Bombardier Reports First Quarter 2019 Financial Results and New Strategic Direction for Aerospace, the formation of Bombardier Aviation

press release

• First quarter results in line with preliminary results announced last week.
• Announces the strategic formation of Bombardier Aviation, consolidating all aerospace assets into a single, streamlined and fully integrated business. As a result, Bombardier will pursue the divestiture of its Belfast and Morocco aerostructures businesses.

All amounts in this press release are in U.S. dollars unless otherwise indicated. Amounts in tables are in millions except per share amounts, unless otherwise indicated.

Bombardier (TSX: BBD.B) announced today its financial results for the first quarter of 2019, in line with the preliminary results published on April 25, 2019. The Company also announced that it will consolidate its aerospace assets into a single, streamlined, and fully integrated Bombardier Aviation business unit, which will be led by David Coleal.

“We are very excited to announce the strategic formation of Bombardier Aviation,” said Alain Bellemare, President and Chief Executive Officer, Bombardier Inc. “It is the right next step in our transformation. The consolidation will simplify and better focus our organization on our leading brands, Global, Challenger, Learjet and the CRJ. It will also allow us to better support our customers and generate value for shareholders.”

“With our clear vision for the future of Bombardier Aviation, we will focus our aerostructures activities around our core capabilities in Montréal, Mexico and our newly acquired Global 7500 wing operations in Texas,” Bellemare continued. “Collectively, these facilities provide Bombardier with all the skills, technologies and capabilities to design, produce and service the current and next generation of aircraft.”

As the Company moves to optimize its global manufacturing footprint, Bombardier will pursue the divestiture of the Belfast and Morocco aerostructures businesses. These are great businesses with tremendous capabilities.

Bombardier Aviation will continue to be the best business aircraft franchise in the world, and well positioned to maximize the value of its proven CRJ regional jets. Together, Bombardier Aviation and Bombardier Transportation will be two strong pillars supporting Bombardier’s future.

Financial Results

First quarter 2019 adjusted EBITDA(1) and adjusted EBIT(1) were $266 million and $171 million, respectively, on revenues of $3.5 billion. On a reported basis, EBIT was $684 million, driven higher by the $516 million gain on disposal of the training business closed during the quarter. Free cash flow usage(1) in the first quarter was $1.0 billion, supporting the intense ramp-up of key rail projects and Global 7500 aircraft deliveries in the second half of the year. Cash flow usage from operating activities amounted to $907 million in the first quarter.

As announced last week, Bombardier’s consolidated revenue guidance for 2019 has been adjusted to reflect revised expectations at Transportation and Commercial Aircraft. Full year revenues are expected to be approximately $17.0 billion, approximately $1.0 billion lower than originally anticipated. Year over year, the revised guidance represents approximately 10% organic growth over 2018, excluding currency effects and divestitures.

While earnings expectations across the aerospace businesses are unchanged, Transportation’s adjusted EBIT guidance is reduced by approximately $150 million for the year. As a result, the Company expects to report full year consolidated adjusted EBITDA of $1.50-1.65 billion, implying growth of almost 20% year over year. Consolidated adjusted EBIT guidance is also revised, and is now expected at $1.0-1.15 billion.

Commenting on Transportation’s ramp-up challenges, Bellemare stated, “despite the current industrial challenges we are facing, the business fundamentals at Bombardier Transportation remain very strong. We have a refreshed product portfolio, a broad global customer base and a strong $34-billion backlog. The team is making steady progress addressing our challenging legacy projects, however, it will take us a few more quarters to manage these projects to completion.”

Free cash flow guidance for the full year remains unchanged, at breakeven plus or minus $250 million, as Global 7500 aircraft and key Transportation project deliveries are expected to accelerate in the second half of the year.

Termination of the Corporation’s Automatic Securities Disposition Plan

Bombardier also announced today that its Board of Directors, upon the recommendation of its Human Resources and Compensation Committee, decided to terminate its automatic securities disposition plan (ASDP) established on August 15, 2018 in accordance with its terms.

  Selected results (PDF)
SEGMENTED RESULTS AND HIGHLIGHTS
Business Aircraft (PDF)

• Revenues totaled $970 million on 24 aircraft, as deliveries ramp-up through the year to reach full year guidance.
• Aftermarket service revenues continued to grow double-digit, at 20% year over year, supported by the strategy to expand footprint and move closer to customers. During the quarter, Business Aircraft announced the expansion of its Singapore Service Centre to further bolster customer service capabilities in the Asia-Pacific region by 2020.
• Adjusted EBIT margin of 7.6% reflects the Global 7500 ramp-up and higher aftermarket revenues. The intensification of Global 7500 activities is expected to weigh on earnings before adjusted EBIT margin recovers towards full year guidance of approximately 7.5%.
• Reported EBIT for the quarter of $594 million is largely driven by the $516 million gain on the sale of the Business Aircraft training activities to CAE.
• Backlog increased by $0.6 billion, to an industry leading $14.9 billion, reflecting broad market interest across all regions and customer types.
• The Global 7500 has been on a record-setting streak and continues to surpass expectations in terms of cabin experience and performance. Interest in this unique business aircraft has only intensified since entering into service at the end of 2018 as demonstrated with the recent order confirmation of four additional Global 7500 business jets by HK Bellawings.

Commercial Aircraft (PDF)

• Revenues reached $241 million in the quarter, reducing year-over-year as a result of the deconsolidation of CSALP starting in the third quarter of 2018 as well as lower deliveries.
• EBIT of $22 million reflects the deconsolidation of CSALP, higher proportion of aftermarket revenues and a proactive management of residual value guarantees exposure.
• During the quarter, a subsidiary of Chorus Aviation Inc. has finalized a firm purchase agreement for nine CRJ900 aircraft to be operated by Jazz Aviation LP, making them the first Canadian operator of the new ATMOSPHERE cabin.
• Commercial Aircraft launched the CRJ550 aircraft. Leveraging current aircraft platform, it is designed to replace the existing fleet of aging 50-seaters, while maximizing revenue potential with a triple-class cabin offering. United Airlines is the launch operator of this new model.
• Commercial Aircraft’s expected deliveries for the year are lowered to approximately 30 aircraft as a result of the closing of the Q400 divestiture, which is now expected mid-year. Revenue guidance for the year is correspondingly adjusted to approximately $1.15 billion, with no change to adjusted EBIT⁽⁷⁾ guidance at a loss of approximately $125 million.

Aerostructures and Engineering Services (PDF)

• Revenues at Aerostructures and Engineering Services grew year-over-year to $470 million as it continued to ramp up the Global 7500 and the A220 programs.
• External revenues increased year-over-year to 43% of total revenues as A220 components are now third party sales.
• The EBIT margin for the three-month period increased mainly as a result of a positive impact from revenue mix skewed towards more mature programs. As Global 7500 and A220 deliveries ramp-up, full year adjusted EBIT margin guidance remains at approximately 7.5% for the year.
• Since closing the acquisition of the Global 7500 aircraft wing program on February 6, 2019, Aerostructures and Engineering Services has focused on integrating the Red Oak, Texas facility to support the ramp-up of the Global 7500.

Transportation (PDF)

• Transportation’s revenues for the first quarter reached $2.1 billion, 5% lower year-over-year excluding currency impacts, reflecting a slower production ramp-up on certain large projects as the Corporation better synchronizes its production output to customer requirements and delivery schedules.
• EBIT margin of 3.9% is impacted by lower revenues and the related fixed cost absorption, as well as revised cost estimates on certain challenging projects. While cost absorption headwinds are expected to be resolved as production and revenues return to planned levels later this year, the ongoing and gradual phase out of legacy projects over the course of 2019 and 2020 is expected to support improving margins.
• Full-year revenues and adjusted EBIT guidance are adjusted to reflect the revised project delivery schedules.
  • Revenue guidance is adjusted to approximately $8.75 billion, resulting in approximately 3.5% year-over-year growth, excluding currency impacts. This reduction is driven by approximately $500 million from slower production ramp-up, which defers revenues, and approximately $250 million of unfavourable currency impact at current rates.
  • Adjusted EBIT margin is revised from approximately 9% to approximately 8%.
• Transportation’s backlog of $33.8 billion reflects book-to-bill of 0.8 and is expected to improve throughout the year based on a strong pipeline of opportunities.