Q3 2015 Bombardier Inc Earnings Call-English
Oct 29, 2015 AM EDT
BBD.B.TO - Bombardier Inc
Q3 2015 Bombardier Inc Earnings Call-English
Oct 29, 2015 / 12:00PM GMT
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Corporate Participants
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* Yan Lapointe
Bombardier, Inc. - Manager of Investors Relation
* Alain Bellemare
Bombardier Inc. - CEO
* John Di Bert
Bombardier Inc. - CFO
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Conference Call Participants
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* Kevin Chiang
CIBC - Analyst
* Ron Epstein
Bank of America Merrill Lynch - Analyst
* Cameron Doerksen
National Bank Financial - Analyst
* Benoit Poirier
Desjardins Capital Markets - Analyst
* Tim James
TD Securities - Analyst
* Seth Seifman
JPMorgan - Analyst
* Fadi Chamoun
BMO Capital Markets - Analyst
* Turan Quettawala
Scotia Bank - Analyst
* Walter Spracklin
RBC - Analyst
* Robert Spingarn
Credit Suisse - Analyst
* David Tyerman
Canaccord Genuity - Analyst
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Presentation
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Operator [1]
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(Spoken in foreign language) Good morning, ladies and gentlemen, and welcome to the Bombardier Third Quarter 2015 Earnings Call. Please be advised that this call is being recorded. (Spoken in foreign language) I would now like to turn the meeting over to Mr. Yan Lapointe, Manager of Investors Relations. (Spoken in foreign language) Please go ahead.
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Yan Lapointe, Bombardier, Inc. - Manager of Investors Relation [2]
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Thank you, Moda. Good morning to those on the call and thank you for joining. This management discussion has been arranged to review our performance for the third quarter of 2015. We'll invite institutional investors and financial analysts to ask their questions following management's comments. Today Alain Bellemare, President and Chief Executive Officer and John Di Bert, Senior Vice President and Chief Financial Officer will provide performance highlights, which include recent strategic actions as well to discuss the financial results for the third quarter ended September 30, 2015.
This conference call is broadcast live on the Internet and is also translated in French and English. For copies of our earnings release and supporting documents or to retrieve the webcast archive of this call, which will be available later today, please visit our website at bombardier.com. Slide for this presentation in English and French are also available. All dollar values expressed in 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. I am making this cautionary statement on behalf of each speaker whose remark today will contain forward-looking statements.
I will now turn over the discussion to our President and Chief Executive Officer, Alain Bellemare.
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Alain Bellemare, Bombardier Inc. - CEO [3]
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Thank you Yan and good morning everyone and thank you for joining us today. We are pleased to be with you to discuss the actions that we have taken so far to strengthen our management team, to assess and de-risk our key development programs and to solidify our liquidity position. In fact, the announcement this morning of a $1 billion investment from the Quebec government in the C Series is a key milestone towards ensuring program success and strengthening liquidity.
With this, our liquidity position is solid and it will be further strengthened in the coming months as we continue to execute on our plan. I feel confident about our liquidity going into 2016. Before going any further, I would like to introduce our new CFO John Di Bert, John joiner Bombardier on August 10 and he became rapidly involved in shaping our renewed financial strategy. He is an accomplished executive, recognized for his discipline and business acumen in finance.
I have had the opportunity to work with him in the past on many successful projects and I'm very excited to welcome John to our team. With his arrival and the appointment of airline industry veteran Nico Buchholz, as Chief Procurement Officer, our management team is strong and fully engaged. After just a few months, our leaders are in control of their organization and are making necessary changes.
Together, we have conducted in-depth reviews of all main development programs we deep dive into every aspect from supply chain to operations, financials and we now have a much clearer picture of the situation. As a result, we're taking actions to strengthen Bombardier for the long run. Earlier today, we announced our decision to cancel the Lear 85 program, due to lack of sales from a prolonged market weakness. This results in a $1.2 billion charge in the third quarter. Although this is a difficult decision, given the years of effort and hard work put into the program it is the right decision given the market dynamics, what we're seeing.
Bombardier remains the largest business jet manufacturer in the industry with a 33% share of delivery and a portfolio of products ranging from the light to large categories. In Q3, Bombardier Business Aircraft recorded one of its best quarters in years with 41 gross orders. Overall, we are confident in our ability to maintain market leadership and provide strong value to customers with our best-in-class aircraft.
Moving forward, the team will continue to look at opportunities to further bring the value from our great products to customers and to improve margin. At Commercial Aircraft, following a comprehensive review of the C Series program, a $3.2 billion charge was recorded in the third quarter, largely driven by scheduled delays and related costs. Let me be clear, we are committed to the success of the C Series. The C Series aircraft is the benchmark in the 100 to 150 seat class segment and it is exceeding performance targets.
Certification is over 90% complete. Some production aircrafts are already moving down the assembly line and our teams are working closely with Swiss International Air Lines to ensure a flawless entry into service. In parallel, our new sales team is fully engaged and we are gaining traction with potential customers. The value proposition of the C series will bring significant benefits to airlines.
As I mentioned, we're also excited to announce that the Government of Quebec will invest $1 billion in the C series program. This partnership is excellent news. We now feel more confident than ever in our capacity to bring this program to fruition. The market is there; our leadership team is in place; we have the best products and with the support of our partner, we are well positioned for commercial success.
Turning to Bombardier Transportation; we are a global market leader with a local production presence in over 20 countries and at $30 billion backlog. We have the broadest portfolio of products and services and the largest engineering organization in the industry. Consistent with our strategy, we are pursuing the placement of a minority stake in Bombardier Transportation. The strength of our investment case and the excellent outlook for our business were both acknowledged in our conversations with potential investors and we expect to make an announcement soon.
As you can see, our leadership team is taking a pro-active approach to de-risk Bombardier. Since the launch of our transformation plan in the second quarter, we have completed a bottom-up assessment of the changes needed to achieve positive levels of cash generation and margin expansion. Our teams has identified key initiatives to deliver significant cash savings over the next five years. These initiatives are either in the validation or in the execution phase.
Our focus is currently on reducing inventory and product cost which represent important drivers of our future competitiveness. When we get together in New York on November 24, we will provide more color on our strategic plan, our transformation plan and progress on major initiatives.
I will now turn it over to John to present our results.
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John Di Bert, Bombardier Inc. - CFO [4]
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Good morning, everyone. Thank you, Alain. As CFO, one of my priorities will be the development and provide financial transparency for our stakeholders so that each of you have a better understanding of our operational and financial performance, including the challenges and the opportunities we encounter, our guidance and key performance indicators. Together, as we move forward, transparency will be consistent and aligned to a collective dialogue. This quarter's conversation has been consumed with our liquidity position and cash performance.
To be brief, our third quarter ending liquidity was $3.7 billion and we are projecting year-end liquidity to be approximately $4 billion. This liquidity position does not include the $1 billion cash investment from our announced partnership with the Government of Quebec bringing us to a pro forma cash total of approximately $5 billion. In addition, our CapEx and free cash flow use year-to-date is $1.3 billion and $2.4 billion respectively. I'll have more to add to this discussion in the coming slides.
With that, let's get right into our other consolidated third quarter financial results. On chart five, firstly, we generated $4.1 billion of revenue. This is lower than the same period in 2014. This decline was primarily attributed to few areas of our business. First, unfavorable currency translation within the transportation segment and secondly, lower deliveries of commercial aircraft, where we had 14 deliveries as compared to 26 in the third quarter of 2014. Performance within our other segments yielded results that are in line with our expectation.
Order intake for the quarter was strong. Year-over-year transportation bookings doubled, relative to third quarter 2014. We reported a book to bill of 1.1. With gross order intake of 41 jets, Business Aircraft reported one of the best quarters in terms of sales to traditional customers in many years. Business Aircraft also delivered 43 units compared to 45 in the same quarter last year. Year-to-date deliveries, including commercial aircraft totaled 191 aircraft and we are on course to deliver on our guidance of approximately 290 aircraft this year.
At $61.8 billion, our backlog continues to be strong and will continue to fuel long-term revenue growth. Operating profit for the quarter was approximately $175 million prior to higher inventory write-downs including; a higher write-down in pre-owned business aircraft, a one-time adjustment of used spare inventory on our Commercial Aircraft and higher losses related to early production units at C series. After these valuation adjustments, our EBIT before special items was $75 million. Reported [EBITDA] margin of 1.8% was compressed by 240 basis points as a result of the above adjustments.
Compared to last year, EBIT was also impacted by lower margins and rolling stock in large Business Aircraft. Notwithstanding third quarter results, we are in line to meet our full year guidance. Net financing expenses increased by $66 million as a result of higher interest following the issuance of long-term debt earlier this year. Also a fair value loss on aircraft loans and receivable is reflected in financing expenses. This loss has been reported as a special item. I'll be looking at opportunities to monetize these non-core assets as we go forward. At $136 million, income tax was $90 million higher than last year. This is due to non-cash write downs of deferred tax assets mainly related to reorganization of the Bombardier Transportation in preparation for our minority placement. This was also reported as a special item.
As Alain mentioned, we're taking actions. Following the recent completion of detailed reviews of our programs and operations, we have reported non-recurring charges, mainly non-cash in areas outlined on chart six. First, subsequent to an in-depth review of the C Series program, we recorded a special charge of $3.2 million which is mainly attributed to the capitalized program development cost. Following this assessment, we're confident that the program will yield strong returns on cash flows and we're now focused on its commercial success.
Second, following our decision on Learjet 85, we are writing down the remaining program assets, and finally, we're adjusting the level of provision on credits and residual value guarantees to reflect current market condition. I look forward to addressing your questions in any of these accounting actions but to be brief, we are aligned with our action oriented approach to establish a strong foundation which will transform the business and focus on the following areas; first, disciplined aircraft development; second, growth from new product deliveries; third, margin expansion; and of course, cash generation. In short, we're focused on delivering enterprise-wide value.
Slide seven briefly outlines relationship which was announced this morning. We have a great product and we are excited to put it into service. The Government of Quebec partnership on the C Series program will strengthen our liquidity position with a $1 billion cash infusion in the second quarter of 2015. Combined with excellent aircraft performance, a developing sales pipeline, upcoming certification and subsequent entry into service with Swiss International Air Lines, this investment provides further momentum to the C Series program. We are very proud and we're very excited about the partnership. Together we will launch the C Series program for commercial success.
Now, there has been a lot of discussion regarding our cash performance, but I'd like to clarify the facts and look ahead on both our cash spend and our liquidity. On chart eight, we've outlined our year-to-date liquidity position, which closed at $3.7 billion as of September 30. In the third quarter, our free cash flow performance was a usage of $816 million and it included PP& E and CapEx at [final rate] of $500 million.
Let me be clear, the outflow of cash is largely on target for all of our business. Our cash management, including CapEx, I am confident to say is disciplined, well aligned to our program objectives and remains in line with our planning assumptions for 2015. This said, the decision to decrease the Global 5000 and 6000 production rate is resetting the level of advances at Business Aircraft, resulting in lower cash flow from operating activities for this year. The cash impact of the reset represents about $1 billion in 2015 and it will not be recurring next year.
It's safe to say that while impacting cash this year, adjusting the supply and demand was the right decision and it protects the brand value for the long term. While free cash flow will remain negative through 2016 and 2017, even with the C series ramp up and the continued development of the Global 7000 and 8000, I do expect free cash flow to improve significantly next year. Over the next few years, we will also see meaningful contribution from our transformation plan and from the lower Canadian dollar on our cash flow from operation.
Moving to chart nine, coupled with the transformation effort led by Jim Vounassis, we are focused on disciplined cash management. We will take the right actions to improve our level of cash flow consistency and capital efficiency across all segments. Our third quarter 2015 liquidity of $3.7 billion will be the low point for the foreseeable future as I expect positive free cash flow in the fourth quarter and I'm also expecting free cash flow usage of $1.9 billion to $2.2 billion for 2015. Our resulting liquidity position will be around $4 billion at the end of the current year.
In addition, in the first half of 2016, the investment of $1 billion from the Government of Quebec in the C series program as well as the cash infusion from our minority placement in Bombardier Transportation will provide further liquidity strength. With these planned initiatives, I am confident that we have the right level of liquidity to execute our strategy and long-term plan.
As I move to chart 10, I want to reaffirm our full-year guidance. All of our previously guided indicators for 2015 remain unchanged. Year-to-date margin, revenue, and earnings align with full-year guidance incorporating our fourth quarter forecast.
Turning to chart 11, I want to leave you with my perspectives on our transformation effort. Our financial transformation efforts are aligned with three key areas of business; excellence in operational performance, disciplined cash management and grow, and earnings and margin expansion. I'm encouraged by the progress we're making for identifying opportunities, developing action plans and validating corresponding financial benefits. Action oriented reviews have begun in each segment in order to create a result-driven roadmap.
Among the areas of review are inventory efficiency through improvement in manufacturing lead times and supplier management; working capital productivity including accounts payable, receivable and advanced manufacturing overhead reduction through the optimization of our fiscal footprint; and product cost reduction by enhancing supply chain efficient. There will also be intercompany efficiencies of scale that we plan to leverage, including the identification of synergies between Aerospace and Transportation businesses in areas such as indirect services and non-product spending.
Let me give you an example of an early win. Recently, after a review of our IT services agreement, we were able to consolidate activities and through a re-tender process we have secured immediate and significant savings, lowering our IT cost starting at 2016. We'll have a more comprehensive discussion around all of our transformation next month. We are taking the right steps to stabilize the business and strengthen our liquidity. I am thrilled to be joining this team of experienced executives. We have great products and the talent to execute on our plans. I have every confidence in our future.
With that Moda, we'll turn over to our first question.
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Questions and Answers
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Operator [1]
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(Operator Instructions) Kevin Chiang, CIBC.
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Kevin Chiang, CIBC - Analyst [2]
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Thanks for taking my question. Maybe just on the C Series write-down, the $3.2 billion, if I recall, that's almost equal to the original CapEx budget for the program and I'm just wondering, does that maybe implicitly suggests that the outlook for the program continues to remain challenged and maybe your decision to move forward is more of a function of the existing some costs on the program and the government investment versus maybe an improving outlook,
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John Di Bert, Bombardier Inc. - CFO [3]
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Kevin, I'll take that question, this is John. Thank for asking it. So the team here has been really doing a deep dive on all of our programs and I think what we take away from the C Series is we have a great product, great program. There is lots of momentum building up and we've done a thorough review. I've gone through all of the financials on the program itself. What we're really focused here on is the power of the future cash flows and the returns that we see against those cash flows.
After our review of the program, we see really strong returns on future cash flows and we've basically sized the book value to that amount. Obviously in conjunction with the investment with Quebec, we believe now we have the right valuation as well as the ability to generate strong returns on those investments going forward.
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Kevin Chiang, CIBC - Analyst [4]
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Thanks for the color there. And maybe just quickly, have you spoken with your customers or existing C series customers and potential customers on the write down and I guess the government investment and any feedback or concerns from them?
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Alain Bellemare, Bombardier Inc. - CEO [5]
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We have basically mentioned to our customers that we're working to strengthen our liquidity position at Bombardier was not going anywhere, that we would be there for the long run for them. They have not heard the specific, because I mean we're just disclosing it this morning. But we've been staying very close to them all along. So obviously, today will be an opportunity to get back to them and share like more detail with every single one of our customers.
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Kevin Chiang, CIBC - Analyst [6]
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Thank you, that's it from me.
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Operator [7]
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Cameron Doerksen, National Bank Financial.
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Cameron Doerksen, National Bank Financial - Analyst [8]
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My question is just on free cash flow, you did mention that you expect it to be still a use of the free cash flow in 2016, 2017. I'm just wondering if we look at 2016, if you can maybe discuss the puts and takes there and try to get a handle on what the magnitude of the burn will be in 2016. I guess you've got less spend on the C Series development, you've got this reduction in cash flow from or increase in cash flow that won't recur from the Global production rate change and you've also got, on the negative side, the ramp up in the C series and the learning curve impact. So maybe could you just provide a little bit of color on the puts and takes in 2016 on free cash flow?
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John Di Bert, Bombardier Inc. - CFO [9]
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Well, Cameron, I think, thanks for the question, you did a pretty good job of isolating some of the key items there. I mentioned that we'd be $1.9 billion to $2.2 billion this year. So I think what you take away from that is that you've got that reset in the program. I quantify that at $1 billion and maybe $1.2 billion. So all in, we expect that Global and C series, I'll say cash utilization for those programs will be consistent year-over-year and we expect the businesses to continue to perform on underlying operating cash flows. So you can do a little bit of math for yourself there, but I say that you got a good sense for what 2016 looks like by just those three elements.
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Cameron Doerksen, National Bank Financial - Analyst [10]
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Are you going to be providing, at some point, some indication as to how many C series aircraft you're expecting to actually build in 2016?
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Alain Bellemare, Bombardier Inc. - CEO [11]
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We have worked on the ramp-up of the C Series. Next year, it's going to be probably in the range of about 20-ish, 15 to 20. We're finalizing the schedule right now based on customer commitments and thereafter, we will have, like a gradual ramp up to a full production rate.
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Cameron Doerksen, National Bank Financial - Analyst [12]
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Okay, thanks very much.
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Operator [13]
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Ron Epstein, Bank of America Merrill Lynch.
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Ron Epstein, Bank of America Merrill Lynch - Analyst [14]
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Hey, good morning. Thank you for taking my question. So, Alain, can we maybe step back to take a, like a big, big picture question for you. So you've had some time to review everything. So here we are, we looked at this quarter where the Company is basically reporting a loss that's almost two times the market cap. My first part of the question is, how did we get here? I mean like, how did it possibly get so bad? One, and then two, how can investors be confident that this won't happen again when the corporate governance really hasn't changed. You still have the same board. So how do we think about that?
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Alain Bellemare, Bombardier Inc. - CEO [15]
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Good morning, Ron, and thanks for the question. I think it's a great opportunity for me to so clarifying what I've seen so far, where we are and where we're heading. I would say that the quarter and the year was not as bad as people think. The biggest delta that we've seen in 2015 is really the rate adjustment on the Global where we were producing -- we were in line to produce about 80 or so Global 5000/6000 and we have reset that down to 50 aircraft.
So I mean, we are basically cash outflow driven by the [whip] coming into the system and at the same time, the advances from customers who are not coming in. So there has been a $1.2 billion impact in 2015. If it wasn't for that, our cash position, without any initiatives, strategic initiatives that we have done, would still have been very good, very strong. We took a lot of significant write off this year. If I go back in time, I would say it's pretty consistent with what I've seen in the early days.
This is an organization that took a lot, I mean we had like multiple programs running in parallel and that was very challenging for an organization of our size. So we had the Lear 85; we were improving our existing Challenger, the 300 and the 605; we had the C Series 100, 300; we had like the Global 7000, 8000. So the organization was overwhelmed by the number of programs. I mean, this is much different today and the three -- the upgrade of our Challenger 300 and 605 have been completed. We have cancelled the Lear 85, we have redeployed resources to focus on the C series and the Global 7000 moving forward.
C Series is getting close to certification. So now, we are going to be moving from the development cycle on to the production ramp-up phase. So the organization and the business has been significantly de-risked. And to your comments about governance, I would say I've been with the organization now for eight months. I've been getting all the support needed to take the right decision to ensure long-term success of the Company without any pushback. So we have very supportive board and the people want long-term success of the organization and we are committed to bring value to our customers
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Ron Epstein, Bank of America Merrill Lynch - Analyst [16]
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But I still don't -- addressing the second part of the question you are having the same board that let this all happen in the first place and you had to come in and kind of clean it up. How can, both equity and debt investors feel comfortable that the board is going to make right decisions.
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Alain Bellemare, Bombardier Inc. - CEO [17]
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I think the proof is right here today. As you look at what we were announcing today, I mean we are stopping programs, we are taking write off, we are raising more money, we are establishing a strategic partnership with the Quebec government that will add $1 billion straight into the C Series program where it's needed to make it a very successful commercial platform. We are moving forward with a minority placement into BT. All these actions have been and continue to be supported by the board. So there has been significant discussion, tremendous support and as I've said I said Ron, you've got people here that have only one thing in mind, it's like long-term success of the organization.
So honestly, I cannot change the past. But one thing that I can tell you is we are fully supported. There has been management changes done by the board, done by the family. I mean we are in place and we are fully supported by all of them and I feel that we have the leeway to drive the business and take the right and the best decision for long-term success of the organization. So, I feel good about where we are and where we're going.
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Operator [18]
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Benoit Poirier, Desjardins Capital Markets.
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Benoit Poirier, Desjardins Capital Markets - Analyst [19]
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Just on the C Series, could you mention a little bit the impact on the write off on the profitability breakeven point. I'm just wondering whether it could significantly boost the margins going forward and when I see the outlook for [2015], it seems unchanged despite the big write-down that has been taken. Thanks.
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John Di Bert, Bombardier Inc. - CFO [20]
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Thanks, Benoit. So I would say that the C Series program ramp-up will happen over the next three to four years and then I'd that as we get into the back-end here of our five year plan, we see as most large aircraft programs, we see a profitability in cash flow generation, positive generation, I'd say probably around 2020 to 2021 for the program. And yes, the adjustment obviously will help our earnings per share relative to the margin on the program on a go-forward basis. And as I mentioned before, what I'm really focused on is also the strength of the returns on those future cash flows. We see that as significantly better than our hurdle rates and the double-digit IRR on the program from here on in.
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Operator [21]
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Tim James, TD Securities.
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Tim James, TD Securities - Analyst [22]
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Just want to turn to the business jet market for a moment. So I'm wondering if you could provide some color on the outlook for the market in particular 2016, just by segment -- by the three segments. Thank you.
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Alain Bellemare, Bombardier Inc. - CEO [23]
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So when you at it segment by segment, light is so good for next year, in line pretty much with what we're seeing this year. Same thing on the Challenger and our Challenges 350 and our new 650 very solid and on the Global I think that the rate adjustment that we've done is that the right place. So I think that we have adjusted our supply and demand moving forward. So all in all, I think that we're pretty much balanced. I mean, there was a reset this year and as we firm up our plan for 2016 we will do the necessary tweaking, well that's what we're talking about now.
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Tim James, TD Securities - Analyst [24]
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So, are you seeing any sequential change in demand in either the light end of the market or mid end of the market?
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Alain Bellemare, Bombardier Inc. - CEO [25]
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No, I think that on both the light segment and the medium-size, I mean, it has been pretty consistent. Like I said, I mean we have best-in-class products when it comes to the mid-size with the Challenger 350 during extremely well and it has been doing well, continue to do well and we have a solid backlog moving forward. So, we feel good about these. And like I said, same about our -- the large segment, with the Global 5000 and 6000 feedback from customers is very, very positive. We are a best in class product. We bring tremendous value to customers in the marketplace.
So there is a strong demand for them. We needed to adjust the supply in line with the market demand. We've done it as a little bit difficult, as you've seen from a cash flow standpoint in 2015, but I'm glad we've done it and that will be behind us in 2016 and we'll be at the right place moving forward to preserve the value of our great franchise.
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Operator [26]
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Seth Seifman, JPMorgan.
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Seth Seifman, JPMorgan - Analyst [27]
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Thanks very much and good morning. I wonder if you could talk about, in business jet, how much is the write-down of pre-owned jet detracted from EBIT in the quarter and then maybe a little bit about the inventory write-downs on the C Series, not the write down on the program, but the production related write-downs.
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John Di Bert, Bombardier Inc. - CFO [28]
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Thanks for the question. Yes, that did impact our operating profit and none of these were obviously special items. There was about $100 million that would have affected our year-over-year performance on earnings and I say that -- the business jet piece of it was probably half of that, maybe $40 million of it. And then you talk something in a similar range for the parts write down we took on some CRJ used material we had on hand.
Year-over-year the C series program has the remainder, the $20 million or $30 million. And that really is not -- it's a valuation write down relative to the fact that we have early units that will have cost in excess of price and so as we receive inventory, we take the adjustments on valuations to reflect the eventual delivery at a lower price until we ramp up the curve in future years and then hit target cost.
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Seth Seifman, JPMorgan - Analyst [29]
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And then, Alain, could you talk a little bit, in the time that you've been at Bombardier, has your view of where the C Series belongs in the market and sort of what the most promising customer sets are either the type of airline or geographically or anything like that. Has that been refined at all in your time with Bombardier?
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Alain Bellemare, Bombardier Inc. - CEO [30]
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Yes, absolutely. I think that I saw a significant opportunity for the C series in the 100 to 150 seat class segment and I think this is being confirmed right now in our discussion with potential customers. There is tremendous interest for an aircraft that is actually performing because we are the only new aircraft in that class and the customers are seeing a significant need for an aircraft that would bring lower trip cost for equal seat mile cost between a 100 to 150 seat class. So very good discussion, like I said, I think that we had a few issues before.
I mean, first of all, the [important thing] that we could certify the aircraft. I mean the management team and the sales force was a little big challenged. If you look at what we have done so far, we have an aircraft that will be certified soon with better than expected performance in term of fuel burn, in term of range, in term of payload and very low noise footprint, so great product. The other thing is we have strengthened the management team and we have put in charge people with Fred Cromer and Colin Bole that are very capable, very knowledged about the airline industry to supplement the great people that we have in Commercial Aircraft.
So we have the right product, we have right team and we are regaining confidence with our customers at both existing and also future potential customers. So I feel good about the work that we've done. We knew that there was going to be significant challenge in stepping our game up. We've done it, we continue to do it. There is more to come, but I feel that we are at the right place today and we will get more traction moving forward.
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Operator [31]
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Fadi Chamoun, BMO Capital Markets.
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Fadi Chamoun, BMO Capital Markets - Analyst [32]
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On the C Series, the write-down today of development cost, I guess, is non-cash. I was wondering if you have been able to identify a path to reducing cash cost for the C series in order to improve its competitiveness? And secondly, how should we think about this deal today with the Quebec government in terms of impact on the prospect for orders going forward.
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Alain Bellemare, Bombardier Inc. - CEO [33]
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Let me take it, its Alain. Good morning and thanks for the question. I think that having a partner that inject liquidity, $1 billion which is a significant amount to propel the aircraft to full commercial success is a big deal and will be well received by our customers. It gives confidence, it's all about giving confidence that the C Series will be there and that Bombardier will be there to support these programs that are going to be in service for many, many years.
When it comes to the write-off, as you said, that was a non-cash write-off and moving forward, what the team is focused on is operational performance. So we're working at how do we optimize our assembly process? How do we reduce our manufacturing cost? How do we reduce our supply chain cost? And that is the reason why we have continued to strengthen the team. That is the reason why we had appointed Nico Buchholz, who has got deep experience in aerospace as our Chief Procurement Officer.
Nico is going to be working with the Business Aircraft people, with the Commercial Aircraft people, strong focus on our existing as well as our new products including the C series. So moving forward now, it's all about operational performance. This is something that we've done before. We know how to do and this is what we're going to be doing because we have the right team now to execute.
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Fadi Chamoun, BMO Capital Markets - Analyst [34]
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Okay, and just one technical thing, the $1 billion from the Quebec government, is this for the exclusive use of the JV?
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Alain Bellemare, Bombardier Inc. - CEO [35]
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Yes, it's strictly into the joint venture of the C series, yes.
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Operator [36]
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Turan Quettawala, Scotia Bank.
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Turan Quettawala, Scotia Bank - Analyst [37]
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Yes, good morning. I guess my first question on the C Series I guess the inventory write-down or the dilution. John, I think you talked about 2020, 2021 as being the potential for profitability. In the past, you've talked about a $500 million write-down on the program, I assume that's going to be much bigger. Can you give us some color on that please?
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John Di Bert, Bombardier Inc. - CFO [38]
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Turan, I'm not sure I understand the $500 million comment. In terms, I'll just maybe take the first one first and then if you want to sort of reposition the question. With respect to the actual profitability on a per unit basis, that will happen before five years. As you roll up all the program costs including any support and [period] cost so on and so forth, I expect that to be cash positive as we get to 2020 and 2021. So that would be, I guess, the commentary around C series. I'm not sure I've got the other -- the other part of that question.
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Turan Quettawala, Scotia Bank - Analyst [39]
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I guess in the past, the Company had talked about that loss from the C Series sort of being about $500 million as the ramp-up period continued and I'm wondering if that number has changed.
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John Di Bert, Bombardier Inc. - CFO [40]
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Okay. I guess not to be misunderstood, when you mean loss, do you mean use of working capital?
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Turan Quettawala, Scotia Bank - Analyst [41]
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No, I mean the income statement, the gross margin loss, have you -- because the production cost is more than the pricing of the aircraft?
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John Di Bert, Bombardier Inc. - CFO [42]
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Yes, I don't have a number for you today Turan but -- I mean it's in that kind of assessment of the return to profitability in terms of unit cost probably by three years or so from production and then positive cash by 2020. So in terms of the P&L impact itself, I haven't isolated that number. I can get back to you.
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Alain Bellemare, Bombardier Inc. - CEO [43]
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Just to reinforce what John said. I think that what we're seeing is, we're driving for a positive break even cash flow plan on the program like 2020 in that range, which is very typical of any new large Commercial Aircraft development. It takes about five years to come down the learning curve and so that's the challenge that is in front of us. It's a normal challenge for a new program and I think that if that is your question all of this has been built into our five year plan. And it's part of our cash flow forecast moving forward.
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Turan Quettawala, Scotia Bank - Analyst [44]
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Thank you. That's helpful. And if I may, just quickly on the aerospace side you obviously done a few things here in terms of making changes with the C series and the Lear 85 program. I know this is part of a sort of bigger strategic review for the Company, is it fair to assume this is sort of the last move or all the moves that you've been thinking about on the aerospace side or could there be more to come here in the future?
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Alain Bellemare, Bombardier Inc. - CEO [45]
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I think that what we've done so far is that we have addressed some of the most significant challenges that we had in front of us. I think that we are at a good place and we will continue to look at how we further optimize the business. As you know Turan, it's never finished. I mean, when you're done with something then you move to the next phase of continues improvement. So we feel good about it. The actions that we have taken so far, we believe that we are in a good place now. Like I said, we have a much better understanding of the challenges as well as the opportunities in front of us. I think that now the difficult decisions have been made. Now we want to turn our focus towards optimizing the performance of the business and we will continue to take the right decisions moving forward.
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Turan Quettawala, Scotia Bank - Analyst [46]
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Fair enough I guess, but my question was more in terms of strategically, are these the programs you are going to keep? Are there more you could sell? Is there still more that you could do on that side or you thinking about doing on that side?
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Alain Bellemare, Bombardier Inc. - CEO [47]
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Yes, I think that you will understand that I've been very clear and very consistent. We are looking at strategic opportunity both on the train side as well as on the aerospace side. I will not speculate on these initiatives or opportunities moving forward. We want to be crisp, clear and transparent with you and that's what we're doing today. We're making no decisions as it relates to our programs, which basically are fundamental building blocks for us to get the business to a great place moving forward, So when it comes to other things, we will see where it goes and we will keep you updated as we make progress on those.
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Operator [48]
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Walter Spracklin, RBC.
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Walter Spracklin, RBC - Analyst [49]
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Yes, thank you very much. Good morning, everyone my question is on the Quebec government $1 billion investment. They now have just under a 50% stake. Does that mean they will be equally responsible for future capital injections to fund the completion and the ramp up of C series going forward?
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John Di Bert, Bombardier Inc. - CFO [50]
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Hi Walter, this is John. So in terms of the actual partnership we structured with them, they have a 49.5% equity stake. That $1 billion goes into the partnership will be used by the partnership to bring the C series to full production and obviously a commercial success. With respect to any future cash funds that will be required in excess of $1 billion, those would be coming from Bombardier and we'd likely be diluting the equity share of the Quebec government. That doesn't mean that there can be other further conversation, but ultimately that's our plan right now, continue to support with our own equity issuance as well over time.
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Walter Spracklin, RBC - Analyst [51]
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Okay that makes sense.
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John Di Bert, Bombardier Inc. - CFO [52]
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Well one thing, also maybe just to add in terms of the participation and maybe it also ties into Turan's question prior is that an equity partner, they will participate in the P&L and therefore there is some positive dilution to Bombardier at the time.
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Walter Spracklin, RBC - Analyst [53]
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Okay, next question is can you give us some explanation as to the media reports that came out over the last few months? Certainly, what I'm hearing from you today is consistent with what you've said in the past with regards to your comfort in the C Series, your view of the prospects of it and its place in the market. I was just very surprised, for example, to hear and your confirmation that you entered in talks for a controlling stake sale of the C Series to Airbus. I mean, can you explain that kind of strategy to us given what you're coming out with here today and how reaching out to Airbus would have fit that view?
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Alain Bellemare, Bombardier Inc. - CEO [54]
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Well, you understand Walter that we're not going to speculate again on rumors or potential strategic discussion. The thing that I want you to know is that we have a responsibility, as leader of this organization to look at all opportunities that could make sense and create value for our shareholders. And this is our role, this is what we do. I feel that we're making the right decisions today. We are very excited to get the government of Quebec in. That is going to help us unleash the full value of the C Series moving forward.
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Walter Spracklin, RBC - Analyst [55]
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So if I could just do a quick follow-up then. If the Lear 85, this is a brand-new plane, it's near completion and right on the verge of test flight and now it's going to scrap. Wouldn't you consider, given that Lear tends to be or looks like a little bit more separate from Bombardier. Wouldn't that be the one the most ripe for or sale of that division as opposed to scrapping what looks to be a near completion aircraft, just curious as to the decision making there.
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Alain Bellemare, Bombardier Inc. - CEO [56]
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I think there is two pieces Walter. The first piece is the market in that segment is very solid. And when we looked at the volume projection back then, when the program was launched and where we are today, it's a challenging segment. And then, the program, there was still money needed to be injected and as I said earlier, I mean the question from Ron was, how did we find ourself into that situation?
Well you find yourself in that situation when you have like too many initiatives or project ongoing in parallel. So when you look at where is it that you want to focus, what are the top priorities of the organization and then you look at the market challenge for the Lear 85 and that's the reason why we came to the conclusion that the market was not supporting further investments.
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Operator [57]
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Robert Spingarn, Credit Suisse
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Robert Spingarn, Credit Suisse - Analyst [58]
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So good morning, I wanted to come back to C Series and the cash burn and see if we can just get through this, clearly in one overarching answer. So you've talked about the fact that you don't get to cash flow positive on the overall program until 2020 or 2021. That's clearly going to take more than the $1 billion that's being injected into the JV. So here are a few questions.
Are you putting any cash in at this point and what is the total cash burn required at this point going forward on C Series to take care of certification and all cash loss production up until that point in 2020? In other words, what's the remaining cash burn on the program over this next five to six years? And what does the cadence look like annually? What does the curve look like? Thank you.
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John Di Bert, Bombardier Inc. - CFO [59]
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So Robert, thanks for the question. So, first to be clear we are not putting any cash into the JV today, but clearly as to your question, we will require additional cash beyond the $1 billion. We estimate roughly $2 billion to take the program to cash positive generation and that over the next four to five years as I mentioned. The bulk of that cash requirement will come in 2016 and then 2017, 2018 -- and 2019, but ultimately the completion of our development program happens in mid-year next year.
We will then convert to production ramp-up and using working capital or -- and some of that is negative margin, obviously. So I guess the answer is straight forward. It's about $2 billion over the next five years, 2016 being the big year of spend, 2017 continuing with some working capital ramp up and then tapering off in 2018 and 2019.
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Robert Spingarn, Credit Suisse - Analyst [60]
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Thank you John, that's helpful. Should we think about that cash then, that curve is basically getting divided in half annually over that four to five year period. And then what is the number of aircraft contemplated in the business case that you use to negotiate the Quebec deal? And how many aircraft will we be producing until we get to this breakeven point 2020, 2021?
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John Di Bert, Bombardier Inc. - CFO [61]
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I don't want to give, I guess, more color that that. I think it's getting a little specific in terms of some of the competitors and as of the information that we are giving you would ramp up and then the exact profile. I mean we can talk more about that when we look into 2016, you'll see little be more in our guidance as to specifically how we'll spend but the number will come down in the out years.
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Robert Spingarn, Credit Suisse - Analyst [62]
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Okay. Thanks, John.
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Operator [63]
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David Tyerman, Canaccord Genuity.
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David Tyerman, Canaccord Genuity - Analyst [64]
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Yes, good morning. I just wanted to reconfirm this cash burn. John, did you say the burn for the C Series this year is $1 billion to $1.2 billion and something similar next year and I think you also outlined the other major components that will affect next year, if you could just go over those again, please?
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John Di Bert, Bombardier Inc. - CFO [65]
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So basically, the cash burn, total burn will $2 billion, $1.9 billion to $2.2 billion this year. Again, as I said, the Business Aircraft performance, that that will be $1 billion to [$1.2 billion] non-recurring as we reset and adjust. From the C Series point of view, expectation call it just under $1 billion in 2015. We'll have similar amount of spend next year and then I guess -- that will be entirety of it.
I think you questioned beyond -- I mean I guess the only thing I would say beyond that is as I mentioned, $2 billion to kind of take you through program completion before we start to turn cash positive and I guess, maybe on the cash burn, just the whole liquidity conversation that's around that. I just want to reposition the fact here again that we'll finish the year somewhere about $2.5 billion. We have a $1 billion of liquidity coming from Quebec and we still have $1.3 billion of liquidity in our revolvers.
When you add that all together, you've got $5 billion of liquidity in the beginning of the year. We are still fully on track to announce by the end of this year that we'll have completed IPO private placements of BT and that will bring us, basically, over $6 billion of overall liquidity. So, I think between the fact that we have $6 billion of liquidity going forward and the fact that we have a very defined strategy for the C series in terms of the cash and the ramp up that we're in good shape to make this program successful and no liquidity concern whatsoever.
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David Tyerman, Canaccord Genuity - Analyst [66]
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Okay, that's helpful. Just to clarify on the BBA. So you have $1 billion to $1.2 billion this year. Where is it going, next year is obviously much lower, since that you don't have the problem with the Globals, but I think get a number or an ideas. Is it breakeven or can it actually be positive?
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John Di Bert, Bombardier Inc. - CFO [67]
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Yes, I mean the question is around total cash flow for Bombardier in 2016?
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David Tyerman, Canaccord Genuity - Analyst [68]
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From business jets.
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Alain Bellemare, Bombardier Inc. - CEO [69]
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Yes, as you said, I think that you don't have the same negative impact of the rate reset this year. So it's a little bit too early to say, because we're in the process of doing the plan for 2016, but it will be much better next year for Business Aircraft, David Coleal and the team are working on this as we speak. We're looking at all the ins and outs. But clearly, it will be a much better year for Business Aircraft when it comes to cash in 2016.
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David Tyerman, Canaccord Genuity - Analyst [70]
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Okay and just the other question was on RVGs, the provisioning went up quite a bit. I guess the question is, when does the cash go out -- you've got over $600 million now provisioned, when does the cash go out? And it sounds like the market is breaking down on this. You've got a lot more exposure, could this number become much, much larger over the next few years?
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John Di Bert, Bombardier Inc. - CFO [71]
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Yes. So, thanks David. So in terms of the assessments of our exposure on RVGs, I think we did a fairly good job here, real job of understanding where we are, understanding what the possible obligation liabilities could be. In terms of cash and when it will be used, this is a long-term liability, right. I mean this thing here is really over a -- probably a five to 10 year period that we'll be seeing the outflows.
And then I just want to also make another point here which is that Fred Cromer and his team have really identified this as an opportunity both as we see it as kind of a risk here on our financial but as an opportunity to go out and strategize and mitigate what those liabilities exposures could be and so we're very confident they're going to come back with some options on how to go out and manage the exposure and therefore limit the outflows over time.
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David Tyerman, Canaccord Genuity - Analyst [72]
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Okay, very good, thank you.
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Alain Bellemare, Bombardier Inc. - CEO [73]
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Okay, thanks, David. So in closing I really want to thank you, again, for joining the discussion today. To recap, after just a few months, we have the right team in place. I feel good about the talent that we have added to the organization. We have a much clearer picture of what needs to be done and we have taken action and we'll continue to take the right action to position Bombardier for long-term success.
We have solidified our liquidity position and I hope that we could bring some clarity today and it's giving us confidence to execute on our long-term strategic plan. So we look forward to seeing you at our Investor Day in New York on November 24. So again, I want to thank you for being on the call. Thank you for your questions and we look forward to seeing you soon.
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Operator [74]
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(Spoken in foreign language) The conference has now ended, please disconnect your lines at this time and we thank you for your participation.
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