© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning, ladies and gentlemen, and welcome to the Bombardier Third Quarter 2020 Earnings 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, Corporate Strategy and Investor Relations for Bombardier. Please go ahead, Mr. Ghoche.
Good morning, everyone, and welcome to Bombardier's earnings call for the third quarter ended September 30, 2020. I 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 financial performance of the corporation. There are risks that actual events or results may differ materially from these statements. For additional information on forward-looking statements and underlying assumptions, please refer to the MD&A. I'm making this cautionary statement on behalf of each speaker on this call. With me today is our President and Chief Executive Officer, Éric Martel; and our Chief Financial Officer, John Di Bert, to review our operations and financial results for the third quarter of 2020. I would now like to turn over the discussion to Éric.
Well, thank you, Patrick, and good morning, everyone, and thank you for joining us this morning. As you know, the COVID pandemic continue to have a broad and deep impact on the global economy and in our industries. Despite these challenges, I am encouraged by our progress and by the market stabilization we've seen in the third quarter. While there is still a great deal of uncertainty as to the path and timing for a full recovery, I am proud of how our teams absorbed the initial impact of the pandemic and how we quickly adapted to the new reality. This includes taking all the actions necessary to protect the health and safety of our employees and communities and working together with our customer and suppliers to not only navigate through the crisis, but also to prepare for the recovery and to build momentum as we complete our strategic repositioning to a pure-play business aviation company. On that, one that is capable of delivering solid financial performance in any market conditions. Of course, none of this would be possible without the hard work and dedication of our incredible people. So this morning, I want to thank our employees for their ongoing support and dedication to the company, to each other and to our customer during this extremely challenging period. Throughout the pandemic, our people have risen to all challenges. And that continued in the third quarter as we made solid progress on each of our priorities. This includes securing additional liquidity with a new $1 billion senior secured credit facility, keeping our strategic transaction moving forward and taking the right action to improve cash performance, which remains our highest financial priority. Notwithstanding the uncertainty created by the pandemic, we are continuing to target breakeven cash flow for the second half of the year as we achieve key milestones and ramp up deliveries across the business. At aviation, we delivered 24 aircraft in the third quarter, including a record 8 Global 7500. Global 7500 deliveries are expected to further accelerate in the fourth quarter to approximately a dozen, a 50% increase over the third quarter. This delivery acceleration during the second half of 2020 demonstrate our continued progress ramping up the program toward a more stable delivery profile. The high level of deliveries concentrated in the last 6 months of the year will outpace orders as we execute on our multiyear backlog. As we look at the market overall, we are confident that we took the right action earlier this year to realign our production rate to reflect the COVID impact as we expect the market to remain stable for at least the next year. Long term, the emerging trends are more encouraging. Pre-owned inventory level remains healthy, and we're seeing sign of new interest in private air travel and the enhanced safety it provides. In the third quarter, order activity improved significantly over Q2, especially for our Challenger aircraft with their market-leading reliability and performance. From an aftermarket perspective, with utilization rates now hovering 85% of pre-COVID level, we're seeing some impact on our Smart Parts program. However, all service centers are operating at near-normal capacity. And longer term, we still see aftermarket as a strong growth opportunity. To position ourselves to capture that growth, we've recently taken a number of action. These include reaching an agreement to acquire full ownership of our Berlin service center; partnering with Jetex to establish an enhanced FBO experience as part of our Singapore expansion; establishing a new service center in Australia; and appointing new leadership to oversee our multiple expansion project, including our Biggin Hill facility in London. At Transportation, our focus has been on improving project management and making the business more predictable. With our new project management office firmly in place, we are making steady progress, implementing the right tools and process to better manage commercial and technical requirements. This will provide greater visibility, better resource planning and lead to a more predictable -- to more predictable results. While the impact of this effort is most visible on early-stage project, we're also seeing improvement on our legacy projects, including our large contract in the U.K. and Germany where we expect delivery to accelerate in the fourth quarter. We also expect to see an acceleration of new order as transit agencies begin to look beyond immediate COVID-related operating issue and award contract necessary to support their long-term requirement. With respect to our strategic divestitures, we remain very much on schedule. The sale of our Aerostructure business closed last week and the definitive agreement we signed with Alstom in September and the approval of their shareholder last week put us on a solid path to close the BT sale in Q1 2021. This, of course, assumes the few remaining regulatory approvals are received in time. With the sale of Bombardier Transportation nearly completed, we're looking forward to our future as a pure-play Business Jet company. And I want to spend some time this morning talking about our strategy and path for creating stakeholder value. Today, I'll give you a high-level overview. And early next year, after the BT transaction closes, we'll host an Analyst Day where we'll provide a detailed plan, updated market outlook and give you an opportunity to meet, hopefully, in person with the leadership team. Again, we are very excited about our future as a more focused company and about the opportunities to grow our aftermarket business and leverage our industry-leading product portfolio. At the same time, we are fully aware of the challenges we face. This includes significant pandemic-created headwinds. Our company, like most aerospace and transportation company, took a big hit in 2020. Business Jet delivery, while recovering at a much faster rate than Commercial Aircraft deliveries, are still down by more than 30%. And as I said earlier, we expect it will take a year to recover to pre-COVID level. Looking at the number, the financial impact of the pandemic is roughly $2.25 billion on liquidity. This means we'll start operating as a pure-play Business Jet company with $4.5 billion of net debt versus the $2.5 billion we estimated when we announced the BT sale. Addressing this challenge is going to require 2 things. First, we'll need an effective debt management strategy, one that minimize interest costs while creating runway to execute our strategy. Second, we're going to have to learn how to operate profitably in the current market condition. In other words, we need to have a cost structure and a backlog that allows us to make money at a current market condition, delivering 100 to 120 aircraft a year. With these 2 action, we ensure a sustainable business in the near term and better position the company for profitable growth when the market turns. After conducting extensive deep dives into BA's operation, the opportunity and path forward is clear. While the company has undertaken a number of restructuring action over the past few years, the truth is we still have an infrastructure design to support twice the capacity of the current market. This needs to be addressed, and we are already taking actions. This include establishing a new transformation office to bring a clean sheet mindset to address our cost structure. This will be a comprehensive company-wide initiative. It is about reenvisioning how we operate, ensuring that we have the right scalable infrastructure to support growth at a much lower cost. And finally, it's about building a company that can deliver stable and predictable returns. We look forward to talking in details about our plan for achieving this goal in our debt management strategy at the next year's Analyst Day. Okay. Let me stop here and turn it over to John to discuss detail of the third quarter results and the fourth quarter outlook. Over to you, John.
Thank you, Éric, and good morning, everyone. We've made good progress over the last few months towards our goal to reshape our balance sheet. Starting with the implementation of the HPS loan to bridge short-term liquidities resulting from the pandemic, to closing the Aerostructures and CRJ transactions, thereby fully exiting commercial aviation and, importantly, the signing of the SPA with Alstom now supported by their shareholder vote. These achievements move us closer to becoming a more focused business aviation company and provide flexibility as we look to align our capital structure to our strategic and operating plan going forward. While we are still assessing the optimal deployment strategy for the proceeds of the sale of BT, our goal is clear. We seek to strike the right balance between maintaining financial flexibility to operate the business through a recovery and minimizing our debt service costs. To achieve this goal in the current post pandemic -- post-COVID environment, we will need some time and, therefore, one objective will be to create the appropriate debt maturity runway. This additional time will allow us to realign our cost structure with current markets to generate cash even with low volumes, to fully realize the earnings potential of the Global 7500 by progressing on the learning curve and finally, to leverage our best-in-class products and services to benefit from growth as market conditions recover. We are confident that achieving these objectives in the next 2 to 3 years will provide the business with a stronger financial foundation. More on this as we will close the BT transaction early next year. Turning now to Q3 results, which reflect COVID-related disruptions gradually subsiding and business returning to more normal operations. Total revenues reached $3.5 billion, split $2.1 billion at BT and $1.4 billion at BA. For aviation, these revenues include 24 Business Aircraft deliveries, a lower delivery count over the prior year given production rate adjustments. Highlighting this quarter's results in business aircraft is a 10-year, year-over-year revenue -- is, excuse me, a 10% year-over-year revenue growth. This is driven by the significant dollar contribution of 8 Global 7500s delivered, partially offset by the lower services revenue due to reduced flight activity impacted by COVID-19. Against the second quarter, this growth represents a 23% revenue increase for Business Aircraft. Finally, the wind down of commercial aviation activities following the completion of the sale of the CRJ program in the second quarter also impacted comparability of results versus Q3 2019. At BT, revenues for the quarter, excluding currency translation, were 5% lower year-over-year as BT operations gradually recover from disruptions due to the COVID-19 pandemic. On earnings. Total adjusted EBITDA for the quarter was $176 million, and the adjusted EBIT was $51 million. At BA, quarterly adjusted EBITDA and adjusted EBIT margins of 8.1% and 1.4%, respectively, reflect lower volumes, lower service revenues combined with lower contribution of early Global 7500 units as we progress down the production learning curve. At BT, adjusted EBITDA and EBIT margins were 4.3% and 2.9%, reflecting an unfavorable rolling stock contract mix with approximately 1/3 of revenues not contributing to earnings. While this is significant, a number of these major contracts are moving past the engineering and homologation phase and into fleet acceptance and regular delivery phase, which should reduce future variability of results. Our consolidated free cash flow usage was $706 million for the quarter. While BT free cash flow was nearly breakeven, aviation's working capital increased in preparation for a sequentially stronger aircraft deliveries anticipated in the fourth quarter. The new $1 billion secured facility was set up to support the seasonal surgeon inventory, particularly as we accumulated excess inventories ahead of our production rate reductions due to COVID. Worth highlighting is the approximately $170 million of cash usage during the third quarter tied to RBG's and the wind down of the reverse factoring facility used over prior years to ramp up the 7500. In some respect, these outflows can be considered nonrecurring and the paydowns do reduce non-trade liabilities. Also included in our Q3 cash burn is approximately $170 million of cash interest costs and corporate expenses. These cash costs would be expected to reduce materially once we deploy the proceeds from the sale of BT and downsize our corporate overhead. As we enter the final quarter of 2020, pro forma liquidity remained strong at approximately $3 billion when including the proceeds received last week from the sale of the Aerostructures business. And we continue to manage our business towards free cash flow breakeven for the second half of the year. This implies approximately $700 million of cash generation in the fourth quarter. This would further strengthen year-end liquidity mainly driven by the release of working capital. At BA, this expected working capital release comes from peak seasonal deliveries, including accelerating Global 7500s, which are offsetting lower aircraft volumes on remaining platforms. Overall, however, BA's Q4 cash flows are expected to be lower than last year as we anticipate approximately $160 million free cash flow headwind coming from the wind down of the remaining reverse factoring facility balance. At BT, while Q4 margins are expected to remain low, free cash flow generation is expected to be in line with prior years as we catch up on key projects with accelerated deliveries. Strong order intake should also be an important contributor to transportation's fourth quarter cash flows. With $672 million of cash on its balance sheet as of September 30 and with anticipated cash generation in Q4, BT should be in a position to fully repay its revolver by year-end and leave enough cash on its balance sheet to redeem by the time we close the sale to Alstom, a large share of the equity injections made earlier this year. When factoring those redemptions, we expect to be within a couple of hundred million dollars of the year-end minimum cash condition in the SPA with Alstom. As such, we continue to expect the net proceeds from the BT sale to be approximately $4 billion. This said, we are mindful of the continuous evolution of the pandemic and any large-scale lockdowns could negatively impact our expectations. Before I conclude, a few words on the significant changes to our financial statements following the signing of the SPA with Alstom for the sale of Transportation. Based on the SPA and the positive shareholder vote in support of Alstom's acquisition of BT, we now report BT as discontinued operations. Our balance sheet position and results are now segregated, giving investors a clearer view of aviation's balance sheet. This increased visibility shows that other than retained RBG's, aviation carriers limited trade liabilities. I also want to take this opportunity to mention that the continued operations results reported to date are not representative of future earnings. They include the full corporate costs, including both BA and BT, and the debt service cost of the current capital structure before any debt paydowns. Obviously, as we reshape the capital structure and address our corporate cost structure, these charges are expected to reduce significantly improving future earnings. To wrap up, we are moving closer to becoming a pure-play Business Aviation company. We have and continued to surmount the challenges caused by the pandemic and have secured the liquidity to do so. There are key actions and decisions to take in the coming months. And as we converge on the right strategy, we will look to create a sustainable business that can create long-term value. With that, operator, we're ready for our first question.
[Operator Instructions] Our first question is from Myles Walton from UBS.
I was wondering if you could maybe talk about the needs for investment of BA after as a pure-play stand alone. And Éric, I know you mentioned the facilitization about twice the size you need for that 100 to 120 per year aircraft production, but more on the investment side and the engineering and the R&D, I guess I'm thinking that the business maybe needs still $150 million to $200 million of CapEx in R&D. Is that the right number? Or is it significantly higher or lower?
Yes. So maybe I can take that one, John, if you're okay. So thanks, Myles, for your question. Our product portfolio right now has been refreshed, of course. And I think we feel very comfortable with where we are. And this being said, we will definitely keep certain investment like for the next few years, we're thinking somewhere around a couple of hundred million dollars. We will provide debt reduction to position for future investment, of course. This is going to be our priority. But clearly, we will continue to target investment equal to depreciation in the long run. But I would say that today, I think we feel pretty good. Our complete Global brand has been refreshed very recently with the introduction, of course, of the 7500, 6500 and 5500, and that's going to be important. So yes, we're thinking of other products, some refresh on product. But over the next few years, I think we'll definitely be concentrating our effort on debt reduction.
Okay. And just maybe a follow-up. On this 100 to 120 aircraft per year, is that a level that you're trying to give me a breakeven against on a free cash flow basis? And how quickly can you get there?
Myles, I guess, for us, the 100 to 120 aircraft expectations kind of consistently matches to where we see the environment today. And I think that the real focus there is going to be on cost reduction. And so the goal for us is to target significant cost takeout over the next year or so. So that allows us to find a way to be at least at those levels, breakeven or better.
Yes. We've talked about cost reduction program. And clearly, I'm directly leading this initiative right now. We've kicked it off a couple of weeks ago. Just to give you the magnitude, we have probably about 100 people working at every one of those initiatives right now to make sure that we have -- we are moving fast and that we understand exactly where we're going to be making those gains. So we're making -- we're moving at full speed. We are very structured in our approach right now. And we have 7 work streams covering all the elements of the cost base that we have.
A following question is from Walter Spracklin from RBC Capital Markets.
This is Ryall Stroud calling in for Walter from RBC. Just to start off, are you seeing evidence that corporations are starting to direct more dollars towards business jets as a result of COVID-19 and in an effort to have executives maybe avoid commercial travel? And is that trend in the Q4 delivery acceleration that you're expecting?
So let me say it. Clearly, we've seen some enthusiasm in the market recently. Clearly, there is new customer coming in, not really in the corporate world yet, but mainly so far, I would say, more at high network individuals that are buying our airplane. Some people that we've never talked before. But at the same time, I think we've seen mainly also across the board all the fleet operator, seeing a lot of new people coming to them to buy different program that they are offering. So there is clearly new customer coming to our business, either directly or indirectly via the fleet operator. So this is encouraging. And I think a lot of them are, of course, concerned about flying commercial. So that's why probably we see a much faster pickup in our industry right now compared to Commercial Aircraft.
Okay. That's helpful. And then you commented in -- or commented that the acceleration of deliveries in the second half of 2020 is expected to outpace quarters in the near term in the MD&A. But from what you can tell right now, do you see the first half of 2021 deliveries exceeding what was done in the first half of 2020?
I think right now, what we're seeing is we've adjusted the rate this year. And as I said earlier, we are planning to keep those rates going into 2021. And we'll see how fast the market recover. It's important in this industry to have a good backlog in some program. We want to refill the backlog and we're taking the opportunity of having the rate down in the market being good right now and picking up at a good pace to refill backlog, keep the rate lower. And we need to figure out our company to be able, as I said, to make money, be profitable with a 100 to 120 airplane. And when the market picks up, we need to have also build the agility to be able to come back and increase the rate when the market will allow us to do that. So that's what we're heading for next year.
A following question is from Seth Seifman from JPMorgan.
I was wondering, when you talk about the increased demand from fleet operators, which segment you see that impacting the most in terms of the size of the jets?
I would say right now, we've seen clearly activity in the medium segment, but also in the large segment. So I would say between these 2 right now, we've been seeing activity.
Okay. And then just as a quick follow-up, John, when all is said and done, exiting structures and BT. How should we think about the remaining pension obligation for the Aviation business?
Yes. Thanks. That's good question. So we -- another tough year. I mean it seems that it's been perpetual now for the better part of a decade. It's not more that the rates have been tough on pension plans. We started the year, I think it was somewhere in the neighborhood of probably $1.25 billion when we did the deal. And today, I'd say that if you look through the results, you see about a $1.6 billion liability. About $1.4 billion change, I think, is the deficit on the plan itself. And then there's some post retirement, other benefits and things that we have on the balance sheet for maybe a couple of hundred million. So all-in, at this point, we're kind of $1.6 billion. We'll see where things take us as I guess the world shakes out here over the next year. But I think one, I'd say, very positive note maybe is when we completed the deal here with our Belfast operations. There was a significant pension plan that was long dated there that we've been able to move with the assets. And I feel very good about that because that was additional volatility on asset management. So think about $1.5 billion, more or less, for Aviation.
A following question is from David Strauss from Barclays.
I think I heard you said future business jet will have $4.5 billion in net debt. I guess, John, can you just walk us from where you sit today, I guess, around at $8 billion in net debt to that $4.5 billion number. I mean, obviously, there were some proceeds are a big, big benefit. But just walk us to that number.
Yes. So I'll try to do it big picture here, and then we can always talk after as well. But if you just think today, we're about $9.3 billion, I think it is or so of long or a high yield bond. And then you've got the HPS facility that we've put in place has drawn about $750 million. So call that $10 billion just for math. And our expectations are that, as we said I guess from the beginning, about $4 billion worth of cash available for debt reduction from net proceeds of BT. So that gets you down to, let's call it, $6 billion. Expect to finish the year, all things considered, between $1.5 billion and $2 billion of cash, something like that. So that's where we would probably hold it. So if you take the $6 billion minus that kind of $1.5 billion plus, you're looking at about $4.5 billion. Does that make sense?
Yes. Okay. Just want to make sure. And the -- Éric, the 100 to 120 delivery level that you talked about targeting going forward, what would you envision G 7500 accounting for within that number?
This will be a significant part of our delivery. And we're talking about 35-plus per year. So this would be definitely what we would be targeting next year. As you know, we have a solid backlog on this platform, multiyear. And of course, next year, targeting a 35 to 40 is what we're targeting. So that would be a big part of our -- of the 100 to 120 that we've mentioned earlier.
A following question is from Robert Spingarn from Crédit Suisse.
I had a similar question to David's. But of the 100 to 120, if 35 to 40 are 7500s, how do the rest shake out between the segments? So the remaining 80, 85 aircraft in terms of large, medium and light. And then sort of longer term, if services is running around $1 billion a year now, Aviation services, how do you think about that as a percentage of revenue long term as you continue to expand the business?
Yes. These are two good questions, Rob. So let me start with the first one. In terms of rate next year, I just mentioned 35 in on the Global 7500. And clearly, there will be another part of that, that will be significant on the remaining other Global platform, which are doing extremely well, market-wise. And of course, we will be continue to be in the market in the -- we are anticipating to remain the market leader in the midsize -- in the medium segment and probably a smaller number on the Learjet franchise for the light jet business. So clearly, strong -- remains very strong on the medium and on the large segment.
Okay. And then just as a quick clarification. There was some commentary in the Aerostructures transaction about trade agreements favorable to Bombardier. And I think when we do the math that we were thinking maybe that's about $100 million, but I wanted to check with you and see if we're reading through that correctly and what those favorable terms might be.
Yes. I mean I'd say that, Rob, it's something a little bit less than probably $100 million when it's all said and done. And it relates to the fact that obviously, Spirit is going to be a critical, important partner to us in terms of supply agreements. And I would say something probably around 75-ish is kind of the value.
Okay.
And Rob, maybe on your second question that I did not answer. On the aftermarket, clearly, we are moving extremely quickly on this one. I've talked earlier about the growth path that we have opening and growing our service center all around the world. And clearly, we want this to be a much bigger piece within the next 5 years of our revenue. We know that this is a very resilient business for us, and we're going to be definitely putting a strong focus on growing that aftermarket business.
So if it's about 25% now, it could be maybe half in the future.
Half is a bit heavy, to be honest. But we're past $1 billion, I think, or this year is going to be a bit off because of the fact that you had 2 months kind of just almost nothing happening with the lockdown. But -- so I'd say that getting to half of revenue is probably a big order. Thinking big picture, I don't know, maybe closer to 1/3 would be kind of the right spot for us, depending on aircraft delivery -- recovery over a few years.
A following question is from Cameron Doerksen from National Bank Financial.
I just want to come back to the -- I guess with the free cash flow question. Just looking at the year-to-date for Aviation, $2.2 billion in free cash flow usage, obviously an unusual year, this year. But maybe you can sort of talk us through kind of the puts and takes of the free cash flow as we look ahead to 2021, and not necessarily wanting a number for next year, but just what impacted this year, specifically to Aviation and it's from working capital or COVID-related things, that we should not expect to see in 2021?
So the total impact, we estimate about $2.25 billion for the business, right? And -- but it's a pretty big hit to us. And there's really, I'd say, 2 components that are fundamental when you look at it, right? The orders, you go through -- I mean, business jets, the business model is typically that you work around the 1:1 book-to-bill. So as you deliver aircraft, you bring in supply chain and so on and so forth, you're bringing in new orders. And that's been a big chunk of the $2 billion or so that we're off this year. And I'd say that, that's probably split between BT and BA. BA is the one that in a typical recession environment, you'd feel that BT would kind of sell through, that's kind of non cyclical. But this year, because just the distraction and it affected everything across the world. It also affected strangely enough also the more noncyclical BT environment. So think about that as being maybe up to 1/3 of the $2 billion. And then for the other 2/3, I mean there's not a lot of rocket science here. It's the reason also we went out and created a facility, particularly on the aviation side. You have supply chain coming in, long lead time components and parts, you've set the production rate at the higher level than the market is able to give you in this environment. And so we would have been expecting to be probably 150 aircraft and moreover, we're looking something more like the 100 to 120 range. And so you need to deal with that inventory influx and on the train side, you almost lost 3 months' worth of production. I'm not saying that it was totally shut down, but the productivity levels, we have 70 factories around the world and all that stuff that build up. So think about that as being another almost $1.5 billion. And I would say that, that $1.5 billion, over $1 billion of it is in BA. BT kind of -- once you get the machine back up and running we went through, whereas at BA, you also have the end market impact. So that's where the HPS loan comes in, secured against aircraft inventory. So I guess that's the bit of the color, but to summarize the answer, think about 1/3 of this against new orders split between BA and BT. And then 2/3 of it on working capital, inventory accumulation. The fact that we also, on the BA side, don't forget, we have to wind down this facility that we have, which kind of supported the ramp-up of the 7500. So with that, you've got, I might say, almost $1 billion of working capital. And then the other $500 million is on the train side.
Okay. No. That's helpful. And just a quick follow-up on questions around the Global 7500 and deliveries. Can you just maybe talk about where we are on the learning curve for that model? When do we get to kind of more normal margin?
Well, I think that probably, it improves every year, right? I mean we've come a long way from the first unit in '18 through '19 as well. Probably if you look for normal margins, I would say 2023 is the right year, but I would say, I mean, it's better from here on then. The aircraft should start to be profitable as we get into 2021. And then certainly, as every unit goes by, starts to expand profitability. And I think it's going to be premium margin for us as we get past the 2020.
A following question is from Noah Poponak from Goldman Sachs.
Just looking at the Aviation segment, the business jet orders in the quarter and year-to-date, I understand your comments that I guess you're delivering on the 7500, and it already had a backlog, so you're sort of working off the backlog there. But one, I would have thought maybe you could have some order activity on that given that's more tilted to the part of the market that seems stronger right now. And then even if I strip the 7500 revenues out, the book-to-bill is still pretty light. So is there any competitive concern there or anything to take from that? Or is it just too short a period of time to read into?
Yes. So let me take a shot at this one, and thanks for the question. The 7500 run rate right now, we are -- we had a multiyear backlog. We've sold a lot of those airplane in 2012, '13, 14 as we launched the program. So clearly, right now, we are delivering that backlog. Of course, we did not have much availability ahead of us for another couple of years, which is for most of the customer, they'd like to get the airplane ideally or in an 18- to 24 month period, which were more than that right now. That's one of the reason why we actually discussed with a customer, and which we had 12 airplane in 2023. So those airplanes are becoming back available to us right now, giving us the opportunity to do better margin on those airplane because they were at a launch price. And of course, making availability for 2023 is becoming important in '21. So I guess all this being said, I think our -- we feel and this is a little bit what we were saying earlier. This year, we were going into the year altogether with certain assumption. Of course, our assumption did not work out after the end -- after the month of March in terms of delivery. And as you know, in our industry, we make decision to build airplane like almost a year before. And then we had that inventory that we needed to take care of. So we've done the right thing. We've reset the rate right away. So that's why I feel much more confident that going into 2021, we have the rate lower and we are being prudent here. And if the market picks up, as we think it's going to be, then we're going to be in a position to refill backlog and -- on all platforms. So -- and eventually, if the market comes back, then we'll -- when we feel that we have the right level of backlog, then we could consider an acceleration. But I think we are being prudent. I think we want to make sure that we're not going to sacrifice also pricing of our product by building too many airplanes. And that's been -- that's our strategy moving forward.
That's helpful. And then just, John, on stand-alone Aviation free cash flow, is 2021 positive or negative? And can you speak to the longer term without putting a year on it, free cash flow margin potential of that business?
Yes. I think, Noah, I'd love to, but I think it's better served for early next year. I think in terms of any commentary on '21 or long-term plan, I'll let the team complete all of our work here. And over the next couple of months, I think we'll be able to give you guys clarity, including what Éric mentioned, which is a very active focus now on cost reduction and cost takeout. I think that getting a good read on what the year as well, but still not at levels that I would say would be equal to 2019. So those are all important elements of what I think we want to read into 2021. I would say that for now, the real focus is going to be on completing the transaction that we have with BT, deploying the proceeds effectively. As I mentioned in my comments, the balance runway with interest cost reduction are going to be important to that kind of stand-alone Aviation business. And then also including in the cost adjustment is going to be the overall look at the size of the overhead on the corporate side and how that can improve relative to a smaller, more focused business. So not because I don't want to give you a more precise number, but I think in fairness, those pieces need to be worked out, and then we'll have a sense for '21, but also, hopefully, over the next couple of years, how the business then emerges as a cash-generating and solid profit business.
A following question is from Konark Gupta from Scotiabank.
Just wanted to confirm, I think you guys said you have $1.5 billion to $2 billion cash at the end of this year. Just wanted to get to the math behind that. I guess you have some BT-related cash settlements before the deal closes with Alstom. So if you can help us through what are the nuances in Q4 on cash drain or cash payments that you expect. Obviously, $700 million cash generation minus what do you intend to pay for RBG's and BT settlements.
Well, let me just give you a little bit of simple breakdown, I guess. We -- we're -- we mentioned in our comments that we expect to generate about $700 million of free cash flow. That's kind of what we're targeting. We burned $700 million in Q3, and our objective here is to try to breakeven on the second half as we stabilize the business. If you just kind of maybe just big picture think about BT, last couple of years, about $600 million of cash generation in Q4, I think we'll be in the same ballpark this year as well. I'd say that BA, in the neighborhood $500 million to $600 million of cash generation, probably the right spot. And that's a little bit lighter than the last couple of years on a comparative basis for the BA franchise and as we work through the lower production and so on. So think $1.1 billion-ish or so of cash from the 2 operating units just in terms of the business and the operating output. I mentioned also that we had -- we were completing the paydown of this reverse factoring facility. So that's kind of $160 million and then interest cash as well as corporate costs are just, call it, another 2, 3 -- $230 million, $240 million. So let's just say, $400 million there. So you've got kind of $1.1 billion or so of cash from the businesses, the paydown of the reverse factoring and the interest cost, another, let's say, $400 million negative. So that leaves you with about $700 million or so of the cash generation. RBG's have been complete in terms of this current year is the impact. I think it was about $225 million, $230 million that's fully paid down as of Q3. So there's no expected new cash outflows for Q4. And that positive $700 million would mitigate the -- I guess we're $3.3 billion or so now negative cash after 9 months. So that gets in the range of call it $2.7 billion or so. And as I mentioned before, that $2.7 billion, you got about $2.25 billion that's COVID direct impact, as I described earlier. And the remaining $400 million or so is largely because of the charges we took earlier this year on BT and the related cash affected impacts of those charges that we described as being largely consumed this year. So that's kind of the breakdown of how we are, where we are and where we're going in the next 90 days.
Okay. That makes sense. So it seems like any BT-related cash outflows for equity redemptions and other things will happen next year before the deal closes.
It depends. I mean I won't comment on that now only because we'll see how this whole thing plays itself out. I mean I would say that probably it is largely right, but this isn't -- it's not -- the good news is we have flexibility, right? So these provided that all parties are kind of aligned that we can -- depending on the cash on hand at BT and a whole bunch of other things and even our -- depending on what we'd like to do, it could either be before the end of the year or it can be early next year or it could be consistent with the transaction as well. And to be honest, I mean, I'm not overly stressed about that as long as the liquidity is available, and we're able to -- out of all net out the $4 billion of proceeds. That's really my focus is.
Okay. That makes sense. And second one from me quickly. On your disclosures for continuing operations, just wanted to clarify the Aviation continuing operations still include the Aerostructure business that you divested on October 30, right? So what would be the free cash year-to-date for the Aviation of business jet, excluding the divested assets on Aerostructures side?
Well, good question. I think that the Aerostructure business is already separated as discontinued operations because of the high probability of the sale as we close the quarter. So I'd have to get back to it.
It was an asset held for sale.
Yes. So maybe a follow-up call with Pat, and you guys can work through that. I don't want to give you a wrong answer.
Sure. Yes. No, absolutely. No, I understand. I think the revenues included the Aerostructure. So I just wanted to make sure I get the free cash number right for continuing ops. I'll follow up with Patrick.
If you can, please, thanks. And I think it would be material in the big picture, but please follow up. So I don't want to give you a wrong answer.
A following question is from Cai von Rumohr from Cowen.
Yes. So if you start life as a stand-alone Bizjet company with $4.5 billion in net debt, it looks to me like your net debt will equal, round numbers, 6x your adjusted EBITDA in '21 in a capital-intensive business, where the product lasts 15 years and then you have to refresh. Given that, any thoughts about combining, doing a merger at some point with one of your sort of other -- that's a huge net debt-to-EBITDA given kind of the volatility in your business, the capital requirements.
Okay. So Cai, thanks for the question. So no, there's no consideration right now for any consolidation with any people south at the border at this stage. Clearly, and I mentioned that earlier, the capital investment that are required to be much across the board. We are still leading in the medium market segment. The Global has been refreshed completely. So you have to make the assumption here that this is going to be a low number in the next coming years. At the same time, to improve our cash flow, I mentioned earlier, I need with the team here to resize aggressively our business to reflect what the market conditions are, where we're going to improve significantly in the next 12 months, but getting behind us with the margin that we were expecting when we launched the program. Our service business is growing. This is going to be another area where we're going to be bringing also cash flow into our business. So all this together, we have work to do. And exactly, we understand the mission ahead of us. We need to be -- we have -- we're going to have very aggressive target in our profitability. I feel pretty good today that those are achievable. I'm working, as I said earlier, in great detail with the team right now, manage the business prudently, to be aggressive on cost reduction. And at the same time, managing our backlog so that we are also managing our pricing well. So all this is ahead of us. We're working on this already, of course. But we're going to have more to communicate there when we see you at the -- after the Alstom closing transaction, so sometime in Q1 at the Analyst Day. So thank you.
So talking about your opportunities, your report indicates that you have a lead customer for the 7500 with 12 orders that those may be canceled and you will be able to sell them at a better price. Talk to us a bit about your backlog. Are there other opportunities like that in the backlog? And what kind of risks do you have near term that some customers might leave?
So this is a good question. I've mentioned the opportunity we had to repatriate, and we did put it into action for delivery '23. So that gives us plenty of time to sell this airplane at better pricing. But in the meantime, since the pandemic started, we had like very few cancellations, very quickly. So our backlog remains very solid on that platform. As the airplane is starting to deliver, and we have 31 aircraft in service right now, the airplane is showing up, people see the airplane, fly the airplane and the airplane is performing extremely well, to be honest, better than expectations. We already have achieved reliability number on the airplane that are exceeding what we committed to and actually at the same level than our other Global platform and Challenger. So we're pretty excited about the product. The product sells well. So when we had a couple of cancellations left and right mainly due to pandemic, we were able to replace with a new customer almost immediately. And again, the opportunity in 2023 is welcome right now as it will help us to improve our margin moving forward. Thank you, Cai. We will now move for our last question, operator.
Our last question is from Mariana Pérez Mora from Bank of America.
So the last question is going to be more big picture. I wonder if you could discuss your thoughts on being a stand-alone business jet company in the future. How do you expect to deal with cyclicality and, in particular, with the downturns of the cyclicality?
Okay. Well, this is a very good question. And we're working as we speak on the strat plan that we will share with you. And clearly, we are aiming, and that's our goal right now, to make sure that a bigger portion of our revenue over the next coming -- over the next 5 years will come from businesses that are more resilient, okay? And we have mentioned earlier, of course, the aftermarket business, which we've been growing and where we have still a lot more potential to do. So we are, of course, all focused on that on this, as you see, with the opening of multi-service center around the world. And at the same time, we are going to be also pushing other businesses, part of our product portfolio -- using our product portfolio that are much more also resilient, thinking here of more missionized aircraft, as an example, being part of our portfolio and other opportunity that the market brings to us right now. So we'll bring more clarity to that. But clearly, we have in mind a shift in our revenue over the next 5 year, which makes the new aircraft portion, of course, still the most significant, but with other businesses that are generating good cash flow and good margin.
We have no further questions registered at this time. Back to you, Mr. Ghoche.
So I want to thank you again for joining the call this morning. We appreciate your continuing interest in Bombardier. As always, Patrick will be available if you have further questions about today's release. We look forward to talking with you again in the next quarter. Until then, please stay safe and healthy, and thank you for joining us again.
Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.