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Bombardier Inc
Symbol BBD
Shares Issued 2,128,017,205
Close 2020-02-12 C$ 1.57
Recent Sedar Documents

Bombardier loses $1,607-million (U.S.) in 2019

2020-02-13 06:38 ET - News Release

Mr. Alain Bellemare reports

BOMBARDIER ANNOUNCES FULL-YEAR FINANCIAL RESULTS

Bombardier Inc. has released its fourth quarter and full-year 2019 results, in line with previously announced preliminary results. The company also confirmed it is still actively pursuing options to accelerate deleveraging, strengthen its balance sheet and enhance shareholder value.

Sale of A220 partnership interest

Bombardier has entered into an agreement with Airbus SE and the government of Quebec, under which Bombardier transferred its shares in the Airbus Canada LP (ACLP) to Airbus and the government of Quebec, improving Bombardier's cash position. This includes cash proceeds of about $600-million from Airbus, of which $531-million was paid upon closing with the balance to be paid over 2020/2021, and the elimination of all future capital requirements for the A220 program, estimated at about $700-million.

Bombardier will also transfer aerostructures activities and employees supporting the A220 and A330 in St-Laurent, Que., to Airbus subsidiary Stelia Aerospace. Finally, the agreement provides for the cancellation of 100 million Bombardier warrants owned by Airbus.

Bombardier's decision to sell its stake in the A220 partnership completes its exit from commercial aerospace, a significant undertaking. In 2016, Bombardier's commercial aerospace business lost approximately $400-million and was consuming approximately $1-billion in cash. Addressing this challenging portfolio was a fundamental step in the company's turnaround plan.

"We are incredibly proud of the many achievements and tremendous impact Bombardier had on the commercial aviation industry," said Alain Bellemare, president and chief executive officer, Bombardier. "We are equally proud of the responsible way in which we have exited commercial aerospace, preserving jobs and reinforcing the aerospace cluster in Quebec and Canada. And we are confident that the A220 program will enjoy a long and successful run under Airbus's and Quebec's stewardship."

Acceleration of deleveraging phase of turnaround

The sale of the company's interest in the ACLP, combined with the previously announced aerospace divestitures, will generate more than $1.6-billion in cash proceeds and eliminate close to $2-billion in liabilities and future commitments. Liquidity remains strong, with pro forma cash on hand of more than $4-billion and $5.5-billion in liquidity, providing the necessary flexibility to complete the turnaround. Both the CRJ program sale to Mitsubishi Heavy Industries Inc. and sale of the aerostructures business to Spirit AeroSystems Holding Inc. are expected to close in the first half of 2020.

As previously announced, the company is actively pursuing options that would allow it to accelerate deleveraging, paydown debt and position the business for long-term success with greater operating and financial flexibility. This process continues; however, the company does not intent to provide any further updates at this time.

Overview financial performance

Bombardier's consolidated revenues for the year were $15.8-billion, highlighted by an 8.5-per-cent growth in business aircraft activities. The growth in Aviation revenues were offset by the lower contribution from commercial aircraft businesses following their divestitures. Revenues at transportation also decreased, mainly due to contract estimate revisions.

Consolidated adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) and adjusted EBIT (earnings before interest and tax) for the year were $896-million and $470-million, respectively, reflecting (i) improvements at aviation as it exits underperforming commercial programs and ramps up production on the Global 7500 aircraft; and (ii) additional charges and investments at transportation to complete challenging projects. Reported EBIT loss for the year of $498-million includes a $1.6-billion impairment charge related to the ACLP investment.

Fourth quarter cash generation reached $1.0-billion, reducing free cash flow usage to $1.2-billion for the year. Higher-than-anticipated cash usage was driven by additional investments made to address challenging rail projects, as well as, the deferral of deliveries, mainly at transportation. Cash usage from operating activities amounted to $680-million for the full year.

2020 outlook

Revenues from the company's sustaining business aircraft and transportation activities in 2020 are expected to grow organically by double-digit percentage over the $13.7-billion revenues recorded from these businesses in 2019. This strong growth is driven mainly from the acceleration of Global 7500 deliveries contributing to a total of 160 aircraft or more for the year at aviation. The consolidated revenue growth is also supported by the continuing production ramp-up of transportation, driven by the solid orders from the past few years.

Adjusted EBITDA and adjusted EBIT are expected to increase to approximately 7.0 per cent and 3.5 per cent, respectively, mainly from the acceleration of Global 7500 deliveries at Aviation and gradual margin normalization at transportation. The adjusted EBIT margin expansion includes a higher amortization expense as Global 7500 deliveries increase. The full-year outlook for earnings reflects the partial year contribution from continuing divestitures of the CRJ program and aerostructures businesses.

Free cash flow is expected to be positive in 2020, excluding credit and RVG payments. These residual liabilities related to the exit of commercial aircraft are estimated to be approximately $200-million for the year and are expected to be paid from the CRJ transaction proceeds.

Selected results

                                         RESULTS  
                                                    For the fiscal years ended Dec. 31
                                                             2019                 2018

Revenues                                                  $15,757              $16,236
Adjusted EBITDA                                               896                1,304
Adjusted EBITDA margin (%)                                    5.7                  8.0
Adjusted EBIT                                                 470                1,029
Adjusted EBIT margin (%)                                      3.0                  6.3
EBIT (loss)                                                  (498)               1,001
EBIT margin (loss) (%)                                       (3.2)                 6.2
Net income (loss)                                          (1,607)                 318
Diluted EPS (in dollars) (loss)                             (0.76)                0.09
Adjusted net income (loss)                                   (396)                 438
Adjusted EPS (in dollars) (loss)                            (0.25)                0.14
Cash flows (loss) from operating activities                  (680)                 597
Net additions to PP&E and
intangible assets                                             523                  415
Free cash flow (usage)                                     (1,203)                 182

As at Dec. 31                                                2019                 2018

Cash and cash equivalents                                  $2,629               $3,187
Available short-term capital resources                      3,925                4,373
Order backlog (in billions of dollars)
Aviation
Business aircraft                                            14.4                 14.3
Other aviation                                                1.9                  4.3
Transportation                                               35.8                 34.5

                                        For the fourth quarters ended Dec. 31
                                                        2019             2018

Revenues                                              $4,205           $4,303
Adjusted EBIT (loss)                                     (66)             286
Adjusted EBIT margin (loss) (%)                         (1.6)             6.6
Adjusted EBITDA                                           63              370
Adjusted EBITDA margin (%)                               1.5              8.6
EBIT (loss)                                           (1,696)             342
EBIT margin (loss) (%)                                 (40.3)             7.9
Net income (loss)                                     (1,719)              55
Diluted EPS (in dollars) (loss)                        (0.74)            0.02
Adjusted net income (loss)                              (172)             149
Adjusted EPS (in dollars) (loss)                       (0.10)            0.05
Cash flows from operating activities                   1,073            1,289
Net additions to PP&E and
intangible assets                                        121              248
Free cash flow                                           952            1,041

Amounts in tables are in millions except per-share amounts, unless 
otherwise indicated.

Segmented results and highlights

                          AVIATION RESULTS     
                                                     
                                     For the fiscal years ended Dec. 31
                                                    2019           2018

Revenues                                          $7,501         $7,324
Aircraft deliveries (in units)
Business aircraft                                    142            137
Commercial aircraft                                   33             35
Adjusted EBITDA                                      812            643
Adjusted EBITDA margin                             10.8%           8.8%
Adjusted EBIT                                        531            472
Adjusted EBIT margin                                7.1%           6.4%
EBIT                                               1,194            424
EBIT margin                                        15.9%           5.8%
Net additions to PP&E and
intangible assets                                    373            303

As at Dec. 31                                       2019           2018
Order backlog (in billions of dollars)
Business aircraft                                  $14.4          $14.3
Other aviation                                       1.9            4.3

Stronger financial performance as aviation reshapes its portfolio:

  • Revenues for aviation totalled $7.5-billion for 2019. This reflects an 8.5-per-cent revenue growth from business aircraft activities and continued double-digit organic growth from aftermarket.
  • The segment achieved 175 aircraft deliveries during the year, comprising 54 Global, 76 Challenger, 12 Learjet as well as 33 commercial aircraft:
    • The fourth quarter's activity level was high, with deliveries reaching 52 business aircraft as Global 7500 deliveries accelerated.
  • Adjusted EBITDA margin was 10.8 per cent for the year, up 200 basis points, driven by the exit of the Q400 and C Series programs. This profitability was nonetheless diluted in 2019 by CRJ activities, accounting for $1.2-billion in revenues for the year.
  • The adjusted EBIT margin of 7.1 per cent is up 70 basis points year over year, reflecting the early production ramp-up and higher amortization associated with Global 7500 deliveries, as well as the dilution from commercial aircraft activities.
  • Business aircraft backlog increased slightly for the second consecutive year, reaching $14.4-billion at year-end, while the CRJ backlog declined as production winds down.

Concentrating on business aircraft while addressing underperforming programs:

  • In February, 2019, the corporation acquired the Global 7500 aircraft wing program operations and assets from Triumph Group Inc. This transaction enabled the company to leverage its extensive technical expertise to support the ramp-up of the Global 7500 aircraft and secure its long-term success.
  • In March, 2019, the company concluded the sale of business aircraft's flight and technical training activities to CAE Inc. for net proceeds of $532-million.
  • In May, 2019, the company completed the previously announced sale of the Q Series program assets, including aftermarket operations and assets, to De Havilland Aircraft of Canada for net proceeds of $285-million.
  • In June, 2019, the corporation entered into a definitive agreement with Mitsubishi Heavy Industries Ltd. (MHI) for the sale of its regional jet program for a cash consideration of $550-million payable upon closing, and the assumption by MHI of approximately $200-million of liabilities related to credit and residual value guarantees and lease subsidies. The transaction is currently expected to close by midyear 2020 and remains subject to regulatory approvals and customary closing conditions.
  • In October, 2019, the corporation and Spirit AeroSystems Holding Inc. announced that they have entered into a definitive agreement, whereby Spirit will acquire Bombardier's aerostructures activities and aftermarket services operations in Belfast, U.K., and Casablanca, Morocco, and its aerostructures maintenance, repair and overhaul facility in Dallas, Tex., for a cash consideration of $500-million and the assumption of approximately $700-million of liabilities, including government refundable advances and pension obligations. The transaction is expected to close by midyear 2020 and remains subject to regulatory approvals and customary closing conditions.

Positioned for growth through certification and ramp-up of new programs and service network expansion:

  • Reaching full-scale production of the class-defining Global 7500 aircraft. With increased deliveries, the Global 7500 aircraft is expected to contribute significantly to revenues growth in 2020. As the aircraft progresses on the learning curve, it will also contribute to margin expansion.
  • Certified the new Global 5500 and Global 6500 aircraft, followed by the entry into service of the Global 6500 aircraft in 2019, offering customers the perfect combination of range, speed, field performance and smooth ride.
  • Continued and consistent growth of the aftermarket business, with further expansion of the service network in Singapore planned for 2020.

                      TRANSPORTATION RESULTS     
                                                          
                                   For the fiscal years ended Dec. 31 
                                                   2019          2018

Revenues                                         $8,269        $8,915
Order intake (in billions of dollars)              10.0           9.9
Book-to-bill ratio                                  1.2           1.1
Adjusted EBITDA                                     212           851
Adjusted EBITDA margin                             2.6%          9.5%
Adjusted EBIT                                        70           750
Adjusted EBIT margin                               0.8%          8.4%
EBIT                                                 22           774
EBIT margin                                        0.3%          8.7%
Net additions to PP&E
and intangible assets                               157           108

As at Dec. 31                                      2019          2018

Order backlog (in billions of dollars)            $35.8         $34.5

Full-year financial results reflect actions and initiatives undertaken to move forward and complete challenging projects:

  • During the past year, transportation continued to progress through its turnaround, by resynchronizing production and resetting certain project delivery schedules, while also investing to support in-service reliability improvements and financing additional manufacturing and engineering capacity. The higher-than-anticipated cost to implement these initiatives and to address late-stage legacy projects, mainly concentrated in the U.K., Switzerland and Germany, led to lower earnings and free cash flow for the segment:
    • Over $500-million in cost estimate changes embedded in 2019 earnings.
  • Completed delivery of several large legacy projects, including Metropolitan Transportation Authority (MTA) in New York, Crossrail in the U.K. and Toronto Transit Commission (TTC) in Toronto.
  • As transportation exited the year, progress was also made in achieving key milestones on other major projects, including significant in-service reliability improvement on Swiss Federal Railways (SBB) in Switzerland and the homologation of the multiunit software for LoTrain in the U.K., paving the way for the delivery of trains on this project and subsequent Aventra contracts in the U.K.

Backlog improvement positions for stronger financial results:

  • Transportation continued to grow and improve the quality of its backlog with $10.0-billion in new orders, and a book-to-bill ratio of 1.2 for the year. Backlog reached $35.8-billion at year-end.
  • Approximately 70 per cent of 2019 orders coming from service contracts, signalling projects and options on rolling stock projects, carrying lower execution risk. Backlog share of services and signalling contracts increased to 48 per cent (42 per cent a year ago).

Focused on stronger project execution to drive sustainable financial performance:

  • Appointment of Danny Di Perna as president, Bombardier Transportation, in February, 2019, strengthened focus on customer relationships and disciplined project execution:
    • Strengthened transportation's leadership team with appointments of new head of engineering and new regional presidents to better deliver on customer commitments.
  • Clear management priorities -- focus on significant production ramp-up in the U.K. and France, reliability in Germany, settlement of claims and acceptance of trains on the SBB project in Switzerland, and continuing to drive efficiency across the organization.

CDPQ investments in transportation:

  • Transportation's results for 2019 did not reach the performance targets underlying CDPQ's investment in BT Holdco. Accordingly, for the 12-month period starting on Feb. 12, 2020, Bombardier's percentage of ownership on conversion of CDPQ's shares will decrease by 2.5 per cent, to 67.5 per cent; and the preference return entitlement rate on liquidation of its shares will increase from 9.5 per cent to 12.0 per cent for this period. Any dividends paid by BT Holdco to its shareholders during this period will be distributed on the basis of each shareholder's percentage of ownership upon conversion, being 67.5 per cent for Bombardier and 32.5 per cent for CDPQ. These adjustments will become effective once the audited consolidated financial statements of BT Holdco are duly approved by its board of directors.

About Bombardier Inc.

With over 68,000 employees, Bombardier is a global leader in the transportation industry, creating innovative and game-changing planes and trains. The company's products and services provide world-class transportation experiences that set new standards in passenger comfort, energy efficiency, reliability and safety.

We seek Safe Harbor.

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