020.
So we're very excited about all that extra cash that.
Is coming back to the to the business now yeah, absolutely. It may be just a quick question for Eric I, just just on the I guess the backlog composition and Wonder if you could maybe just talk a little bit how it how it breaks down today between fleet operators versus high net worth individuals versus I guess corporate customers.
Maybe more importantly.
Change in the last quarter as far as the composition of that backlog or the split.
Yeah.
That's a great question. So it's it's pretty similar to what we said that investor date, So does one of about 18%.
You know or 20% for fleet, operator, and as you as I said earlier, we are extremely well position with these guy and this guy have the capability Brody <unk> growing so it's about 20% I would say of our of our backlog and.
It's around the same number of it and it was a pony earlier this year.
Okay perfect. That's very helpful. Thanks very much.
Thank you thanks camera.
Thank you.
I'll following question David <unk>. Please go ahead.
Hi, This is Brad bar, none for David Good morning.
I just Wanna take you talked about your target for 25 from the free cash flow side, but.
You appear to be progressing will head of of the target for seven and a half billion revenue can you just talk to that.
But I can certainly do.
<unk> chip in but.
Clearly.
We are doing extremely well right now on what we come you did.
We're going to do for 2025.
We're ahead on the delivery Jane and I think right now we're in a situation where.
We have also build backlog have visibility. So we are we're gonna be.
Reassessing as we do every year or.
<unk> 2025, and I think that you can expect that probably early next year. When we talk about our guidance of course and and do investor.
We will be providing an update for the 2025 <unk>.
Okay, Great and and then just on deliveries for this last quarter <unk>.
Last quarter, you said Q3, it was going to be a flat year over year, but came in a little lower versus 2021, So just what happened there.
Yeah, I think in the queue to read the devils into detail, we delivered twenty-five airplane.
If you compare to last year, we deliver 27, but that was with inclusive of four near.
Lear jet airplane. So reality is if you compare apple with Apple.
For a challenging global total we deliver to more airplane.
It was basically what the plan was plus or minus one airplane, we had one airplane at the end of the quarter that we ended up with.
Financing discussion or something happened in the customer decided to do it differently, but anyway.
Being too.
To take away from this right now we're happy with where we ended up in Q3 in the queue for looks look solid and we're looking forward for the quarter, we have a lot of airplanes in queue for but they're all in a good place right now to deliver.
Alright, thank you.
Thank you operator, where we're at.
It is time for <unk> more questions. So will pass it to two Eric to make some closing remarks perfect <unk>. Okay. So I would like to thank you all for joining us today.
As you know we have a very busy fourthquarter ahead of us and we are committed to closing out the year on a high note.
I look forward to Reconvening with you all in the new year to discuss with 2003 will bring for <unk>.
So to take the opportunity to censor really think everyone to view on the call who high was able to meet with during the NBA based show a.
A few weeks ago, it's a real pleasure to get to interact in person. It is essentially what business aviation is all about so I wish you all safe further travel and a productive clothes out to 2000 2002. Thank you.
Thank you.
Ah confidence as an island.
Please disconnect your lines at this time.
You for your participation.
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