Bombardier's (BDRBF) CEO Alain Bellemare on Q1 2016 Results - Earnings Call Transcript

| About: Bombardier Inc.B (BDRBF)

Bombardier Inc.B (OTCQX:BDRBF) Q1 2016 Results Earnings Conference Call April 29, 2016 8:00 AM ET

Executives

Patrick Ghoche - Vice President of Investor Relations

Alain Bellemare - President and Chief Executive Officer

John Di Bert - Senior Vice President and Chief Financial Officer

Analysts

Fadi Chamoun - BMO

Seth Seifman - JPMorgan

Walter Spracklin - RBC

Ron Epstein - Bank of America

Robert Springarn - Credit Suisse

Cai von Rumohr - Cowen and Company

Cameron Doerksen - National Bank Financial

Kevin Chiang - CIBC

Turan Quettawala - Scotiabank

Benoit Poirier - Desjardins Capital

Stephen Trent - Citi

Tim James - TD Securities

Steve Hansen - Raymond James

Peter Arment - Sterne Agee

Gavin Parsons - Goldman Sachs

Operator

Good morning, ladies and gentlemen, and welcome to the Bombardier Conference Call. Please be advised that this conference call is being recorded. I would now like to turn the meeting over to Mr. Patrick Ghoche, Vice President of Investor Relations. Please go ahead Mr. Ghoche.

Patrick Ghoche

Good morning, everyone, and thank you for joining. This management discussion has been arranged to review our performance for the first quarter 2016. 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 our business continued strategic focus, segments operational performance for the quarter, and provide some color on this morning's announcement.

John will also review Bombardier's financial results for the first quarter ended March 31, 2016. We will then invite analysts to ask their questions following management's remarks. This conference call is broadcast live on the Internet and is also translated into French.

For copies of our earnings release and supporting documents in both English and French or to retrieve the webcast archive of this call, which will be available later today, please visit our website at www.bombardier.com.

All dollar values expressed during this conference call are in US 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 bring your attention to chart 2 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 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. Good morning, everyone, and thank you for joining us today. As you saw in the press release this morning, our turnaround plan is gaining traction. We delivered on our commitments for Q1 and we remain on track to achieve both our 2016 guidance and 2020 goals.

We also announced a major C Series order from Delta Air Lines for 75 firm and 50 options. This is a big win for Bombardier, the largest C Series order today from one of the largest and most respected airlines in the world. This is a strong endorsement of the C Series.

This aircraft will bring tremendous value to our customers with the lowest operating cost, greatest cabin comfort, and the most environmentally friendly performance in the 100 to 250-seat class.

We are also finalizing our agreement with Air Canada for 75 aircraft including options. And earlier this month, Air Baltic converted its remaining seven CS300 purchase options, again, demonstrating strong customer confidence in the aircraft. So, good momentums as we approach enter into service.

The collaboration between Suisse and Bombardier has been tremendous and the excitement is building as the teams are preparing for the first commercial flight of the C Series scheduled for July 15. This will be a significant milestone for the program and will serve as a catalyst for future campaigns.

With the Delta and Air Canada orders firming up, the C Series will enter into service with a backlog of more than 300 firm orders and up to 800 when including options and commitments.

We also significantly improved the quality of the backlog with a marquee customer list that includes Korean Air, Lufthansa Suisse, Air Canada, and now Delta Airlines. Looking ahead, we are seeing increased customer interest for the C Series. Internally, the team is laser focused on entering a flawless entry-into-service.

The result of the route-proving exercise that we recently completed with Suisse really gives us confidence that the C Series will meet or even exceed its performance and reliability targets.

Turning now to our plan. You will recall last fall I told you that 2016 would be a year of transition as we shift our focus from de-risking the business to rebuilding a clear path to profitable earnings growth and cash generation.

In the first quarter, we made significant progress as John will share with you shortly. In addition to meeting our financial commitments; we are delivering as disciplined, we are making progress with our workforce optimization plan, the C Series production is ramping up, the Global 7000 development program is progressing well, and as mentioned earlier the C Series is gaining momentum in the marketplace.

Now, let me share with you a few key highlights by business segment. Starting with Business Aircraft, we had a strong quarter. This performance is the result of the proactive actions that we took over the last 12 months aligning our production rates to market conditions and executing on our new direct-to-customer strategy.

Strong orders in the quarter with a book-to-bill above one shows the strength of our Global and Challenger franchises. In fact the residual value of the Global has been holding better than competitors. Again, we're taking a disciplined approach adapting to challenging market conditions and improving our commercial practices, all of which create value for our customers and position the company to better deliver long-term profitable growth.

Turning to Commercial Aircraft, the C Series will be the largest driver of future growth in this segment. Over the past 12 months we have made remarkable progress. We certified the aircraft, we ramped up production, we put an outstanding leadership team in place, and we have re-energized sales.

In the last few months alone, we grew our order book by 127 firm orders and 80 options. So, we are entering service with a strong tailwind. With respect to the CRJ and Q400 programs, order were assessed in Q1.

The second quarter is looking a little bit better, but more work is needed to address our cost structure. These programs will get increased attention and leadership focus as the year continues.

In our Transportation business, we are focused on improving execution to increase our competitiveness in the global marketplace. We are de-risking projects, driving operational discipline, and working on generating better free cash flow.

We are starting to see the benefits of our actions. In Q1, EBIT before special items increased sequentially and cash flow improved. Looking at the overall market, order activity in the first quarter is traditionally slow and this year was no exception. Looking ahead, we expect to see a step-up in bidding activity.

One last note on Transportation. In the first quarter, we finalized the investment by CDPQ in Bombardier Transportation and we are thrilled to have a partner that shares our long-term goals. Bottom line, we are executing our turnaround plan and making Bombardier a stronger and more competitive company. Let me stop here and turn it over to John to review the Q1 financial results.

John Di Bert

Thank you, Alain, and good morning, everyone. As you review our financials released this morning, you'll see that the actions we've taken are paying off. Looking at chart 4, we delivered on plan. Deliveries, revenues, and EBIT were as expected and Business Aircraft's 1.3 book-to-bill was robust.

Margins before special items at Transportation, Business Aircraft, and Aerostructures are about 6% progressing towards full-year goals. We continue to focus on cash, improving working capital, and productivity.

We finished Q1 with liquidity of $4.7 billion including $3.4 billion of cash on hand. Our first quarter performance was controlled, predictable, and gives me confidence in our full-year plan. In short, we are executing our turnaround and are beginning to see the benefits of our decisive actions. While there is still much work ahead of us, we are committed to meeting our 2016 guidance.

Now, for a more detailed look at our Q1 2016 financial results starting with revenues on chart 5. Revenues for the quarter of $3.9 billion compared to $4.4 billion in Q1 2015. This decrease is largely due to our planned reduction in deliveries of Business Aircraft. We also experienced adverse currency translation and delayed revenue recognition at Transportation.

Looking at the business units. At BT excluding a $71 million negative currency translation impact, revenues were $89 million lower as a result of supply chain and working capital optimization on contracts that are in the ramp- up phase, while setting the timing of revenue recognition, this discipline reflects our focus on cash flow generation.

At 0.7, book-to-bill is consistent with Q1 2015 and was driven by a lower number of major projects awarded worldwide. As Alain mentioned, we saw postponements in awards on a number of large projects globally. We expect book-to-bill to increase as bid volumes rise later this year.

At Business Aircraft, Q1 revenues were $1.3 billion consistent with our new production rates. We delivered 31 business jets compared to 45 last year. This is a strong quarter on the order front, one of the best in the recent past. With a book-to-bill of 1.3 our first quarter provides encouraging data points in the current market context.

Order intake was strong at 57 gross orders, a significant improvement over last year and was driven by a resilient US market. Net orders were 40 aircraft as we continue to proactively manage our backlog to improve margins.

Looking at the full year, we remain confident in our ability to deliver 150 aircraft in light of our strong start in medium and large-cap. Turning to Commercial Aircraft, Q1 deliveries stood at 20 aircraft. This compares to 23 during the same period last year and was in line with our expectations.

On the order front, the C Series is the growth engine and orders are materializing. For the CRJs and the Q400s, we recorded only two orders in Q1 but since the beginning of April, we concluded two new deals for an additional seven aircraft.

Aerostructures and Engineering revenues were $468 million for the quarter, essentially flat year-over-year. As we begin to deliver C Series components to BCA for final assembly, internal sales have grown from 69% of Aerostructures revenues one year ago to 75% this quarter.

Let's turn to margins and profitability on chart 6. As you all know, EBIT is a work in progress in 2016 as we navigate our transition to earnings and free cash flow growth in 2017. Our turnaround plan is underway to unlock earnings power.

As I mentioned on the last earnings call, benefits from our actions will start materializing in the second half of this year including those related to workforce optimization. We've already started to see some early signs of margin recovery in the first quarter where we delivered sequential margin improvement over Q4.

Before interest, taxes, and special items; earnings were $130 million. In fact when you look at Transportation, Business Aircraft, and Aerostructures; they each delivered EBITDA margins before special items of more than 6%.

As was the case in the last few quarters, consolidated EBIT was affected by the normal production ramp-up of the C Series. Despite recording a small margin on legacy commercial programs in the quarter, our Commercial Aircraft EBIT loss of $66 million is attributable to the C Series production ramp up as we prepare for our first delivery in June. And as the line rate intensifies, you should expect this loss to widen over the balance of the year consistent with our full-year guidance.

Looking individually at the other business units. Transportation delivered EBIT before special items of $115 million or 6.1% in Q1. Margin gains relative to last year were driven by our continued focus on process optimization, structural cost reduction, and standardization in product design as well as higher proportion of service revenues.

We also delivered on Business Aircraft margins, which were up sequentially versus Q4 at 6.7%. This was driven by positive mix of medium and large cabin deliveries and fueled by the results of deliberate actions.

First, business model enhancement initiatives launched in the second half of 2015 contributed to better margins and that includes benefits from our new direct go-to-market strategy and the improvements to our pre-owned aircraft practices. Margin was also supported by a higher share of aftermarket parts and service revenues as well as lower SG&A expenses.

Overall, a solid performance in light of the reduced volumes and a challenging Business Aircraft market. Aerostructures EBIT margins were 7.5% before special items and this is in line with our full-year estimates. Improvement versus 2015 margins reflects continued focus on cost reduction and productivity.

As we execute on the restructuring announced in February, we took a charge of $112 million in Q1. For the full year, we continue to expect a $250 million to $300 million special charge to support the optimization plan. Of that restructuring provision, approximately $15 million was paid and the lag between the provision and the actual severance payout will converge as the year progresses.

In the coming quarter as momentum builds in the C Series program with 127 firm orders from Delta, Air Canada, and Air Baltic; we will record approximately $500 million as a non-cash accounting provision. This special charge was expected as we re-launched the program and is consistent with the production learning curve of a program of this magnitude.

Now, let me be clear. We forecasted early marquee customer deals in our five-year plan. These deals solidify this guideline. They build confidence in the program, we are reaffirming our $2 billion investment plan, and the C Series remains on track to free cash flow breakeven in 2020.

A quick note on financing expenses. During the quarter they increased by $62 million year-over-year, consistent with the issuance of debt in February 2015 and driven by lower capitalized interest following the certification of the C Series program in December.

This anticipated increase represented almost $0.03 of drag on EPS for this quarter. Q1 financing expense will remain relatively consistent for the remainder of this year. Now from a cash flow perspective, we ended 2015 strong.

We continue to exercise tight cash control. Q1 was on plan with total usage of $750 million in this seasonally low quarter and this number includes $200 million invested in capitalized tooling and working capital as we wrap up C Series deliveries and it remains aligned with our $1 billion guidance for the full year. $153 million in Business Aircraft investments occurred in the quarter mainly on the Global 7,000 and Global 8,000 development program, which is progressing on schedule.

So net-net, we invested $350 million in Q1 towards funding growth. And despite an additional working capital requirement of approximately $100 million as we ramp up the C series, total working capital cash consumption for Q1 2016 was lower by $166 million versus the same period last year. This progress supports our full-year 2016 target of free cash flow usage of $1 billion so $1.3 billion.

With cash flow tracking well, let me update you on our liquidity plan. During the quarter, we closed and we received $1.5 billion from the Caisse de depot's investment and Transportation. We also expect the Quebec's government deal to close by the end of the second quarter.

Our pro forma liquidity is now $5.4 billion when including $3.4 billion of cash at March 31, Quebec's C Series investment, and our available revolver facilities. This liquidity position is the basis on which we built and are executing our five-year plan, a plan that does not factor in an investment from the Federal Government. In addition and consistent with our plan, we recently extended our banking agreements by one year demonstrating support from our banks and providing credit commitments through 2019.

We reduced these facilities to $1.1 billion driving cost savings and aligning them to our needs in light of our stronger cash position considering the CDPQ and Quebec investments, our improving cash flow profile as the C Series investments begin to decline, and stronger cash discipline across all of our businesses.

In closing, our performance in the first quarter of 2016 reflects proactive planning and controlled execution. This provides confidence to meet this year's guidance as well as our 2018 and 2020 objectives.

We remain focused on cash discipline and predictability delivering our financial commitments quarter after quarter and over the long-term. We are rebuilding our earnings power to deliver value creation for our stakeholders.

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

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first question is from Fadi Chamoun from BMO. Please go ahead.

Fadi Chamoun

Yes, good morning. And congratulations on the order from Delta. John, maybe one question, the liquidity, the covenants related to the revolvers have changed. I guess it would be great if you can disclose these covenants and I'm assuming that's not on the table.

Can you in that case help us understand how to think about the headroom you have relative to these covenants?

John Di Bert

Good morning, Fadi. Thanks, for the question. Yes, so, I think it was very positive news for us. We worked with our banks, we have their full support. They've taken a good look at our five year plan and lots of confidence there.

We've been able to amend covenants and I think we're in a very good position now to execute on our five year plan. Over the next three years, I think we have all the headroom required to perform and to have their support. So, I think we're in good shape.

Fadi Chamoun

Okay.

Operator

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

Seth Seifman

Thanks, very much. Good morning, and congratulations on the C Series order. I wanted to follow-up on the question about the onerous contract provision and maybe if you can tell us in a little detail what that is and how to understand it in the context.

I mean, you know, I think we'd all thought that there are losses on early aircraft in any aircraft program and that does get run through the inventory write-down sort of - as you've been doing. So, why the particular recognition of these early and what does it say about potential future pricing?

John Di Bert

So, I think the conversation is really about the learning curve and so just let me maybe give you a little bit of background here. First of all, the charges, if you look at it consistent with the five year plan, we talked about a $2 billion investment to breakeven on the program we said largely attributable to the production ramp-up costs.

And it's a large program and as we get towards that steady state 100, 120 aircraft per year, we'll be leaning out the cost of every individual unit. So what that means is that we're anticipating now in the second quarter 127 firm orders, that's a lot of volume.

Many of those aircraft are in the early stages of the learning curve and as a result under IFRS we will book those anticipated negative margins immediately on firming the order so that's when the accounting happens.

No different, no change in how we've planned this in our financial plan and how we've guided on C Series in terms of cash investments. So, this is no surprise in that we were effectively anticipating marquee customers coming to the program over the next short term and so we are exactly where we want to be.

Seth Seifman

So from your point of view, is this then a timing issue and because of the quantity of orders you're booking what would have been inventory write-downs maybe in 2019 or 2020, you're booking those write0downs in Q2 of '16? Is that the right way to think about it?

John Di Bert

That's exactly the way to think about. So, non-cash today will materialize as we build up the inventories and deliver the aircraft in those years within the learning curve that we're driving. So you've got it exactly right.

Seth Seifman

Right. And just one more on this topic. I mean, has the learning curve changed at all, I mean you would have thought that if you're delivering the first planes in late 2016 and you were going to breakeven in 2020, that might have been a normal learning curve for a normal program and so why the need for kind of a special charge?

John Di Bert

There is no changes whatsoever, I mean this is how we planned it. We had $2 billion of production or $1.5 billion of production costs, $0.5 billion of capitalization to finish the CS300 in the current year.

We've made no changes since we established that plan in November with you at Investor Day and this is just really timing. So, no changes whatsoever in the plan, this is on target. It's the way the accounting works effectively…

Seth Seifman

Thank you, John. I really appreciate it.

Operator

Thank you. Our following question is from Walter Spracklin from RBC. Please go ahead.

Walter Spracklin

Yes. Thanks very much. And John, just one question for you. I know you gave us an EBIT range at full production in 2020 of 7% to 8% for the corporation, so much focus on the C Series and I know you mentioned marquee customers were in that range.

But as we start from a valuation perspective, going out a number of years out to 2020 and trying to get a better handle on decomposing that 7% to 8% forecast. As we get closer to that and with a big order like this, does it change at all the mix within that - how you get to that 7% to 8%.

In other words as we get closer to that date, is there any indication you can give us on Commercial Aerospace on the specific margin related to that at a full production C Series rate, even on a context basis or some kind of benchmark and particularly how your Delta order and any other marquee orders might affect that anticipated margin in 2020?

John Di Bert

Yes, Thanks for the question, Walter. So again, we've planned for this when we looked at our five year plan strategically how we wanted to drive the program. So vis-à-vis what we showed you at Investor Day, there are no changes coming from what we are announcing today nor what we will confirm in the second quarter.

We remain focused on free cash flow breakeven for C Series in 2020 and this doesn't change any of that planning nor the Air Canada nor the Delta nor the Air Baltic firm up. And we still expect on a – kind of on a margin basis for Commercial Aircraft to touch that kind of breakeven positive margin. When you construct our overall 7% to 8%, I think you can still think about it the way we presented it at Investor Day.

Walter Spracklin

Okay. And just to understand that also applies to you mentioned the free cash flow breakeven. The deposit rates that you negotiated with Delta, they weren't out of the range of what you're expecting and therefore no impact on your guidance to 80% of net income for your free cash flow in 2020?

John Di Bert

For the total corporation, everything stays the same and these series of orders here between Air Canada, Baltic and Delta don't change those patterns in any material way.

Walter Spracklin

Okay, great. Thank you very much.

John Di Bert

Okay.

Operator

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

Ron Epstein

Yes. Good morning, guys and congratulations on the order. Just a quick question for you. I mean, at this point given your liquidity situation and your orders you have for the airplane, do you still need the investment from the Canadian federal government and if you do, why?

Alain Bellemare

Good morning, Ron. Like we've said, we've done the plan using a conservative approach that does not include any support or any investment from the federal government. What it would do, it would add additional financial flexibility and also preserve our ability to keep investing in aviation in the future.

Ron Epstein

Okay, great. Thanks, guys.

Alain Bellemare

Thanks, Ron.

Operator

Thank you. Our following question is from Robert Springarn from Credit Suisse. Please go ahead.

Robert Springarn

Good morning. Congratulations.

John Di Bert

Thank you.

Alain Bellemare

Thank you, Rob.

Robert Springarn

So, Alain, just on the back of that and then a question for John. That sounds like perhaps that could capitalize the development of a larger variant of the C Series potentially giving you an even stronger family?

Alain Bellemare

So I mean, right now, we're very focused on executing the programs that we have. We like the CS100, CS300, I mean, these are great aircraft, best-in-class between 100 to 150-seat class and that's where we're zooming in.

And as well on the Business Aircraft side, we have all hands on deck right now on developing the 7000. So for the time being, that's where the focus is and we're going to stick to our 2020 plan.

Robert Springarn

Okay. Fair enough. John, for you on the cash flow cadence for the rest of the year, you burned $200 million so far on the C Series, you have another $800 million to do over nine months.

But for the overall corporation at some point you'll turn I expect positive here or at least diminishing losses. So, how do we think about overall cash flow in the C Series component as we go through the quarters here?

John Di Bert

Yes. So, good question. So the C Series, I still expect to be at $1 billion roughly for the full year in terms of overall cash usage between completion of the CS300 and then the ramp up.

As I mentioned in my comments at the beginning, we do expect to see the kind of the investment in working capital ramp up as we do in terms of high rates and that will mean getting ready for 2017 production which will grow.

And so that consumption will grow, and we - with respect to the full year as a total company, we're still focused on $1 billion to $1.3 billion as we've given our guidance and we've gotten off to I think a solid start here in the first quarter at 750.

What I'd really say is that we're feeling like we have controlled discipline in capital management and of course Q4 seasonally will be the very best quarter of the year, so that will give us a nice close.

But I also see some very positive signals in Q1 with the 750 that we delivered, I think Q2, Q3, kind of steady as she goes and a strong close.

Robert Springarn

So John, which of these quarters would be the peak cash burn quarter for C Series?

John Di Bert

You've seen doubt for C Series. That's a good question on the C. Good question, you know, what I mean, it will be second half of the year, I think probably as we start to bring in additional inventories in the fall, you start to see some of the key consumption.

And then as we start to deliver more aircraft in the backend in Q4, I think at that point in time maybe get a little bit of cash inflows. So I kind of say the peak usage probably somewhere in the fall, so Q3ish and we'll see around there.

Robert Springarn

Thank you both.

John Di Bert

Thanks.

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 congratulations, Alain. So to get back to the onerous contract provision, so the theory is that if you have a loss you book it at the time you sign the contract and your release suggests that the $500 million covers 127 aircraft, hence loss of roughly $4 million per aircraft.

So if Delta exercises their options, which presumably also is aggressively priced, should we look for additional contract provisions as we move forward? Are those factored into the plan?

John Di Bert

So, just a couple of things maybe. One is that it's not necessarily true that it will be 4 per aircraft on average, right. The learning curve moves through each of the periods, so it'll be reflecting the cost at which the deliveries happen. That's how we've sized the provision as well. So, that'll be a moving number.

Now with respect to options or future orders, those will likely come outside of the learning curve and when we are closer to full production. And so my expectation is at that time we start to see some better overall economics.

This is also true for Air Canada and others. So, really the conversation here is about those early units, early years and that we book on firm contract not on options.

Cai von Rumohr

Thank you very much. And then the Quebec deal, you say you expect to close it by the end of Q2 and I guess press releases have said that you – kind of our guys are in negotiation.

Is the thought that the amount would still be $1 billion or could it be more or less or maybe you can talk through some of the key issues regarding that potential investment?

Alain Bellemare

Yes. Good morning, Cai. It's progressing extremely well with Quebec, very strong support, good discussion and no change to the plan. So, it's still $1 billion and we should be closing in time as per plan.

John Di Bert

It's not so much negotiation as it is I would say just working through the carve-out, the work that has to be done to establish that partnership, the JV.

Cai von Rumohr

Thank you very much.

Operator

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

Cameron Doerksen

Yes, good morning. Thanks very much. My question is on the Commercial Aerospace profitability, I mean, I guess one of the difficulties we have now with the losses on the C Series is trying to figure out what sort of the core regional aircraft business is doing from a profitability perspective. I know you're not going to give us any specific numbers.

But can you maybe just talk about directionally how margins have been in the regional aircraft business you know, sort of versus last year and maybe looking back even a couple of years before the C series ramp up started?

John Di Bert

So, I'd say that I made some comments about that that we have some small positive margins in the kind of the legacy businesses with the Q and the CRJ. And as Alain mentioned, we continue to focus on that really looking at driving cost structure and also continue to position the aircraft strongly in the market.

So, no real changes from kind of where we are going forward. I think it's going to be marginally a profitable business. But with a focus from the management team here to continue to improve, the returns and make sure that the aircraft is positioned for better profitability.

Cameron Doerksen

Okay. Thank you.

Operator

Thank you. Our following question is from Kevin Chiang from CIBC. Please go ahead.

Kevin Chiang

Hi. Thanks for taking my questions. Just looking at your business jet platform, I know, we entered the year with a little more concern, so it looks like you had a little bit more global orders than we were forecasting.

Just wondering as you worked through the quarter or the past four months, has demand improved this year as equity markets and economic activity have picked up or is it still pretty soft out there?

John Di Bert

So on the Business Aircraft side, I'd say that the real message there is that we've anticipated the markets. We've positioned ourself well, the team has done a great job of really going out and driving orders and sales this quarter.

For us, I'd say that overall the total environment is not changed and that it's still a relatively volatile environment. I think it's just having positioned ourself well in anticipating in that market and we continue to work very hard to make sure that we are fully on plan to deliver 160 aircraft this year.

Alain Bellemare

If I may add to this. We had a very strong quarter both on Global and Challengers, a little bit soft on the Lear. Honestly this one is a shorter cycle business, saw little concern about that for the time being. But we had like in total 57 orders in Q1 net 40.

So, it's a pretty good start and I'm very pleased with what we've done last year in term of adjusting the production rates. I think that we've been ahead of the market. So the team has done an amazing job on that front.

And if you look at the benefit of that, you can also see that on the residual value of our aircraft versus competitors in the marketplace right now. So overall I think that we were proactive. We took like some tough actions last year, but they are starting to pay-out this year.

Kevin Chiang

Perfect. Thank you.

Operator

Thank you. Our following question is from Turan Quettawala from Scotiabank. Please go ahead.

Turan Quettawala

Yes, good morning and congratulations on the Delta order. I maybe have a question here on Bombardier Transportation. In the last couple of years I guess, there is just been a lot of concerns voiced by many customers; Deutsche Bank, SNCF, London, and now Toronto as well.

I just wondering if you can talk a little bit about - I know you are trying to work on the execution issue here from a margin standpoint. But Alain, can you give us a sense of what's changing at BT, so that we can get a little bit more confidence that this won't happen again and do you think that this will affect your potential for orders going forward?

Alain Bellemare

Thanks for the question. Clearly we're not pleased with the performance that we have on some of these projects and we're addressing that. We have a new President with Laurent Troger in place. Laurent is focused on operational execution and improving the performance on all projects and Laurent has already made some significant leadership changes as well on his team.

So we are increasing focus on operational excellence and better project management and we recognize the issues. We are committed to fixing it, we're putting plans in place and we're going to execute on it.

Turan Quettawala

Great. And I guess if I could follow up, the Chinese have also gotten another order here in Chicago. So I'm just wondering in a more competitive environment is that you know, why you're so confident that you can hit your 8% margin at BT?

Alain Bellemare

Clearly there's a very competitive landscape out there, so I mean, that's something that we keep an eye on obviously. But when you look at the business unit and the way that it has been managed over the past few years and the opportunities that we have; for me it is pretty clear that we've got significant runway to improve our cost structure into BT, which make me optimistic about our ability to hit 8% in 2020.

Turan Quettawala

Great. Thank you very much.

Alain Bellemare

Welcome.

Operator

Thank you. Our following question is from Benoit Poirier from Desjardins Capital. Please go ahead.

Benoit Poirier

Yes. Good morning, gentlemen and congratulations for the nice order this morning. Could you provide an update on the Global 7000, 8000 looking at the booking and also if you could more specially on the development side? I was wondering if there is any particular areas where there is some pressure right now.

Alain Bellemare

Starting – good morning, Benoit. Starting with the booking, it's actually at pretty stable and if there's anything, actually doing well. I mean, we are getting more and more interest on the 7000 front. We have a solid backlog as you know. We didn't lose many customers last year when we announced the schedule adjustment and since then the team has been gaining traction in gaining new orders.

It's a normal very complex development program so it's typical to have issues with some systems. The team is focused on this, we know what we have to do, and we're applying our resources to doing it.

Benoit Poirier

Thank you.

Operator

Thank you. Our following question is from Stephen Trent from Citi. Please go ahead.

Stephen Trent

Good morning, gentlemen. And thanks for taking my question and my congrats on Delta as well. Just two or three from me, the first, as you think about and I guess, it’s a follow up question, as you think about, whether the market could bear a larger C Series aircraft whether that's coming from Delta or British Airways or somebody else requesting it, what could it take for you guys to move in that direction?

Would this be something where time wise you definitely need the Canadian federal government to come in to give some financial support? I just wanted to get a sense as to how you're thinking about that?

Alain Bellemare

Well, good morning, Steve. Clearly this is not in the card today. We are very focused on the 100 and 300 and interesting to see that people asking question about that. It just shows that we're getting solid traction right now with the 100 and 300 where there was a lot of doubt not that long ago.

So, I feel that we have the best aircraft family between 100 to 150-seat class. The Delta order is a strong endorsement of the fact that this aircraft is really trading significant value for our customers. And if you look at the list of customers that we have, now we're talking about flagship carrier, marquee customers; Air Canada, Delta, Lufthansa Suisse, Korean Air.

So, I feel very good about where we are today. I think that the market is clearly showing that there is an interest, there is a market for 100 to 150-seat class aircraft. We have the only new aircraft in this market so for the time being focus is on executing what we've got.

Stephen Trent

Okay. Very helpful. And when you think about the C Series program potential customers versus current customers aside from the ones you mentioned, to what extent are you in contact with maybe some of those pieces of the C Series firm order book that have maybe some question marks let's say Republic, Aleutian, and some of those customers. Any color on what kind of dialog you have going with those customers?

Alain Bellemare

So I mean, as you expect, I mean, we value our customers and we work very closely with every single one of them and again, I would not speculate on where they are and what they're doing. For the time being if they are in the back log, I mean, we're working very closely with them.

Stephen Trent

Great. And let me Pat, let someone else ask a question. Thanks for your time.

Patrick Ghoche

Thank you, so much.

Operator

Thank you. Our following question is from Tim James from TD Securities. Please go ahead.

Tim James

Thank you. Congratulations on the great Delta order. My first question is just a clarification actually. You mentioned earlier the working capital requirements from the C series in the first quarter, I am sorry, did you say it was $100 million or $200 million?

John Di Bert

Yes, so what we said was that we've consumed $200 million in the first quarter of cash, a $100 million of which was working capital and the remainder which was against the certification and the development work on the CS300.

Tim James

Great. Okay, thank you. And then I just wanted to follow-up to an earlier question regarding the legacy regional aircraft business and the profitability there. Does your 2020 guidance for the Commercial segment contemplate then or assume improvements in the profitability to margins in the regional aircraft component of the Commercial segment?

John Di Bert

No, it doesn't. We had mentioned at the Investor Day that we were looking at that segment as kind of where it was going forward. So kind of 2016 would be the same pattern as going forward as well.

Tim James

Great. Thank you.

Operator

Thank you. Our following question is from Steve Hansen from Raymond James. Please go ahead.

Steve Hansen

Good morning, guys. Congrats on the order or series of orders I guess. I was hoping you could speak to how your sales strategy changes now for the C Series if at all on the back of these recent orders. In other words now that your skyline is more firm or there's some better visibility on it.

How do you feel about bringing in additional large customers versus small and how should we expect that pattern to unfold here over the next series of 6 to 12 months?

Alain Bellemare

Good morning and thanks for the question Steve. And clearly we are focused on growing the order book. We are very pleased with where we are today. I mean, we are well above 300 firm orders. That's what we wanted for going into full production mode. When you look at the options and the letter of intent and all the other commitments, we're above 800 aircraft in total.

So, the team is hard at work. I mean, we're – they are traveling around the world, we're pursuing campaigns as we speak. And like I said before, I mean, small, big, medium, large; we like all customers. So, I mean, we're going to be working to make this program very successful moving forward.

Steve Hansen

Okay. That’s from me.

Alain Bellemare

Yes.

Operator

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

Peter Arment

Yes. Good morning, Alain, John. Congratulations on the order. Alain, could you just remind us what the planning is for the C Series in terms of deliveries this year. I believe what you said at the Investor Day was 15 deliveries and how you're thinking about that ramps in 2017?

Alain Bellemare

Good morning, Peter. You're exactly right, it's about 15-ish this year and then into next year we're going to double that and then you're going to see a gradual ramp up to about 100 aircraft by 2020.

Peter Arment

Okay. Excellent. And just a follow-up on that, I know that Airbus had an issue with the NEO in terms of the geared turbofan engine. I know you have a different version, correct, so you're not seeing any of those issues?

Alain Bellemare

No, we are not. It's exactly as you said, I mean, it's the same engine architecture, but it's a different engine. So we're not seeing these problems right now.

Peter Arment

Okay, excellent. Congrats on the order.

Patrick Ghoche

Maud, we'll take our last question, please.

Operator

Certainly. Our last question is from Noah Poponak from Goldman Sachs. Please go ahead.

Gavin Parsons

Hi. This is Gavin Parsons on for Noah. Good morning, everyone.

Alain Bellemare

Good morning.

John Di Bert

Morning.

Gavin Parsons

There have been a number of prices kind of reported on some of these narrow body orders in the media that are significantly below both list and typical discount levels. So I was curious if you guys are seeing increasing price war in the narrow body market and how that might be impacting your order campaigns and how you think about discounting?

Alain Bellemare

Well, I mean, so far when we look at what we've got in the backlog, it's again in line with our plan. We were expecting to have to be a bit more aggressive to re-launch the program and we've done just that. We feel that the aircraft is going to bring tremendous value in terms of better operating cost, cabin comfort. So, we feel good about where this is evolving.

So, we've got again very – we've got the best aircraft in the 100 to 150-seat class segment and there's nothing else that comes close to it. It's the only new aircraft and we feel that we'll be able to unleash the full value of the aircraft moving forward.

Gavin Parsons

Great. And then if I just could on the business jet market. It seems like even as you guys are taking measures to balance supply to demand, some of your competitors are increasing their deliveries.

So I'm wondering if you're seeing any improvement in overall market pricing as a result of adjusting your delivery rate or if it feels like others have started to lose discipline on pricing?

Alain Bellemare

Well, I can only say that we have adjusted our volume in line with market demand, which is good in term of value creation for customers long-term. In the short term we're still making the adjustment that we need to do. But I feel very good that the reset we've done was the right reset.

And if you look at the residual value of the aircraft, I mean we've been outperforming our competitors. So, it shows that the actions that we took are actually starting to payoff in the market.

So again, we have the best business aircraft franchise in the world. We cherish this and we're going keep doing what is right for the business.

Gavin Parsons

Thanks.

Alain Bellemare

So, we'll be closing here. I just want to thank you all for taking the time this morning. The Delta order is obviously a game changer. We have a great aircraft. We feel good about where we are right now on the order book. A Delta announcement like today combined with Air Canada and what we have with Lufthansa Suisse and Korean are very strong endorsement that this is the best aircraft in the 100 to 150-seat class and we're accelerating momentum.

The aircraft is performing very well. We have just completed our route proving exercise with Suisse. The reliability of the aircraft is very, very good. So we are excited about the aircraft coming into service this year.

Overall at the company level, we're at a much better place today than we were a year ago. We are stronger, we have a turnaround plan, the strategy is clear. Our turnaround plan is well defined, and we have a great team. I'm very, very proud of the team and this team is actually fully engaged in executing this turnaround plan.

So, I feel optimistic about our future and I understand that we've got some more work to do, but we are committing to doing that work. So on this, I think that we will conclude the call.

Operator

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

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!