Bombardier Inc at Credit Suisse Industrials Conference
Nov 29, 2018 PM UTC
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BBD.B.TO - Bombardier Inc
Bombardier Inc at Credit Suisse Industrials Conference
Nov 29, 2018 / 01:00PM GMT
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Corporate Participants
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* John Di Bert
Bombardier Inc. - Senior VP & CFO
* Patrick Ghoche
Bombardier Inc. - VP of IR
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Conference Call Participants
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* Robert Michael Spingarn
Crédit Suisse AG, Research Division - Aerospace and Defense Analyst
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Presentation
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Robert Michael Spingarn, Crédit Suisse AG, Research Division - Aerospace and Defense Analyst [1]
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Good morning, everybody. We're going to kick off day 2 of the conference. Welcome.
We're going to start with Bombardier. And I want to thank John Di Bert, CFO; Patrick Ghoche, who runs IR, for coming down from Montréal to talk to us. And so thank you.
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John Di Bert, Bombardier Inc. - Senior VP & CFO [2]
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Thank you.
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Robert Michael Spingarn, Crédit Suisse AG, Research Division - Aerospace and Defense Analyst [3]
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I think what we want to focus on today is some of the recent volatility in the shares and this -- view this as an opportunity to -- for John to talk about where things stand. And really from where I sit, I think, when you see this kind of response in the share since the quarter was reported, I think there's probably some confusion.
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John Di Bert, Bombardier Inc. - Senior VP & CFO [4]
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Yes.
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Questions and Answers
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Robert Michael Spingarn, Crédit Suisse AG, Research Division - Aerospace and Defense Analyst [1]
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And so let's dive right in with that. So I was going to ask if we could start by talking about the fiscal '19 guidance.
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John Di Bert, Bombardier Inc. - Senior VP & CFO [2]
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Yes, sure.
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Robert Michael Spingarn, Crédit Suisse AG, Research Division - Aerospace and Defense Analyst [3]
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And the bridge from '18 to '19, which has been a focus point for investors, particularly from a cash flow perspective.
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John Di Bert, Bombardier Inc. - Senior VP & CFO [4]
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Sure.
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Robert Michael Spingarn, Crédit Suisse AG, Research Division - Aerospace and Defense Analyst [5]
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And so -- and I think you have a chart at some point here, which we'll bring in.
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John Di Bert, Bombardier Inc. - Senior VP & CFO [6]
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Yes, we'll put it up. I think we used something just after the call. So clearly, with the earnings call we had a lot of -- in Q3, we had a lot of news [with the breakout], and we'll talk a little bit more about that. And I think in there people didn't fully get our 2019 performance and what we are expecting in a clear way and particularly, as you said, on cash flow. When you look at 2019, I consider that to be actually a breakthrough year. I mean you see a business here that's going to have a significant step up in revenues, and that's going to be important because we're introducing new products. We continue to expand margins, and we now have a business that structurally creates cash flow. And that's very important in this turnaround. I mean we're in 2019 here setting up for 2020. So I'll take you through the chart. Of course, we do have a challenge here in Q3. So it's a working capital challenge. I'll talk a little bit more about that perhaps through this half hour, but to be very focused on '19, the business itself goes from essentially a $1.3 billion EBITDA to a $1.7 billion EBITDA from '18 to '19. Structurally, that means that we are now in a place where we start to convert cash to -- earnings to cash. That's $400 million of additional EBITDA that turns into cash flow in 2019. And that $400 million really sets the tone for our view that Bombardier in 2019 can deliver between $250 million and $500 million of recurring, sustainable cash flows. And really this comes from a business that has now normalized CapEx, about $800 million. We've come off of a long cycle of aerospace investment, but it also is a business that has significantly improved earnings. And that's the ability of 2019 Bombardier now, $250 million to $500 million sustainable cash flows. So when you think about the moving part in 2019, it's really going to be the 7500, CapEx down, working capital up. We're ramping up the business to be able to deliver 15 to 20 aircraft in 2019 but, more importantly, in between 35 and 40 aircraft in 2020. And that's going to be the work that we're going to conduct through 2019. So $250 million to $500 million, sustainable, including the ramp-up of the 7500 at normal CapEx levels. From there we're going to fully recover the working capital component of the BT miss in 2018. And I think that's important for people to understand. If you take the miss of $300 million to $400 million, we add that into 2019 expectations. That means that together, between kind of normalized CapEx, take the midpoint of about $400 million -- sorry. Normalize the cash flow at $250 million to $500 million. Take the midpoint at $400 million. You add to that the midpoint of the recovery of the BT miss this year. Together, you have about $750 million of cash generation next year, and I think that's what's important for people to understand. The business will produce $750 million, including recovery of working capital from this year. And from that, what's critical is that we've been disciplined in how we run the business. And we continue to make the right decisions for the long term of the business and more importantly to ensure that we set up 2020 and beyond in terms of runway and capability of cash generation. And what does that mean? It means we're going to have a $250 million restructuring cash cost in 2019 that fundamentally has about an 12 to 18 month payback. So that will continue to produce tailwinds for the business in terms of cost structure 2020 but more importantly '21 and beyond. And secondly, we're not going to compromise on our ability to ramp up what is going to be a large, tremendously successful program in the 7500. And I think we've been through aerospace ramp-ups, Alain, myself and the team. And we've left ourselves a $250 million contingency to make sure that we focus on getting to 35 to 40 aircraft in 2020. So that kind of does the math for you. Call the midpoint $400 million of cash generation from the business. At $350 million, the midpoint for BT recovery is $750 million. $500 million of onetime items that are really about setting up the future of this company, very stable in terms of earnings and ability to produce and deliver. And it leaves you at the top end of the range at $250 million. We'll have some variability. If you come to the lower end of cash generation and the lower end of the recovery, you basically hit the break-even point on the guidance. And then we got it early. To the extent that we're going to do a little bit better here in Q4 if we can work through some of these issues in a more -- quicker fashion -- and we're not forecasting that, but the point is that, if that happens, we got it early. We've left some variability. And we're also going to make sure that next year we transition to a $20 billion company, in 2020, the right way. So there's some flexibility left in the guidance for that. And through the year in '19, we'll look at it, and if we need to, we'll adjust and narrow the ranges, but for today this is really what we feel confident in.
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Robert Michael Spingarn, Crédit Suisse AG, Research Division - Aerospace and Defense Analyst [7]
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Okay, that's very helpful. Before I go to the next question, just sticking with one of the things you said there, the $400 million in incremental EBITDA. If you could just walk us through the sources of that because I think it reminds people of the trends that you have here across the businesses.
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John Di Bert, Bombardier Inc. - Senior VP & CFO [8]
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Well, I think fundamentally you've got top line growth at BT. That continues to convert. I mean we've done a great job with that business. We've taken that business from 5% margins, this year in excess of 8.5%. Margins will continue to expand at BT to about 9%. So those margins continue to grow. The business overall, as you've seen from our guidance, will produce about 50 basis points of margin expansion, a little bit more than that. So the growth year-over-year comes from expanding margins, and it comes from growing the top line. We're now going to have the Global 7500. Albeit dilutive at first, that's going to add. We have continued strength in the aftermarket at both BT and on the aerospace side. So across the business, we're seeing margin expansion. We're seeing top line growth, and that's what drives the EBITDA increases.
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Robert Michael Spingarn, Crédit Suisse AG, Research Division - Aerospace and Defense Analyst [9]
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And while we're on that topic, something I think is important to clarify. Those of us who follow defense companies, and so that would then be us here, occasionally reconcile a cash shortfall with overbooking on margin. And there's a timing difference and so forth. And so I want to give you the chance to clarify that -- when we see this margin improvement at BT, 8%, 8.5%, that we're not, look -- and a cash shortfall that is clearly being labeled as a working capital issue. I just want to give clarity to investors that, that is not a reflection of overbooking on margins.
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John Di Bert, Bombardier Inc. - Senior VP & CFO [10]
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Absolutely. I think what's fundamental here is that BT has gone -- when you look at Bombardier, we took on a turnaround. That turnaround was completed. It was aerospace and it was trains. Trains, when we started in 2015 and we brought on Laurent, new leadership, myself, Alain and the team, you can look at this almost as a tale of 2 cities in terms of what had to be done at BT. One, we had a handful of challenging large projects that had gone through some challenges in terms of their engineering and their design phases. So this was large projects, major innovation. So in a sense, a stealth development cycle in trains by itself. And then we had a business reshaping of how we actually operated the train business, and I'll touch on both. That should give everyone confidence about where those margins come from and why the business today in 2018 -- actually coming to the inflection point here with an intense delivery cycle is at a very good place. And yes, we need to work through some of this WIP, but fundamentally it's a signpost to the success of having transformed the business. So let me take a quick minute on both.
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Robert Michael Spingarn, Crédit Suisse AG, Research Division - Aerospace and Defense Analyst [11]
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Okay.
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John Di Bert, Bombardier Inc. - Senior VP & CFO [12]
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So we had large framework projects, large innovation to be completed. In '15, we actually slowed the organization down in terms of ramp-up, particularly on these large projects, and asked them to focus on the engineering and innovation cycle and make sure that they had final configuration of the projects we were designing. That meant also aligning with customers, and it meant finalizing configuration and sort of -- and what we were going to actually build. If you look at '15 and '16 in terms of actual revenue, it actually slowed down. Part of the reason it slowed down is we slowed down the industrialization phase. We didn't want to have this concurrent industrialization with development, so we slowed that down. In '17, if you look at revenues at BT and if you look at inventories, both of them significantly up because we had stabilized the projects. And in '17, we turned on the switch and said now you have to catch-up schedule, so we need to move fast and we need to move aggressively now that you've stabilized the projects. That's what you saw in '17. You saw revenues rise rapidly, particularly in the second half of the year. And you saw us invest significantly in WIP and in inventories. That was a supply chain industrializing. In 2018, what you're seeing -- and I'll tie it back together to this year. What you saw in 2018, and we talked about this at Investor Day last year in December, was that you were going to have an intense delivery phase. The front end of the year was going to continue to consume cash and essentially build working capital to get those projects ready for delivery. And then the back end of the year, we're going to see working capital relief as we start to deliver trains. So a handful of projects moving through, and then you have the rest of the portfolio. We run some 400 million -- 400 projects at any given time. So we also had an intense growth phase that was coming from the normal backlog, and you saw the very strong backlog continues to grow. So these 2 together, we're going to deliver in 2018. We were talking probably somewhere in the neighborhood of 23% to 25% more actual product deliveries to customers. This is not build. It's actually delivering the trains to customers. When it's all said and done, we'll probably come in somewhere around 20%. It's still a huge feat. I mean there's been a lot of great work done in terms of getting this business ready to get into the intense delivery phase, and we've achieved a lot. We've come into some working capital here, some of it on our account, some of this ramp that we didn't fully get done. So we have inventory that still sits around. And some of these larger projects that I referred to now come to the phase, in the fall and the winter of 2018, where you have acceptance tests. You have homologation and certification. You have first article. And all of this is also dependent on the project readiness, infrastructure, other partners that have components in terms of signaling or software. And some of that has moved around, and that's created a challenge for us on those projects. So I'd say kind of, out of the $400 million, about half of that coming from trains that we're driving to get out in terms of volume and quantities and about half of that coming from the fact that you have some milestones and you have some movement in actual acceptances and homologation that was scheduled for end of '18. So in both cases, signposts to actually having gotten the business ready to deliver on the intense growth that it has, which is great because this is going to be a $10 billion franchise by 2020. And it started as a $7 billion franchise not so far back as '16. So in a good position there. Now, and I'll be brief here, the other part of the transformation was that we took what was essentially regional businesses. They were self-contained in a certain way, great for growth, agility. So they would penetrate markets. They would create and design their own product. They would have almost self-sustaining supply chains as well as self-sustaining manufacturing footprint. Over the last 3 years, tremendous work has been done in globalizing BT. So we -- what we've kept is regional integration with customers, so we know our customers very well, very locally, and their ecosystems for rail and transit and transportation. However, we have now reshaped the organization where you have global centers of authority for design, which means you make a great train once and then you sell it across the world. And the last -- and that's 60% to 70% of the components that stay core, and the 30% to 40% that is customized is then handled as integration into the systems that customers are operating. And so you have a much -- we used to be 25%, 30% common technology. When we win today, we win with 60%, 70% common technology. So that's an important part of the reshaping of the business. That allows you to get scale in the supply chain, more common components to a large -- to larger players who give you scale in terms of common parts. And then fundamentally where we're in the process of completing now is reshaping our footprint, where we actually reduce the amount of activity that happen in sites. We load them on their -- what they do best and which means component manufacturing, so we'll do doors in a few centers for everybody in the world. Not everybody does their own doors or breaks or bogies, et cetera. And I think that has been the driver between -- behind margins. And fundamentally, along that process, we've improved the backlog with more service, more signaling. We have much more common project technology, which derisks the schedule. Those are the drive. And we've attacked the cost structure in a very significant way, and you've seen that. So those are the drivers of the margins. The rest of this now is about delivery and growing into that delivery.
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Robert Michael Spingarn, Crédit Suisse AG, Research Division - Aerospace and Defense Analyst [13]
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Okay. And you've touched on -- in that you've covered a little bit of what I wanted to ask you here, but we'll just do it for clarity. Some have asked us how do the working capital issues that cropped up, all arrive at the same time at the back end of Q3. And I was going to ask if you can just talk a little bit about the timing on all of that. And...
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John Di Bert, Bombardier Inc. - Senior VP & CFO [14]
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Yes. I'll just touch the comment I made and just close it at that.
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Robert Michael Spingarn, Crédit Suisse AG, Research Division - Aerospace and Defense Analyst [15]
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Yes.
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John Di Bert, Bombardier Inc. - Senior VP & CFO [16]
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But I think fundamentally here, all right, I mean, when we set up last year and we said we were going to drive breakeven this year, we said we had 4 ingredients. And I'll just close on the train piece. Ingredient number one, we just continued earnings growth and margin expansion, checked the box, and that to convert to cash, done. That happened in 2018. Number two, the Global needed to certify. We needed to ramp up effectively. That meant keep the schedule, and that meant start to receive significant advances for the program with 2019 deliveries. And all of that had to happen, great execution. Check the box, done. We probably have close to 20 aircraft at various states of completion in our facilities today for '19 deliveries. The guy certified -- the aircraft exceeds all of the original parameters that we had set out for it, so -- and that happened at the end of September. The C Series, we had aircraft without engines in the beginning of the year. We had over-inventorized the A220 now and we needed to complete the partnership with Airbus, and both of those were important that we do well. Done. That happened. And as a result, those ingredients as part of that breakeven formula, intact. The fourth element that was important was you needed to get through an intense BT delivery phase. And it was from this reset of major projects that happened in '15 that we're working through the system. We have trains that are largely built that are now waiting for acceptances and integration and so on and so forth. In other cases, we have trains with high working capital where volume growth is very rapid, but we still have some challenges getting all of that volume out when you talk about over 20%. That culminated in the back end of 2018. It was kind of -- as we telegraphed, the front end was going to look like $1 billion, $1.2 billion. And we hit that number in the first 6 months of the year, for total cash usage. And then we needed working capital relief probably in the tune of about $400 million from the train business to be able to close the working -- the breakeven target, and this is where we've come up short. So in a sense, it's 3 years in the making that we're driving the working capital peak to then relief. We haven't hit it squarely where we wanted to. Of course, a miss is a miss. We don't sugarcoat it, but I think what I will say is in that working capital and in the miss itself are the signposts of success of BT finally getting to a place where we are working through major projects and we are working towards a $10 billion franchise given the delivery and capacity we've created.
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Robert Michael Spingarn, Crédit Suisse AG, Research Division - Aerospace and Defense Analyst [17]
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Right. And again, from the perspective of relative size, it's $400 million on $10 billion business. And some people will say $400 million on a $2.5 billion in a quarter, but we're talking timing. And...
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John Di Bert, Bombardier Inc. - Senior VP & CFO [18]
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Right, yes. And it's a project business. And sometimes, these things move around. And I think inherently the second half of '18 was higher risk kind of profile. Then the general business would be over a long period of time because, once you get through this, the diversity of the backlog comes back, right? The diversity of the fact that -- and we've also introduced -- and there are many more projects and programs that don't need the same kind of intense design and engineering phases because we are reusing technology. It shortens the time to market. By having common components, you also improve the supply chain in terms of your ability and variability of ramping up the supply chain. By building the capacity from '17 to '18, that's a lot of heavy lifting. Once the capacity is in place from '19, now you'll have the ending-state capacity of '18, which is the one that delivered your 20% more trains. Now that's sustained and you work through it for a full year, growth becomes easier.
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Robert Michael Spingarn, Crédit Suisse AG, Research Division - Aerospace and Defense Analyst [19]
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Right. You're making me think of one other thing I want to ask you, which is -- on this, which is in addition to improved execution since the new management team came in and since you've been running through what is now, I guess, year 3 of the program, how have you changed the contracting process at BT in order to -- because we see a lot of times, when a new management team comes in, the other thing that they have to shore up are the contracts and how the languages [were]. I imagine you've been doing something there as well.
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John Di Bert, Bombardier Inc. - Senior VP & CFO [20]
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We have a -- I mean we really changed the whole governance around bid processes. And part of this was fundamentally leveraging the innovation cycle we just came off of and making sure. So we've reshaped the commercial organization to connect it directly with the -- these core engineering centers, so now we sell the best of Bombardier worldwide. And in doing that, as you go through the governance and the bid processes, we look for higher common technologies. We look for shorter development cycles. We look for leveraging global supply chains. We look for best costs. We've moved best cost sources in terms of our own manufacturing processes. So we look for all of those components and ingredients within the bid process, and then fundamentally we work with customers in a way that we can deliver the best value to them at a more manageable risk with a -- also a more diversified backlog. So oftentimes, when we'll contract, we'll also introduce the maintenance and operating components of the contracts to balance our backlog so we have higher services content. So overall, I would tell you, much more disciplined, more quality backlog and a business that the machine has been built to deliver through that $10 billion top line.
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Robert Michael Spingarn, Crédit Suisse AG, Research Division - Aerospace and Defense Analyst [21]
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Going to move slightly here. The next question that has come into us from the investment community since the third quarter was the coincident timing of the asset sales and the restructuring. I think the market viewed these as a defensive move, defensive posture at -- timed with this issue with the cash flow, but the way we've discussed it, it sounds like actually it's more offense.
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John Di Bert, Bombardier Inc. - Senior VP & CFO [22]
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Yes. And you know what, it's a bit unfortunate, I'll tell you. On this one, we didn't see it coming, I think, Alain and I, right? I mean we're driving this business so hard, and in a sense we're always focused on what we do to continue to improve the long-term capability of the business and the ability for it to perform financially. And so in the abundance of news, if I can say this, in Q3, including the miss, I think people then switched onto a negative view of our actions. I want to be absolutely clear: I mean we're completely focused on making this a world-class, performing industrial business; a $20 billion franchise that can compete with anybody at any level. And so in doing so, if you think about it, right, what I would underscore here is think about what happened in the third quarter. This is why we feel great about the business going towards 2020. In the third quarter, we basically underlined the fact that we're going to be disciplined capital allocators. You think about we divested assets that are not core assets, good assets, but we've gotten a fair price in both. The -- as an example, the Q400 was being built out of -- just outside of Toronto, Downsview. We sold the piece of land, as you know, back in the spring. And by selling the land, we would eventually have to move the actual program. We would have to invest in the -- moving the manufacturing of the aircraft. And it's a long -- this program has been on for 20 years. It would need platform investment in and of itself, and to the aircraft, and we decided that was not the best thing for the business in terms of capital allocation. So we have a great buyer who can actually continue to extract value out of the Q400, paid us a fair price. And that's what we've done. So it's positive. It actually adds flexibility to us. It set up for deleveraging, and it makes sure that we allocate capital in a disciplined way. When you think about the training business, similarly. Our competitors don't do pilot training. And that's a business that we're -- long term we're not going to be big investors in. There are major players that do it well. And they paid a very fair price for the asset. Again, sets us up very well for a deleveraging phase, 2020 and beyond. When you think about the restructuring, fundamentally we've been working together as a team now for more than 3 years. We've gone through and stabilized this business. We've reached the inflection point where now we have normalized CapEx, strong margins, the ability to convert to cash; starting to develop a cash-generating business. At the same time, when we look at the overall productivity of the business, it can be better. And we've done a lot of our own work benchmarking our levels of productivity. Now in a more stabilized environment we took this opportunity to do 2 things. One, we're outside of an investment cycle for aerospace engineering. So we reshaped the engineering organization. That's about 20% of the restructuring that we announced. And then we put it in BBA, where it will serve aerospace development best in the long term. So you have great talent. And it's no longer a common organization as we used to have which would serve all of aerospace, including commercial. It is now dedicated to BBA, fundamentally. And two, the remainder of the restructuring comes from our ability, we believe, to have more efficient end-to-end processes. We have opportunities to make some IT investments that we have probably not made in the past given focus on products. We've brought on Sam Abdelmalek, who I know very well, who is our new transformation officer. And we're actually in the process of mapping out entire end-to-end processes to look for efficiencies. All of these things are effectively productivity gains; and have nothing to do with this Q3 miss, have everything to do with the ability of this business to continue to generate strong margins 2020 and beyond.
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Robert Michael Spingarn, Crédit Suisse AG, Research Division - Aerospace and Defense Analyst [23]
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Yes. And the other thing I think some people miss is the fact that you held your 2020 targets when you've changed the business and used some offsetting items there.
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John Di Bert, Bombardier Inc. - Senior VP & CFO [24]
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Right. So maybe just some technical math on that. We did divest of the training in the Q. If you think about that, I mean, in aggregate think about kind of close to 10x, right? So you're looking at something in the neighborhood of $75 million, $80 million or so that you got to replace. We estimate that the 20 -- the restructuring plan will generate about 50% of the benefits here between $100 million and $125 million in 2020. So there's an offsetting impact there, so it's neutralized. The good news is, by 2021, you're looking at $250 million recurring from there out, and that's powerful.
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Robert Michael Spingarn, Crédit Suisse AG, Research Division - Aerospace and Defense Analyst [25]
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Right. Yes, it is. So that will take us on to the next question, which we're -- really has very little to do with what we've been talking about, but you have this window opening in February of '19 that allows you to buy back the CDPQ stake at BT. So I thought we'd spend a little bit of time on how you look at that and then, while we're at it, maybe how you think about your debt maturities.
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John Di Bert, Bombardier Inc. - Senior VP & CFO [26]
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Sure, both good questions. I'd say, on CDPQ, number one, this is -- it's an option. It's a great option. When we first did the deal, we wanted to create the flexibility for us to be able to reacquire back the business. And it was structured part of this agreement, so on the third anniversary date, February, we have the option to buy it back. It's not an obligation. There -- we have tons of flexibility. There is no rush to act. However, we do acknowledge it's a -- an expensive piece of the capital structure. So over time, that is one place where we would like to look at reshaping the capital structure. For us, what's important here is the following. Number one, we're going to do a deal that creates value for shareholders, period. That's the only catalyst required. It's an option. It's not an obligation. Therefore, it's a value-creating opportunity that we'll take in the right conditions. The right conditions include things such as we're going to make sure we maintain strong liquidity on our balance sheet. We have good liquidity. We're going through a turnaround. We have line of sight to completing that turnaround. We're going to make sure that we don't manage the -- down the liquidity through the process. Two, we're going to make sure we protect credit rating. And we're going to do a deal, if ever a deal gets done, that has good credit quality to it as well. And fundamentally, we have created optionality. We have 2 years of uninterrupted runway here to do this, to do the buyback; or to reshape the deal, and we're also open to that. We're also open to reshaping the existing deal, whether you do it in one piece or you do it in tranches over time. So I think the message here is, we're focused on creating value for shareholders. We have a great option with this buyback. That option has considerable life to it. It's got at least a couple of years where we can do this on our own terms. We have set ourself up with good liquidity. We have a ton of confidence in our 2020 plan and objectives. Therefore, we know where we're going. And we'll create value when the conditions are right, including what form this deal might take and what shape CDPQ may be willing to play in it.
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Robert Michael Spingarn, Crédit Suisse AG, Research Division - Aerospace and Defense Analyst [27]
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Yes. And then just remaining, capital structure...
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John Di Bert, Bombardier Inc. - Senior VP & CFO [28]
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Yes, on the maturities. So we've always been proactive in terms of our debt, right? I mean we've come out typically a solid year ahead of all of the maturities. I see 2020, in a sense -- not to minimize it, but as tactical, in a sense. This is going to be refi. We'll pick our spot here somewhere in 2019. And we'll look for the right market environment. We ourselves have created flexibility. I expect to finish the year with $3 billion of cash. I expect to finish 2019 something, $3.3 billion, $3.5 billion, of cash, including the proceeds of the M&A, which means I'm setting myself up here, before that maturity, with a considerable amount of liquidity on the balance sheet. And that doesn't mean I'm going to wait the entire cycle, but it does mean that we're not under the gun with respect to that maturity. We'll find the right time to do this in 2019. I see this tactical. We'll pick the right spot with a decent coupon; and then we'll focus on '21, '22 in terms of deleveraging and bringing costs down. And I think, as you get into '21 and '22, you'll see a company with tremendously better credit quality and strong liquidity, strong cash generation, which puts us in the driver's seat. So 2020, refinance tactically, have dry powder on the balance sheet to be able to deal with any kind of disruption. '21, '22 is a real reflection of the quality of business that we're building and the capacity to generate cash flow and the strength of the cash on hand that we'll have going into it.
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Robert Michael Spingarn, Crédit Suisse AG, Research Division - Aerospace and Defense Analyst [29]
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All right, okay. This next one just seems to be an issue that has also nagged the share price, and this has to do with the share disposition program for senior management, who's actually management. Questions have come up. The government is taking a look at this. This is perhaps a good time to walk through what the plan was, the genesis of the plan and what's going on here.
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John Di Bert, Bombardier Inc. - Senior VP & CFO [30]
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Yes. So let me put some color around this, right? I mean a couple of statements I'll make. One, just before I get into any mechanics of it, I mean, you have a senior team that's completely committed to the turnaround of this business. I mean that's why we came onboard. There's no other reason. We came -- and this will relate a little bit to the timing of all this, but fundamentally heavily vested and heavily committed to the success of Bombardier in the long term. Now in 2015, most of the management team that's there came onboard. The awards, the normal long term incentive awards that are issued, were issued in August of '15. Some of those acknowledged some of the equity that people had left behind. So kind of you sign on the type of award that you get when you leave something else behind. And the rest of it was normal equity that people receive as their annual comp. That's August of '15. So 3-year vesting meant that, in August of '18, all of these awards would become available for -- the participants would be entitled to sell. We wanted -- and we started this in June. We wanted to have a very clean, smooth best practices process that actually managed any activity that would happen. So we went and developed essentially what is the equivalent of a 10b-5 here in the U.S., right? It's a best practice for -- to manage any trading that would happen. We didn't want people -- you have to manage them -- different executives, different times. We wanted that to be in a plan, so we created a plan. And this is the plan that's under -- that today is being discussed, the ASDP. Essentially, August of '18, from nonvested, any instructions to sell were put into a plan that has a 2-year life. So this plan covers 2 years. Any shares, any options that one would consider having any transactions on go into the plan. There are no changes in the instructions for a period of 2 years. The elements of the plan include you can -- timing. And you set pricing, whatever those instructions are. There is a cooling-off period of 30 days, by which -- first of all, the only time you can put that plan in place, and we had tremendous amount of support to make sure that it was done completely well, is we did this once we had full disclosure after the Q2 call. So I mean you're talking here about there is very limited open trading periods that we have as executives. So essentially, when we put the plan in place, we did so after full disclosure Q2. Then...
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Robert Michael Spingarn, Crédit Suisse AG, Research Division - Aerospace and Defense Analyst [31]
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This is roughly about a week later, right, that...
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John Di Bert, Bombardier Inc. - Senior VP & CFO [32]
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Yes. So what happens is that you have the Q3 call -- the Q2 call, then you have a 5-day period where there's no trading allowed until news settles. And then there's a 25-day period which is an open period. The plan was established at that date. So at that date -- I mean, of course, there's no question about it. We do so having fully disclosed anything material to the market. That's the purpose of the call. We do so making sure that all, everything is out there in terms of either disclosure or information that had to be made public. And there's absolutely no connection to Q3 on the -- on this -- in this period of the plan being established. Now at that time, the plan gets put in place. It's 2 years. And after all is said and done, executives still have a tremendous amount of their equity and personal stake in the company. So the rest of this is just normal review by the -- and there's a lot of volatility on the stock, so they'll review that. I think that's normal. That's their job as a regulator, but we're fully compliant, fully confident and fully vested in the company.
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Robert Michael Spingarn, Crédit Suisse AG, Research Division - Aerospace and Defense Analyst [33]
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Okay, we've got a few minutes left. The one other thing I wanted to ask you, and then we'll see if anybody else has anything, is you've got your annual Investor Day coming up next week in New York, on December 6. I wanted to ask if you can just set or frame expectations for how we think about that.
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John Di Bert, Bombardier Inc. - Senior VP & CFO [34]
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Yes. So I think, you know what, I mean, we're going to do a few things. We're going to make sure that people understand, investors understand, how much tremendous progress has been made in reshaping Bombardier from 2015 to today. You think about where this company is. I mean we're $6.5 billion with a straight growth path to $20 billion in 2020. So much work has been done in the innovation cycle, creating tremendous products; and now actually getting into a delivery phase across the board. So we want to make sure people understand the derisking that's been done, the strength that we are in now in terms of our liquidity situation, how we are able now to complete the 2020 plan. We have tremendous confidence in our ability to stick 2020 exactly where we started this process in '15. And that's -- I mean that's 5 years of total turnaround. If you look between '15 and we're still fully confident in 2020, given all the things that we've gone through, I think that in and of itself is something that shareholders need to appreciate or really understand the power of that on a long-term basis. The power on a long-term basis that we'll talk more about is that we've created now a business that had normalized CapEx; stronger margins; and a strong portfolio in very, very strong core businesses can become a cash-generating machine for many, many years to come. That's the bottom line, and we want to make sure we get those messages across at Investor Day. So -- and I think that, that's -- it's true for 2020, based on the original plan we put in place. And I'm confident that we're going to continue to make the business better for the longer term as well.
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Robert Michael Spingarn, Crédit Suisse AG, Research Division - Aerospace and Defense Analyst [35]
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Okay, before we close, does anybody have anything that we might have missed?
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John Di Bert, Bombardier Inc. - Senior VP & CFO [36]
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(inaudible).
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Unidentified Analyst, [37]
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I'd like to ask a question about automation on the factory floor. What kind of upsides do you see? I was recently at the Airbus factory in Hamburg and saw some of the early 320s and seeing some of the automation that they're bringing in. And I was just curious, do you think there's opportunities for improvement there?
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John Di Bert, Bombardier Inc. - Senior VP & CFO [38]
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Well, I'd say that we're continually working on the efficiency of our manufacturing. And we've done some tremendous things with the Global 7500. We have the ability to test, for example, the interiors of the aircraft before they're installed. So there is some digital capability that goes into that. We've also built a rig that tests the entire interior of the aircraft before it gets installed on the actual aircraft itself. And it's important I bring that up as an example because that is an important part of lead time. You've got a very capital-intensive piece of inventory in the aircraft, and the time to fit and install the interiors can sometimes be a very tedious part of the process. So we actually do that now first and fully on the factory floor using some digital capabilities and the rig so that you have a full integrated interior that gets then pulled out and -- it tests all the stress, the movements of the aircraft so that there's -- any finishing touches that have to be done to those interiors can be done before they actually hit the assembly line. So that's an example of just taking significant lead times out of building the aircraft. It will probably come in -- the whole 7500 will probably come in at a more mature delivery ramp than the 65 -- sorry, the 5000 and 6000 took many, many years to do. So I mean there's -- I mean the guys probably at -- on the aero side can talk a little bit more about that, but then the other part of, I'd say, digitalization that is important is on the aftermarket. That's really a place where we're taking advantage, and that's trains and planes as well.
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Unidentified Analyst, [39]
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And one -- just a follow-up. One thing that we're seeing a lot is companies having to go to external to either suppliers of those digital capabilities or to outsource it. Some are struggling to develop those capabilities internally. What's your plan how you're going to get there? Internal, external?
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John Di Bert, Bombardier Inc. - Senior VP & CFO [40]
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One of the things that we've done actually in this last 5-year plan is that we've changed the rate of investment in technology and IT, I'd say, considerably. So when I look at the CapEx plan longer term, I see that as being something around [$1,600 million] longer term. A significant component of that is coming from investing in technology tools. So we will do some of this ourselves, but we actually bring on partners to do that. I mean we've brought IBM a couple years ago in terms of their capabilities. We signed a large framework agreement with them. There are other partners that we've signed up some agreements with, and I don't want to kind of spill too many names here, but the likes of Accenture and [et cetera]. So there are partners that we're using. And I guess we can talk more specifically, depending on the projects, but what I can tell you is, that we've set an investment profile in the business to be able to deploy capital to automation both in the offices, but also in the shop floor, also to reshaping how we manage our factories in terms of backbone systems, so manufacturing enterprise systems. And those are all possible projects. We'll probably talk a little bit more about those at Investor Day, over the next 3 years or so. And that's all part of this productivity drive that we're launching.
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Robert Michael Spingarn, Crédit Suisse AG, Research Division - Aerospace and Defense Analyst [41]
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You know what, that's a perfect way to end. We just hit the clock there. I want to thank you for joining us. Thank you both for joining us today. We appreciate the time.
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John Di Bert, Bombardier Inc. - Senior VP & CFO [42]
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Thanks so much, Rob.
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Patrick Ghoche, Bombardier Inc. - VP of IR [43]
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Thank you. Thanks very much.
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