Q4 2016 Bombardier Inc Earnings Call

BBD.B.TO - Bombardier Inc
Q4 2016 Bombardier Inc Earnings Call
Feb 16, 2017 / 01:00PM GMT 

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Corporate Participants
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   *  Patrick Ghoche
      Bombardier Inc. - VP, IR
   *  Alain Bellemare
      Bombardier Inc. - President & CEO
   *  John Di Bert
      Bombardier Inc. - SVP & CFO

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Conference Call Participants
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   *  Robert Springarn
      Credit Suisse - Analyst
   *  Turan Quettawala
      Scotiabank - Analyst
   *  Seth Seifman
      JPMorgan - Analyst
   *  Ron Epstein
      Bank of America - Analyst
   *  Cameron Doerksen
      National Bank - Analyst
   *  Walter Spracklin
      RBC - Analyst
   *  Konark Gupta
      Macquarie Capital - Analyst
   *  Cai von Rumohr
      Cowen & Company - Analyst
   *  Stephen Trent
      Citi - Analyst

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Presentation
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Operator   [1]
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 Good morning, ladies and gentlemen, and welcome to the Bombardier Fourth Quarter [2016] Earnings Conference Call. Please be advised that this call is being recorded.

 At this time, I'd like to turn the meeting over to Mr. Patrick Ghoche, Vice President, Investor Relations for Bombardier. Please go ahead, Mr. Ghoche.



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 Patrick Ghoche,  Bombardier Inc. - VP, IR   [2]
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 Thank you. Good morning, everyone, and thank you for joining us for this review of our fourth quarter's performance. This conference call is broadcast live on the Internet. For copies of our earnings release and supporting documents in both English and French or to retrieve the webcast archive of this call available later today, please visit our website at bombardier.com.

 All dollar values expressed during this call are in US dollars unless stated otherwise. I also wish to remind you that during the course of this call, we may make projections or other forward-looking statements regarding future events or the future financial performance of the Corporation.

 I bring your attention to page two of our presentation. Several assumptions were made 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. I'm making this cautionary statement on behalf of each speaker whose remarks today will contain forward-looking statements.

 In a few moments, Alain Bellemare, our President and Chief Executive Officer will address our performance and key achievements for this past year. John Di Bert, our Chief Financial Officer, will then review our financial results for the fourth quarter and year ended December 31, 2016.

 I would now like to turn over the discussion to Alain.



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 Alain Bellemare,  Bombardier Inc. - President & CEO   [3]
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 Well, thank you, Patrick, and good morning, everyone and thank you for joining us today. As you all saw in our press release this morning, we delivered another solid quarter, closing out a very strong year. We delivered on all of our financial commitments, we executed on our growth programs, we met all aircraft delivery targets, we secured $8.5 billion in new orders in our rail business for a full year book-to-bill of 1.1 times, and our turnaround plan is in full motion.

 As a result of this solid execution, we finished the year ahead of our plan, exceeding the high end of our EBIT guidance, improving our year-over-year cash flow performance by almost $800 million and with about 200 basis points of margin expansion at transportation, business aircraft and aerostructures.

 You will recall when we begin 2016, we told you that this would be a year of transition, as we needed to reset our business aircraft production rates, transition the C-Series from development to production and reshape our Rail business to drive efficiency, cut costs and increase competitiveness.

 With the transition year behind us, we are now fully focused on resuming growth and building earnings. This includes fully leveraging our $16 billion scale, continuing to tackle all aspect of costs to drive efficiency and productivity, and capturing our topline growth opportunities across the portfolio.

 Before asking John to go through our financial results in detail, I want to spend a few minutes highlighting our most significant accomplishments in 2016, as well as our expectations for 2017.

 In addition to delivering high quality financial results in 2016, we successfully completed the derisking phase of our five-year turnaround plan by closing the equity investments in the C-Series and BT, securing R&D support from the Canadian government and refinancing $1.4 billion of senior notes.

 We [began 2016] in a very good place, with greater liquidity and a lower cash consumption rate, placing us firmly on a path to cash flow breakeven next year.

 From a program execution perspective, 2016 was a remarkable year. At Commercial Aircraft, we completed the certification of both C Series models. We greatly improved the quality of our backlog with the Air Canada and Delta contracts, and we successfully placed both C Series models into service. The aircraft is exceeding our expectations with outstanding in-service performance and reliability. It has accumulated more than 4,300 flight hours and completed over 3,600 revenue flights.

 For 2017, we will increase our C Series deliveries to 30 to 35 aircraft, four, five times our deliveries in 2016, and we will do this at the same EBIT level as we come down the learning curve. As we ramp up deliveries, we will also remain focused on delighting our large customers, including Korean Air, which will become the first Asian C Series carrier later this year. With approximately 40 aircraft in service at the end of the year, the C Series will be firmly established as the best aircraft in the 100 to 150 seat class.

 Turning to Business Aircraft, which had a very solid year. Highlights include strong financial performance, market leading aircraft deliveries and the beginning of flight testing for an all-new game changing Global 7000. Today, the Global 7000 has completed almost 100 flight test hours. The aircraft is showing a high level of maturity, demonstrating that we have captured the lesson learned from the C Series program. We expect the second Global 7000 flight test vehicle to begin flying shortly. So we are right on track.

 For 2017, Business Aircraft will continue to be a margin growth story. Our focus on improving productivity, as well as our disciplined approach to aligning production rate with market demand will allow BBA to perform in any market environment. And our leaner cost structure positions us for stronger earnings growth when the market recovers.

 Another growth driver is our increased focus on capturing more aftermarket work from our large installed base of 4,600 aircraft. The same growth opportunity exists for our Transportation business and its 100,000 railcars in service around the world.

 At Transportation, the focus in 2016 was on transforming our Rail segment from a strong and stable business into a higher growth, higher margin rail solution provider and we achieved significant progress as BT began to reshape its business by creating engineering and manufacturing centers of excellence and by taking a much more disciplined approach to project management, cash management and cost containment, highlighting the early payback of these actions, our BT's strong cash flow, solid margin expansion and its success in the marketplace, securing more higher margin systems, signaling and service work.

 For 2017, BT will continue to focus on growing the topline, securing a more favorable mix, and accelerating our operational transformation to drive margin expansion on our $30 billion backlog and further improving our competitiveness.

 With all the progress we've made in 2016, we begin 2017 with increased confidence in our strategy, our turnaround plan and in our ability to achieve our 2018 and 2020 goals. Bottom-line, we have greatly improved our operational and financial performance and there's much more to come. Across the portfolio, we are taking the right actions to unleash the value of our past investments and restructuring actions, and you will start seeing this value in 2017, as we deliver on our guidance; the return to revenue growth, EBIT up 35% or $150 million at the midpoint of our guidance range, margin at or above 7.5% at each business unit, except commercial aircraft where you will see significant progress as we come down the learning curve, allowing us deliver consolidated cash flow improvement of $300 million.

 Okay, let me stop here and turn it over to John to review the Q4 and full-year financial results.



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 John Di Bert,  Bombardier Inc. - SVP & CFO   [4]
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 Thank you, Alain, and good morning, everyone. We had a strong finish to 2016. We've turned the business around and we are on track to resume growth and continued the acceleration in earnings and cash flows.

 Our financial performance in 2016 is the result of an action-oriented approach and proves we can perform in any market. We demonstrated strength on profitability and cash, beating guidance on both. We realized this on revenues of $16.3 billion for the full year, close to expectations. In almost all business units, margins grew by close to 200 basis points over 2015. EBIT before special items was $427 million, comfortably exceeding the latest guidance of $350 million to $400 million.

 Margins at BT, BBA and Aerostructures were all above expectations. Transportation's full-year margin performance of 7.4% is 180 basis points higher than 2015. Business Aircraft produced a 6.4% margin for the year, 200 basis point improvement, which is impressive as we align deliveries to a lower level. And Aerostructures is getting closer to its 9% to 11% margin objective, delivering 8% for 2016. Commercial Aircraft also performed better than planned, finishing the year with an EBIT loss before special items of $417 million, ahead of the $415 million guidance.

 Progress on transformation played a key role in achieving these results. And we have yet to reach full run rate on many of the underlying initiatives. To put things into perspective, in 2016, we launched actions totally in excess of $600 million in annual direct and indirect cost savings. Only a third of that amount is reflected in our 2016 margins, the balance contributing to 2017 and 2018 profitability gains.

 We have also been focused on free cash flow. This past year, we delivered on our promise to improve our cash performance. In the fourth quarter, the business generated almost $500 million in positive free cash flows. For the full year 2016, our cash performance was well ahead of guidance. Free cash flow usage was just above $1 billion, almost $250 million better than the midpoint of our latest guidance of $1.15 billion to $1.45 billion.

 We achieved $780 million improvement over 2015 mainly through working capital discipline and the natural ramp down of capital spend, particularly on C Series. Free cash flow performance and our predictability is notable, because in 2016 we successfully managed the C Series production ramp-up and its entry into service, funded future growth with significant investments, and our segment-defining Global 7000 and we are fueling future margin expansion through $165 million in restructuring spend.

 Given our performance and our execution in this transition year, I'm confident about our 2017 free cash flow target and remain committed to our 2018 free cash flow breakeven goal.

 Now turning to the balance sheet. We ended the year with $3.4 billion of cash and strong liquidity at $4.5 billion. With the bond refinancing completed in November, we cleared our operational plan of any major refinancing requirements until 2019. Liquidity is secured and fully supports the next phase of our turnaround plan. And with the CAD372 million support from the Federal Government announced last week, we further enhanced our financial flexibility as we execute our plan.

 Let's now turn to a review of the business units' financial performance. Starting with Transportation, as I said, the transformation is ongoing and its results already evident in this past year's performance. In 2016, revenues reached $7.6 billion, including a currency translation headwind of over $200 million. We are encouraged by the improvements in working capital efficiency and the management of certain recovery projects. This active project management resulted in revenue recognition delays, creating a slight shortfall to our guidance of $8 billion for the year. We expect the situation to normalize in 2017.

 Orders continued at a strong pace, finishing at $8.5 billion for the year, equivalent to a book to bill of 1.1 times. Major orders came from launch of significant new projects in the UK and France and most recently, from Austria, as well as growth in our systems, signaling and services businesses. The resulting $30 billion backlog supports BT's evolving portfolio mix and its return to growth in 2017.

 EBIT before special items was $560 million for 2016, increasing by approximately $100 million over 2015. This yielded a 7.4% margin, largely exceeding guidance of over 6.5%. BT experienced a strong second half of the year with margins of 7.9% and 9.3% in Q3 and in Q4, respectively.

 For the fourth quarter alone, EBIT for special items increased by $58 million over the previous year to $181 million and includes two one-time items; a greater contribution from joint ventures as we closed out certain projects and stronger volumes from our higher margin signaling business. Together, these items contributed an extra 200 basis points to the quarter's margins. The growth in margin also reflects the benefits from our restructuring efforts, which are recurring in nature. These initiatives are on plan with a net 2,000 headcount reduction for the year, driving continued improvement in profitability for 2017 and beyond.

 Business Aircraft also had a very strong finish with 54 deliveries in the fourth quarter, capturing some end of year opportunities. We consequently exceeded our goal for 2016 with a total of 163 deliveries. Globals were in line with expectations at 51 deliveries in 2016, while Challenger confirmed its status as the best productivity enhancing tool in the medium jet category with 88 deliveries, approximately three times any of its direct competitors. We also delivered 11 Learjets in the final quarter, totaling 24 deliveries for the year. With the Learjet inventory de-risked and approximately 10 units to be delivered in 2017, we are again positioned to perform in any market.

 We made significant progress on gross orders in 2016, booking 152 new business jet orders, versus 119 one year ago, positively showing more demand for our products. Our book-to-bill approached 0.9x on a gross basis and 0.7x net of cancellations. As we look to 2017, we start the year with an industry-leading backlog of $15.4 billion and better visibility on upcoming deliveries versus one year ago.

 Aligned with strong deliveries, revenues at BBA outperformed guidance. We recorded $5.7 billion in revenue for the year, exceeding the $5.5 billion plan. And while revenues were reset from 2015 levels, margins are showing a positive trend, reaching 6.4% in 2016.

 In the fourth quarter, EBIT before special items was $100 million, up $72 million over Q4 2015 and it reached $370 million for the full year versus $308 million in 2015. This shows early benefits from transformation and a disciplined management of our pre-owned aircraft business.

 Moving to Commercial Aircraft, 2016 was a pivotal year with the C Series family of aircraft beginning to generate revenue. BCA's performance was marked by production ramp-up and the introduction of two new aircraft. During the year, we delivered five CS100s to Swiss and two CS300s to airBaltic. These sales drove revenue growth of 9%, totaling $2.6 billion for the segment, in line with guidance. Making of the majority of those revenues are 46 CRJs and 33 Q400s delivered in the year, six more in aggregate than in 2015.

 On the order front, 2016 saw the commercial relaunch of the C Series. At year-end, our backlog included over 350 firm C Series orders and more than 550 when including options. On CRJ and Qs, as previously announced, we are managing the market cycle, targeting 50 deliveries for 2017. These deliveries are backed by a backlog that was recently reinforced by the CityJet order of up to 10 CRJ 900s.

 The entry into service of the C Series was executed very well. We have been able to ramp up production, absorb the engine delay and support the service fleet, while achieving our cash use target and exceeding our EBIT guidance with a negative margin of $417 million. This is over $130 million of better earnings performance versus our original expectations. Overall, we had a successful transition of the C Series from development into production.

 Development spend at BCA improved from $937 million to $365 million, almost $600 million better, improving overall cash flows. We've also managed the engine delivery delays, with total C Series cash flow consumption for 2016 remaining within our original $1 billion forecast. Cash usage for the C Series is improving significantly in 2017 to some $400 million.

 At Aerostructures and Engineering, revenues for the year totaled just over $1.5 billion, in line with guidance. Over $1.5 billion in line with guidance. Over 70% of those sales were driven by commercial and business aircraft production, varying with the production rates of those segments going into 2017.

 Aerostructures showed solid progress on profitability in 2016, reaching 8%, up 220 basis points over the previous year. Q4 performance was particularly strong at 9.4%, reflecting a lower mix of C Series components as we synchronize production for 2017.

 For the full year, margin growth was driven by transformation activities where the focus is on efficiency and production optimization, including a 2,000 headcount reduction. On a run rate basis, benefits from these adjustments are expected to carry margins up above 8.5% in 2017. This 50 basis point increase is net of normal margin dilution associated with the C Series ramp-up.

 Turning our attention to 2017, we are affirming our 2017 guidance announced last December, as our strong Q4 performance further validated our assumptions going into this year. As a reminder, we are resuming revenue growth for 2017 in the low-single digits, assuming stable exchange rates. We also guided EBIT before special items to increase by up to $200 million to between $530 million and $630 million. This is supported by stronger margins of 7.5% or greater at BT, BBA and Aerostructures, while BCA expects to reduce negative EBIT margin to $400 million.

 We also see free cash flow continuing to improve in 2017 by up to $300 million, targeting $750 million to $1 billion of cash usage. 2017 should be the last year of free cash flow usage in our five-year plan and reflects the continued investments in cost reduction and the Global 7000 development spend.

 While we don't provide guidance by quarter, I want to share with you some insight on the timing of certain financial drivers for 2017. On the C Series, we expect the 30 to 35 deliveries to be heavily skewed in the second half of the year, in part, as we ramp up production and introduce the C Series into Korean Air's fleet, but also as we complete the certification of the aircraft for London City operations by mid-year.

 From an earnings point of view, we started seeing sequential growth in Q4 2016 EBIT that we expect to gradually continue into the first quarter and the balance of 2017. This quarter-by-quarter growth is driven by the benefits of our transformation.

 We expect development spend on the London City certification, combined with the build of several flight test vehicles for the Global 7000 to emphasize free cash flow usage in the first two quarters, leading to Q1 free cash flow usage similar to Q1, 2016.

 As we close out 2016, we like how the business is progressing operationally and financially. This puts us on more solid ground for 2017 as we continue to navigate current markets. We now have a track record of delivering on our promises and we remain committed to taking proactive decisions to deliver value creation for the long-term.

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



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Questions and Answers
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Operator   [1]
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 (Operator Instructions) Turan Quettawala, Scotiabank.



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 Turan Quettawala,  Scotiabank - Analyst   [2]
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 I guess maybe I'll just ask one on the C Series here. Just wondering if you can provide us update on the program. I know you talked about the EIS being quite good with both Swiss and Baltic. Building on that success, Alain, are you confident that you can build that backlog more in 2017?



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 Alain Bellemare,  Bombardier Inc. - President & CEO   [3]
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 Absolutely. The aircraft is performing extremely well. The production ramp-up is progressing according to plan right now and we have a number of ongoing campaigns that the team is actively working on. This backlog is solid for the next few years, so it gives us time to do the right things and we're pretty focused on growing it moving forward. So I feel good. Again, it's the best aircraft in the 100 to 150-seat class and I think that is starting to be recognized by all airlines around the world.



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 Turan Quettawala,  Scotiabank - Analyst   [4]
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 And I guess just one more on BT quickly. On the margins, they're obviously coming in higher than expected here. Maybe John, you can put that in perspective versus your 2018 guidepost of 8% margin at BT. Is there room for you to move that guidance up, or are you expecting that some of this improved margin maybe will need to be reinvested back into pricing or something?



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 John Di Bert,  Bombardier Inc. - SVP & CFO   [5]
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 Well, I think for the short-term, first of all, we are very encouraging because of the cost structure and how they're performing. So, again, another solid quarter. In the quarter itself, I mentioned the fact that we do have some bumpiness on the positive, with some profitability from our JVs, so comes without sales and the earnings number as well as the margin. I don't see that as being kind of the static recurring and we have better mix in the quarter as well from the signaling side. So when you take all of that together, about 200 basis points, I'd say that it lies within the quarter. We'll take the goodness, but on the run rate, 7.5% looking good and that puts us into a good place for 2017 where we guided. As we go into the longer term and I've said this before, we're driving the business, so that it can over-perform the 8% and then make sure that we're very competitive as necessary in the marketplace, so that we can bid for the projects you want to win and still maintain the margin commitment.



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Operator   [6]
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 Robert Spingarn, Credit Suisse.



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 Robert Springarn,  Credit Suisse - Analyst   [7]
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 I wanted to switch to the 7000 and just understand better what the path forward is on the R&D. I think, you spent about $1.4 billion, 1.5 billion in R&D in 2016. So if you could separate C Series versus 7000 spending on that number to give us a sense of what the two programs should experience in R&D going forward and maybe know what some of the major remaining development milestones would be -- maybe what some of the hurdles are, specifically on 7000?



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 John Di Bert,  Bombardier Inc. - SVP & CFO   [8]
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 Yes, so on the spend side, we don't disclose the Global specifically and I won't do that today. I mean, we did talk a little bit about what we expected for 2017. So when you look at BBA overall, just over $700 million of CapEx, a lot of that is towards the Global 7000 program, obviously in 2016. We came in for full year on CapEx development spend across the all business around $1.2 billion. And you know that the C Series is now largely into investments on the production ramp-up. So when you look at C Series, if I recall, it's about $400 million or so of CapEx spend in 2016.

 Looking forward, I'd say that the big spends are obviously now focused on the 7000 and all of our engineering resources are completely focused there. We said that we would use about $1 billion of cash overall, roughly, when we did the Investor Day a month ago and that stays -- or a month and a half ago; and that stays true. It is a bit of mix of working capital in there, as well as development and that's because we're starting to ramp up 7000 production units near the middle and the end of this year, so we can get ready for 2018 as we get deliveries going the back end of the year. So --



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 Robert Springarn,  Credit Suisse - Analyst   [9]
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 But that $1 billion is -- John that $1 billion is pretty much 7000?



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 John Di Bert,  Bombardier Inc. - SVP & CFO   [10]
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 We said there is about $1 billion of 7000 investment in 2017. So that would be the amount there really. It's not all CapEx, as I said, a good portion of it is. In terms of just some of the activities, lots of the hardware being spent this year in 2017 for our flight test vehicles. So in all we are going to have several flights test vehicles development and in-service flying. We have the first one now that's close to 100 hours of flight time. It's often in the air, because it's performing very well. So we're very pleased actually with the program in terms of the flight test results we're getting, and we're getting ready to put our second aircraft in flight over the next several months. So the good news there is as it progresses well, we'll have more hardware spend, it's the heart of the program and we're very pleased with the progress.





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Operator   [11]
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 Seth Seifman, JPMorgan.



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 Seth Seifman,  JPMorgan - Analyst   [12]
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 Maybe if you could talk a little bit about the Global 7000 and how you're tracking to cost of the -- kind of towards the recurring cost of the aircraft. I know we're still in start of the early stages here, but there was an issue with the wing supplier and the court action bought by Triumph, and maybe if you could talk a little bit about how you're progressing towards the recurring cost of that aircraft?





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 John Di Bert,  Bombardier Inc. - SVP & CFO   [13]
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 Yes, so in terms of the -- just a couple of things, I'll break down the question, if I think got all of it. In terms of the actual cost of the aircraft, the recurring cost, we're tracking very well. We obviously follow that through our supply chain billed material, and all of the improvements we're making that we have also learned from the ramp-up of the C Series. But we are feeling pretty good about the cost. It's as per plan, the original business case. I won't give any more comments on that, but it's going to be a very nice program with good margins.

 In terms of Triumph, suffice to say that a lot of the conversation with Triumph is about the past, I'll say it that way. We are working very closely together to keep the program well paced and that's happening. They have a claim out there for what they believe are exceeding our extra cost of development. We have a different view. So we'll be obviously managing that with them directly. We won't make any more comments here, but relative to the whole program, we don't believe that to be a major move, or one way or the other, we'll work that through with them.



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Operator   [14]
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 Ron Epstein, Bank of America.



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 Ron Epstein,  Bank of America - Analyst   [15]
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 Maybe just a quick financing question for you guys. You have about $600 million due -- I think exactly $600 million bond due in April 2019 and then another $850 million due in 2020. So if FY17 you are still -- you're using cash, how should we think about liquidity, particularly in FY17, if you're going to ease in about $1 billion of cash. So how do we think about liquidity with those payments too?



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 John Di Bert,  Bombardier Inc. - SVP & CFO   [16]
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 Yes. So, we'll see if I get this question right. But in the sense you can always ask a follow-up. So just to be clear, we have $4.5 billion of liquidity now, $3.4 billion of that is cash on hand, the rest is in a revolver. We feel very good about our cash position and we've strengthened our balance sheet quite a bit. We refinanced the 2018 maturities, as you know, which means that we have clear path here to execute the turnaround plan. When you look at 2019, you are correct, it's $600 million and then $850 million due in 2020. Our expectations, breakeven in 2018 on cash, which means that you have some symmetry there with the fact that there are no maturities. If we consume up to $1 billion, which is the low end of our guidance for 2017, you can make an assumption of around something in the neighborhood of $2.5 billion of cash on hand, when we open up 2018, breakeven through there, we'll have some seasonality through the year and we'll manage that I'm sure very well. And then for 2019 and 2020, we have expectations to start generating positive cash flows. We also indicated in our Investor Day that we could see a range of $750 million to $1 billion of positive cash generation by 2020.

 And, so if you kind of just look at breakeven in 2018 and then $750 million to $1 billion in 2020, it actually has some nice symmetry with the maturities. I'm not suggesting we're going to retire that debt, but it just makes me feel very confident, while having access to markets and the ability to actually go out and refinance, or have the flexibility to make some deleveraging decisions if I want to. And what's important behind all of that that we also touched on in Investor Day is that 2018 is kind of an inflection year, because you have the 7000 going to service. So now you're out of the development stage there, which is the last major development program we have. You go into revenue generation. So that starts to become its own catalyst. So it's nice that 2018 has all the right attributes here to give us that breakeven, but also then to give us strength in 2019 when we have a different profile for the business.



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 Ron Epstein,  Bank of America - Analyst   [17]
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 And if I may, a follow-on, maybe a bigger picture question for Alain. When you think about the possibility of a border adjusted tax in the US, what's your contingency? I mean, can you move some more production to Wichita or how do you think about it with the majority of your production outside of the US, just how do you think about it?



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 Alain Bellemare,  Bombardier Inc. - President & CEO   [18]
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 Actually, we're just watching some policy changes on tax and then we will adjust accordingly. But, I mean, I think it's very important to understand that, I mean, we have a huge presence in the US. We source most of our system and equipment from the US, we have over 7,000 people in the US, so we are part of the fabric today in the US. We do final assembly here in Canada on the Aerospace side, but the reality is we import very huge amount of system from the US supply chain. So, again, I think that as I said before, the fact that this government is pro-growth, pro-business, wants to create jobs, wants to stimulate the economy, we see that as a positive for our business.





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Operator   [19]
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 Cameron Doerksen, National Bank.



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 Cameron Doerksen,  National Bank - Analyst   [20]
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 I just want to follow up on the C Series. In your Q4 commentary, you highlighted that the C Series execution and ramp-up was basically going better than what you originally expected. I wonder, if you can maybe delve into a little more detail on what specifically is going better than what you originally expected. And also maybe at the same time, provide us with a bit of an update on the -- I guess the engine supply for the C Series?



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 John Di Bert,  Bombardier Inc. - SVP & CFO   [21]
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 So, I mean when we started off 2016 we were entering into service two new aircraft, completing the [search] on the 300 as well. And so our expectations were that we would launch these, be very successful, performance will be strong. But you're launching an aircraft program, you need to keep that in mind that you may have some aftermarket support, service, any aircraft issue that you may have to deal with. And so, one, managing the ramp-up despite the engine issue very well. So we've been able to mitigate the delays there in terms of working capital. Two, the aircraft is performing very well in service, which means that any kind of contingent costs associated with that are lower and more managed. And we had another successful milestone with airBaltic, where they entered the 300 into service at the end of the year, which is another fall essentially into service. So, overall, that's what I'm talking about when I'm saying that it is performing very well, managing the inventories, managing the ramp-up, mitigating that challenge that we had and then ultimately the aircraft doing what it's supposed to do in service, very strong feedback but also good performance, which means any kind of contingency around supporting the aircraft is lower.





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 Alain Bellemare,  Bombardier Inc. - President & CEO   [22]
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 If I might add to that Cameron, I think I've seen many, many new programs in my previous life and I would see there are two things that is very interesting areas, like the dispatch reliability is very high. And then the severity of the issues is very low. So when you combine both of them and touching wood today, I mean, that's the reason why we're saying it's a very good, very smooth entry into service, and it shows the maturity of the aircraft and this is the reason why we're very encouraged and very positive about the aircraft moving forward.



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 Cameron Doerksen,  National Bank - Analyst   [23]
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 On the engine, you're still confident you're going to have enough engines to deliver 30 to 35 C Series this year?



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 Alain Bellemare,  Bombardier Inc. - President & CEO   [24]
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 Yes. So far, Pratt is tracking according to the recovery plan. And we know that they've added capacity in the system, for them it's a top priority and we've been working very closely with them. So we're tracking them. We're tracking the decision with Pratt on a day-to-day basis, and I feel that we'll deliver 30 to 35 aircraft this year.







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Operator   [25]
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 Walter Spracklin, RBC.



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 Walter Spracklin,  RBC - Analyst   [26]
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 Alain, in response to the last question, a prior question on the C Series and your thoughts on new orders, I know at your Investor Day you were kind of pressed about what's different and because we hear quite often the same, we're engaged, we're progressing and it felt in your tone it is different, the conversations are different, the level of engagement is different. Is it still the case, or has something now changed globally, or with your airline customers that it's not as different anymore, they're stepping back a little bit, or are you equally as confident as you were in December that we're going to get some significant C Series orders in 2017?



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 Alain Bellemare,  Bombardier Inc. - President & CEO   [27]
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 Absolutely, Walter, we are. Nothing has changed. If anything, actually, our confidence is increasing. I know I keep repeating it, but the performance of the aircraft is very, very good. There is nothing else like that in the 100 to 150-seat class. There is clearly a market demand for this. Airlines now are starting to really understand where does this aircraft fit in their fleet. So I mean there's a lot of fleet planning work that is taking place. We've got a great team, sales and marketing team in place. They are actively engaged with many customers. If you look at the comments we're getting from our existing current operators, it's very, very positive. So, I mean, as you know, it's a small world. So that has a positive ripple effect on other airlines. Air Canada just made an amazing comment over the weekend, talking about how the C Series is going to potentially change their routes strategy here, so which is very positive for the C Series. So nothing has changed. If there's anything, we are just more confident than we were a year ago.



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 Walter Spracklin,  RBC - Analyst   [28]
------------------------------
 And switching gears again to the business jet market, again focusing on -- you have guidance out there on two aspects, the overall recovery of the market, has anything changed in that regard, have we seen, is it just kind of the same as it was, or is there any inflection that you're seeing upcoming? And there are some questions from some kind of third-parties doubting your ability to deliver the Global 7000 according to your plan. Can you comment on that, progress on that first delivery for the Global 7000?



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 Alain Bellemare,  Bombardier Inc. - President & CEO   [29]
------------------------------
 Let me start with the second piece of it, Walter. I mean, we've got a very good solid plan for the Global 7000 and we are executing according to that plan as we speak right now. The first flight went extremely well. As John said, I mean, the maturity of the aircraft at this stage is probably two to three times better than what we saw with the C Series, when the C Series had its first flight. So it shows that we've been building on the lesson learned from the C Series and building that into the Global 7000.

 So that team is entirely focused. It is also important to understand that this is the only large program that we have right now in our system. In 2015 and 2016, we were still carrying like the C Series and the Global 7000. Now that the development of the C Series is over and the C Series is doing well, we have shifted all of our engineering resources on the Global 7000. So I feel very good about that, to answer your question. So we're tracking according to plan. Like any new program, you know that we will have some hiccups and some issues along the way. But right now we're not seeing anything that is abnormal. If anything, we have about 100 flight hours on the aircraft and so far so good.

 And as for the market, we're seeing a pretty good level of activity. Our gross orders for 2016 were better than 2015. We had some cancellation. But we had less cancellation in 2016 than we had in 2015. And as you know, we have been very proactive in adjusting our production rate in line with market demand, and we did that way ahead of everybody else in the industry and they all did follow up in 2016. So I feel that we have production rate of all our product lines pretty much in line with market demand and as you know, we took the total deliveries down this year at roughly 135 versus the 160 plus that we delivered in 2016. And we did that again just to be fully synchronized with the market. And if there is upside potential, I mean we have flexibility in our system to respond to that. So the market is not back yet. I mean it's still a soft market, and we're seeing this pretty much everywhere around the world, but we believe that this is pretty much the bottom. And from this point on, we should see it may be kind of flattish in 2017. But we're optimistic for 2017 year-end moving forward.



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Operator   [30]
------------------------------
 Konark Gupta, Macquarie Capital.



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 Konark Gupta,  Macquarie Capital - Analyst   [31]
------------------------------
 Just wanted to follow up on Cameron's question on C Series deliveries this year. Looks like Pratt is still facing some supply issues on the A320neo engine. And I know you are still comfortable with 30 to 35 deliveries this year. So do you see any opportunity to recover some of the deferred deliveries from last year?



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 Alain Bellemare,  Bombardier Inc. - President & CEO   [32]
------------------------------
 Right now, we're planning to deliver 30 to 35 aircraft, to answer your questions So, if we can do a bit better, I mean -- again, we have a bit of flexibility in the system to do so, but that's not our plan. Our plan is 30 to 35 aircraft. Some of the issues that you are referring, I'm not sure on the neo, I'm not sure if you are about engine performance or delivery issues, but as far as we're concerned the performance of the engine on the C Series is very good. So, again, we do have some technical challenges that we're working with Pratt, but nothing that is impacting the ability of the airlines to operate the product and extracting the efficiency out of it. And on the supply chain, I talked about it earlier, I feel that Pratt has made a commitment to us, and at this point, there is no reason to believe that they will not deliver on that commitment.



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 Konark Gupta,  Macquarie Capital - Analyst   [33]
------------------------------
 And a quick follow-on for John here. John, for the new Federal Government loan that you just announced recently, what is the timing on the cash inflow for that loan over the next four years? And then can you also please talk a bit about the timing of loan prepayment that you have to make in terms of royalties on this loan, as well as prior government loans? Thanks.





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 John Di Bert,  Bombardier Inc. - SVP & CFO   [34]
------------------------------
 So with regard to the Federal loan, it's a royalty repayable. So it means that it will be repaid on either a function of business jet revenues or C Series unit deliveries. So that's the way the repayment works. It will be over significant amount of time, the program length is about 15 years I guess, in all, including a bit of a grace period the first two years. So no repayments for the first two years.

 With respect to the incoming cash, it will vary between, let's say, anywhere between $70 million and $100 million or so per year and that will be true for 2017, 2018, 2019 and into 2020. So that's the kind of the four years and somewhere between CAD70 million and CAD100 million a year.





------------------------------
Operator   [35]
------------------------------
 Cai von Rumohr, Cowen & Company.



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 Cai von Rumohr,  Cowen & Company - Analyst   [36]
------------------------------
 Yes, thank you very much and good fourth quarter. So I have a two-part question on the Global 7000. First, could you give us the key milestones we should be looking for going forward and approximately when you expect to hit each of them? And then secondly, a question on the wing. I believe you got FTVs two, three and four in the third quarter and FTV five in the fifth. Were they up to the final specs and quality and how is that going, what sort of rollout? When should we expect a flight test vehicle to fly that really has the wing with the final specs? Thank you.



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 Alain Bellemare,  Bombardier Inc. - President & CEO   [37]
------------------------------
 In term of like specific development milestone, you understand that I mean, we don't talk much about that, because I mean this is very sensitive information. I'll just say that we expect our second FTV to fly before the end of the first quarter of this year. So that's probably the next milestone that you can keep an eye on. The one that you are talking about, the FTV with a new wing, by the way, it's like -- just a lighter wing. So it's a wing that has a lower weight to it. I mean, it's the same aero on that wing. So there is not much change to that. So I mean that will come later this year. The maturity of the aircraft is very good and the assembly is progressing well for the FTV. We have our line four in Toronto right now. So there is a lot of activity and things are progressing well.

 As for Triumph, as John said earlier, I mean the dispute that we have is about the past. The design of the wing is largely completed. We're in the final phase here of making sure that the lightweight wing that we call it is being finalized. So, we're in a good place. It's really about supply chain now. It's ramping up suppliers and sub-suppliers and making sure that we put this wing together as quickly as we can. So, we don't see an issue on schedule. It's more a commercial concern that we have with Triumph right now and I believe that in time, as we've seen on many large program, I mean we'll find a solution.



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 Cai von Rumohr,  Cowen & Company - Analyst   [38]
------------------------------
 So a follow-up, Alain. So you mentioned that the maturity of the program and obviously a lot of the systems are common with the C Series and so that helps you. But this is a new wing. Is this really the long pole in the tent in terms of achieving your plan that this is probably one of the most challenging things, or if not, what would be the two or three most challenging items you have to bring this in on-time and cost? Thanks.



------------------------------
 Alain Bellemare,  Bombardier Inc. - President & CEO   [39]
------------------------------
 I wouldn't say that there is one specific system or component that is a long pole in the tent from a development standpoint, because I think that as we -- you entered your flight test program, you test multiple systems, you test functionality of the aircraft. And to that point, as I said earlier, the functionality of the systems right now across the aircraft from nose to tail is very good. So we have very good performance. The wing performance is so far very good. So, like I said, I mean I think that the issue that we have with Triumph is more one of supply chain. And to that point if your question is about what can pace the program more from an execution standpoint, not from a functionality related to system, the wing is the one that we keep an eye on. So that's clear, but it's more from a supply chain standpoint, not from a functionality or performance.



------------------------------
Operator   [40]
------------------------------
 Stephen Trent, Citi.



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 Stephen Trent,  Citi - Analyst   [41]
------------------------------
 Just one very quickly from me. I seem to see some recent news that I believe the European Parliament and Canada are moving towards a free trade agreement. Any high-level thoughts regarding the extent to which this might move the needle for Bombardier's European business?



------------------------------
 Alain Bellemare,  Bombardier Inc. - President & CEO   [42]
------------------------------
 Not clear to us. I mean, we need to better understand what that means. As you know, we are a global player today, we sell everywhere around the world and we source as well everywhere around the world. So we'll continue to understand what it really means. And then we'll see if there's potential benefits for us as part of that. But again, I mean being a global player today, we believe that this will probably add like minimal benefits to us.



------------------------------
Operator   [43]
------------------------------
 Thank you.



------------------------------
 Alain Bellemare,  Bombardier Inc. - President & CEO   [44]
------------------------------
 On this, we'll conclude the call. I want to thank you all for being on the call this morning. 2016 was a good year for us, a turning point. We completed the first phase of derisking the business. As you can see, we're totally focused right now on growing earnings and improving our cash flow performance. We understand that we still have some work ahead of us, but we have a great team in place and we're all focused on executing the plan. So thank you again for being on the call and looking forward to seeing you soon.



------------------------------
Operator   [45]
------------------------------
 Thank you. The conference has now ended. Please disconnect your lines at this time and we thank you for your participation.






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