Bombardier's (BDRBF) CEO Alain Bellemare on Q4 2015 Results - Earnings Call Transcript

| About: Bombardier Inc.B (BDRBF)

Bombardier Inc. (OTCQX:BDRBF) Q4 2015 Earnings Conference Call October 16, 2014 10:00 AM ET

Executives

Patrick Ghoche – Vice President-Investor Relations

Alain Bellemare – President and Chief Executive Officer

John Di Bert – Senior Vice President and Chief Financial Officer

Analysts

Walter Spracklin – RBC

Cai von Rumohr – Cowen and Company

Turan Quettawala – Scotia Bank

Seth Seifman – JPMorgan

Konark Gupta – Macquarie

Benoit Poirier – Desjardins

Ron Epstein – Bank of America Merrill Lynch

Cameron Doerksen – National Bank Financial

Robert Spingarn – Credit Suisse

Fadi Chamoun – BMO Capital Markets

Peter Arment – Sterne Agee

Tim James – TD Securities

Operator

[Foreign Language]

Good morning, ladies and gentlemen, and welcome to the Bombardier Fourth Quarter and Full Year 2015 Earnings Conference Call. Please be advised that this call is being recorded.

[Foreign Language]

I would now like to turn the meeting over to Mr. Patrick Ghoche, Investor Relations, Vice President for Bombardier.

[Foreign Language]

Please go ahead.

Patrick Ghoche

Thank you, Moud. Good morning to those on the call and thank you for joining. This management discussion has been arranged to review our performance for the fourth quarter of 2015 and full-year results. As in the past, we will invite institutional investors and financial analysts to ask their questions following management’s remarks.

Today Alain Bellemare, President and Chief Executive Officer; and John Di Bert, Senior Vice President and Chief Financial Officer will provide performance highlights, which will address the business’ continued strategic focus, segment’s operational performance, our Q4 and full-year results for the year ended December 31, 2015 and provide some color on this morning’s announcement. John will also provide the company’s guidance for 2016 at the conclusion of his prepared remarks.

This conference call is broadcast live on the Internet and is also translated into French and English. For copies of our earnings release and supporting documents or to retrieve the webcast archive on this call, which will be available later today, please visit our website at www.bombardier.com. Slides for this presentation in English and French are also available. All dollar values expressed during this conference call are in U.S. dollars unless stated otherwise.

I also wish to remind you that during the course of this conference call, we may make projections or other forward-looking statements regarding future events or the future financial performance of the corporation. I’ll bring your attention to chart two of our earnings chart deck. Several assumptions were made by Bombardier in preparing these statements, and we wish to emphasize that there are risks; that actual events or results may differ materially from these statements.

For additional information on such assumptions, please refer to the MD&A released today. I am making this cautionary statement on behalf of each speaker whose remarks today will contain forward-looking statements.

I will now turn over the discussion to our President and Chief Executive Officer, Alain Bellemare.

Alain Bellemare

Thank you, Patrick, and good morning, everyone, and thank you for joining us today. We will review our 2015 financial results and I share with you the significant progress that we are making with our turnaround plan and provide guidance for 2016.

As you saw this morning, we just landed a major commitment from Air Canada, a prestigious international airline for 75 C Series 300 aircraft including 30 options. This is a strong endorsement of this outstanding aircraft, which will create significant value for Air Canada and its passengers. This is a fantastic win for Bombardier. At this price the full order, firm and options could reach a value of up to $6.4 billion and with this significant milestone and the certification of the CS100 last December, we are now building great momentum to successfully compete and create superior value for airlines was necessary. It is the best aircraft in the 100-to-150 seat class segment. It’s innovative, all new design makes it the lowest operating class, the greatest cabin comfort, and the most environmentally friendly aircraft in the industry by far. Bombardier has now received orders and commitments for a total of 678 C Series aircraft.

Air Canada and Bombardier have a long history of corporation. We are excited to further grow our relationship with Air Canada and are looking forward to working very closely with the Air Canada team on the C Series program.

We are turning Bombardier around. We have a plan to make this great company stronger and more competitive. In the past 12 months, we significantly derisked and stabilized the business by taking proactive and decisive action. We now add the liquidity needed to execute our strategic plan.

We have a great team in place that is fully engaged and focused on disciplined execution. With the certification of the CS100, the great performance of the aircraft, the significant win today, clear line of sight who entry-into-service with SWISS positive momentum is building on the C Series.

We are now shifting our attention to 2016. We are gaining traction with our transformation plan to rebuild earnings power and generate better free cash flow. 2016 will be a year of transition. I really say it’ll be a year of transition because the ramp up of the C Series production will put pressure on earning. This is part of the normal learning curve on new aircraft programs and is consistent with our five-year plan that we shared with you at our last Investor Day in New York. The reset of the Global 5000, Global 6000 production rates will bring revenues down. This realignment of our production was essential to protect our brand and the residual value of our products.

Now, despite these pressure points, it’s important to highlight that our liquidity position will remain strong. And our cash usage will improve by at least $500 million this year, because of the discipline cash management practices that we are putting in place.

As part of our turnaround plan, we are announcing this morning a global workforce reduction of 7,000 employees worldwide, including 2,000 contractors over the next two years. We are taking this difficult decision to make Bombardier stronger. With our remaining 64,000 employees worldwide, we will continue to create superior value for our customers, be more competitive and deliver improved financial performance going forward.

This restructuring action is driven by three key factors. First, we are adjusting our business aircraft production volume to be in line with market demand. We are currently going through an industry wide sloppiness, especially in markets such as Russia, Middle East and China.

Second, our major development programs in aerospace and some large projects in transportation are ramping down and it is as expected. We are resizing our manpower in these areas to match future workloads.

And finally, our transformation plan is getting traction. We are driving productivity, and operational efficiencies across all sectors of Bombardier.

As we emerge from 2016, we will continue to grow and hire in specific regions both in aerospace and transportation. For example, as we ramp up to full production on the C Series, we will grow our workforce over 2,500 employees in our state-of-the-art Québec facilities. Other examples, will be the Global 7000 program assembled in Toronto and specific transportation projects across the world where our workforce will also grow. In 2016, our focus will be on disciplined execution. Starting with commercial aircraft, the team is working very closely which we ensure a flawless entry-into-service of the CS100 by mid-2016. We will see the first C Series aircraft flying passengers which SWISS this year, another really exciting milestone.

With the signing of Air Canada, for the best-in-class CS300 aircraft, we had a major international airline customer to compliment our order book in both Europe and Asia. With the addition of Air Canada, we have now achieved a strong global footprint for the C Series. This combined with the upcoming entering to service of this CS100 is creating positive momentum upon which we will build to further grow our order book.

We have an amazing business aircraft franchise. We have the highest backlog in the industry at $17.2 billion, which our sales organization is hard at work to strengthen through our streamline and more direct sales channel. We have best-in-class products in all categories with our Global, Challenger, and Learjet family.

In fact, the Global 5000 and Global 6000 sales continued to be solid. The Challenger 350 leads the medium category with more than twice as many deliveries as the closest competitor. And with the newly certified Challenger 650 now, we will continue to lead the segment of that market which has remained solid in the past year.

We believe that our production rate has been properly adjusted in line with the current market conditions. On the development side, the Global 7000 program has segment defining aircrafts is progressing well and we are on target for first flight this year.

Our Aerostructures and Engineering Services business is a key source of competitive advantage with our advanced technology, deep competency and global footprint. Our focus in this business is to further improve our cost structure. Finally, we are a global market leader in the very attractive rail transportation market, which is fueled by favorable megatrend such as population growth, urbanization and environmental awareness. Our transportation business has a strong backlog of $30.4 billion.

In 2016, we are focused on project execution, margin expansion and growth. We expect margin improvement resulting from the benefit of our transformation plan. As you can see, 2016 will be a year of transition. We are building momentum on the C Series and our turnaround plan is gaining traction. We are on our way towards delivering on our 2018 and 2020 financial objectives.

Let me now turn it over to John to review the Q4 2015 financial results. He will also share guidance for 2016.

John Di Bert

Thank you, Alain, and good morning, everyone. Our turnaround is well underway. In today’s commitment from Air Canada, it’s another exciting milestone on the path to our 2020 financial objective. We have covered a lot of ground in this past year, many of our decisions had an impact on financial result as we de-risk the business and positioned for future financial success. When I look at 2015 and 2016, I see significant operational improvements that are being turned into sustainable profitability and cash flow.

Let me begin on Chart 4, by walking us through our 2015 results and how are our actions were built earnings power. Overall, fourth quarter financial performance reflects our continued efforts to de-risk the business. Revenues of $5 billion compared to $6 billion in Q4 2014, driven by an adverse currency translation impact of $233 million, as well as 14 fewer Business Aircraft delivery. Including BCA, we delivered 84 aircrafts in the quarter and maintained our leading market share of deliveries in the Business Aircraft segment.

At BT, lower revenues relative to Q4 2014 resulted from the optimization of our supply chain, delaying recognition of certain revenues and their contract accounting. While these improvement support working capital initiatives and reflect our focus on cash flow generation, it did create a shortfall for 2015 sales guidance at BT.

Full-year consolidated revenues of $18.2 billion were 3.7% lower than 2014 on a constant currency basis, including 275 aircraft deliveries versus both prior year performance and guidance of 290 units. As was the case in Q4 last year, the production ramp up of the C Series created pressure on earnings.

Year-over-year EBIT in Q4 was affected by profitability at BBA, where both volume and margins were lower than 2014. Our proactive decision in May 2015 to balance supply and demand will gradually improve margins for business jets.

Additionally, our Q4 earnings performance include $45 million charge, reflecting the impact of restructuring our pre-owned aircraft activities and commercial practice. During 2015, we depleted the value of our used aircraft inventories by over 30% before any evaluation adjustments. These actions will sustainably protect and improve future margins at BBA. At 5.7% fourth quarter EBIT margins have improved sequentially and year-over-year fueled by higher gross margins and rolling stocks with a favorable revenue mix and improved contribution from our JVs in China.

For full-year 2015, EBITDA at $554 million compares to $923 million in 2014. The shortfall results mainly from the proactive risk management, decisive actions stabilize the business and to prepare for a transition to earnings and cash flow generation aligned with our Investor Day objectives.

The elements of the reduction and full-year earnings include approximately $140 million in valuation adjustments for pre-owned Business Aircraft and used parts inventories, lower aircraft deliveries and the ramp up of cost at C Series.

New financing expenses for the year increased by $174 million consistent with the issuance of long-term debt earlier this year and a non-cash fair value loss on aircraft loans and lease receivables. This is as we reported in Q3. It’s important to note that we expect to see interest expense higher next year driven by lower capitalized interest on the C Series program.

As we continue to review all aspects of our business, we recorded certain special charges in the fourth quarter. First, as we implement business model enhancements and strengthen our direct relationship with customers, improve competitiveness and to solidify our long-term profitability, we recorded a charge of $327 million. The cash impact of this charge is largely behind us with approximately $80 million left to be disbursed in the first half of 2016.

Second, following a detailed review of our programs that extended into the fourth quarter, we’ve recorded a $296 million non-cash charge for tooling balance related to the CRJ1000 and Learjet family.

We remain committed to these programs and we’ll continue to market the aircraft aggressively. The CRJ1000 is limited by scope clause restrictions in the U.S., while the CRJ900 market remained solid as evidenced by recent orders in the fourth quarter. We are confident that our program reviews are now aligned with current market conditions.

Cash flow performance in Q4 was strong. We delivered $527 million of free cash flow, exceeding our objective of $300 million for the period. At $1.1 billion, cash flow from operations in core reflects the benefit of our decision to adjust production rates at BBA, disciplined cash management, focus on working capital at DT.

Finally, as I said in Q3, we monetized financial assets generating $94 million of cash in the quarter. Our capital investments are tracking per plan and they are well aligned with program objectives. Our spending reduced by $100 million for the year to just under $1.9 billion and this will continue to decline in 2016 following the certification of the CS300.

For the full-year, we used $1.8 billion in free cash flow better than our guidance of $1.9 billion to $2.2 billion. Bombardier’s liquidity stands at $4 billion as we enter into 2016. On a pro forma basis, including the recently received $1.5 billion capital injection, by the Caisse de depot, and the anticipated $1 billion investment from the see through joint venture. And the Government of Quebec, our pro forma liquidity level, is strong at $6.5 billion. We have the right level of liquidity to execute our strategy and our long-term plan. I would now like to turn your attention to annual guidance plan by segment, for 2016 on chart six.

At Investor Day, we mentioned that 2016 would be a transition year, with expected pressure on earnings and progress of free cash flow. While this remains true on a consolidated basis, the implementation of the transformation plan, business model enhancement and productivity initiatives in 2015 and 2016 are driving margin expansion in each of transportation, BBA and the AES. Transportation is solid and stable, with revenue growing to $8.5 billion on a constant currency basis. As we execute on the strong order backlog of $30.4 billion.

EBIT margin expanded to over 6% as we gain traction on our transformation plan. At BBA, including the global production reset, leading to approximately 150 deliveries in 2015, EBITDA is expected to remain stable year-over-year, with margins recovering to approximately 6%. This expansion is driven by our decisive actions in 2015. Our proactive decisions with our supply and demand in May 2016, as well as our new direct go-to-market strategy, positions us well, in this current market environment.

Furthermore, as highlighted earlier, improvements in the pre-owned aircraft business model, will protect future margins. Revenues at BCA will grow to $3 billion, driven by the initial delivery of the first C Series aircraft this year. Total deliveries at BCA will be approximately 95 units. Typical of the learning curve for a new aircraft program, early production units of C Series will result in negative margins, impacting the segment’s profitability and leading to a loss of $550 million. It’s important to note that as we reduce CapEx and we build working capital, the total cash flow for the C Series will be similar in 2016.

At Aerostructures and Engineering Services, revenues are expected to be flat year-over-year, as C Series ramp up is offset by BBA’s reduced volume. The acceleration of transformation initiatives are positively reducing cost at Aerostructures, generating improved EBIT margin of 7.5%.

Moving to chart seven. On a consolidated basis, we expect 2016 revenues between $16.5 billion and $17.5 billion and EBIT before special items of between $200 million and $400 million. Net of the earnings impact from the ramp up of the C Series, EBITDA across the portfolio is expected to improve year-over-year. Consistent with our announcement for global workforce adjustment, we also expect to report special charges of between $250 million and $300 million accruing throughout 2016.

While we do not provide quarterly guidance, the implementation of a number of these initiatives and the ramp up to the delivery of the initial CS100 will materially impact Q1 cash flows and earnings, before the net benefits materialize in the second half.

Overall, 2016 cash flow will improve significantly. Our guidance of free cash flow usage improves between $1 billion and $1.3 billion for the year, including the expected cash cost of restructuring I just described about. Considering the anticipated $1 billion equity injection into this features program in 2016 by the government of Quebec, Bombardier is firmly on track with positive and sustainable cash flow generation across its businesses.

Our guidance reflects the necessary and appropriate action that need to be taken. They are consistent with our long-term plan. We are rebuilding our earnings power to deliver value creation for our stakeholders.

In closing and before we open it up for questions, with this, we announced this morning our intention to seek shareholder approval for a share consolidation at our upcoming annual meeting. While this action will have no affect on the fundamentals of the business, it’s an action that will benefit all shareholders and make sure that we maintain and attract a broad investor base.

With that, Moud, we are ready for our first question.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions]

[Foreign Language]

[Operator Instructions] Our first question is from Walter Spracklin from RBC. Please go ahead.

Walter Spracklin

Yes, thanks very much. Good morning, everyone. So, I guess, my first question is for John here. The guidance on your cash – your cash flow guidance for $500 million I guess, $500 million to $800 million reduction. This is clearly one of the key parameters or drivers that investors are focused on is I think your liquidity, so it’s important to really understand where that’s going and in the past, that’s been a factor that has had some risks to it and some – quite some volatility versus where the original guidance and expectation that come in.

And so, I’m just curious if there’s components of this guidance, this year, that would increase your certainty or your comfort of being able to hit that guidance range compared to prior years and perhaps if you can put in the buckets, where those savings are coming in to give us a matted comfort as to the achievability of that cash flow guidance.

John Di Bert

Great. Thanks Walter, thanks for the question. We’re very focused on cash flow and that we are very focused on working capital. But let me – let me just give you some color here. I described in Q3, some of the dynamics for the current year cash usage, relating to a BBA and sort of the working capital adjustments and advances in inventory. We’ve been very, very proactive, very decisive this year. The way we have established our 2016 plan relative to production and advances our assessment of the market I think is very balanced. And as a result, I go into the year with confidence that we have put this dynamic behind us. You look at Q4, and I think you start seeing some of the benefits of our decisions, so at BBA, I think that’s a – we have – I think in the box relative to the cash flow management or 2016, we see very focused on working capital and imagine there’s just a capital on managing the supply chain on the various projects they are running.

Again I think we see some of the benefits in Q4 that will continue with very proactive transformation plans there. So, it was starting to firm up a strong performance of cash to earning that we see. So, overall, I think transformation plans, the decisions that we are making in terms of also adjusting our cost structure and the way that we have sized our 2015 overall plan and the market related to that plan I think puts in a strong place to deliver on cash flows for the year.

And I’ll just end with the comment that from a overall CapEx point of view, again both programs are getting very disciplined oversight and I think we remain as we have been in 2015 on track with spend, we did not vary in 2015 and don’t expect us to vary in 2016 either.

Walter Spracklin

Perfect. That’s the only one question. Thank you very much.

Operator

Thank you. Our following question is from Cai von Rumohr from Cowen and Company. Please go ahead.

Cai von Rumohr

Yes. Thank you very much and Alain, congratulations. So, on your guidance for bizjet, a 150 deliveries, could you give us a little bit of color in terms of by the key products, what you are looking for and perhaps a bit more color on relative demand by your markets. Thanks so much.

Alain Bellemare

Hi, good morning, Cai and thanks, good talking with you.

When we looked at the volumes forecast for Business Aircraft, we were pretty careless here that we were resetting our production rate on the Global – we were in the range of 50-ish aircraft. So, that’s really what we have in the plan this year on the Global. Clearly our Challenger 350 in the medium size segment is still doing extremely well, it is the best aircraft in that class. So, that will be pretty much, in the range of 60-ish aircraft and the rest is going to be a blend on the Challenger 650 and the Learjet.

Cai von Rumohr

And is any of that plain job Challenger 650, because of difficulty in getting plain job the door or just the ramp or is that demand related?

Alain Bellemare

No the Challenger 650 is actually pretty stable in terms of volume, so that we – as you know, we have done a major upgrade to the Challenger 650, last year came into production. Customers really like the new cabin, it’s a pretty nice aircraft and like I said, I think that we’re pretty stable there, in terms of the production rate.

Cai von Rumohr

Thank you, very much.

Alain Bellemare

Thanks, Cai.

Operator

Thank you. Following question is from Turan Quettawala from Scotia Bank. Please, go ahead.

Turan Quettawala

Yes, good morning. I guess, I had a quick clarification John, are you not going to provide then CapEx numbers for 2016 and then maybe, just some sense on where the working capital move is expected in that free cash flow guidance?

John Di Bert

So, we don’t intent to provide guidance on CapEx this year, but what I can tell you is that overall, the two major programs that are in development, both C Series and Global, yes, the Global 7000, Global 8000 will in both cases have same the kind of cash profile. The difference you’ll see is that, you’ll have a – the majority of cash flow will start to divert towards working capital at C Series now that we’re entering into a production and we’ll be certifying the 300 mid-year.

So, expectations overall for cash flow on those major programs stable year-over-year and that was the lion’s share of what we spent last year in the $1.9 billion. So, the rest of the business is kind of a similar year-over-year.

Turan Quettawala

Got it. Thank you very much. And if I may ask just one quick one on the backlog, on the aerospace side. I know you’ve taken the global production down, I’m just talking about the commercial side here, in particular CRJ’s and Q’s, there’s been some weakness there I guess from an order flow perspective. Alain, are you looking at production rates on that side or and if you were to look at that I guess, when should we be thinking about orders coming in, if we have to assume stable production there?

Alain Bellemare

So far, we see pretty solid skyline for 2016. We are – our teams are actively working the fuel right now, the Q [Indiscernible] it looks pretty good, I mean we’ve got a nice pipeline of opportunity, we are focused on the CRJ and we’ll monitor the situation on the CRJ as we move forward.

Turan Quettawala

Thank you.

Operator

Thank you. The following question is from Seth Seifman from JPMorgan. Please go ahead.

Seth Seifman

Thanks very much and good morning. I wanted to ask about C Series, write-down, if we look at what you’re forecasting for this year, if – as we get through 2016, is it fair to say that we’ll be – you think we’ll be roughly halfway through the losses that you expect to book on the program at that point?

Alain Bellemare

Good morning, Seth. I think that you’re – referring to cash, right? Is it?

Seth Seifman

Yes.

Alain Bellemare

Okay. Yes. As John said and I think that what we’re seeing in term of spending on the C Series this year is pretty much in line with our spending last year. Obviously, there was a kind of a shift here, I mean, moving from program development to production ramp-up. So I mean I think they were going to be using roughly about $1 billion again this year.

And then thereafter what we’re going to see in 2017, 2018, 2019 is a significant drop. And the drop is pretty drastic from 2016 to 2017 and thereafter kind of flattish for about like three years. And our – what we’ve said is that, we would – we needed about like $2 billion rate cash flow positive on the C Series. So, to your question is yes. I think that at the end of 2016, probably half of the cash needed will be behind us and then there will be another $1 billion to go until we breakeven cash flow positive.

Seth Seifman

Great. Thanks. Thanks very much. And maybe just as a quick follow-up. I know the U.S. has been the strongest business jet market recently just with maybe corporate profits coming under a little pressure here this year. Are you seeing any change in the demand environment in the U.S.?

Alain Bellemare

So far the U.S. is still very strong for us. Actually we’ve been gaining traction. We had a very good presence in emerging markets like Russia, China, Middle East, which became softer in – at the end of 2014, 2015. So I mean I think that we’ve achieved a pretty good balance and obviously, I mean, we will continue to monitor the economic situation in the U.S. but so far, we are – we feel confident with the plan that we have.

Seth Seifman

Great. Thank you very much.

Alain Bellemare

Thanks.

Operator

Thank you. The following question is from Konark Gupta from Macquarie. Please go ahead.

Konark Gupta

Good morning, thanks for taking my question. So, my question is on EBIT margin and free cash flow guidance that you have provided for 2016. So, it looks like the CapEx will ideally decline from 2015, in 2016 and that will provide some lift to the free cash flow. But I would think probably more to that as well, maybe in terms of cost savings coming from the workforce adjustments you have announced this morning as well as you announced previously. So, can you please parse out what are the moving parts in margin improvement coming from workforce adjustment as well as any other process improvement initiatives you have taken? Thanks.

John Di Bert

Yes. Thanks for the question. So, across the board as I mentioned in my commentary, few margin spend in all of the segments, while we grew investment ramp-up on the C Series. In terms of some of the basis of the expansion, really we’re gaining a lot of traction on the transformation side, that’s coming from both supply chain initiatives we’re undergoing as well as the fact that we are driving productivity across the business. We’re now sizing ourselves as well for the current markets, I think there is efficiency there.

When you look overall, I’d say that those transformation benefits kind of show up as probably 100 basis points of improvement in the underlying business segment. And you see that clearly in our – in our guidance relative to C Series, how we’re recovering at BBA and the fact that we are driving a lot of cost improvement at Aerostructures and Engineering. In addition, we’ve also taken some decisions in 2015 and have de-risked the business. And so you see some recovery at BBA there, giving it a little bit more lift. You have to also appreciate that given the adjusted rate at 150 deliveries next year, we’ve done a lot of work in terms of stabilizing the margin there.

So, even with lower volumes, we’re able to stabilize earnings and provide recovery to margin.

Konark Gupta

So, John, these new 7000 job announcements at this morning, when do you expect the full sort of impact of these adjustments and what could be the magnitude of that?

John Di Bert

Okay. So, I’d say that the way you should think about the restructuring is that we’re going to go through and there is going to be some timing, I’ll touch that in a second as well. Because when fully deployed our – all of our actions, should produce about a one year payback on the total cost of the program. So, we kind of give guidance there for the full the year 250 to 300. I think that you should expect as we start – as we have those programs fully deployed and implemented and maturing on annual run rate.

And I’d say that’s going to be a 2017 kind of – the magnitude of that savings largely impact 2017. That said, we will see benefit this year as well, they will contribute to the 100 basis points margin that I described as kind of the generic lift across the business segments. I understand that we’re going to be doing a lot of the work here in terms of implement, transformation, restructuring and other activities in the first half of the year. So, that will show up in quarterly as well and I think Q1 will be the most pressured orders for the suite as we both invest in the value add for a production rate at C Series. And we can deploy some other restructuring and other transformation activities. And second half we’ll start to show some benefits and then into 2017 as I thought.

Konark Gupta

Okay. Thanks for that. Thanks for the great color. Thanks.

Operator

Thank you. Following question is from Benoit Poirier, Desjardins. Please go ahead. [Foreign Language]

Benoit Poirier

Yes. Thank you very much. And good morning gentlemen. My question is related to the upcoming investment from the federal, you ended with $6.5 billion in short-term resources, so relatively strong cash position. Just wondering how important is the investment from the federal and whether also it could unlock some orders and I will also like to have more color on what type of financing it could take and whether you’re considering to make any changes in the corporate governance?

John Di Bert

I think that, as we’ve said the – thank you for the question. As we’ve said the participation of the federal government into the program is very important to us and it’s very important for two specific reasons. The first one is, purely providing a strong endorsement on the program itself helping us for gaining confidence and building momentum. We are getting significant traction now with Québec Government investment in the C Series, we’ve seen the positive effect on that in our – during our discussion with customers. This major announcement this morning from Air Canada is also adding to this. So I mean, we’re looking forward to a decision from the federal government. So that’s one piece of it.

The second is that would bring additional financial flexibility. You’re right in saying that, our liquidity position is strong at $6.5 billion. By mean, having additional flexibility into the C Series to support campaigns, production ramp up and entering to service is also very critical. So I think that’s the reason, why we are looking forward to seeing the federal government coming into the program as an equity partner.

Benoit Poirier

And would it take a different form or basically you would reduce your participation in this C Series program, Alain?

Alain Bellemare

Well. As we’ve said, I mean we don’t – I mean, that’s – these are current ongoing negotiations with the federal government. I mean, we want to be careful as to what we are communicating and saying publically, but I think that we are hoping that the federal government would come very close to what Québec did, because I mean Québec came in with a very good structure, where we had equity ownership – they have equity ownership and was – and we’ve been benefiting significantly from that. So we hope that the federal government would do something similar to that.

Benoit Poirier

Okay. Thanks very much for the time.

Alain Bellemare

Okay, thank you.

Operator

Thank you. Our following question is from Ron Epstein from Bank of America Merrill Lynch. Please go ahead.

Ron Epstein

Good morning guys. And congratulations on the Air Canada deal. Just a quick question on that, if you can say, what was – was there a – how are the financial incentives in that deal, meaning did you have to do RVGs or not and if you did, how are you going to account for them on your balance sheet?

Alain Bellemare

Obviously, good morning Ron.

Ron Epstein

Yes.

Alain Bellemare

This is a deal that we’ve been working on for months with Air Canada, we’re very excited about that, I mean it comes at a very critical point, but it is also injecting significant momentum into the program, thus it’s a meaningful like international prestigious carrier but also the size of the order is very critical, so that’s good.

In terms of commercial obviously we’ll understand that we’re talking publically about that. I would just say, it’s a very good commercial deal and we feel good about what we’ve done, I think it’s a win-win for Air Canada and for us.

Ron Epstein

Great. And then one follow-on if I may. There’s been – I think it’s reasonably high profile press about some issues around the shutdown and startup on the Pratt & Whitney engine. Have you heard any pushback from your customers, have you seen that performance issue with the C Series, Qatar was pretty vocal about it, they still are. Can you give us a little perspective, your point of view on what’s going on with the engine?

Alain Bellemare

Yes. So far Ron I mean, the engine is performing well on the aircraft, we’re very pleased that the support that we’re getting from Pratt. We don’t have the similar issue, on our engine versus the engine that is on the Neo today. You understand although it’s the same architecture, these are like two different engines, different size. So, so far so good and we’re working very closely with SWISS to get ready for entry-into-service and the engine performance has been pretty good.

Ron Epstein

Okay. Great. Thank you, so much.

Alain Bellemare

Welcome Ron.

Operator

Thank you. A following question is from Cameron Doerksen from National Bank Financial. Please go ahead.

Cameron Doerksen

Yes. Good morning. I guess maybe just a couple of things on Bombardier Transportation. There’s been a I guess change in leadership there. I’m just wondering if there is any change to your long-term targets at BT. And I guess the other thing on BT is in the past, you had some discussion about what the order outlook looks like for the year and what if you can maybe just discuss what you’re seeing on the order front for BT in 2016?

Alain Bellemare

No. Good morning. And thanks, Cameron. I would say the change of leadership in BT is in my view something that is positive in the sense like [indiscernible] is very focused on operation, if you look at where we are in our journey at BT, I think somebody that is going to drive operational efficiency and productivity improvement and managing our large projects very quickly is something that’s very positive. The business is doing well on the sell side, I mean, obviously we’re bringing way more discipline and that we were going after a new projects, that’s your book-to-bill was 1.1, order intake was $8.8 billion. We had a very strong Q4, at $3.4 billion.

So we feel good about our ability to win new projects and we feel good about the five year plan. And what we’re doing in 2016 and what we’re committing to the street in term of financial targets is in line with our five plans. So nothing has changed – back to closing the loop here on your question, nothing has changed from a leadership standpoint. So we’re very consistent.

Cameron Doerksen

Okay. Thank you.

Alain Bellemare

Thanks.

Operator

Thank you. Following question is from Robert Spingarn from Credit Suisse. Please go ahead.

Robert Spingarn

Good morning all. John, I want to just ask you a quick question and Alain on the C Series. But John, on the $1 billion use of cash this year for C Series, how much do we allocate to development versus production losses, how do we think about that?

Then Alain, on the Air Canada order, this comes in toward the end of the five year period you talked about in November. Is there any opportunity to – can these aircraft change the cash flow profile that you gave us, the timing that you’ll breakeven on a cash basis on C Series by the end of the five years? Can this move this target to the left a little bit and can some of these aircraft deliver earlier than 2019 FDP? Thank you.

John Di Bert

Okay. Thanks, Rob. So, with respect to C Series and in terms of cash flow and where it is going to go, you have a pretty good sense by looking at the guidance of these case or think about that business in sort of low single-digit positive. It gives you a sense for the $1 billion – kind of roughly half and half, I’d say for…

Robert Spingarn

Okay.

John Di Bert

Worth some of your spend in CapEx and production ramp up and cost.

Alain Bellemare

Good morning, Rob. When it comes to the C Series, I think that’s like a cash flow profile for the next five years, is not largely – is not going to be affected by the C Series. If there is – by the aircraft – the Air Canada deal – excuse me – on the C Series. If there is something, I mean, it’d be very little and it would be in the 2020 timeframe. So and could we deliver the aircraft earlier, should they need it? The answer is probably yes, although the timing for us is pretty good right now, when you look at the skyline over the next like three years to four years. So, timing is good. Impact on cash very minimal if any during the next five years.

Robert Spingarn

And do you think you’ll deliver the 10 aircraft to Swiss that are scheduled for this year, you’ll get all 10 out there?

Alain Bellemare

Well, right now, that’s the target. We are working towards that and we don’t see any reason why we wouldn’t do that.

Robert Spingarn

Okay. Thank you.

Operator

Thank you.

John Di Bert

Thanks Rob.

Operator

The following question is from Fadi Chamoun from BMO Capital Markets. Please go ahead.

Fadi Chamoun

Yes. Good morning and congrats on the aircraft order by the way. But I wanted to ask you about the deal being contemplated with the Canadian government. I’m understanding that ultimately there is going to be an equity, a stake involved potentially in that deal, which would shift the ownership of the C Series to the governments of both Québec and Canada ultimately, that deal goes ahead. So how should we think about the sort of medium-term, longer-term economics of the C Series for Bombardier?

If there optionality here for buying it back down the road or how should we think about that, what’s being contemplated under those deals in terms of the long-term ownership of the aircraft?

Alain Bellemare

Well, let me take a shot at this area. I think that the – if you look at the Québec investment deal in the C Series, I think that we’ve been pretty clear, assuming at the time where you actually need the cash to make sure that, you properly successfully complete your development cycle and get the production up, I mean to full rates. I mean, Québec has invested at the right time, but there is also a call option on that and that has been predefined with Québec. And if we’re going to do a deal with Canada, I expect that we would get something that also would be similar.

So I mean, I think that the simple way to look at it I mean, having Québec and Canada coming in as equity partner to stimulate the program at the right time. I mean, the people can decide to stay in [ph] or we add mechanism to at a different structure moving forward should we want to do it.

Fadi Chamoun

Okay. So, John, from a reporting point of view, I guess, we would be seeing the C Series reported as a minority interest if the Canadian government deal goes through like the Quebec deal was to go through, and then ultimately down the road if you pursue that call option, then that probably comes back to the book, if that’s how you would sort of think about it.

John Di Bert

Yes. I think, Fadi, it’s too early to start making I guess inclusions about the accounting. Obviously, there is many options you described. One is I wouldn’t start speculating on the final conditions and how we would interpret that for reporting purposes. One option is that could we consolidate if there are other considerations, I’ll reserve that until we have kind of firm details on this deal.

Fadi Chamoun

Okay. Thank you.

Operator

Thank you. A following question is from Peter Arment from Sterne Agee. Please go ahead.

Peter Arment

Yes. Good morning, Alain and John. Alain, I want to circle back a little bit too maybe Cai’s question on the business aircraft kind of more from a book-to-bill standpoint. I know that you made some changes on how you’re pursuing pricing – kind of pursuing more breakeven deals. How should we think about just kind of the book-to-bill expectations as we think about 2016 just given the planned reductions that you’ve had in some of the – your big shares that you had in Russia and EM that are under pressure. Thanks.

Alain Bellemare

Thanks, Peter, for the question. I think that if you look at the book-to-bill, I mean, prior to cancellation in 2015, we were around like 26. Obviously the net looks norm, down quite a bit, I mean, minus 24. But if you look at the cancellation in 2015, half of it were related to the cancellation of the Lear 85. And then, there’s another significant portion of it that were related to restructuring actions that we took. So, I mean, there’s about over 130 of dose cancellation, that were induced by us, by management decision to rebuild our franchise and preserve value of our great aircraft moving forward. So that’s kind of 2015.

In 2016, with the fraction rate adjustment, the focus now is on rebuilding the backlog and we are expecting a higher book-to-bill nets this year in 2016 versus what we saw in 2015. But again, remember, in 2015, we didn’t start from a point one book-to-bill. I mean, we started from 0.6 with book-to-bill prior to all these one-time adjustments.

Peter Arment

Okay. Great. Thank you.

Alain Bellemare

Thanks.

John Di Bert

Well, we’ll take a last question please.

Operator

Thank you. The last question is from Tim James from TD Securities. Please go ahead.

Tim James

Thank you, good morning. The reduction in workforce plans for the Aerostructures and Engineering Services segment is relatively significant given the size of that business. Is this a change in the company strategy, regarding outsourcing or is it more just a reflection of the cost structure in that segment of the business?

Alain Bellemare

Good morning, Tim. I think it’s a little bit of both. I mean, what we’re talking about here is that overall a 10% production of our global workforce. It’s kind of a split between aerospace and train kind of half and half. There is like really three drivers of that as I mentioned earlier, I mean, the first one relates to volume. I mean, we’re really adjusting our costs – our internal costs to the market condition, market realities. I mean, there is volume adjustment, we drove some production rates down especially on the business aircraft side.

The second one is, as we are phasing out of our major development programs like the C Series with the certification of the CS100 and soon this year, the certification of the CS300, our development cost is going to come down quite a bit, which will also have an impact on our immense power.

So, that’s kind of the second biggest driver of that. And the last one is the need to increase productivity. I trust all of our segments, all of our sectors and that’s no different than what other companies are doing and we’re doing that to obviously regain earnings forward improve margins and be in a position to start paying down debt starting in 2018.

Tim James

Great. Thank you, very much.

Alain Bellemare

Thanks Tim.

Operator

Thank you

Alain Bellemare

Well, I think, at this point, I would like to thank you all for being on the call this morning. As you see, we are making significant changes at Bombardier. We have a plan, we have a good transformation plan, we are gaining traction and C Series is building momentum. I am very proud of the team. We have a very solid team in place. And I feel good about the actions that we’re taking to make Bombardier stronger again. So, I thank you again for taking your time and I look forward to seeing you soon. Thank you.

Operator

Thank you.

[Foreign Language]

The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.

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