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Good morning, ladies and gentlemen, and welcome to the Bombardier's First Quarter 2019 Financial Results Conference Call. Please be advised that this call is being recorded.At this time, I'd like to turn the discussion over to Mr. Patrick Ghoche, Vice President, Investor Relations for Bombardier. Please go ahead, Mr. Ghoche.
Thank you. Good morning, everyone, and welcome to Bombardier's first quarter 2019 earnings call.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 U.S. 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 2 of our presentation.Several assumptions were made in preparing these statements. So 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.With me today is our President and Chief Executive Officer, Alain Bellemare; and our Chief Financial Officer, John Di Bert, to review our financial results for the first quarter ended March 31, 2019 and the announcements made this morning.I'd now like to turn over the discussion to Alain.
Thank you, Patrick, and good morning, everyone. Thank you for joining us today.As you all saw in the press release this morning, we announced a major organizational change: the consolidation of our aerospace assets into a single streamlined and fully integrated Bombardier Aviation business to better serve our end customers. This change reflects our strategic and disciplined approach to simplify and better focus the company on the growth opportunities that will generate the most value for our shareholders.It is important to note that today's announcement is based on our long-term strategy and vision. It is the culmination of the actions taken since launching our 5-year turnaround plan in December 2015. We've made huge progress driving our multi-year transformation plan and Bombardier is a much stronger company today.Let me remind you of some of our major achievements. We set up a partnership with Airbus, which has placed the C Series, now the Airbus 220, on a strategic path to unlock its full potential. We certified and put into service the category-defining Global 7500 on schedule. From a financial perspective, we have secured and maintained the right level of liquidity. We drove 200 basis points of margin expansion in 3 years. Earnings nearly doubled from $550 million in 2015 to over $1 billion in 2018. And our cash consumption has continued to improve.We are clearly in a much better position today than we were in 2015. As we've told you before, this year, like last year, will be a transition year. We are moving from an investment cycle to a growth phase. This transition comes with some volatility and the normal challenges associated with a large and aggressive industrial ramp-up.At Bombardier Transportation, these challenges have proven to be more difficult than originally anticipated. But we have the right team working through these challenges, and we expect to see the volatility settled down over the next few quarters, as reflected in our revised guidance that has Bombardier delivering 10% organic revenue growth, 20% EBITDA growth and improving free cash flow from operations. So a reset at BT, but still better financial performance year-over-year and good forward progress on our turnaround journey.More importantly, with this morning's announcement, our strategic path forward is now clearer than ever. Bombardier will be a focused company and a simple story. We will be anchored on 2 strong pillars: Bombardier Aviation, with an amazing product portfolio; and Bombardier Transportation, a global rail leader.With that said, let me provide some more color on our performance and our announcement, starting with Aerospace, where the ramp-up of our largest growth program, the Global 7500 remains on track. In June, we delivered our first 7500 of the year to Formula 1 racing legend Niki Lauda, and the aircraft is performing exceptionally well. Integration of the wing operations at Red Oak and the rest of the 7500 ramp-up continue to move forward as per plan as does the production ramp-up of their Global 5500 and 6500, which are on track to enter service this year.Sales activity at BBA in the first quarter was strong, and it continues to be strong in the second quarter. We grew the backlog in business aircrafts to an industry-leading $14.9 billion and delivered double-digit year-over-year aftermarket growth. Despite lower than expected deliveries in Q1, we remain on plan to hit the 150-155 aircraft target as we expect deliveries to accelerate throughout the year.Turning to commercial aircraft. We continue to see tremendous potential with our Airbus partnership and the A220, the best commercial aircraft in the 100-150 seat class. This year, we continue to actively support Airbus in drawing the backlog and reducing costs. We are also focused on completing the Q400 sale, which is now expected to close midyear.As for the CRJ, the team is so focused on building the backlog, as evidenced by the 9 orders in Q1. Consolidating the CRJ into Bombardier Aviation will help us improve the profitability as we continue to explore strategic options for the program.The formation of Bombardier Aviation is an exciting move. It is the next logical step in transforming our aerospace portfolio, a vision that we have been moving forward and towards since announcing the Airbus partnership. With the divestiture of our Downsview property, the sale of our train business and the imminent closing of the Q400 sale, the time is right for this integration and streamlining.And we have been looking at many strategic options for Bombardier aerostructure business. After a long and careful assessment, we concluded that the best path forward to optimize capital allocation was to right-size Aerostructures by pursuing the divestiture of some of our businesses. Accordingly, we have announced this morning our intention to pursue the divestiture of our aerostructure businesses located in Belfast and Morocco. These are great businesses with tremendous capabilities. The remaining aerostructure operations will be consolidated within Bombardier Aviation.This decision to divest these businesses is the right course of action for a number of reasons. First, it preserves our core nose-to-tail aerostructure capabilities in Montreal, Mexico and our new Red Oak facility in Texas. It right-sizes our global manufacturing footprint. And finally, it strengthens our financial position and our ability to drive better return on capital.Bombardier Aviation is well positioned to become the best business aircraft franchise in the world and to maximize the value of our proven CRJ regional jets. It will be led by David Coleal, supported by Paul Sislian as Chief Operating Officer. Bombardier Aviation will add all the skills, technologies and competencies to design, produce and service the current and next-generation of aircraft. And it will be one of our 2 large strong pillars supporting Bombardier's future: Bombardier Aviation and Bombardier Transportation.Turning now to Transportation, where we continue to make progress transforming our rail business. You will recall, we started 3 years ago with the creation of a single commercial organization and global engineering center of excellence to drive standardized platforms. Next came the optimization of our global footprint and the creation of best cost manufacturing center of excellence. And now, under Danny Di Perna's leadership, we are focused on optimizing our project management processes and on solving the current production ramp-up challenges. This has proven to be a little harder, and it will take a little bit longer than we originally anticipated.In Q1, we needed to slow down the production system to deal with challenges. This pause is allowing our new management team to better align all the inputs with our customer requirements and delivery schedules. Although it is causing some near-term pain, it is the right thing to do to solve working capital and inventory challenges. At the same time, we need to put our challenging legacy projects behind us. The team is making good steady progress on these contracts, but it will still take us a few more quarters to completely manage these projects through the system.We understand the challenge at BT, and the team is addressing them. The fundamentals at BT remain very strong. We have a great product portfolio, a global customer base and a $34 billion healthier backlog. Danny and the team continue to drive the transformation, taking us to the next level.Okay, I will stop here and conclude by saying we are very excited about the creation of Bombardier Aviation, a fully integrated and high performing business with leading brands. At Bombardier Transportation, we are taking the right actions to complete our transformation and to create a world-class organization. We've come a long way since launching our turnaround plan in 2015. We've made tremendous progress every year, and we will continue to do so in 2019.With that, I will turn it over to John to review Q1 and our revised full year guidance.
Thank you, Alain, and good morning, everyone.Let me briefly address the results released last week before I give you more color on the remainder of the year and our updated guidance.While we continued to make both operational and strategic progress turning the business around, 2019 did get off to a slow start. Consolidated revenues reached $3.5 billion, $500 million lower year-over-year, essentially driven by; the deconsolidation of the C Series, which started in Q3 2018, timing of aircraft deliveries both at BBA and BCA, which are expected to accelerate starting in Q2; unfavorable currency translation headwind at BT, as the euro weakened versus the U.S. dollar; and finally, the impact of the production ramp-up deferrals at BT. More on this shortly.Adjusted EBITDA totaled $266 million, flat year-over-year, and adjusted EBIT was $171 million, representing approximately 5% margin. While Aerospace segment earnings were in line or better than expected for the quarter, lower top line at BT and its related fixed cost absorption as well as cost estimate adjustments on certain challenging rail projects, resulted in overall earnings shortfall for consolidated Bombardier.Our free cash flow usage of $1 billion was consistent with our plan, and supports the intense ramp-up of the Global 7500, including the additional inventory required to grow the newly acquired wing operations in Red Oak. We also made significant investments in working capital at Transportation notwithstanding the slower ramp-up of certain rail contracts.Importantly, as we indicated on our February call, we continue to see free cash flow usage of $1.5 billion or better for the first half of 2019.On net earnings. Adjusted EPS was a $0.07 loss against a $0.01 profit for the same period last year, reflecting the lower EBIT for the quarter; the fact that we no longer capitalize interest on the Global 7500 post entry into service; and a one-time $63 million non-cash deferred tax adjustment related to our Q1 bond refinancing.It's important to note that the dilution from not capitalizing interest has a recurring impact of approximately $0.025 on EPS per quarter. This has no bearing on our cash interest costs and free cash flows. Simply, it reflects the evolution of how we account for the interest after an aircraft program completes its development phase.Looking now at each segment individually.Business Aircraft recorded a 7.6% margin on $970 million of revenues and 24 aircraft deliveries. During the quarter, aftermarket revenues grew 20% year-over-year, positively contributing to margins. This was offset by the negative impact of cost absorption on a lower top line and the higher cost and margin drag of very early Global 7,500 units.As we move into the second quarter, we expect sequentially higher aircraft deliveries and revenues. We also expect additional margin pressure coming from the drag of high cost Global 7,500 deliveries. Overall, margin for BBA in the first 6 month should normalize around 7%, before trending higher in the second half towards full year guidance of 7.5%.At Commercial Aircraft, revenues of $241 million were lower year-over-year, mainly on account of the deconsolidation of the C Series. This will be a factor in the second quarter as well before the year-over-year comparable normalizes in Q3. Beyond the C Series, first quarter revenues were lower as a result of fewer CRJ and Q400 deliveries year-over-year. This is simply due to timing of deliveries between quarters, as all our 2019 positions in the skyline are sold.Deliveries are expected to be -- to gradually recover to 30 aircraft for the full year. The annual outlook, both on deliveries and revenues, was revised down to factor in the anticipated closing of the Q400 divestiture. Revenues for the year are now guided at $1.15 billion, with no changes to the earnings outlook.For the first quarter, BCA recorded an adjusted EBIT of $22 million. This exceptionally strong first quarter resulted from very low aircraft deliveries, a strong aftermarket performance, the positive settlement of some RVGs and a better than expected equity pickup at the age of 20.For the full year, as aircraft deliveries track to plan and the A220 operations generate the expected equity pickup loss, we remain on track to our full year expectations.At Aerostructures, revenues for the quarter were $470 million, a 5% increase over the first quarter of 2018, driven by the higher third-party revenues, which now includes the A220 component deliveries. Internal work accounted for close to 60% of revenues, and is expected to increase as the 7500 wing operations contribute more meaningfully later this year.On the profitability side, first quarter adjusted EBIT margin was particularly strong at 14%. The stronger profitability stems from a favorable mix of mature program component deliveries. For the balance of the year, as the revenue mix shifts to newer programs, we expect the margin to trend down towards the 7% target for the year.Turning now to the rail business. Revenues totaled $2.1 billion in the first 3 months, down 5% organically over the prior year when excluding currency translation headwind. As we record revenues on a percentage of completion basis, a slower production ramp-up on certain large contracts contributed to reduced revenues in the first quarter. These production adjustments were designed to synchronize our material inflows to customer expected delivery dates and, importantly, protect working capital. These adjustments highlight the dynamic nature of the business, particularly as we navigate complex projects. In certain cases, we are aligning our production with the supply chain. On other projects, we're working with customers to match their ability to accept trains. These all affect the outlook and the pace at which we need to ramp up production through the next quarter.Taking into account the production reset affecting the first 2 quarters as well as currency headwinds, we revised our revenue guidance down by $750 million for Transportation. With production growth expected to be resuming midyear, revenues are now expected at approximately $8.75 billion, representing a 3.5% organic growth over 2018 on an FX comparable basis.At 3.9% margin in Q1, BT's EBIT was clearly disappointing. Lower revenues triggered a fixed cost absorption issue, putting pressure on margins and accounting for approximately half of the shortfall. Additionally, cost estimate adjustments resulting from the operating actions we are taking to complete certain critical legacy projects were recorded during the quarter, contributing to the lower margin. While we expect cost absorption headwinds to be resolved as production and revenues return to planned levels, we continue to monitor and manage legacy projects to reduce risks. In fact, we are focused on phasing out those contracts over the course of 2019 and 2020.In light of Q1, our adjusted EBIT outlook for the full year was revised down to approximately 8%. This would be the third consecutive year with margins at 8% or above. That being said, while it may take longer than originally anticipated, we remain focused on turning the corner on the challenging projects, while we continue to build a healthier backlog and streamline our operations.Let me highlight what this means to our full year consolidated expectations. Consolidated revenues are reduced to approximately $17 billion. Half of the reduction is mechanical, that is $250 million, because of the earlier closing of the Q 400 and $250 million for FX translation. The other $500 million is due to Transportation's revenue deferral, as described earlier.On EBITDA and EBIT, we adjusted our guidance to a range of $1.5 billion to $1.65 billion and a range of $1 billion to $1.15 billion, respectively. This is down $150 million, mainly because of the weaker Q1 earnings and full year currency headwind, both at BT.What is important to note in our guidance outlook is that we continue to expect free cash flow to be breakeven, plus or minus $250 million, this year. Simply said, the lower-than-planned inventory ramp-up associated with the rail business improves our cash flows, but is offset by the higher project costs. On the Global 7500, the other meaningful driver of our working capital this year, we continue to expect to go from less than a handful of deliveries in the first 6 months to the full 15 to 20 deliveries for the full year. This should support strong free cash flow generation as we exit 2019.Let's now discuss our liquidity position. We finished the quarter with $3.3 billion of cash on hand, including proceeds from the closing of the sale of the train business, net of short-term borrowings on our working capital facility and final bond redemptions. Days after the end of the quarter, we continue to hold strong liquidity, and the upcoming closing of the Q400 transaction will add another approximately $250 million in cash, increasing balance sheet flexibility.During the quarter, we also issued a new 8-year $2 billion bond to fully refinance the 2020 maturity and partially refinance $800 million of the 2021 notes. We also extended the terms of our revolving credit facilities to 2022. We now have a capital structure that allows us to complete the turnaround before any debt maturity, providing enhanced operating flexibility and expanding our ability to maximize value. Our next maturity, a $400 million Eurobond, now stands in May 2021, followed by the December 2021 maturity, reduced to $1 billion. In essence, we continue to retain a strong cash balance, providing us the right liquidity to manage through the plan.Now let me wrap up. With 2019 well underway, we are focused on executing to deliver on our revised guidance. Our priorities for the remainder of the year are clear: accelerate train deliveries, reduce inventory and phase out legacy projects; deliver on the Global 7500 backlog and come down the learning curve; integrate the Global 7500 wing production; and continue to streamline our cost structure across the businesses. We have a clear plan to deliver on each of those objectives, and we are confident that our actions are leading to the creation of a world-class organization.With that, operator, we're ready for our first question.
[Operator Instructions] Our first question is from Seth Seifman from JPMorgan.
Great. Thanks very much and good morning. I was wondering if you could talk a little bit more about the decision to divest part of structures. I assume based on what's going on there that Airbus will have to have a significant say in what happens to those assets. If you could talk maybe a little bit about that, a little bit about the timeline and a little bit about in terms of capital deployment, if this is intended to support your acquisition of the rest of BT back from CDPQ.
Good morning, Seth. Let me take this. Clearly, this is a strategic move. I mean, as I said, it's the next logical step in our turnaround journey. We have, after setting up the partnership with Airbus and selling the Q -- in the process of selling the Q at Downsview, and the train business, it was very clear now that what we want to do is, we want to zoom in on the businesses that are going to create the most value for our shareholder, Business Aircraft and the rail. So it was the -- the next right logical step. Clearly, Belfast is a great business with amazing capabilities, and they are supporting -- as you say, they are supporting Airbus and also Bombardier because we have a lot of work in there. So we will be working with Airbus to find the rest -- the next best potential buyer for this business. Clearly, we have a lot at stake here. So we're doing this move, first, because it makes sense. It enables us to right-size our footprint. This is very critical for us as we are driving cost reduction across the board. But it's also the right next move because from a capital allocation standpoint, aerostructure is a business that has got significant consolidation opportunity. And as I said, we want to focus on Business Aircraft and rail, so therefore we decided that it would be better for somebody else to drive this. So that is kind of our thinking around the sale of these assets.
Great, great. Thanks. And then just as a quick follow-up. I hopped on a few minutes late. I apologize if you mentioned it. But did you guys reiterate the 2020 targets this morning?
No. We -- at this point in time, we're not making any additional comments on 2020. I think our focus really today is on 2019. We still -- we built those objectives with a world-class organization in mind, and obviously we still very much believe in that organization and our ability to get there. But right now, I mean, we're early in 2019. As you very well know, we've made some adjustments to our outlook on BT. And so we want to get through those projects, we want to complete the year, get a nice ramp on the 7500 as well before we start giving any more precision on 2020. And that will come with the normal process, as we have typically done near the end of the year as we go through our detailed planning process.
Thank you. The following question is from Fadi Chamoun from BMO.
Thank you and good morning. Just a question on BT. I mean, their -- these issues seem to be coming out in kind of small increments here, cash flow issue in Q4 and now little bit of cost overrun and realignment of production. I just want to -- maybe, if you can characterize a little bit more of the visibility that you have into these problem and the scope of the issues that you're having. Are these the same handful of contract that you've talked about in the past? And do you feel that you have kind of control over where we are in the process with these contracts? And maybe lastly, your guidance for BT for margin for the year suggests that we go back to kind of that [ 9% ] on EBIT margin by the back half of the year. Is that the way we should be kind of thinking about it, being back on track by H2 of 2019?
Hey, good morning, Fadi. Let me take that one. So I think that -- let me just start -- yes in fact back the end of last year, we did -- with the expectation to start to deliver a lot of train hardware to a few customers. We talked a little bit about some of the challenges that we encountered as we went through the back end of last year. I would tell you that -- I'll make a couple of comments and try to pull this altogether. But number one is that we have and continue to make very good progress on those projects in the quarter. We continue to work very closely with customers. The reality is, that's a bit of a dynamic process and we can speak on various of these projects, the larger one that we're managing. We continue to make good reliability progress at SBB. We continue to ramp the rate for New York in terms of production output there, and we talked a little bit about that project at Investor Day. Crossrail was one about really synchronizing the integration and infrastructure. So we were able to work with Crossrail there in terms of decoupling the delivery of trains into new routes that were already available for service in their network. But all of that is dynamic and it all involves many adjustments with the customer on when and how they can actually take those trains and put them into service. And it also hinges on our management of those technical and other milestones to get them ready for service. So that's what you're seeing here. I would tell you that the progress is very good in the sense that Danny has with his team now met probably every one of our key customers. At the same time, they've also established what is the right production rate for us to work through and deliver some of that built-up inventory that we carry and at the same time, make sure that we don't have excess working capital through the year. So I think that's what you're seeing. And I'll just -- I'll add a couple of comments here. When you look at BT, you know that the revenue recognition that BT is on a percentage of completion basis. And so as a result, what you're seeing here is a reflection of frankly our throughput coming through the revenue line, and we've built a machine here with the capacity going into '19, I'd say a machine that can deliver $2.3 billion plus per quarter of revenue or throughput. And because we're making some decisions here to re-synchronize and manage a little bit better the production, you're seeing some of that capacity not being utilized in the first half of the year, and that really is what generates the $0.5 billion production adjustment to revenue, the remaining $250 million coming from FX. So I think that's the way to think about where we are. I think you asked also a question on -- we expect that -- kind of that overall revenue rate to start to recover, particularly in the second half, as we get back to peak levels of output. Then you asked a little bit about the earning side as well. So maybe just I'll take that one and here is the front end of the year, again, connected with this throughput and revenue ramp, it has some unused, underutilized capacity that comes at a penalty on absorption on the costs associated with having the infrastructure ready. And so we do take a haircut, particularly in Q1. We'll see a little bit more drag in Q2. I think it will start to become fairly neutral, if not even a tailwind, in the second half. But we'll see how that rate improves before we make that call. I think that's the absorption drag in the first half of the year, part of that earnings adjustment. And then, frankly, I think as we go through the decisions that are very much focused on hitting customer commitments, very much focused on putting strong, reliable performing trains in service, we are making some calls on additional costs. We are deploying the right resources and the right people to make sure that we hit those marks on delivery of the finished goods that we have and hitting the technical milestones. As we do that, we've recognized in the first quarter some of the costs associated to those projects. And just let me make a comment on that. By and large, those large challenging projects have now come to basically zero margin. And as a result of project accounting, what we do now is we -- as we identify the costs necessary to complete, we take -- and make the decisions and take the actions, we recognize those cost estimates into earnings in the same quarter. They're not -- they're no longer deferred over the completion of the project because it is zero margin project. So you're seeing some of that. So I guess, to conclude on this is that, you're going to see depressed Q1 margin as you have for absorption, for the cost estimates that we've booked. You will see some continued -- I think a little bit of drag in the second quarter, but I think we're working through it. And then you're going to see a more balanced and a stronger producing or performing train business in the second half. And I would just conclude by saying we've gone now probably 2 solid years with 8%, 8.5% margins across the board at BT. And -- the portfolio does have some volatility from time to time, given it's a project business. But largely, we've shown good performance in that mid-8 range. So that gives me confidence about this business to continue to improve as we work through the more challenging projects.
Okay, that's helpful. Thank you, John. But just a quick follow-up. Can you share the catch-up cost adjustment taken at BT in the first quarter and also the Aerostructure? Is there an order of magnitude revenue EBITDA associated with the plans that you've kind of announced to sell that we can kind of think about?
So on the first, and I'll ask you to repeat the second question in a second. But on the first question, I mean, we don't typically get very specific, but if you look -- I mean, we're about $100 million or so off of the number that we would have liked to print in the first quarter for BT. So largely, I'd say, that's about 50% absorption and 50% cost estimates.
Okay. And then the other question was, if you can share with us the order of magnitude revenue and EBITDA of the Aerostructure assets that you are trying to sell?
Yeah, sure. They're -- it's about half of the Aerostructure segment right now, by and large, and we'll see exactly the scope of the final terms of any kind of a deal, but -- roughly half.
Thank you. Following question is from Walter Spracklin from RBC Capital Markets.
Yeah, thanks very much. So just coming back to the 2020 guidance. You mentioned it no longer applies. I'm just wondering -- and I can understand why, on Aerostructures and even commercial, with the divestitures, things have changed quite dramatically. Is it fair to say that it's just the BT that you're waiting to see how that plays out in terms of going into 2020 and the biz jet guide is still in line? Or should we look at both the biz jet guidance for 2020 as well as the BT guidance as being no longer applicable?
Yeah. You know what I mean, I want to be careful as -- I'm not suggesting it's no longer applicable. What I'm saying is that we're really focused on 2019. And I think you'll appreciate we're coming off the year on adjustments in the year, as you said BT related, the rest, as I said, either FX or M&A related. So I think we just want to be prudent here and kind of be thoughtful before we get into any precision on 2020. In fairness, I mean, those 20 objectives, I think are very sound objectives and they reflect what we believe the potential of the business is and continues to be. It's a question here now of timing and precision as to what and where we'll be further on in 2019. Of course, largely related to this conversation we're having on trains, we also want to see a good pace at 7500. We remain confident on our ability to ramp that program up. But in fairness, I think the precise 2020 guidance or any kind of detail relating that [indiscernible] conversation. That will be put into the back end of the year as normal process. As far as an overall set of objectives for the business, they remain very valid objectives. The ability to hit them in 2020 dead on, we'll see a little bit later in the year. Overall, I think we feel confident that we have the same business we have always had in mind and when we first set out in 2015 and that we continue to work towards year-end '19, and will give you more color as we go.
Okay. On Bombardier Aviation, with the streamlining, it makes a lot of sense now with the divestitures that you had and intend on making to streamline that into one. Are you expecting as a result of that streamlining any -- or can you provide any color in terms of cost reductions, efficiencies gained, manufacturing sites closed, anything along that line that would -- and even a charge, if you're anticipating a charge associated with all of that? Or is that something you're still contemplating?
Yeah, thanks. I'll just -- I'll follow-up on this one. I think -- let me put some context here. We started a conversation at the end of last year in the fall about an enterprise-wide productivity focus that we were pushing the organizations through. And I would say that we started by integrating our engineering workforce in Aerospace and that has been ongoing and progressing very, very well. Now, this is the next logical step. This is all one connected conversation about making a more efficient, streamlined business. It is a one of the paths to take to implement some of the decisions that we started to take last year. And so consider this to be a way of us executing on those efficiencies and synergies that we've talked about. So, at this point in time, no new numbers and no new expectations we have than about $250 million of eventual run rate savings on our efficiency programs. I think this flows as one of the important objectives or initiatives to get there. And I would say that with respect to overall charges -- we also said in our guidance, in 2019 we set out a $250 million kind of bookmark for restructuring costs. I think that at this point in time, we remain on track with that kind of an envelope. If there is anything -- and of course, David and his team will now be getting into the job of actually designing and transitioning the organization. There'll be opportunities that come from all of that. So we'll assess those as they appear and as the team defines them. And of course, we'll give you any adjustments to those plans as they come. But at this point in time, we feel that this is all part of the same conversation we had initiated last year.
Okay. And last question here is on the 7500. See, you reiterated your 15 to 20 for this year and 40 -- I guess, implied 40 for following year. You've had some chance now to kind of check in on the ramp-up. Anything that's coming out of the ordinary? Any areas of, like, concern in terms of that ramp-up, targeting the 40 in 2020 and the 15 to 20 this year? Just an update -- general update there would be appreciated.
So far, things are progressing pretty normal, I would say as a ramp-up of a very large business aircraft. So the team is working hard. As we've said before, we have all the material into the system for these 20 aircraft this year. We're already starting to bring material for the 2020 aircraft as we speak. There is normal ramp-up, manufacturing quality issues that you see in every single large new aircraft program. But by and large -- I think that so far things are progressing well for delivering 15 to 20 this year, and next year the target is 35 to 40 and we're still driving towards that.
Thank you. Our following question is from Rajeev Lalwani from Morgan Stanley.
Two questions for you, relatively quick ones. First on the structure side. John, earlier you mentioned how the plants cover about half of the segment. Can you talk about your ability to move that work to other facilities? I mean, it seems like earlier you were pushing for really growing that structures business and this seems a little bit at odds with that. And then the second one. As far as the headwinds at BT that you talked about, to what extent do they carry into next year? It seems like some of it was related to clean up for this year.
Good morning. Let me take the first one. Clearly, what we've said is like the -- our aerostructure capabilities were -- very pretty amazing. But after reviewing multiple options for that business unit, we came to the conclusion that the best way for us to optimize capital allocation in a very disciplined way, the same way that we've done for like 4 years straight now, was to keep some of our core aerostructure capabilities with our Montreal, Mexico and our new Red Oak operation for the wing of 7500 and divest our businesses in Belfast and Morocco. So, again, I want to be very clear. I mean, these are like strategic moves that will enable us to optimize our footprint -- manufacturing footprint moving forward. So that's kind of where we are. On the train side, I think that we've been pretty clear. I mean, we're managing through our way right now through some challenging and complex legacy projects. These are the same project that we shared with you in December. We're going through them, but that's proven to be a little bit more difficult than we thought. But the team has a much better understanding of the issues. We are monitoring progress, and we're seeing progress, as John said. We -- what we said that we would do in December is exactly -- we're exactly on track for that. But it is possible that some of these challenges on these very large and complex projects could flow through to 2020. So, again, it's a bit earlier to talk about because given the fact that we just revised the guidance here largely because of BT and because of these projects and that wave of big projects that we're managing out right now, I would think that it's prudent to take a bit of time and monitor the situation over the next few months and see where we are going to be landing in 2019.
Thank you. The following question is from Robert Spingarn from Credit Suisse.
Good morning. I'll probably rehash a little bit of what's already happened so far today. But to summarize, if I've got this right, the salient points I think for the investment community is, prior 2020 targets are no longer clear and are effectively suspended, we've said that. You have the potential to eventually hit those targets, but not necessarily on time, yet, you've sold and are selling some of the businesses that would have contributed. So what I'm curious about is, where the lack of visibility is coming from. We understand that transformation plans are hard, and it's become clear that Mr. Di Perna has become a key strategic asset for you because where he goes, change seems to follow. So my questions are: Why should we have greater confidence in these numbers? And how do you regain the confidence of the Street?
Let me take a shot at this, Robert. I think that -- first of all, I think the path forward is clearer today than ever. We're going to have like 2 strong pillars. Bombardier Aviation, that would largely be focused on business aircraft, and that is the business that we believe will create the most value for shareholders moving forward, and we've been taking some very decisive actions over the past 3 years to put us in the position to be able to announce this, this morning: the Airbus JV, Q400 Downsview. So I think that it's very clear -- very clear, where we are heading on the aviation side. There's no doubt now. No doubt about this, and that's what we are announcing this morning. It will be led by David Coleal. It will be a streamlined, a right-sized, a very focused organization, driving superior performance. So we're building a high-performing organization in aviation because now we can. And we have reached that very critical point where we can consolidate, integrate and build a great business. Now on the train side, we had a bit of a setback. It's not because the business is not good. We have $34 billion of backlog. The quality of the backlog is healthier today. I mean, we've been winning great projects on [indiscernible] services that will improve our returns moving forward. But right now, I mean, as we manage our way through this [ inflow ] of legacy complex projects, they have come with some additional challenges that we are addressing right now. So it has been a little bit of a setback. I mean, we are disappointed by that. But we are fixing it. And as you said, Danny is coming to BT with a very strong industrial background. He has got a strong engineering manufacturing background, great supply chain skill, he is very good with customers and he has experience in managing large projects. So we've got the right leader in the job at the right time. He is surrounding himself with great talent. He has reviewed the project one-by-one. So he has got a much better understanding of where we are and how we will continue to create value. So our focus right now, Robert, is to manage our way through these projects, and once we're past these projects, we will continue to keep adding value and creating value at BT. Again, this is a business where we have driven 300 basis points of margin expansion over the past, like, 3 years. So we've already created a lot of value. We knew that these projects would be challenging, and we've advanced the design phase -- it's largely completed. We have ramped up operation on the -- during the past 2 years. We've built up a lot of -- I mean, our inventory level is very high, and now we're working with customers to make sure that we deliver these project. It's kind of a bubble. I mean, it's a big wave that we have to manage our way through it. It's not that the business is broken. It's just like we have a number of large complex projects coming through our pipeline all at the same time so we have to manage this. And that's the reason why we're a little prudent this morning. It's not because we've, like -- where we have lost confidence in BT. Quite the contrary. And let me just finish on the 2020 targets. I would say these 2020 targets were not guidance. They were like -- put there to really create and drive the team to create a world-class organization at Bombardier. That's what they were -- that's the reason why they were put there. And they were put there because we really believe that we could achieve them. And there's a lot of put and take here, but the fact is the team here is still driving exactly that, the creation of a world-class organization at Bombardier. So the reason why we are prudent this morning is because given the fact that we just had a bit of a setback in BT, we want to see how much progress we're going to be doing over the next few months and make sure that we land BT at the right place at the end of 2019 so that we can properly guide in 2020. But having said all of this, we believe the asset at BT are very good, the asset at Bombardier Aviation are very good and you should expect top line and earnings growth in 2020, with solid operating free cash flow generation.
Okay. Well, Alain, thank you for that. I do think it is prudent to step away from the 2020 numbers based on what's going on. But I'd like to ask you with regard to BT, what is your visibility window? How far forward, 3 months, 6 months, can you see the numbers you can deliver with some level of certainty? Just to give us an understanding of how we should calibrate the numbers you do give us.
I think that over the next, like, 3 to 6 months, we'll have a much better understanding. Remember what we said. The first half was going to be a bit more challenging and we were going to start really recovering and delivering in the second half. So we won't do that. Therefore, we provide additional numbers for BT. But let me just say that. When we talked to you in December, we talked about like 5 projects. And we said that 3 out of 5 were going to be completing deliveries this year. That's New York, and we're right on track; that's LOTRAIN in London, and we're right on track. We have one software in all item that we have to complete, and then the deliveries will start. And then we have Crossrail, and we are also on track. And remember, on Crossrail, it was linked to the infrastructure progress and we decoupled that late last year. So these 3 projects, unless something goes really wrong, we should be able to complete the deliveries this year: New York, LOTRAIN in London, Crossrail in London. The next 2, we said that they were going to really be completed over -- largely over 2020 and maybe a bit of 2021. [indiscernible] and this is right on track. And the other one, which is like the biggest project to complete right now, it's SBB in Switzerland. And SBB in Switzerland is an amazing train; very complex technology. Here is the good news. The good news is, this train is already in service right now. I mean, it's the early days, and think about this like as a new aircraft coming into service. I mean, you've got some teething issues. So far what we're seeing is there is no major technical issue with the train. The team is addressing that. We're working very closely with the customer to make sure that they accept the train. And once we receive customer acceptance, then we will start delivering this train. So that's where we are on these 5 projects. But you will understand as well, as you have a wave of very large and complex projects like that, it put pressure into your entire -- in your entire production system, and that is what John explained. We have -- we took the time to do proper load leveling, okay, of our production system, better synchronizing the input with the output, in line with customer requirements. So I would say, stay tuned. We think that we have the team, has a much better understanding. They are taking the right action. We added resources. We increased capacity. I think that we know how to manage large industrial projects. Danny is very good at this, and we will monitor progress and will be able to keep informing you as we progress. And that's our intention here. We're taking a little bit -- it's a little bit of a prudent approach, I would say. But I think that right now is the right one. We are not losing faith in that business. We believe that this is a great business with great capabilities, and the fact is, we have about 500 projects on the go. So we have a big wave of large, complex projects to manage, but the rest of the business is solid.
Operator, we'll take a couple more questions. And we'll please ask you to limit yourself to one question, please.
Thank you. Our following question is from Turan Quettawala from Scotiabank.
Yes. Hi, good morning, and thank you for taking my question. I guess, I just want to talk a little bit about free cash flow. So I guess, John, if you look at the second half here, you probably need to generate about $1.25 billion to $1.5 billion of free cash flow. And if I look back over the last maybe 5 to 10 years, maybe just one year that you've done that. So I understand that there is CapEx probably that's going to help to the tune of $200 million to $300 million. But I'm just trying to understand what is the big working capital move in the second half. Can you give us some clarity on why you're still confident that happens? And also maybe if you could break that down somewhat between BT and BBA, that will be helpful. Thank you.
I'll just give you some view on how we see free cash flow here. So remember that -- maybe just start with the adjustment at BT. So just -- the way to think about that, I mean, because we have a free cash flow breakeven plus/minus $250 million guide from the fall and we maintain that. And we did make adjustment for the BT. So I'll give you some context there and we can talk a little bit about the second half in a second. I would say that the way to think about BT is that this is a move that actually -- on the one hand, it does support working capital management. It makes sure that we burn off a lot of the excess inventory and make sure that, as Alain said, we have a level load coming out of the back end of the year here. So that's the benefit of the production adjustment. There is a little bit of offset when you have typically progress payments and then we also signal bit of higher cost to complete. So overall, I guess my message there is that, the adjusted guide at the BT we feel are kind of overall relatively neutral to free cash flow performance on the year. And, as Alain said, we still expect to move a lot of that inventory out particularly on the 3 of the 5 big contracts. So that will generate cash flow. That cash flow generation is also consistent with the recovery that we signal, $300 million to $400 million from last year. So I think that's one differentiating item that you need to think about as we carried a lot of finished trade inventory in the end of '18 and that will also, by managing properly the production loads here and by continuing to focus on the delivery to customer, I mean, these large contracts, that will release some cash and working capital from inventory differently than it would in other years because we didn't have that kind of a bubble situation regularly. Then I would say that you have a consistent capability of generating, and we've shown that over the last couple of years of generating $900 million or more in the fourth quarter. So there is a seasonal cash generation that we've been able to demonstrate well, from seasonality and also from managing strong outputs in the end of the year. So I think that is another element to keep in mind. Overall, I think that the remainder of the year's focused on delivering 7500. So, again, think about the fact that we'll have a lot of aircraft being delivered in the third and fourth quarter, particularly on the 7500; these are large big-ticket items. We've been building inventory here for the last couple of years, in fact, and obviously we're fairly enhanced in terms of ramp today. So those are things that really will color the back end of the year here. I mean, we have acceleration at trains. We have output from projects with pent-up inventories. We have 7500 ramp and then a release through inventory. And then we have seasonally strong back end of the year on cash flows that we expect will continue to be intact. And of course, we're in a transition year, so we're monitoring all of those very closely. There is no perfection. We did [indiscernible] with a plus/minus $250 million, and you'll appreciate that that's why we did it so that we can run the business the right way.
Thank you. Operator, we'll take our last question, please.
Thank you. Our last question is from Ron Epstein from Merrill Lynch. Please go ahead.
Hi, good morning, guys. It's Kristine Liwag dialing in for Ron. Why divest Belfast and Morocco now, when the large programs in Aerostructures like the A220 and Global 7500 are finally reaching positive momentum? I would have thought that profits from Aerostructures would have really helped your cash profile the next few years. Were there any R&D or capital requirements in the future in Belfast that would have made you decide to exit now?
I think that this is a strategic move. It has -- and the timing is right. And the -- you need to take the step back here and understand what we are trying to do or what we are saying. What we are saying is, we can now finally zoom in on the businesses that will create the most value for shareholders and its Business Aircraft and Rail. When we look at where we will invest our capital moving forward is in these businesses. And in doing so, we wanted to protect our core Aerostructure capabilities, and we've been looking at multiple options, and it became very clear to us that the center of gravity for our business aircraft work related to aerostructure is in Montreal and in Mexico, with some in Belfast. So we want -- that's what we wanted to protect the most. And then, as Belfast are a great asset, really standalone businesses, it's the one that makes the most sense for us to divest. Clearly, we are divesting out of commercial, you're seeing that. I mean, The Airbus joint venture was a first step in that direction. The Q400 is another step in that direction. The sale of Downsview was also a move in that direction. We want to focus on Business Aircraft moving forward. And to be honest with you, we did invest in -- in Business Aircraft, in Aerostructure. We just acquired the wing business from Triumph. So that's where we're putting our chips moving forward, and it's very clear that this is a strategic move and that's the reason why we're doing it now because we're -- we can do it now.
Thank you, everyone.
Thank you. The conference has now ended. Please disconnect your lines at this time. And we thank you for your participation.