Q2 2014 BOMBARDIER INC Earnings Conference Call-English
Jul 31, 2014 AM EDT
BBD.B.TO - Bombardier Inc
Q2 2014 BOMBARDIER INC Earnings Conference Call-English
Jul 31, 2014 / 12:00PM GMT
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Corporate Participants
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* Shirley Chenier
Bombarier Inc - IR
* Pierre Beaudoin
Bombardier Inc - President & CEO
* Pierre Alary
Bombardier Inc - SVP & CFO
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Conference Call Participants
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* Robert Spingarn
Credit Suisse - Analyst
* Fadi Chamoun
BMO - Analyst
* Turan Quettawala
Scotiabank - Analyst
* Walter Spracklin
RBC - Analyst
* Benoit Poirier
Desjardins - Analyst
* Cameron Doerksen
National Bank Financial - Analyst
* Noah Poponak
Goldman Sachs - Analyst
* Darryl Genovesi
UBS Securities - Analyst
* David Newman
Cormark Securities - Analyst
* David Tyerman
Canaccord Genuity - Analyst
* Deepak Kaushal
GMP Securities - Analyst
* Steven Trent
Citigroup - Analyst
* Konark Gupta
Macquarie - Analyst
* Peter Arment
Sterne Agee - Analyst
* Anthony Scilipoti
Veritas - Analyst
* Chris Murray
AltaCorp Capital - Analyst
* Paul Vieira
Wall Street Journal - Media
* Francois Pouliot
Journal Les Affaires - Media
* Richard Blackwell
The Globe and Mail - Media
* Silvi le Roc
La Presse - Media
* Solerina Ho
Reuters - Media
* Karin Finkenzeller
WirtschaftsWoche - Media
* Vanessa Lu
Toronto Star - Media
* Daniel Bordeleau
Info Aero Quebec - Media
* Ross Marowits
The Canadian Press - Media
* Julie Arseneau
The Canadian Press - Media
* Martin Jolicoeur
Journal Les Affaires - Media
* Frederic Tomesco
Bloomberg News - Media
* Cal Mariseli
Le Savoir - Media
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Presentation
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Operator [1]
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(Spoken in French). Good morning, ladies and gentlemen, and welcome to the Bombardier Conference Call. (Operator Instructions). (Spoken in French). I would now like to turn the meeting over to Ms. Shirley Chenier, Senior Director, Investor Relations. (Spoken in French). Please go ahead, Ms. Chenier.
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Shirley Chenier, Bombarier Inc - IR [2]
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(Spoken in French) Bombardier's conference call intended for investors and financial analysts.
(Interpreted) I'd also like to welcome the representatives of the media who are with us today. And you will have an opportunity to ask your questions later on during this call when we go to Q&A for the media.
Mr. Pierre Beaudoin, President and Chief Executive Officer, and Mr. Pierre Alary, Senior Vice President and Chief Financial Officer, will discuss Bombardier's financial results for the second quarter ended June 30th, 2014.
(Interpreted) This teleconference is broadcast directly over the Internet. It's also translated into French and English.
The broadcast on our Website at www.bombardier.com and the Webcast archive of the integral version of this call will be available later today. Slides for this presentation in English and French are equally available on our Website right now.
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.
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.
Please also note that I am making this cautionary statement on behalf of each speaker whose remarks today will contain forward-looking statements.
Pierre Beaudoin will now begin the presentation.
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Pierre Beaudoin, Bombardier Inc - President & CEO [3]
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Welcome to everyone, and thank you for joining us.
(Interpreted) Thank you for being here.
Quarters were in line with our expectations. And we remain on track to meet our guidance for the full year. Both groups' revenues increased in the quarter, and we are seeing a high level of activity for our products.
During the quarter, Bombardier Transport continued to win a good level of new orders, bringing its total amount to $9.7 billion for the first six months of the year. Needless to say, we will exceed the book to bill of one for the year.
In the quarter, transportation also instigated further cost reduction measures as part of OneBT's initiative in order to increase efficiency and profitability.
Now, as you all know, last week, we announced a new organization structure by which BA will no longer exist as a group. This will lead to a lighter structure.
I am dissatisfied with the execution of the Group and decided that a major change was warranted.
We will now have four business segments, transportation, business aircraft, commercial aircraft, and the newly formed aerostructure and engineering service business as we intend to further market our expertise to the aerospace industry.
This new organization structure will allow us to increase our focus on growth area in the context of upcoming entry into service of the products we have in development. The result will be a more profitable, agile, and flexible organization to better meet our customers' needs.
The added benefit is more transparency, as we plan to disclose our results on the basis of these new segments as of fiscal 2015.
And now, I will let Pierre Alary walk you through the results for the quarter.
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Pierre Alary, Bombardier Inc - SVP & CFO [4]
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Thank you, Pierre. Good morning. Aerospace revenues for the quarter totaled $2.5 billion compared to $2.3 billion last year. This increase results from higher deliveries of regional jets (inaudible) partly offset by a lower level of deliveries in business aircraft, mainly due to the transition to the Challenger 350, which was certified at the end of the quarter.
EBIT totaled $141 million or 5.6% of revenue, in line with our guidance for the year, which compares to an EBIT before special items of $107 million or 4.7% last year.
For transportation, revenues totaled $2.4 billion compared to $2.2 billion last year. This represents an increase of 6%, excluding the impact of foreign exchange. EBIT margin was at $160 million or 4.9% compared to $150 million or 6.9% last year.
The decrease is mainly due to a lower level -- lower gross margin in systems and signaling due to the finalization of a major system project, which had a favorable impact last year, partly offset by higher absorption of SG&A expenses.
On a consolidated basis, revenues totaled $4.9 billion, an increase of 9% compared to last year, excluding the impact of foreign exchange. EBIT was at $257 million, the same level as last year. The net financing expense amounted to $41 million compared to $36 million last year. And with an effective income tax rate of 28.2%, the adjusted net income totaled $192 million or $0.10 per share compared to $158 million or $0.09 per share last year.
Now, looking at free cash flow, as expected, we used cash in the second quarter. Aerospace used $363 million of cash, which is better than last year usage of $459 million. And the use of cash is essentially due to our significant investment in programs, which amounted to $509 million in the quarter. Transportation used $47 million of cash in the second quarter compared to last year usage of $21 million. For the full year, we expect free cash flow to be in line with our guidance.
As at the end of Q2, our short-term capital resources totaled $3.9 billion, including cash and cash equivalents of $2.5 billion.
And now, to conclude, we are reaffirming all of our guidance for 2014.
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Shirley Chenier, Bombarier Inc - IR [5]
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Thank you, Pierre. We will now start the question period for analysts and investors. So, in order to keep the duration of this call at a reasonable length, I would ask you to limit yourself to one question to give everyone a chance to participate. And I will be enforcing this. If you have any remaining questions at the end, and if time permits, you can get back in queue. And if not, you can contact me or Jan after this conference call. So, we will now start with the first question.
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Questions and Answers
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Operator [1]
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(Spoken in French). (Operator Instructions). Robert Spingarn, Credit Suisse.
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Robert Spingarn, Credit Suisse - Analyst [2]
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Good morning. I was hoping you could talk a little bit about the commercial aircraft strength in the quarter, both on the revenue side and on the margin side and how you expect that to progress for the remainder of the year.
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Pierre Alary, Bombardier Inc - SVP & CFO [3]
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Well, if you look at our guidance for the year, we said that the -- on the regional aircraft side and commercial aircraft side, we would have 80 deliveries or that the -- approximately 80 deliveries, which is quite a significant increase compared to what we had last year. So, basically, that's in line with the guidance, the expectations and is following the orders that we received from Delta some time ago and American Airlines last year.
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Robert Spingarn, Credit Suisse - Analyst [4]
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So, Pierre, should we think about the second quarter? It looks a lot you?re your fourth quarter normally looks. So, you sort of had a lower first quarter, higher second quarter. Should we see a similar cadence in Q3 and Q4?
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Pierre Alary, Bombardier Inc - SVP & CFO [5]
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Yes, it's a gradual ramp up following the order that we received that I referred to. We increased the production rate. So, it is impacting gradually the quarter effectively.
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Robert Spingarn, Credit Suisse - Analyst [6]
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And the margins popped up here.
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Pierre Alary, Bombardier Inc - SVP & CFO [7]
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Imagine that it's having a positive impact on the margins compared to last year.
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Robert Spingarn, Credit Suisse - Analyst [8]
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So, it's volume and not pricing? On the margins, it's more volume leverage and not so much pricing?
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Pierre Alary, Bombardier Inc - SVP & CFO [9]
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Mostly so, yes.
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Shirley Chenier, Bombarier Inc - IR [10]
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Thank you, Rob.
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Operator [11]
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Fadi Chamoun, BMO.
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Fadi Chamoun, BMO - Analyst [12]
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Good morning. So, let's see, one question. Okay. So, can you give us sort of an update on CSeries flight test program, where it is at right now, when you expect to resume? And maybe if you can sort of dive into some details, but actually into the sort of -- where is that process at of bringing the flight test back on? And how quickly can this happen?
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Pierre Beaudoin, Bombardier Inc - President & CEO [13]
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Okay. So, we stayed with our statement that we expect to fly within weeks. But, I can tell you that we've made substantial progress. And we've now received a solution from Pratt to go back to flight. And now, our team is examining the solution, asking the proper questions, taking the time to make sure that, from a Bombardier perspective, that we can have a safe return to flight. And we should make a decision shortly.
Of course, that's why we continue to stay within weeks because this is a technical evaluation we're doing. And we may have more questions to Pratt before we make a decision. So, right now, what you should keep in mind is we've made substantial progress because Pratt has given us a solution to return to flight.
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Fadi Chamoun, BMO - Analyst [14]
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Okay. Have you received back any engines from them in your plans, or that has not happened yet?
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Pierre Beaudoin, Bombardier Inc - President & CEO [15]
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Yes, we have engines installed in FTV2.
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Fadi Chamoun, BMO - Analyst [16]
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Okay. So, you've started to retest the new engine -- the new [fix] basically right now.
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Pierre Beaudoin, Bombardier Inc - President & CEO [17]
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The engines have been tested at Pratt. And we have one flight test vehicle that have engines installed on. And I don't know the state of the other ones, for the other FTV.
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Fadi Chamoun, BMO - Analyst [18]
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Okay. And in relation to that, are you prepared to sort of give us any guidance about how the CSeries sort of delays so far have impacted or maybe not impacted the entry into service and the timeline for the other three business jet programs, the Globals and the Leerjet 85?
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Pierre Beaudoin, Bombardier Inc - President & CEO [19]
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Well, let's keep the programs separate. For the CSeries, we always said the entry into service, second half 2015. This is a six months' window. Why did we give a six months' window from the start? These are flight tests. If we know there's events that happen in flight tests. One of them has been the engine event. So, we still feel confident that we're within the window that we gave you, which is second half of 2015.
The other programs are making progress. We are always evaluating our priorities within the experts that we have at Bombardier. But, they're making progress.
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Shirley Chenier, Bombarier Inc - IR [20]
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Thank you, Fadi.
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Fadi Chamoun, BMO - Analyst [21]
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Okay. Thank you.
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Operator [22]
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Turan Quettawala, Scotiabank.
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Turan Quettawala, Scotiabank - Analyst [23]
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Yes, good morning. I guess, maybe staying with the CSeries here, Pierre, you had a fair number of LOIs here signed at the airshow. I think about 40% of your commitments now are LOIs. I'm just trying to understand if you can give us some help there in terms of -- based on what you know about the conditions behind these LOIs, how many of these do you think can be firmed up over the next 12 months or so?
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Pierre Beaudoin, Bombardier Inc - President & CEO [24]
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That's a customer decision, as you know. But, I'd like to be precise. Of the commitments, there's also some options in there of existing customer, which would not be part of the backlog. We chose to give you more transparency on the discussions that are going on because there's advanced discussion with customers. And you can see there's a lot of activity on the CSeries.
But, as far as firming up, if we talk about them, it's because we've had substantial discussions with the customers. But, firming up is in their hands.
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Turan Quettawala, Scotiabank - Analyst [25]
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Are a lot of the conditions around these LOIs based on performance stats or something on CSeries, or is it maybe something else?
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Pierre Beaudoin, Bombardier Inc - President & CEO [26]
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Every discussions are different. But, customers express a lot of confidence in the performance of the airplane and the technical of the airplane. Of course, the engine event may be disappointing to some and to us also because we had to be grounded for quite some time. But, in the end, it's something that customers understand very well. They understand we're in flight tests. So, I don't think that's a major issue.
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Turan Quettawala, Scotiabank - Analyst [27]
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Okay. Thank you very much.
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Shirley Chenier, Bombarier Inc - IR [28]
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Thank you, Turan.
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Operator [29]
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Walter Spracklin, RBC.
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Walter Spracklin, RBC - Analyst [30]
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Thanks very much. Good morning, everyone. I guess my question, Pierre, is on the aerostructure and engineering service division that you have carved out into a new separate reporting entity here.
I'm just wondering your strategy around that. Could you talk a little bit about the reason why you decided to create this division, whether it's part of some of the good value you have created through your experience in some of your development programs?
And specifically, as we try to model this, presumably, you'll be giving us some historical data. But, is there any reason why there's something, a new focus placed on this division that would therefore have us model new revenue or new earnings or new kinds of patterns or trends that haven't existed over the historical data that you'll provide us when you give it to us for 2015?
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Pierre Beaudoin, Bombardier Inc - President & CEO [31]
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Well, of course, we're still in discussion internally how to exactly structure this division. But, the reasons for going forward is a couple things. In the last few years, we've invested in low-cost countries to do structural work, Mexico and Morocco. We've invested in technology to develop the CSeries, the Leer 85, and the Global 7000, 8000. And they're very advanced technology that we think can be marketed.
And most importantly, if the group, the aerospace group has to make a decision between capital allocation between airplanes and structure, if it's the same theme we're discussing, the airplanes seem to win all the time.
So, we want to look at capital allocation based on returns for aerostructure. And we want to allocate the proper amount of money to go and be competitive in this market.
And the last point is that, as you know, the aerospace industry in the commercial sector mainly has very big backlog. And they're looking for high-quality suppliers deliver parts on quality and on time. And Bombardier has this reputation. So, I think we have many elements that will permit us to grow this sector and be very competitive with the others.
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Walter Spracklin, RBC - Analyst [32]
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Just to clarify there as well, do you think it'll be difficult to sell into potentially some competitors? And if that proves to be the case, would you consider, as this segment gains traction, spinning it off as a separate entity?
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Pierre Beaudoin, Bombardier Inc - President & CEO [33]
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Well, the spinoff is not our intention. But, to sell to the competitors, we already do. We make the large components for Airbus. We make [natel] for the industry, Rolls Royce and others, IAE.
So, there's many sectors of our business where we do components for others. And the feedback that we get, we're one -- always one of their best suppliers, not the best.
So, it's more -- I want to make sure that the discussions about the opportunities for Bombardier are at a level, at the corporate level, that we look at it from an investment perspective, and we allocate the capital (inaudible).
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Walter Spracklin, RBC - Analyst [34]
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Understood. Thank you very much.
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Shirley Chenier, Bombarier Inc - IR [35]
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Thank you, Walter.
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Operator [36]
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Benoit Poirier, Desjardins.
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Benoit Poirier, Desjardins - Analyst [37]
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My question is related to the new organizational structure that you've announced. I was just wondering, Pierre, whether you could provide more details on whether it will provide more margin upside on aerospace this year and whether it will translate into some [separate] cost and what we should expect. Thanks.
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Pierre Beaudoin, Bombardier Inc - President & CEO [38]
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Okay, Benoit. We -- it will not translate in more margin this year as we have to reorganize the Group. Unfortunately, we have to do some layoff, part of this decision. This is always difficult to have to lay off some of our employees. But, in the end, it's about making a more agile organization, a more flexible organization, and one -- or an organization that can make decisions more rapidly.
And by reducing our overhead about 15%, we feel we'll be able to achieve this. This will take the next few months to do. Yes, there will be a reorganization charge. We feel this is -- will be a special charge. And this will be done in 2014.
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Benoit Poirier, Desjardins - Analyst [39]
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Okay. And no amount or any idea about the timing, too, for the amount, Pierre?
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Pierre Beaudoin, Bombardier Inc - President & CEO [40]
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No, it's too early to give you these figures as far as the chart for the reorganization. But, what you will see through the margin that the impact of reducing our overhead, we're talking about 1,800 indirect. So, that's a substantial reduction.
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Benoit Poirier, Desjardins - Analyst [41]
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Okay. Thanks for the time.
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Pierre Beaudoin, Bombardier Inc - President & CEO [42]
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Thank you.
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Shirley Chenier, Bombarier Inc - IR [43]
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Thank you, Benoit.
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Operator [44]
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Cameron Doerksen, National Bank Financial.
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Cameron Doerksen, National Bank Financial - Analyst [45]
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Yes, good morning. My question's on the transportation margin in the quarter. It was basically unchanged from Q1. It does sound like you're sort of accelerating some of the restructuring there. Was there anything in the quarter of significance related to restructuring charges that's baked into the margin in Q2?
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Pierre Alary, Bombardier Inc - SVP & CFO [46]
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Well, what we see in Q2 is that, with the economy that has been for the -- what has been put in place at the beginning of the year in terms of reduction of some of the costs, we can see that the SG&A is quite lower year over year and also the impact vis-a-vis higher revenue and lower SG&A value. So, there's quite an impact [on that page]. So, that's where we see it. And we will see it obviously more so in the third and the fourth quarter.
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Cameron Doerksen, National Bank Financial - Analyst [47]
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But, were there any I guess, quote-unquote, special charges in Q2 related to restructuring that would be part of that margin that would make that margin lower than it otherwise would've been?
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Pierre Alary, Bombardier Inc - SVP & CFO [48]
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No, there was no special charges in this quarter.
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Pierre Beaudoin, Bombardier Inc - President & CEO [49]
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It's more a question of mix of contract as the year was (inaudible).
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Cameron Doerksen, National Bank Financial - Analyst [50]
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Okay. Thank you.
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Shirley Chenier, Bombarier Inc - IR [51]
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Thank you, Cameron.
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Operator [52]
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Noah Poponak, Goldman Sachs.
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Noah Poponak, Goldman Sachs - Analyst [53]
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Hi, good morning, everyone.
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Pierre Beaudoin, Bombardier Inc - President & CEO [54]
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Morning.
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Shirley Chenier, Bombarier Inc - IR [55]
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Hello.
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Noah Poponak, Goldman Sachs - Analyst [56]
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I believe you have a partnership I guess. I'm not exactly sure exactly what kind of partnership, but a partnership with Caterpillar for manufacturing of diesel locomotives. And it looks like Caterpillar has talked about a potential dip in that business next year because of a transition from a prior-generation product to a next-generation product. Is that something you're seeing? And can you discuss that? And if possible, can you size actually how big that is for your transportation segment?
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Pierre Beaudoin, Bombardier Inc - President & CEO [57]
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It's a small impact for us. If there would be variations, I'm not aware of that because it's a small contract within Bombardier Transport. It is not a partnership. We have an assembly contract. We simply assemble their -- some of their locomotive on -- in Mexico. And they give us a contract per year how many locomotive. And we just assemble them. So, it's not significant for us.
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Pierre Alary, Bombardier Inc - SVP & CFO [58]
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I think that contract is pretty much ended. And so, really it has no impact on our results.
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Noah Poponak, Goldman Sachs - Analyst [59]
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Okay. So, that's not -- okay. I was looking at the release that talks about the India assembly in addition to what already occurred in Mexico. But, it sounds like you guy -- but, it sounds like it's small. And you don't see an impact next year from that.
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Pierre Beaudoin, Bombardier Inc - President & CEO [60]
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And we don't assemble locomotives for Caterpillar in India.
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Noah Poponak, Goldman Sachs - Analyst [61]
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Okay. Okay. Thank you.
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Shirley Chenier, Bombarier Inc - IR [62]
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Thank you, Noah.
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Operator [63]
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Darryl Genovesi, UBS Securities.
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Darryl Genovesi, UBS Securities - Analyst [64]
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Good morning. So, maybe just to take it back to the CSeries for a minute, you guys have been articulating an opportunity to reduce the number of flight test hours that you're required to complete because of ground testing that you're doing in its place. But, I don't think you've ever really given us any help in terms of what that -- in terms of quantifying what that does to your initial 2,400-hour forecast for the program. So, I guess I was hoping you may help us size the benefit from the ability to do more of the testing on the ground.
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Pierre Beaudoin, Bombardier Inc - President & CEO [65]
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Our team is constantly looking how to optimize the flight test program, ground test, flight test. But, we gave you a general guidance in terms of hours. But, they could vary from there. But, I can't give you specific quantities on that because I know there's discussions going on all the time on this. So, I'm -- it would vary. So, the guidance we gave is good.
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Darryl Genovesi, UBS Securities - Analyst [66]
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Okay. So, you still think a 2,400-hour program is probably about right.
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Pierre Beaudoin, Bombardier Inc - President & CEO [67]
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Yes, it's more or less this, could be a little bit less. It really depends what goes on in flight tests. So, I know our team has discussed some of the things that we're planning to do in the air will be done on ground. But, in the end, we gave you a general view on how many hours.
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Darryl Genovesi, UBS Securities - Analyst [68]
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Okay. And then maybe just I guess any quick thoughts -- I don't want to take too much time. But, you talked a little bit about the margin progression at transportation in the second half. But, it looks like what you're baking into your guidance is about a 200-basis-point margin acceleration in order to get to your 6% number for the year.
I guess, are there any discrete items kind of other than what you've called out already that would help you out because it looks to me like, at least the last couple of years, the second half has actually been sequentially weaker?
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Pierre Alary, Bombardier Inc - SVP & CFO [69]
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The last couple of years, the second half has been lower because there was some contract adjustment on the few contracts that we had issued that we referred to in the past couple of years. But, typically, the second half is stronger than the first half otherwise.
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Darryl Genovesi, UBS Securities - Analyst [70]
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Okay. And the guidance does not include the restructuring impact. Is that correct?
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Pierre Alary, Bombardier Inc - SVP & CFO [71]
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That's correct.
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Darryl Genovesi, UBS Securities - Analyst [72]
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Thank you.
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Shirley Chenier, Bombarier Inc - IR [73]
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Thank you, Darryl.
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Operator [74]
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David Newman, Cormark Securities.
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David Newman, Cormark Securities - Analyst [75]
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Morning, folks.
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Pierre Beaudoin, Bombardier Inc - President & CEO [76]
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Good morning.
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Shirley Chenier, Bombarier Inc - IR [77]
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Morning, David.
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David Newman, Cormark Securities - Analyst [78]
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Just, you just got back from Farnborough and obviously had some success with the CSeries with your LOIs and options, etc. But, maybe just a kind of a sense of where the market is on the commercial side, campaigns that you might have going on, what sort of feedback you got on your various offerings with the CSeries, the CRJ, and the Q400, obviously, perhaps as an update on Russia.
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Pierre Beaudoin, Bombardier Inc - President & CEO [79]
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That's quite a one question.
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David Newman, Cormark Securities - Analyst [80]
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You got it. I got to jam them in there.
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Pierre Beaudoin, Bombardier Inc - President & CEO [81]
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(inaudible).
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Shirley Chenier, Bombarier Inc - IR [82]
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Take a deep breath.
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David Newman, Cormark Securities - Analyst [83]
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Obviously, you're in contact with all your customers there. So, just maybe just give us a sense of the campaigns and how you're feeling about the various product offerings.
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Pierre Beaudoin, Bombardier Inc - President & CEO [84]
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Let me start by Russia, if you don't mind.
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David Newman, Cormark Securities - Analyst [85]
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Sure.
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Pierre Beaudoin, Bombardier Inc - President & CEO [86]
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This is a situation, of course, that we're monitoring almost on a daily basis and, of course, are -- will respect and obviously all of the government sanctions that are being put in place.
So, for us, it's something that we monitor for business aircraft as the economy weakness or not in Russia would affect our customers. We're monitoring it for transport because we have many different things going on in transport. And we have discussions going on in the commercial side, particularly with the Q400.
So, it's really making sure that we understand what we need to do as a company and where are areas we need to adjust. So far, everything is still going on maybe except for business aircraft. The market is weak in Russia right now. And you can imagine that, if the economy slows down, it has an effect. But, I think it's a situation that we need to follow very closely.
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David Newman, Cormark Securities - Analyst [87]
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So, it hasn't stopped then, Pierre. It's still moving forward, but slower. Is that the sense of it?
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Pierre Beaudoin, Bombardier Inc - President & CEO [88]
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It hasn't stopped, still moving forward. But, everybody's being careful on both sides as to what commitments we make on the long term. At the same time, if there's discussions going on that make a lot of business sense, like the Q400, both sides are motivated to find a solution.
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David Newman, Cormark Securities - Analyst [89]
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Okay. And the other ones?
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Pierre Beaudoin, Bombardier Inc - President & CEO [90]
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You had other things in your question.
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David Newman, Cormark Securities - Analyst [91]
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Yes, the CRJ and the CSeries, how you felt coming out of the show?
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Pierre Beaudoin, Bombardier Inc - President & CEO [92]
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Yes, I think the CRJ, I'm quite upbeat on the fact that there's opportunities globally and some in the US as the regionals now are looking how they will fly for the majors, taking the aircraft that they have bought and whether they need more. And we're right in those discussions. So, like we've been saying for quite a few quarters, I think there's key opportunities there.
The Q400 team has done a great job of creating variances of Q400s, like the 86 passenger and like a cargo combi version. So, we're seeing good opportunities in, yes, small volumes to start. But, this is how we -- you get to a very large customers is that they introduce a product, their airline. So, I'm quite upbeat for the Q400 that we've found many different ways to offer this product and to maximize the competitive advantage.
------------------------------
David Newman, Cormark Securities - Analyst [93]
------------------------------
Okay. Good.
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [94]
------------------------------
And the CSeries, well, you saw that we spoke a lot about some LOIs. There's a lot of interest in our product. And that's still progressing towards our target of 300 units.
------------------------------
David Newman, Cormark Securities - Analyst [95]
------------------------------
Okay. And if I can just squeeze a quick one in there, you talk about the aerostructure side. And it's obviously starting off very small. And you probably want to build that. And it is a growth avenue for you. Would you look at M&A on that side?
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [96]
------------------------------
Well, that's not our intention. It's more intention to market our technology and products. At the same time, I think it's our job to look at every opportunity. But, that's not part of our plan at this point.
------------------------------
David Newman, Cormark Securities - Analyst [97]
------------------------------
Very good. Thank you.
------------------------------
Shirley Chenier, Bombarier Inc - IR [98]
------------------------------
Thank you, David.
------------------------------
Operator [99]
------------------------------
David Tyerman, Canaccord Genuity.
------------------------------
David Tyerman, Canaccord Genuity - Analyst [100]
------------------------------
Yes, good morning. My question is on Bombardier Aerospace margins. They've been pretty inadequate for an extremely long time. Aside from the gains you're going to get from the layoffs, is there something you can do to accelerate the improvement here, or really, do we have to wait for increased revenues from the new products to make the big different on margins on this business?
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [101]
------------------------------
Well, there's several factors to consider. Like we said, we have 1% dilution from the CSeries. And that does not include SG&A related to the CSeries also. The 1% is more related to the inventory right now. That's a significant amount in the two cases I just described.
Also, I agree with you that our team can do a better in terms of margins. So, creating a lighter, more flexible organization, making quicker decisions, we will see benefits not only because of the reduction of the personnel, but in our ability to make decisions more rapidly and to go after opportunities.
So, yes, a big part of the reorganization is to increase the momentum on the margin.
------------------------------
Pierre Alary, Bombardier Inc - SVP & CFO [102]
------------------------------
In a sense, the introduction of new product, the first two years of the introduction are typically dilutive. So, we expect the margin on the existing to improve. But, then the introduction of new product initially will have a dilutive impact, quite the contrary.
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [103]
------------------------------
Yes, because we don't do averages, as you know.
------------------------------
David Tyerman, Canaccord Genuity - Analyst [104]
------------------------------
Right. Okay. Sounds like a long wait.
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [105]
------------------------------
Well, it depends how you see the introduction of a new product. You get increased revenue. But, initially, in the airplane business, you will get some dilution by the introduction of new product. But, that also creates a lot of growth for the Company.
------------------------------
David Tyerman, Canaccord Genuity - Analyst [106]
------------------------------
Right. Okay. Thank you.
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [107]
------------------------------
Not different than any airplane manufacturer, just a different way to report.
------------------------------
David Tyerman, Canaccord Genuity - Analyst [108]
------------------------------
Right.
------------------------------
Shirley Chenier, Bombarier Inc - IR [109]
------------------------------
Thank you, David.
------------------------------
Operator [110]
------------------------------
Deepak Kaushal, GMP Securities.
------------------------------
Deepak Kaushal, GMP Securities - Analyst [111]
------------------------------
Hi, good morning, guys. Thanks for taking my questions. Pierre, I had a question about transportation. I was wondering if you could comment more on the changing competitive landscape with Alstom and GE, what you're seeing with Siemens and from the Chinese. And to extend that, Brazil, India, in one country, we've had a political change. In another country, we may see one later this year. I'm wondering how those impact the opportunities or the challenges in those key emerging markets for transportation. Thank you.
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [112]
------------------------------
Yes, I think the only major change in this quarter was the GE-Alstom transaction. From a competitive perspective, I don't think it will change much because we're facing a transportation group that we know already. They will add the signaling from GE. But, essentially, it's still the same Alstom with the same product line and their approach to the market, same management team that we know. But, of course, we're monitoring this situation very carefully.
We do see the Chinese show up in markets where Chinese have a lot of investments. And as an example, in South Africa, you know we won a large locomotive contract. But, at the same time, the Chinese won a part of that contract from the customer.
So, we're looking at that carefully in those markets. But, if you take South Africa, again, as an example, we've proven we can compete when we face these new competitors on the international.
As far as market, the only one that I would comment on at this point is India. I think the new Prime Minister made it very clear that investment in infrastructure is a priority and that rail is also a priority. So, I think it will represent opportunities for us. And we have -- you know we have done a very -- we have a very great success with the Delhi Metro. So, we have a good reputation with customers in India. So, I think it positions us well for the opportunities that are upcoming.
------------------------------
Deepak Kaushal, GMP Securities - Analyst [113]
------------------------------
Thank you very much. Yes, thank you very much. That's good for me.
------------------------------
Shirley Chenier, Bombarier Inc - IR [114]
------------------------------
Thank you.
------------------------------
Operator [115]
------------------------------
Steven Trent, Citigroup.
------------------------------
Steven Trent, Citigroup - Analyst [116]
------------------------------
Hi, good morning. And thanks for taking my question. Just actually a follow up on the commercial aero side. One of your competitors is also telegraphing that, next year, we could see more flow from the US airlines. And you partially commented on that.
Any sense as to whether the demand in 2015 could be as robust as what we saw last year? What's your feeling there in terms of need or demand for aircraft?
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [117]
------------------------------
All I can say at this point is that it's following a pattern we've seen in the past. The major airlines ordered some regionals. And now, they're in discussions with the regional operators about operating the airplanes that they bought or -- and adding to those fleets. So, I think that represents a good opportunity for us. And we need to be very close to that. As far as the volume, I would not like to comment at this point (inaudible).
------------------------------
Steven Trent, Citigroup - Analyst [118]
------------------------------
Okay. Fair enough. I'll leave the one-question limit. Thank you.
------------------------------
Shirley Chenier, Bombarier Inc - IR [119]
------------------------------
Thank you, Steve.
------------------------------
Operator [120]
------------------------------
Konark Gupta, Macquarie.
------------------------------
Konark Gupta, Macquarie - Analyst [121]
------------------------------
Good morning. And good to see some good progress there. My question is about the liquidity here. There's obviously some concern among investors that negative free cash flow, although it's seasonal, but it's not helping an already stretched balance sheet. And that could attract your lenders' attention perhaps on the covenant side.
So, taking what are your views on that, given CSeries is not going to generate EBITDA soon? And I would appreciate if you can also provide some timeframes and numbers around those covenants. Thank you.
------------------------------
Pierre Alary, Bombardier Inc - SVP & CFO [122]
------------------------------
Well, the -- when you look at the overall result, it's very much in line with our guidance. And when we review our various covenants, when we review with our bankers the plan going forward and what not, obviously in line with the guidance and so on.
And the first quarter in March, we've extended all of our facility by an additional year. So, we basically have three years ahead of us committed. And we're very much in line. We're on plan. So, there's really no concern. And we have the liquidity that we need to develop our products up to the entry into service.
------------------------------
Konark Gupta, Macquarie - Analyst [123]
------------------------------
Okay. So, if you -- if the cash then does not -- like it exceeds your expectations or misses your expectations, basically, you've won more cash than you expect, like you think you have some flexibility with your lenders to kind of flex around the covenants or the timelines?
------------------------------
Pierre Alary, Bombardier Inc - SVP & CFO [124]
------------------------------
The answer is yes. And we -- and you can imagine that, as we plan the liquidity, I don't plan the liquidity exactly on the plan. I have some significant buffer into it already. So, I -- that's not a concern.
And one thing to also be considered is that the facility, the bank facility we have are in relation to LC. So, it's not a funded facility. It's in fact guaranteeing the performance on our contract basically.
So, it's not that -- the cash we have is what we use for liquidity. And we're good with our level of liquidity.
------------------------------
Konark Gupta, Macquarie - Analyst [125]
------------------------------
Okay. Good. Thank you.
------------------------------
Operator [126]
------------------------------
Peter Arment, Sterne Agee.
------------------------------
Peter Arment, Sterne Agee - Analyst [127]
------------------------------
Yes, thank you. Good morning, everyone. Just my one question is just kind of a follow up to that on the cash flow. You seem to be tracking in line with your aerospace guidance for the -- both the deliveries and the CapEx. I think CapEx is just under $1 billion for the first six months.
I'm just trying to get a little better insight into the cash flow drivers for the second half. I know you've got 60% of your deliveries will come in. And it is seasonal. But, what are some of the key drivers we should be thinking about regarding the cash flow and meeting your guidance for the year? Thank you.
------------------------------
Pierre Alary, Bombardier Inc - SVP & CFO [128]
------------------------------
Well, the typical pattern that we have in the aerospace, the spending on the program is pretty much even. It varies from quarter to quarter. But, the spending on the program is pretty much even.
On the working capital side, we always see a significant inflow in the fourth quarter. So, we built the -- particularly, we deliver more in the fourth quarter. And there's typically more activities also on the new order side and so on so that the working capital is really on the positive side in the fourth quarter. That's what we see. That's what we have every year. So, it's typical pattern.
------------------------------
Peter Arment, Sterne Agee - Analyst [129]
------------------------------
Okay. Thank you.
------------------------------
Shirley Chenier, Bombarier Inc - IR [130]
------------------------------
Thank you, Peter.
------------------------------
Operator [131]
------------------------------
Anthony Scilipoti, Veritas.
------------------------------
Anthony Scilipoti, Veritas - Analyst [132]
------------------------------
Thank you. I was just going to -- if we dig in a little bit more to the Bombardier Transportation results, I was most drawn to the reduction in the gross margin. I know, Pierre, you spoke to the reduction in the SG&A and were seeing that improve the -- or at least fix the EBIT. But, I'm wondering why the significant 300-basis-point here reduction in the gross margin.
------------------------------
Pierre Alary, Bombardier Inc - SVP & CFO [133]
------------------------------
Yes, well, the gross margin with the contract adjustment we've made last year, as you know, under contract accounting, we adjust in the quarter. We do the catch-up adjustment. And then going forward, our margin on those same contracts are at the reduced level. So, it puts pressure on the margin for the remainder of the time that we deliver on those contracts. So, that's where the margin has been impacted mostly.
------------------------------
Anthony Scilipoti, Veritas - Analyst [134]
------------------------------
Is it specific contracts, or what is it?
------------------------------
Pierre Alary, Bombardier Inc - SVP & CFO [135]
------------------------------
Well, it's the contract that we made adjustment last year and the year before. So, we've talked about the German contract, French contract over the past couple of quarters. So, those contract, as we delivered them, we delivered them at a lower margin than we see our normal margin. So, it put pressure on the overall margin, as you can imagine.
------------------------------
Anthony Scilipoti, Veritas - Analyst [136]
------------------------------
So, how long will that continue being at this lower margin?
------------------------------
Pierre Alary, Bombardier Inc - SVP & CFO [137]
------------------------------
Well, each contract varies. And some of the contracts, we signed new orders. And we just signed new orders. In fact, one of our customer exercised one of its options. So, that will help in restoring the margin. So, over -- so, that's over the next couple of quarters.
------------------------------
Anthony Scilipoti, Veritas - Analyst [138]
------------------------------
Okay. It's similar on the -- if we look at the aerospace side. I'm trying to make this a dovetail to the one question. The gross margin similarly fell in the aerospace side. And I wondered how you could comment on that. Again, the improvement on SG&A, but the gross margin is down year over year.
------------------------------
Pierre Alary, Bombardier Inc - SVP & CFO [139]
------------------------------
It depends on the mix of products, has an impact. Typically, in commercial, the margin level are lower. So, we have a higher level of commercial compared to the -- because it's aircraft. So, it's a mix of product.
------------------------------
Anthony Scilipoti, Veritas - Analyst [140]
------------------------------
So, business aircraft is only down -- isn't down by much. But, is it going to be Flexjet, that the Flexjet might -- business has a more significant margin, and now you don't have that anymore?
------------------------------
Pierre Alary, Bombardier Inc - SVP & CFO [141]
------------------------------
No, it's not significant in terms of the impact on the margin percentage.
------------------------------
Anthony Scilipoti, Veritas - Analyst [142]
------------------------------
Okay. Thank you.
------------------------------
Shirley Chenier, Bombarier Inc - IR [143]
------------------------------
Thank you, Anthony.
------------------------------
Operator [144]
------------------------------
Turan Quettawala, Scotiabank.
------------------------------
Turan Quettawala, Scotiabank - Analyst [145]
------------------------------
Yes, just a quick follow up here on the CSeries again. I think there you said that FTV2 has the engine back on. I was wondering if you could give us a sense of how the repairs are going on FTV1. And also, maybe you could talk a little bit about how the software [drafts] have gone through here I guess while you've been grounded and how much time you could've -- I'm sure you've lost time, but if you can give us a sense of if that's been mitigated by some of the other work that you've been doing on the certification side. Thank you.
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [146]
------------------------------
Well, I can't give you precision on how much we mitigated. But, yes, our teams have been busy at updating components, updating software. For example, normal mode, now, we're ready to fly in normal mode as soon as we return to flight.
As far as the repair in FTV1, it's make good progress. It will be back in flight, but we haven't put a date on it. But, we're making very good progress on that right there.
And like I said before, FTV2 has engines on. And the other engines are somewhere in the states of being returned to us, whether they're still at Pratt being updated or they're on the way. I don't have that schedule. But, as soon as we return to flight, we will start to see one airplane and then the other one, and so on. But, they'll be sequenced with days in between.
------------------------------
Turan Quettawala, Scotiabank - Analyst [147]
------------------------------
That's perfect. Thank you very much.
------------------------------
Shirley Chenier, Bombarier Inc - IR [148]
------------------------------
Thank you, Turan.
------------------------------
Operator [149]
------------------------------
Chris Murray, AltaCorp Capital.
------------------------------
Chris Murray, AltaCorp Capital - Analyst [150]
------------------------------
Thank you. Good morning. In your air -- your business aircraft book to bill, so far this year, it's been a little bit below one. I was wondering if you could maybe update us on any progress you may have made on bookings post the Farnborough show, similar to what you did with civil aircraft. And any thoughts on what the outlook looks like, at least in the near term, for new bookings?
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [151]
------------------------------
It's the same pattern as what we've given you many times with business aircraft, very strong demand on the top end, medium in the middle, and light on the light sector. We don't see a big change there. We still see strong demand for our big aircraft. And we're doing very well, for example, the Challenger category.
It will vary from month to month. But, overall, I guess where there's a big change is the US is progressing very well. At the same time, there is some uncertainty in other parts of the world that creates uncertainty for business aircraft, so overall good progress.
------------------------------
Chris Murray, AltaCorp Capital - Analyst [152]
------------------------------
You think there's an opportunity that you actually could be above a one times book to bill for the full year?
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [153]
------------------------------
Yes. But, that's -- one step at a time.
------------------------------
Chris Murray, AltaCorp Capital - Analyst [154]
------------------------------
Okay. Thank you very much.
------------------------------
Shirley Chenier, Bombarier Inc - IR [155]
------------------------------
Thank you.
------------------------------
Operator [156]
------------------------------
Robert Spingarn, Credit Suisse.
------------------------------
Robert Spingarn, Credit Suisse - Analyst [157]
------------------------------
Yes, I'm back. I wanted to ask you about ILFC had pushed back some deliveries of CSeries by about five months into April of 2016, and curious about why that might have happened.
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [158]
------------------------------
There's nothing significant there. We discussed a schedule with customers. It is in line with the entry into service of the 300 if you look at the dates we've given you. Nothing special. It may be priorities of the customers and where these airplanes are going to be used. So, I don't have any additional comments on that, nothing significant.
------------------------------
Robert Spingarn, Credit Suisse - Analyst [159]
------------------------------
Okay. And then just on the 300 orders by entry into service, is there any sensitivity to that number with regard to entry into service of the -100 versus the 300?
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [160]
------------------------------
There's more volume on the 300 than there is on the 100. And this is -- was planned this way for us because of -- first, we're going to ramp up step by step. So, the 300 is the majority of our orders at this point. But, this is what our business plan said. And if we sell more 300s, it's only good for the business plan.
------------------------------
Shirley Chenier, Bombarier Inc - IR [161]
------------------------------
But, Rob, I think your question was on the level of firm orders by entry into service?
------------------------------
Robert Spingarn, Credit Suisse - Analyst [162]
------------------------------
Correct. Correct, the timing of when you hit the 300, which aircraft.
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [163]
------------------------------
Which aircraft?
------------------------------
Shirley Chenier, Bombarier Inc - IR [164]
------------------------------
Entry into service.
------------------------------
Robert Spingarn, Credit Suisse - Analyst [165]
------------------------------
In other word, the entry of which aircraft is the deadline?
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [166]
------------------------------
Entry -- we've always said entry into service of the CSeries program. So, the target is the 100.
------------------------------
Robert Spingarn, Credit Suisse - Analyst [167]
------------------------------
Okay. Thank you for clarifying that.
------------------------------
Shirley Chenier, Bombarier Inc - IR [168]
------------------------------
Thank you, Rob.
------------------------------
Operator [169]
------------------------------
David Tyerman, Canaccord Genuity.
------------------------------
David Tyerman, Canaccord Genuity - Analyst [170]
------------------------------
Yes, it looks to me like your capitalized interest has increased quite a bit in the quarter. Looks like was $77 million in Q2 and $58 million in Q1. I was wondering why it would go up so much and whether we're going to see further large increases in coming quarters.
------------------------------
Pierre Alary, Bombardier Inc - SVP & CFO [171]
------------------------------
It's basically in relation to the level of investment we have. So, it's an interest calculated on the level of investment. So, as we continue to invest, the capitalized interest will continue to grow, but proportionally.
------------------------------
David Tyerman, Canaccord Genuity - Analyst [172]
------------------------------
But, that seems like much more than proportional. From $58 million to $77 million in one quarter sounds like you didn't invest that much more in the quarter.
------------------------------
Pierre Alary, Bombardier Inc - SVP & CFO [173]
------------------------------
No, that should be proportional. So, we'll -- .
------------------------------
Shirley Chenier, Bombarier Inc - IR [174]
------------------------------
-- We'll look into it, and I'll give you -- .
------------------------------
Pierre Alary, Bombardier Inc - SVP & CFO [175]
------------------------------
-- We'll look into it and -- .
------------------------------
Shirley Chenier, Bombarier Inc - IR [176]
------------------------------
-- I'll give you a call back, David, on that.
------------------------------
David Tyerman, Canaccord Genuity - Analyst [177]
------------------------------
Okay. And could I just ask a question on BT? You're going to -- your average margin in the second half to get to your 6% has got to be 7%. I understand the seasonally and so on. But, it still sounds like an awfully large increase. Is there a risk of missing this number?
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [178]
------------------------------
Our guidance is 6%. That's all we can tell you. That's our guidance.
------------------------------
David Tyerman, Canaccord Genuity - Analyst [179]
------------------------------
So, what would be the drivers to get to 7% in the second half when you only did 5% in the first?
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [180]
------------------------------
Product mix and what's going on in the market in terms of product mix or joint ventures, our different investments we have in different areas of the world. So, we have in transportation deliveries of trains. We have joint ventures. We have sometimes investments in equity in special [PPP] projects. So, we consider all of this. And we see that we can -- our guidance of 6% is what you should go by.
------------------------------
David Tyerman, Canaccord Genuity - Analyst [181]
------------------------------
Okay. Okay. Thank you.
------------------------------
Shirley Chenier, Bombarier Inc - IR [182]
------------------------------
Thank you, David.
------------------------------
Operator [183]
------------------------------
Benoit Poirier, Desjardins.
------------------------------
Benoit Poirier, Desjardins - Analyst [184]
------------------------------
Yes, thanks. Just on the Leerjet 85, I was wondering if you could provide us an update on the flight testing, also the structure, and what type of information you're waiting before giving us more color on the EIS date.
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [185]
------------------------------
We are continuing to flight test the aircraft. Right now, before [we give you this] into service, we're evaluating all of our priorities. We have three flight test program, two going on right now and a third one coming with the Global 7000, 8000. And I want to make sure that our team have evaluated very well our resources and where we put our priorities. And this is always considered, given the market for each of the aircraft. So, that's why we're being prudent before we put an entry into service announcement for the Leer.
------------------------------
Benoit Poirier, Desjardins - Analyst [186]
------------------------------
Okay. And just in terms of commercial, China, could you give us an update on the partnership with Comac and whether some Chinese companies are trying to do something similar like Rostec in terms of putting an assembly line in China?
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [187]
------------------------------
We have active discussion on the Q400 on a similar project. But, they're just at the discussion level at this point. We think there's a big opportunity for turbo props in China. But, if you're going to grab this opportunity, you likely have to assemble a product locally.
The -- as far as our discussion with Comac, we continually look together where we should collaborate in order to create a win-win situation for both organizations, particularly in China, where, for example, they have a service network which we may not have to duplicate for the CSeries if we work with Comac leverage.
------------------------------
Benoit Poirier, Desjardins - Analyst [188]
------------------------------
Okay. Thanks for the time.
------------------------------
Shirley Chenier, Bombarier Inc - IR [189]
------------------------------
Thank you, Benoit.
------------------------------
Operator [190]
------------------------------
Deepak Kaushal, GMP Securities.
------------------------------
Deepak Kaushal, GMP Securities - Analyst [191]
------------------------------
Hi. Thanks for taking my follow up. It is regarding the recent organizational change that you've announced and a question on commercial aircraft. In recent years, you guys have been globalizing your sales and marketing team. Does part of this change pull that process back? And how do you look at things like customer support and specialized engineering services that have been shared between business aircraft and commercial aircraft? Do they split up again, or do they stay as a shared resource, and in which organization?
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [192]
------------------------------
Very good question. On the commercial side and business aircraft, there's no share in the sales force per se, very different customer. And we're going to continue to invest in the sales force development for commercial aircraft as our products are more and more global, so no change there.
As far as aftersales, yes, there will be a split of aftersales. But, it doesn't prevent one division giving the service to the other under a service agreement. And that's what we're looking at, at this point. For example, parts distribution, I don't see the need of having separate warehouse, as an example. So, there's many of these discussions going on. And I think what you will see, there'd be divisions giving service to the other.
------------------------------
Deepak Kaushal, GMP Securities - Analyst [193]
------------------------------
Okay. Thank you. And does that apply to advanced engineering, like aerodynamics or avionics, things like that?
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [194]
------------------------------
We're having these discussions right now. There is areas where we can share resources and maybe sell the service to each other as a service that we could sell also on the outside. So, we're having these discussions now. And we'll decide in the next few months.
------------------------------
Deepak Kaushal, GMP Securities - Analyst [195]
------------------------------
Okay. Thank you for that. I'll pass the line again.
------------------------------
Shirley Chenier, Bombarier Inc - IR [196]
------------------------------
Thank you, Deepak. Operator, do we have any more questions?
------------------------------
Operator [197]
------------------------------
There are no questions registered at this time.
------------------------------
Shirley Chenier, Bombarier Inc - IR [198]
------------------------------
Thank you. So, this concludes the question period intended for investors and analysts. We will now begin the question period for media representatives. Operator?
------------------------------
Operator [199]
------------------------------
(Spoken in French). (Operator Instructions). Paul Vieira, Wall Street Media.
------------------------------
Paul Vieira, Wall Street Journal - Media [200]
------------------------------
Good morning. Paul Vieira from the Wall Street Journal. I was -- during the call, we heard -- I wanted to get even additional color on top of what's already been said about the reorganization. There was discussion that -- at least from Mr. Beaudoin that there was some dissatisfaction. There was talk about the need to boost margins.
I'm just wondering whether this aero -- the corporate revamp was part of the idea that you, sir, Mr. Beaudoin, can be more hands on, given that every person will be reporting to you and that you wanted to have more of a hands-on role ensuring that the CSeries is delivered as on time as the Company has vowed.
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [201]
------------------------------
The answer to this question is yes, I want to have more direct hands-on role on the -- each of the divisions, also that we've invested a lot in new products in the last few years. And we feel that it's important to have business units directly reporting to our corporate so that we can benefit from these large investments that we have made in the last few years and monitor them more close.
------------------------------
Paul Vieira, Wall Street Journal - Media [202]
------------------------------
I guess if I can just quickly on another subject that's also been talked about, Russia, do you not have any -- given the growing movement by Western governments to isolate Russia. I know you're monitoring, but are you not concerned about the impact this could have on deals with -- deals that Bombardier has or existing arrangements? And have you at all discussed with the Canadian government -- have you expressed any concerns about going -- being too aggressive in trying to isolate and punish the Kremlin?
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [203]
------------------------------
We have a constant discussion with the Canadian government about this subject, but about every -- about many subjects, whether it's this or other subjects. For us, yes, we are concerned about what's going on in Russia. And we are looking at the effect on our business and how to plan for different scenarios.
But, in the end, it's the governments that will decide on sanctions. And of course, we will respect the guidance that we get from the various governments where Bombardier's active. Russia is not only in many areas a customer of Bombardier, but also suppliers from Russia. So, we have to evaluate that.
But, Bombardier's not in a unique position. Every global company -- maybe not every, but many global companies have very deep relation and customers and suppliers in Russia. So, it's a situation that needs to be monitored closely.
------------------------------
Paul Vieira, Wall Street Journal - Media [204]
------------------------------
Thank you very much.
------------------------------
Shirley Chenier, Bombarier Inc - IR [205]
------------------------------
Thank you.
------------------------------
Operator [206]
------------------------------
Francois Pouliot, Journal Les Affaires.
------------------------------
Francois Pouliot, Journal Les Affaires - Media [207]
------------------------------
(Interpreted) Good morning. Given your restructuring, some have speculated that this restructuring might be used by Bombardier to sort of sign off on another division, be it the commercial or the business jet division. And I was just wondering if that was the case.
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [208]
------------------------------
(Interpreted) No, this restructuring is not to get rid of any one division. It's just that we've become more flexible and more agile. We are -- can react and decide more quickly, as I said. And we will be able to more closely monitor those units where big investments have been made and to enhance all the investments that have been made in the aerospace division.
------------------------------
Francois Pouliot, Journal Les Affaires - Media [209]
------------------------------
(Interpreted) So, you never thought that this might make it easier when selling off a division perhaps or acquiring a new partner?
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [210]
------------------------------
(Interpreted) No, we didn't do it for that reason. We did not intend to be for that.
------------------------------
Francois Pouliot, Journal Les Affaires - Media [211]
------------------------------
(Interpreted) Now, I have another question. Embraer had ordered a lot of regional jets at Farnborough, now, you too, I believe in the CSeries when it comes to regional jets. Can we consider this to be due to the fact that the new Embraer jets are gaining on traditional Bombardier regional jets?
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [212]
------------------------------
(Interpreted) I don't think so. Clients do recognize that our CRJs are very performing. And we improve them all the time. If we look at the current version that was offered to American Airlines at 5% improvement, we're talking about continuing to improve the CRJ platform so that it would have a greater advantage or greater competitive jet over Embraer.
So, when we're talking about market share, Embraer has regional jets, but they don't perform as well as ours.
------------------------------
Francois Pouliot, Journal Les Affaires - Media [213]
------------------------------
(Interpreted) What about the new ones?
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [214]
------------------------------
(Interpreted) Well, I think the new one on the market is called Evolution or something. And we think we're ahead of that product they call I do believe Evolution. And we have an important performance edge. And we think that our platform will remain competitive for whatever they will put on the market in 2020 when it comes to regional jets. We have improving plans that will enable us to continue to remain ahead.
------------------------------
Francois Pouliot, Journal Les Affaires - Media [215]
------------------------------
(Interpreted) So, you have already planned all this?
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [216]
------------------------------
(Interpreted) Yes, this is in the plan.
------------------------------
Francois Pouliot, Journal Les Affaires - Media [217]
------------------------------
(Interpreted) So, after investing in the CSeries, or is it done in parallel?
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [218]
------------------------------
(Interpreted) Well, what I told you, we have a CRJ platform that is competitive. We think we've got good plans. And we show our clients and customer how we intend to remain ahead of Embraer.
------------------------------
Shirley Chenier, Bombarier Inc - IR [219]
------------------------------
(Interpreted) Thank you, Mr. Pouliot.
------------------------------
Operator [220]
------------------------------
Richard Blackwell, The Globe and Mail.
------------------------------
Richard Blackwell, The Globe and Mail - Media [221]
------------------------------
Hi. I'd like to just ask another follow up on the Russian situation. We hear very mixed signals from the Russian government and Russian agencies about their commitment to the Q400 program. What are you hearing? Are they getting cold feed on this program, or are you confident that it will move ahead?
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [222]
------------------------------
Well, this is a very complex industrial discussion with Rostec and how exactly we do this. A lot of details are being discussed between our teams. Commercial discussions are continuing. And both parties are motivated to have the assembly of a turbo prop in their -- well, they're motivated to have the Q400 assembled in Russia. So, let's see where the discussion leads. But, they're continue -- we're continuing these discussions with Rostec.
------------------------------
Richard Blackwell, The Globe and Mail - Media [223]
------------------------------
Thanks.
------------------------------
Shirley Chenier, Bombarier Inc - IR [224]
------------------------------
Thank you.
------------------------------
Operator [225]
------------------------------
[Silvi le Roc], [La Presse].
------------------------------
Silvi le Roc, La Presse - Media [226]
------------------------------
(Interpreted) Yes, good morning. I'd like to go back to what Mr. Pouliot was asking you, when we'll see investments to improve the CRJ line of products.
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [227]
------------------------------
(Interpreted) Well, we're constantly investing without coming up with specific announcements. We've delivered planes to American Airlines 5% better, 5% improvement compared with the previous CRJs that we had delivered. We will go on giving improvements, making sure that the platform evolves. We want to maintain our competitive edge.
------------------------------
Silvi le Roc, La Presse - Media [228]
------------------------------
(Interpreted) How much investment overall?
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [229]
------------------------------
(Interpreted) We're constantly investing in that platform. I don't have a specific figure to give you.
------------------------------
Silvi le Roc, La Presse - Media [230]
------------------------------
(Interpreted) Coming back to the fact that Mr. Hachey left, could you sort of explain what happened? I do understand that this is in line -- this is because of the new structure. But, I guess people said that he wasn't the right man to do this.
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [231]
------------------------------
(Interpreted) Mr. Hachey decided to retire. And we decided to reorganize the Company into three different business units because we think that we can become more agile, flexible, and make sure that we have a lighter structure.
------------------------------
Silvi le Roc, La Presse - Media [232]
------------------------------
(Interpreted) He's less than 60 years of age. It's pretty young to go into retirement.
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [233]
------------------------------
(Interpreted) Mr. Hachey retired. That's his own personal choice.
------------------------------
Silvi le Roc, La Presse - Media [234]
------------------------------
(Interpreted) Thank you very much.
------------------------------
Operator [235]
------------------------------
[Solerina Ho], Reuters.
------------------------------
Solerina Ho, Reuters - Media [236]
------------------------------
Hi. If you don't mind, I had a couple questions, one for each division. Just following up on all the Russian sanction questions, does it have any impact or do you foresee any impact on the Aleutian deal in any way, just given what a large I guess order portion that makes up for the CSeries?
And also, along the Aleutian lines, I've been reading a report that the CEO said that they got better terms from you and just wanted to see if you could comment on that.
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [237]
------------------------------
I don't think it has an impact on the Aleutian deal today. Of course, we have to monitor the situation as it evolves. But, you have to understand that the CSeries won't deliver before 2016. So, there's time for this situation to evolve. I can't speculate in which direction. But, today, it doesn't have an effect. That's all I could say. Commercial discussion between our customer and us are confidential.
------------------------------
Solerina Ho, Reuters - Media [238]
------------------------------
Okay. And just a question on Bombardier Transportation. I was wondering if you could provide an update on the labor situation at your Thunder Bay plant.
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [239]
------------------------------
There's really not much to comment on. There's a strike going on. We've made our offer very clear. And we're not going to negotiate the public with our employees.
------------------------------
Solerina Ho, Reuters - Media [240]
------------------------------
Okay. So, no progress I guess so far then as far as resolving the dispute.
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [241]
------------------------------
We hope to resolve the dispute as soon as possible.
------------------------------
Solerina Ho, Reuters - Media [242]
------------------------------
Are you expecting any delays as far as the deliveries go then?
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [243]
------------------------------
This is -- in our contract, we have a provision that's called [soft measure]. The strike counts as soft measure. So, we can -- whatever delay the strike will -- would create, it does not affect the contract between us and our customers.
------------------------------
Solerina Ho, Reuters - Media [244]
------------------------------
Okay. Thank you very much.
------------------------------
Shirley Chenier, Bombarier Inc - IR [245]
------------------------------
Thank you.
------------------------------
Operator [246]
------------------------------
Karin Finkenzeller, WirtschaftsWoche.
------------------------------
Karin Finkenzeller, WirtschaftsWoche - Media [247]
------------------------------
Good morning. Thank you for taking my question. I would like to ask a question, special question on business aircraft. And we've been seeing airline companies from the Gulf States and especially Etihad to kind of build in real apartments in the A380. And I wanted to know whether this could have an effect on selling your private jets to businessmen and businesswomen. And I would like to know whether, in this context, you are maybe thinking on going to the supersonic side.
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [248]
------------------------------
As far as the supersonic, I can directly answer this question, no, it's not part of our plan. I don't think that luxury, first class in the Middle East airlines, like the one you pointed to, will affect business aircraft. Businesspeople own business aircraft for its flexibility, the ability to go into airports directly close to their businesses, to their customers, ability to leave at the time they need to leave, whether they're going to their customers or coming back. So, these products will not offer that flexibility. So, I don't think it has any effect on business aircraft.
------------------------------
Karin Finkenzeller, WirtschaftsWoche - Media [249]
------------------------------
Okay. Thank you.
------------------------------
Shirley Chenier, Bombarier Inc - IR [250]
------------------------------
Thank you.
------------------------------
Operator [251]
------------------------------
Vanessa Lu, Toronto Star.
------------------------------
Vanessa Lu, Toronto Star - Media [252]
------------------------------
Hi, good morning. I just wanted a little bit more clarification on the situation in Russia. So, is the plan or the attempt to get a joint venture for final assembly of the Q400 essentially on hold because of the situation in Russia right now? Maybe just walk me through the timelines.
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [253]
------------------------------
So, commercial discussions are continuing between us and Rostec. And when we have an agreement, we're just -- let me start again. We're working hard to get to an agreement. So, what's going on in Russia has not affected our commercial discussions. Of course, when and if we get to an agreement, we will have to consider the overall environment and the sanctions at that time.
------------------------------
Vanessa Lu, Toronto Star - Media [254]
------------------------------
And you would see if, at that point, the sanctions would prohibit you from setting up final assembly there?
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [255]
------------------------------
Not right now. But, this is a situation that evolves every day. So, today, this -- I don't see that as a restriction. But, it's a situation that evolvs.
------------------------------
Vanessa Lu, Toronto Star - Media [256]
------------------------------
Okay. Thank you.
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [257]
------------------------------
We need to continue commercial discussion.
------------------------------
Vanessa Lu, Toronto Star - Media [258]
------------------------------
Okay. Thank you.
------------------------------
Shirley Chenier, Bombarier Inc - IR [259]
------------------------------
Thank you.
------------------------------
Operator [260]
------------------------------
Daniel Bordeleau, Info Aero Quebec.
------------------------------
Daniel Bordeleau, Info Aero Quebec - Media [261]
------------------------------
(Interpreted) Good morning. I'd like to go back to the jobs that will be lost. You spoke of 1,800 jobs. Are these basically nonunionized people?
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [262]
------------------------------
(Interpreted) These are indirect jobs, so basically nonunionized people.
------------------------------
Daniel Bordeleau, Info Aero Quebec - Media [263]
------------------------------
(Interpreted) 1,800. Overall, what's the overall total? If you look at the jobs that you call indirect that are not production jobs therefore, how many employees have you got overall using that definition?
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [264]
------------------------------
(Interpreted) 37,000 employees in aerospace. So, the indirect -- we have 12,000 that are indirect.
------------------------------
Daniel Bordeleau, Info Aero Quebec - Media [265]
------------------------------
(Interpreted) That's 1,800 out of 12,000.
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [266]
------------------------------
(Interpreted) Correct.
------------------------------
Daniel Bordeleau, Info Aero Quebec - Media [267]
------------------------------
(Interpreted) Going back to the CRJ, do you think that you might replace the motors on those, the engines on those?
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [268]
------------------------------
(Interpreted) We're always trying to improve on our platforms. This is a great platform, well performing. People like the performance of this engine. But, if there are other ways for us to improve the platform, we'll look at these But, this is not part of our plans right now.
------------------------------
Daniel Bordeleau, Info Aero Quebec - Media [269]
------------------------------
(Interpreted) FTV5, do you think you may make sure that the FTV5 would come into service quicker than expected?
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [270]
------------------------------
(Interpreted) It's not part of plans right now. The FTV5 will be in service toward the end of the year.
------------------------------
Daniel Bordeleau, Info Aero Quebec - Media [271]
------------------------------
(Interpreted) Thank you.
------------------------------
Operator [272]
------------------------------
Ross Marowits, The Canadian Press.
------------------------------
Ross Marowits, The Canadian Press - Media [273]
------------------------------
Yes, I'm wondering if you could first talk about when you do resume flight tests for the CSeries. Will you be able to make up any of the lost hours somehow?
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [274]
------------------------------
Well, I think so. And that's what we're looking with our team right now because we've done a lot of updates between the downtime. But, one step at a time. We now have to focus on getting back to flight in a safe way. And then we're going to look at how we can catch up some of the time.
------------------------------
Ross Marowits, The Canadian Press - Media [275]
------------------------------
But, how would you be able to do that? Is it fly more aircraft than you had planned, or how would you be able to get more hours?
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [276]
------------------------------
It will not be more hours, but it would be more hours per aircraft.
------------------------------
Ross Marowits, The Canadian Press - Media [277]
------------------------------
Okay. The second thing is I'm wondering about the restructuring. Why is this happening now? Your numbers haven't been great for a while. Was there some event that prompted this, or how long has this been in the works?
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [278]
------------------------------
Well, the evolution of our platform, our large investment we're making in new products, and definitely a reason for doing it now as we get closer and closer to entry into service and the fact that the execution is not up to my satisfaction, we think that it was time to make a change in order to get our team to execute more on schedule.
------------------------------
Ross Marowits, The Canadian Press - Media [279]
------------------------------
But, given that you won't have the details worked out until -- for another number of months, was this something that just happened suddenly?
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [280]
------------------------------
No, this is something that has been planned for quite some time.
------------------------------
Ross Marowits, The Canadian Press - Media [281]
------------------------------
How long is quite some time?
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [282]
------------------------------
Quite some time.
------------------------------
Ross Marowits, The Canadian Press - Media [283]
------------------------------
Okay. And just lastly, in the change with the aerostructure separated, you talked about you have low-cost operations in Mexico and Morocco? Are there any plans through this to create a new center for low-cost production?
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [284]
------------------------------
We have -- right now, we're in the midst of creating the Moroccan low-cost fabrication factory. It's just starting. It's an investment we started about a year and a half ago. So, the focus is on that one now, developing that one and continuing to develop in Mexico.
------------------------------
Ross Marowits, The Canadian Press - Media [285]
------------------------------
So, not a third then?
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [286]
------------------------------
It's not in the plan.
------------------------------
Ross Marowits, The Canadian Press - Media [287]
------------------------------
Thank you.
------------------------------
Shirley Chenier, Bombarier Inc - IR [288]
------------------------------
Okay. Thank you.
------------------------------
Operator [289]
------------------------------
[Julie Arseneau], The Canadian Press.
------------------------------
Julie Arseneau, The Canadian Press - Media [290]
------------------------------
(Interpreted) Good morning, Mr. Beaudoin. Listen, you're talking about the two weeks for the flight test the CSeries to resume. It's been more than two months now that you've been grounded. Could you expect that this might be done in August?
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [291]
------------------------------
(Interpreted) We're still talking about a few weeks because there's still some work to be done. We were sent a solution by Pratt & Whitney to go back to flight. We've looked at the solution with our technical team to make sure that the Bombardier team is comfortable with Pratt & Whitney's solution. And we'll be making a solution soon. We still have a few answer -- questions that need answers before we make a decision. So, we're sticking to our timeline of a few weeks.
------------------------------
Julie Arseneau, The Canadian Press - Media [292]
------------------------------
(Interpreted) Shouldn't you say indefinitely? A few weeks, two months, this is quite long. Evidently, you don't want to commit and to a definitive date.
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [293]
------------------------------
(Interpreted) I think a few weeks does represent what the present situation is. And as I said, we've made a lot of progress with Pratt & Whitney. We looked at their solution. And we'll be making a solution soon -- a decision soon.
------------------------------
Julie Arseneau, The Canadian Press - Media [294]
------------------------------
(Interpreted) 1,800 employees that are indirect jobs actually that are being lost in addition to those that were lost earlier in the year. So, in aerospace, will there be any more job cuts in the near future?
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [295]
------------------------------
(Interpreted) I think we have come up with a number of goals to make sure that we have a more flexible organization. And our focus is that we put in place this new organization and make sure that we are well positioned to increase our profitability.
------------------------------
Julie Arseneau, The Canadian Press - Media [296]
------------------------------
(Interpreted) Well, there may be other job losses, cut backs in jobs if you want to be more flexible?
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [297]
------------------------------
(Interpreted) I will not speculate on that one. Our goal right now is for 1,800. And we want to make sure that our three new business units work adequately.
------------------------------
Julie Arseneau, The Canadian Press - Media [298]
------------------------------
(Interpreted) Thank you.
------------------------------
Operator [299]
------------------------------
Martin Jolicoeur, Journal Les Affaires.
------------------------------
Martin Jolicoeur, Journal Les Affaires - Media [300]
------------------------------
(Interpreted) Good morning, everybody. I would like to check -- last week, there were no explanations or there was no definition as to the -- in terms of the layoff in terms of geographies. Are we in a better position right now to talk about these 1,800 job losses, but where?
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [301]
------------------------------
(Interpreted) No, we are not in a position to do that right now. We cannot relay this information. We spoke of 1,800 indirect jobs out of 12,000 indirect jobs.
------------------------------
Martin Jolicoeur, Journal Les Affaires - Media [302]
------------------------------
(Interpreted) Very well. I do understand that this reorganization is not mostly aimed at selling one of the units or bringing in more capital. But, is that totally out of the question if an opportunity came up?
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [303]
------------------------------
(Interpreted) That's not why we're -- we carried out the reorganization. And it's not part of our plan.
------------------------------
Martin Jolicoeur, Journal Les Affaires - Media [304]
------------------------------
(Interpreted) If the opportunity came up, would you simply say no or look at it?
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [305]
------------------------------
(Interpreted) It's not the reason why we reorganized. It's not part of our plans. And I will not try and speculate as to what may or may not happen in future.
------------------------------
Martin Jolicoeur, Journal Les Affaires - Media [306]
------------------------------
(Interpreted) Very well then. In terms of aerostructure, which will be set up, which is now being set up, could they set up shop anywhere else than in Canada? Could it be this new division in a country where costs are lower?
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [307]
------------------------------
(Interpreted) We have four shops for aerostructures. We're not talking about creating a new business. We had a plant in (inaudible). It's quite important for our group in aerostructures. We have one in Belfast, and we have Mexico as well as Morocco. We had decided -- we are now decided how to manage things in each of these four plants in order to get value because we have a lot of expertise.
------------------------------
Martin Jolicoeur, Journal Les Affaires - Media [308]
------------------------------
(Interpreted) One last thing, you spoke of the Leerjet 85 flight tests, which are also late. You spoke of three flight tests that might be late for the Leerjet 85. Could you repeat what it is that you -- what these flight test were?
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [309]
------------------------------
(Interpreted) First of all, it's not a matter of being late on the Leerjet 85. I said that we have to manage our priorities. We have three flight test programs that are now underway or will be launched soon for the CSeries, Leerjet 85, and the Global 7000 and 8000. So, before announcing the entry into service of the Leerjet 85, I want us to revisit and look at our resources and to manage our priorities.
------------------------------
Martin Jolicoeur, Journal Les Affaires - Media [310]
------------------------------
(Interpreted) All right. The discussions for opening an assembly plant in China for the Q400, is that as advanced as what you have in Russia?
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [311]
------------------------------
(Interpreted) No. But, we are looking at that.
------------------------------
Martin Jolicoeur, Journal Les Affaires - Media [312]
------------------------------
(Interpreted) Thank you very much. That's good.
------------------------------
Operator [313]
------------------------------
Frederic Tomesco, Bloomberg News.
------------------------------
Frederic Tomesco, Bloomberg News - Media [314]
------------------------------
(Interpreted) Hello, Mr. Beaudoin. A few short questions. I wanted to come back to Aleutian finance announcement saying they postponed delivery of the CSeries from 2015 to April 2016. Now, have any other clients gotten in touch with you to perhaps postpone deliveries. Is that a possibility?
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [315]
------------------------------
(Interpreted) Postpone, when you say April 2016, actually, it's in line with the entry into service date of the CS300. Delivery dates is always a combination of what we can produce, their needs that need to be met. Yes, we actively discuss matters with all our clients and customers when it comes to delivery date. But, there's nothing special when something has been postponed. I know it hits the news, but nothing major.
------------------------------
Frederic Tomesco, Bloomberg News - Media [316]
------------------------------
(Interpreted) Very well. A technical question now. To start your flight test, do you need either a new transportation permit from Transport Canada, new certification, or some kind of authorization, or can you just decide on D Day that this is it, you are testing again?
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [317]
------------------------------
(Interpreted) No, we don't need an authorization as such. We always have our transportation permit. But, Transport Canada is a partner of ours. And we always do it in agreement with them.
------------------------------
Frederic Tomesco, Bloomberg News - Media [318]
------------------------------
(Interpreted) Very well. Third question, when it comes to BT, Mr. Bertling's plan OneBT has been in existence for quite a while now. Why did you wait until now to cut 1,800 jobs, additional jobs between now and the end of the year?
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [319]
------------------------------
(Interpreted) This matter is evolving. A lot of decisions have been taken in the last year. This is just another step in organizing OneBT. When you undertake such major changes as we did in the transportation section, we go step by step. And we've reached the stage that, yes, we have to cut 1,800 jobs.
------------------------------
Frederic Tomesco, Bloomberg News - Media [320]
------------------------------
(Interpreted) What about 2014? Anything else to happen, or is this just step one?
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [321]
------------------------------
(Interpreted) OneBT has evolved an awful lot. It's there. I can't speculate as to the future. We're working on the next step, which will be to reduce the organization by another 1,000 jobs.
------------------------------
Frederic Tomesco, Bloomberg News - Media [322]
------------------------------
(Interpreted) Thank you.
------------------------------
Operator [323]
------------------------------
[Cal Mariseli], [Le Savoir].
------------------------------
Cal Mariseli, Le Savoir - Media [324]
------------------------------
(Interpreted) Hello. My question has to do with the CSeries book to bill or firm orders, the backlog rather as you have clients. Has that increased?
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [325]
------------------------------
(Interpreted) Yes, since the platform has started, we are very confident. And I think I've been saying the same thing for five years now. Our objective is 300 units when it comes to entry into service. And this is the highest backlog we've ever had for any given platform at Bombardier. So, we're in a very good position. We're at 200 firm orders. I don't think it's a problem of any sort at all. It's just that we just keep focusing on the target number, which is 300.
------------------------------
Cal Mariseli, Le Savoir - Media [326]
------------------------------
(Interpreted) Thank you.
------------------------------
Operator [327]
------------------------------
(inaudible).
------------------------------
Unidentified Participant [328]
------------------------------
Thank you very much again for taking another of my questions. I would like to know about, because given the fact that mechanization in the construction of airplanes is limited compared to automobile construction, could you maybe give some information whether there are more possibilities in the future, especially when it comes to impression in 3D? Is this a possibility to ramp up to mechanization in the airplane construction?
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [329]
------------------------------
Well, first of all, like you said, airplane manufacturing is relatively low volume compared to cars. So, where we do have automation, it's mainly for quality and precision than for the benefit of mechanization.
As far as 3D printing, it's a good technology for seeing the shape of a part to look at how we assemble a first unit. But, it's not a technology today that can be used in the fabrication of parts for production.
------------------------------
Unidentified Participant [330]
------------------------------
Okay. I see. Thank you.
------------------------------
Shirley Chenier, Bombarier Inc - IR [331]
------------------------------
Thank you. Operator, do we have any more questions?
------------------------------
Operator [332]
------------------------------
Francois Pouliot, Journal Les Affaires.
------------------------------
Francois Pouliot, Journal Les Affaires - Media [333]
------------------------------
(Interpreted) Very quickly, I was trying to see this new parts division. What does that represent in your revenue figure? And how big do you want it to get in the year?
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [334]
------------------------------
(Interpreted) We're not in a position. We say that, at the beginning of 2015, we will give you the figures as per the newly created structure. Then you will see more as to how it weighs in the overall structure.
------------------------------
Francois Pouliot, Journal Les Affaires - Media [335]
------------------------------
(Interpreted) Do you think this has a future, or is just a bit of a sideline?
------------------------------
Pierre Beaudoin, Bombardier Inc - President & CEO [336]
------------------------------
(Interpreted) No, this has a major potential in terms of the aerospace industry because of our knowledge and expertise.
------------------------------
Francois Pouliot, Journal Les Affaires - Media [337]
------------------------------
(Interpreted) Thank you.
------------------------------
Unidentified Company Representative [338]
------------------------------
(Interpreted) Thank you one and all for having attended this conference call. Have a good day.
------------------------------
Operator [339]
------------------------------
Thank you. The conference has now ended. Please disconnect your lines at this time. And we thank you for your participation. (Spoken in French).
------------------------------
Editor [340]
------------------------------
Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.
------------------------------
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------------------------------
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------------------------------
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------------------------------
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