Feb. 17, 2016: The long drought is over.
Air Canada has ordered up to 75 Bombardier C Series.The press conference is at 11am EST today. These will replace 25 Embraer E-190s. BBD now has orders and commitments for 678 C Series.
The announcement comes with the company’s fourth quarter and year-end financial results and a 90-seat version of its Q400 turboprop.
The Air Canada deal is a Letter of Intent for 45 CS300s and options for 30 more, including conversion rights to CS100s. Deliveries are from 2019.
The earnings call webcast summary is below the jump.
Alain Bellemare, CEO of BBD, called the Air Canada LOI a “strong endorsement” of the C Series and a “fantastic win for Bombardier.”
“We are now building great momentum…for the C Series,” he said. “We are turning Bombardier around.”
Bellemare said BBD now has the liquidity needed ($6.8bn pro forma) for the future.
“We are now shifting our attention to 2016,” he said. This will be a year of transition and the ramp up of the C Series will put pressure on earnings. Bellemare previously said the C Series won’t be cash flow positive and profitable until 2020. Earnings will be reduced in 2016 during the ramp up.
The large number of job cuts is a result of adjusting business aircraft demand, ramping down Transportation to match future workload, and through gaining “traction” through the Transformation Plan that is seeing improve efficiencies.
“In 2016, our focus will be on discipline and execution,” Bellemare said.
John Di Bert, the CFO, said that Transportation (rail) is “solid” for 2016. Revenues at the Commercial Aerospace unit will grow with the delivery of C Series but losses on the early deliveries will result in “negative margins,” and a loss of more than $500m. The first half will be “materially” negatively impacted before improving in the second half.
“Our guidances reflect the necessary and appropriate actions,” Di Bert said.
Q&A (Statements are paraphrased.)
- Di Bert said the company is very focused on cash flow and working capital. Some of the benefits began in 4Q and will continue into this year.
- Di Bert said BBD won’t provide guidance on capital expenditures this year. But he said that cash flow will be stable over the aerospace programs this year.
- Bellemare sees a solid skyline for all commercial lines this year.
- Bellemare said spending on C Series this year is shifting from development to production. By the end of 2016 about half of the $2bn needed for the transition will be spent.
- The full impact of the jobs reductions should be fully felt in one year, impacting 2017 but there will be a 100bp benefit this year.
- Q12016 will be the most pressured quarter during the transition of C Series into production.
- Bellemare said the prospective investment by the federal government remains “very important” to BBD, reflecting a “strong endorsement” in C Series. The Quebec investment is benefiting discussions with customers. The federal government investment is “very critical.” The nature of the investment is subject to continued negotiations. Bellemare did not answer a question whether governance of the family investment in BBD may be changed with federal investment.
- Bellemare said the Air Canada deal had been worked on for months, and it injects “significant momentum” into the program. He did not answer a question whether a Residual Value Guarantee was part of the commercial terms.
- Bellemare said that “so far” the Pratt & Whitney GTF is performing well on the aircraft and BBD hasn’t seen similar issues on the engine that Airbus has seen on the larger version of the GTF on the A320neo.