© 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's Fourth Quarter and Full Year 2019 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 Fourth Quarter and Full Year 2019 Earnings Call. 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, Alain Bellemare; and our Chief Financial Officer, John Di Bert, to review our financial results for the fourth quarter and year-end 2019.I would now like to turn over the discussion to Alain.
Well, thank you, Patrick. Good morning, everyone, and thank you for joining us today. Let me start by saying that it is a busy time at Bombardier. We continue to make steady progress towards completing our turnaround journey, including finalizing our exit from commercial aerospace, successfully executing the last stages of the ramp-up at business aviation and addressing our challenging projects at transportation while completing the transformation.Before I talk about our outlook for 2020, I want to first recap the significant progress made in 2019. While financial performance at Transportation was disappointing, Bombardier ended 2019 in a much stronger position than we started. Our transformation in aerospace is largely completed.Last night, we announced an agreement with Airbus and Investissement Québec to exit the A220 partnership. This is the final step to exit commercial aerospace and it is a big deal. You will recall in 2016, our commercial aerospace business lost approximately $400 million and was consuming over $1 billion in cash. Addressing this was critical to our turnaround, and it is now behind us.Over the past few years, we have successfully dealt with our underperforming assets, setting the Q400 and CRJ programs. We positioned the C Series, now the Airbus 220, to achieve its full potential under Airbus control, and we monetized our commercial aerostructure business with the sale to Spirit. With our exit from the A220, we have improved Bombardier's cash position by roughly $1.3 billion, and we have completely eliminated any future funding obligations for the A220 program.This transaction, combined with the previously announced aerospace divestitures, will generate more than $1.6 billion in cash proceeds and eliminate close to $2 billion in liabilities and future commitments. Our liquidity position remains strong with pro forma cash on hand of more than $4 billion and $5.5 billion in liquidity. This gives us the necessary flexibility to complete the turnaround.A few thoughts as we turn the page on commercial aerospace. First, we are incredibly proud of the many achievements and tremendous impact Bombardier has had on the commercial aerospace industry. We are equally proud of the responsible manner in which we have exited commercial aerospace, preserving jobs and reinforcing the aerospace cluster in Quebec and Canada. And we are confident that the Airbus 220 program will enjoy a long and successful run under Airbus and Quebec's leadership. Our Bombardier employees who have played a key role in designing and bringing this incredible aircraft into the market should be very proud, and we thank them for their many contributions and hard work.For Bombardier, our future in aerospace is with our industry-leading business jet franchise and we see tremendous opportunities. As you saw with our Q4 results, business aviation performance is tracking right on plan, and 2020 will be another year of significant growth.In 2019, we completed the consolidation and streamlining of our aerospace assets and capabilities into a single Bombardier Aviation business unit. And we successfully ramped up production of our flagship Global 7500. David and the team have successfully navigated the transition to full-scale production. This included the full integration of the wing operations acquired from Triumph last year.In 2020, we expect that deliveries will accelerate, roughly tripling our 2019 output. We currently have a dozen Global 7500 in service. The fleet leader has logged more than 1,000 flight hours and flown almost 0.5 million nautical miles. In-service performance and reliability have been outstanding. The aircraft continues to set records and win awards for performance, fuel efficiency and cabin comfort. In 2019, we also certified and brought into service the Global 5500 and 6500 on time, on budget and with better-than-expected performance.Bombardier has the best product portfolio in the industry with our new Global's Learjet Liberty 75 and the market-leading Challenger family. Our aftermarket growth strategy also remains on track, delivering double-digit organic growth in 2019. And we are successfully executing on major expansion projects around the world, including new facilities in Singapore, London and Miami to better support our customers worldwide and our large in-service fleet of over 4,800 aircraft. Bombardier Aviation has great momentum, and we expect another strong year in 2020 with very solid organic growth.Turning now to Transportation where we are focused on completing the transformation. While our financial performance in Q4 was disappointing, we continue to make significant progress addressing our legacy projects. We have completed deliveries in New York, Toronto and Crossrail. We have nearly completed production for the LOTRAIN projects and deliveries have just started.At SBB, we have 31 trains in service, up from 0 a year ago. This has been a very complex project and we now have delivered half of the order. The trains are performing very well and we continue to work very closely with the customer.In the fourth quarter, the team was driving heavy workload to achieve key technical milestones, resolve outstanding commercial claims and re-baseline our delivery schedule in the U.K. and Germany, and we ran into a number of challenges. For example, the LOTRAIN multi-unit software certification came later than expected, [ facing ] the scheduled reset. As I just said, these trains are now being delivered. Commercial settlement costs also came in higher than anticipated as we took action to put a number of outstanding trains behind us.As we told you in Q3, there would be some volatility in the near term as we work to complete our large challenging projects and reposition BT for a more stable earnings growth and cash generation. We are confident in the growth fundamentals at BT, and we continue to win in the marketplace. In fact, total order intake in 2019 reached a record $10 billion. Almost 70% of these orders came from service contracts, signaling projects, high-reuse platforms or options on existing rolling stock contracts. These carry higher margin and much lower execution risk.In closing, Danny and his team are executing on all projects with discipline and they are focused on completing the turnaround at BT. For our 2020 outlook, we expect strong double-digit revenue growth to more than $15 billion. We are driving margin expansion in both businesses, and we expect consolidated free cash flow to be positive, excluding our RBGs.Let me stop here and turn it over to John to review our Q4 results and walk you through our 2020 outlook.
Thank you, Alain, and good morning, everyone. We had a busy year at Aviation. We successfully ramped up the Global 7500, certified the Global 5500 and 6500 and continued to grow our backlog and aftermarket business. We also reshaped the portfolio by exiting commercial aircraft and monetizing underperforming assets, generating total proceeds of over $2 billion from deals announced over the last 12 to 18 months. With a focused aviation franchise, we were able to simplify our cost structure and integrate all of our engineering and manufacturing activities, creating synergies and allowing for margin expansion as we grow.At Transportation, although financial performance did not meet our expectations, we stabilized production, achieved important technical milestones, improved customer relationships and resolved commercial issues on key contracts. Achieving these goals came with significant volatility and this continued through the fourth quarter. Our prudent cash and liquidity approach has served us well in navigating this volatility. And our proactive management of debt maturities continues to offer the necessary runway to turn the business to positive free cash flow.And with the announcement on the ACLP, we are further increasing our liquidity by adding close to $600 million of cash on hand, providing us with even more operating flexibility. The sale of our remaining stake in the A220 also preserves approximately $700 million in additional cash over the next 24 months, eliminates liabilities associated with our existing position as an aerostructure supplier to the JV and canceled the $100 million warrants that were issued to Airbus in 2017.So while this transaction comes at a $1.6 billion accounting write-down, it improves our overall liquidity position by close to $1.3 billion. Let me be clear. We are in solid liquidity position with over $4 billion of pro forma cash, including proceeds from announced transactions and $5.5 billion of available liquidity with no meaningful bond maturities until December 2021.Let me now turn to a review of our 2 segments and our 2020 outlook. Starting with Aviation where, again, this past year, we continued to drive stronger financial performance. When looking at the business aircraft activities alone, revenue in 2019 accounted for $5.4 billion of the total $7.5 billion at Aviation. These activities grew 8.5% organically despite some year-end deliveries shifting into 2020. The remaining $2.1 billion in revenues are mostly nonrecurring as we expect to close the transactions with MHI, Spirit and Airbus at various points in 2020.Growth in Aviation in 2019 was driven by business aircraft with Global 7500 deliveries and increasing aftermarket activities. These same 2 drivers are expected to significantly grow Aviation's revenues in 2020 on a comparable basis, meaning excluding revenues from ongoing divestitures. This assumes 160 or more aircraft deliveries, including a significant acceleration of Global 7500s.Turning to earnings. In the fourth quarter, as deliveries of early Global 7500 production aircraft picked up, our adjusted EBIT margin was 5.9%. For the year, the margin was 7.1%, in line with guidance and 70 basis points better than 2018, including higher amortization driven by Global 7500 deliveries.On EBITDA, the 2019 earnings improvement is even more meaningful with Aviation's margins increasing 200 basis points year-over-year to 10.8%. Looking forward to 2020, we expect the EBITDA margin expansion to continue at a similar pace.As new global aircraft production continues to intensify, we expect Aviation's EBIT margin in the first half of 2020 to remain in the mid-single-digit range. By midyear, as we move beyond the 25th production aircraft, we expect the production learning curve to drive higher margins, supporting an expansion of full year EBIT margins over 2019.In summary, our Aviation business continues to operate with discipline and is supported by its industry-leading $14.4 billion backlog. In 2020, we are completing the reshaping of the portfolio, fully ramping up production and continuing to streamline the operations in line with our turnaround goals.Moving to our rail business. Our priority in 2020 is to largely complete challenging legacy projects and gradually restore the business's earning power and ability to generate cash. Our backlog today supports the stronger financial performance goal as we have been winning a healthier mix of higher-margin and lower-risk projects.In 2019, the achievement and milestones on challenging projects in the U.K., Switzerland and Germany required significant investments and additional costs, which had a meaningful impact on revenues and earnings. These investments and costs ultimately supported project delivery schedules, improved in-service reliability of trains and customer resolutions.The elected charges of more than $500 million in 2019, including $350 million in the fourth quarter, significantly diluting adjusted EBIT margins to allow -- to a low of approximately 1% for the year. These charges increased the share of projects with neutral or negative margins. In fact, 30% of the $8.2 billion revenue recorded in 2019 were significantly dilutive to margins. And as we move to complete these projects in 2020 and '21, we expect some gradual margin expansion even as the share of revenue from dilutive projects remains elevated.Looking at the 2020 outlook on a consolidated basis, we expect revenues to grow organically at double-digit rate to more than $15 billion compared to $13.7 billion realized from our sustaining activities in 2019. Most of this growth is anticipated from the planned increase of the Global 7500 deliveries at BA and from projects in the backlog at BT.EBITDA margin is forecasted to grow from 5.7% to approximately 7%, while EBIT margin expansion is expected to be closer to 50 basis points as a result of the additional amortization charge associated with higher aircraft deliveries. Our plan is supported by growing margins at BA, the elimination of the A220 equity pickup starting today and a conservative view of BT's earnings as we complete the turnaround.Before I discuss the free cash flow outlook for 2020, let me give color on the fourth quarter. We generated $1 billion of positive cash in 3 months leading to December 31, a typical solid fourth quarter. However, with a $1.6 billion Q4 target, we knew our plan was a significant undertaking.While we released $1.3 billion in working capital in Q4 by achieving many of our objectives, we did come up short due to timing of milestones and deliveries primarily at BT. 2020 cash flows should benefit from these delayed cash inflows, but they will also be affected by the cash cost of the Q4 charges at BT. And so our free cash flow expectations for 2020 remain unchanged versus 3 months ago.We expect to be marginally positive, excluding close to $200 million of RBG payments due in 2020. We view these payments as exit costs of our CRJ program, and they will be funded from the proceeds of its sale. Our 2020 free cash flow plan assumes stable CapEx year-over-year and a working capital release of $300 million to $500 million from the delivery of finished train inventory.We also expect free cash flow in 2020 to follow a typical quarterly pattern with cash generation concentrated in the fourth quarter. For the first half of the year, cash usage is expected to be slightly better than last year, although it will absorb most of the $200 million of RVG payments for the year.Let me now wrap up. We are committed to a stronger balance sheet and creating long-term sustainable value from the businesses. To achieve this goal, we have clear priorities in 2020: continue to grow our business aircraft franchise by increasing deliveries and driving the learning curve; complete the ongoing commercial aircraft divestitures by midyear, generating over $1.6 billion in cash; secure the industrial ramp-up at BT while we burn down challenging projects; and as we've demonstrated, we will continue to manage liquidity prudently to protect and complete the turnaround and position ourself for deleveraging.With that, operator, we are ready for our first question.
[Operator Instructions] Our first question is from David Strauss from Barclays.
So I just want to -- I think, Alain, you said your future is Aviation. Obviously, a lot of speculation in there -- out there in the press with regard to what you might do with BT. I guess what has changed to kind of drive these potential divestitures given that you're still forecasting positive free cash flow in '20 and you don't have any maturity -- debt maturities until 2021?
We feel very good about where we are from a cash position. It gives us like plenty of options. So optionality is a good thing. What we've said is like we're looking at opportunities to accelerate the deleveraging phase of the turnaround plan. So that is in that context that we've talked about looking at strategic options.
Okay. On the 7500, I think, previously, you have been talking about 35 to 40 deliveries in 2020. Can you give us what that forecast is now? And what issues are you seeing in terms of getting 7500s out the doors?
I think that 35% to 40% is still in the range. Now that's for 2020. The production ramp-up is going extremely well right now. I mean most of the aircraft are in the system for 2020. Last year, obviously, the challenges were on the integration of the acquisition, wing from Triumph. So a lot of work was deployed on that front. So a lot of focus on the green side of the aircraft.This year, towards the end of the year, was more on the completion side and it's still the case today. So the team is actively working and increasing capacity on completion. But by and large, most of the asset that we need for 2020 are somewhere in the system.
Our following question is from Cameron Doerksen from National Bank Financial.
Just to follow-up on the, I guess, the potential divestiture or additional divestiture question. I mean just -- can you just talk a bit at all about the process? I mean maybe discussions on timing when you might expect to make a decision here. Or is this sort of a fluid situation and you're just exploring all of your options?
Well, as I said before, I think that we feel very good now with the completion of the move of our A220 to Airbus. It gives us like plenty of liquidity to do the right things. So we are looking at our strategic options. As you understand, I mean, this is very sensitive. We believe that we have like very strong assets. We have a strong cash position now and we're going to do it the right way.
Okay. I just -- I mean maybe just a quick question on the -- on your pension deficit. I mean I see at the end of 2019 $2.25 billion. I think that excludes the Belfast, Morocco aerostructures related to pension deficit. I'm just wondering if you could talk at all about what the split is on the pension deficit between, I guess, the Transportation and the remaining Aviation segments? Is it -- just any kind of breakdown of that $2.25 billion?
Yes. It's roughly, I'd say, 40% BT, 60% BA in that ballpark.
Our following question is from Robert Spingarn from Crédit Suisse.
I wanted -- just, John, for you, a lot of moving pieces. You talked about $4 billion in cash. And -- but given the timing on some of these moving pieces, if we just look forward to the end of 2020, if you keep the 2 primary businesses, BT and BA, I think you're guiding to about $1 billion in EBITDA. What's the net debt position pro forma for everything, RBGs, cash-out, pensions? What's your net debt to EBITDA pro forma for the 2 businesses for 2020 year-end?
Well, you've got about $9 billion of debt. As you know, pension liability, a couple of billion dollars. And I'd say that the total exit costs of all the commercial liabilities, it's in the neighborhood of about $500 million. So that's kind of your top number. And we expect probably at the end of next year to be in the ballpark -- at the end of 2020 of, I'd say, approximate $4 billion. So you kind of get a number there. If you add the $3 billion, you're somewhere probably around $12 billion versus $5 billion.
Okay. All right. That's very helpful. And the other question is on the wing. Alain, you just talked about the 7500 wing...
Yes. Just a correction there. Just to speak, $12 billion versus $4 billion right? I said $5 billion but I meant $4 billion.
Right. Okay. And then just on the 7500, you mentioned the wing has been a gating factor. You took it from Triumph. Before you acquired it, it was losing about USD 200-plus million in cash. How do we think about the progress there? What's the status of that wing and the cash burn there?
Yes, you're absolutely right. I mean -- and this did put pressure on us in 2019 as we're coming down the learning curve. So as we took over, the team put a cost reduction plan in place to bring the cost of the wing down and that's exactly what we're doing. So that was additional pressure in 2019, and it is part of the Global 7500 overall learning curve coming down over the next like 2 to 3 years.So we're tracking as per plan right now. We're very pleased that we took over the wing. And the most critical thing was to stabilize production and ensure security of supply, which we did in 2019, and it came with a bit of pain. But right now, we're very pleased with this -- with the fact that we're owning the wing and that we're managing it. So hopefully, moving forward, this will start reaping the benefit from this.
Can you get to breakeven in a couple of years?
That's the plan on the wing and do better. The key here is at the aircraft level, we are driving the learning curves as per plan. That's the key here.
Our following question is from Seth Seifman from JPMorgan.
I think that -- I think you had mentioned kind of a similar pace of EBITDA margin expansion at Aviation in 2020 versus 2019. So just to verify, that would take the EBITDA margin at Aviation up to something in the high 12s as you got about 200 basis points of expansion year-on-year in 2019. And we can think about that margin on maybe a $7 billion business jet revenue base, and that's the contribution of business jets to that $1 billion of company-wide EBITDA?
Yes, it's pretty good math, Seth.
Okay, okay. And then just the -- I guess the program -- when we think about program tooling going forward, I think it was about $280 million of kind of capitalized development cost in 2019. Where is that number in 2020? And what is it like at a normalized level?
I think you're going to see a period here of some flat spend. So I think 2020, you should expect something very similar to '19. And I think that's kind of the expectation we have here over the next, let's say, probably 18, 24 months, at least.
Our following question is from Walter Spracklin from RBC Capital Markets.
So turning to your business jet margin cadence, John, you mentioned, I think it was mid-single-digit EBIT in the first half and then full year, something greater than 2020. Can you talk a bit about what are the major hurdles that will -- or risks that would allow you to achieve those levels. And then as we go into 2021 and onward, what would kind of be the step function ramp that you would see from this business longer term?
So I'd say that in terms of 2020, it's really a matter of as we get through every tail, every unit, the first 25, 30 units, and then we start to really see some margin production from the aircraft as we get closer to the end of the year. I think that 2020 still is a ramp-up year, a transition year, a learning curve. But we see some tails, especially in the back end of the year, to start to produce some profit.As you go forward, I would say that 2021 starts to get some normalized production as you will expect to get to a mature rate. And then from that point on, I think you've got a business, including aftermarket, which is a growing part of the portfolio, continued just good cost management and synergies in the portfolio. We have 2 great aircraft in the 5500 and 6500 that come into service this year. Those are going to be great aircraft as well that will produce, I think, some expansion. So overall, I think it's a solid double-digit margin business when you look out longer term.
That's great. The second question here is similar to margins in BT. Once you're through these problem contracts, is it effectively when they're off the books, you can go right back to kind of your margin profile and -- around the 8% level? Or is there some -- is it a more gradual process? Have you built in extra cost to deal with these that you'll have to get through? In other words, is 2020 going to be a year that's still impacted by the problem contracts? And after that, could we see a fairly significant step-up in 2021?
Yes, it's a good question. And I mean to be honest here, we're -- we have gone through some volatility, so it's been a bit tough. And I think what you can see in our 2020 guide is that we expect that the portfolio still has that mid-single-digit capability. So when you look at the bulk of the portfolio -- but in the short term, I mean here over the next 12 to 18 months, we are continuing to work through some challenged projects, and those projects are largely margin neutral.At this point, what happens is that any true-ups or adjustments go straight to the bottom line. So it creates volatility, which is why we guide conservatively this year on a total margin for the business. We allow for some room for that BT volatility through 2020. And the fact of the matter is that we've put [ it all ] behind us, and we've got now to work through the portfolio through the next 18 months.When you look further out, I'm very encouraged by the fact that we have built a strong backlog. It has a lot of follow-on work options and so on. We have good service components, signaling business. And all of that, I mean, has been built over the last 2, 3 years here on the strength of standardizing the platforms and improving the business. And that's the benefit that we expect to get on a longer, more sustainable term.So for BT, I think that the objective here to be kind of mid to high single-digit margins is still fully intact. We're working through 2020 and probably some parts of early '21. And then after that, the portfolio should be, I'd say, much lower risk and more stable. And that should generate good cash, good earnings, and that's where we're completely focused, but we're also pretty excited.
Our following question is from Myles Walton from UBS.
I had a question on -- for you on cash flow. I think free cash flow in the release talks about being positive in both businesses in 2020. And just making sure, on a comparable basis, when I look at the free cash flow of BT Holdco, I think it was minus $560 million in 2019. Are those kind of comparable numbers that you're going to take BT to that level? Or are they 2 different definitions?
No, I'm not sure if I get this question fully, but we did have negative cash production at BT in 2019 and that's very typical. We did make some investments and as a result, that was a tough year for us, including some of the timing and the inventory that remains trapped at the end of '19.So with some of the work that was done through the year and particularly at the end of the year and kind of opening up and starting to be able to release the product, we do expect to have release of working capital through the year. And for us, that means that BT will go back to generating, as it typically does, generating cash on a normal basis, but then also show the benefit from the release of these projects and inventories that have not yet come through the system.So BT really is a contributor to, I'd say, working capital relief in 2020 and that BT will continue to generate the positive cash as it did in -- sorry, BA, [ I was to say ] -- BA will continue to generate positive cash as it did in '19 but also grow as the business continues to have top line, but also to improve margin with the learning curve on the 7500. So across the board, both businesses, improving cash.
Okay. And then just curious on cash taxes. I think all the cash taxes today are at BT. Just curious how far into the future does BA currently envision not having to have those cash taxes given all the divestitures that occurred?
Yes. So you're correct. The cash taxes are at BT, and everything else is really de minimis. But we expect that the positive tax situation for BA to sustain for quite a while. So nothing in the short term here that would generate any outflows of taxes for profitability at BA.
Our following question is from Fadi Chamoun from BMO Capital Markets.
I apologize if these numbers were given out. There is just a lot of moving parts here. What's the CapEx for 2020 looking like?
I'd say it's pretty stable to what we did this year. You're looking at about something in the $500 million, $550 million range.
Okay, $500 million, $550 million. Okay. And the 160 aircraft you mentioned, this is all business jets?
We're going to have, I think, 3 jets on the CRJ side. But effectively, the 160 is the jets on the business jet side, but it's de minimis, [ the 3 ].
Okay. And last question on the -- I mean given kind of the background we're hearing on divestiture and strategic initiative, how do you think of BA as a stand-alone company and potentially from a cost of capital point of view. Obviously, this is a very cyclical business. Do you feel this is a business that can survive longer term as a stand-alone?
Well, for sure, we're not going to comment on that side. It's -- but I will just say that this is an amazing business. It's like the best business aircraft franchise in the world with a very amazing product portfolio, best brand in the industry, the Global, the Challenger and the Lear, very, very strong backlog. So I mean this is a very good business and we're very excited by this business.
Our following question is from Benoit Poirier from Desjardins.
Just for Business Aviation, could you maybe mention, provide some color about whether the booking in BA was impacted by the noise around the strategic review? And also, what was the specific reason that drove the slowdown in business jet services this quarter?
On the overall market, I would say that, no, nothing that we're seeing here. I mean I think at the end of the day, we've got great products. They're well positioned. And there's a lot of excitement around all the new aircraft we're putting out there. As you know, Challenger is the best value proposition in the industry as well. So our aircraft and our activity remains solid with the industry and given the new product entries that we have.Nothing to comment on the services. I think actually, it's doing very well there. They continue to grow and making investments. And there may be the impact of the fact that you had training businesses in the early part of the year and last year. But this year, we did sell the training business somewhere early in the year. So that might be a compare explanation. But other than that, it's going well.
Okay. And for the quick follow-up, John, could you mention about the split in terms of free cash flow between the first half and the second half and also the split between BA and BT overall for the corporate cost?
Thanks, Benoit. No, no specific comments on BU cash generation. As I said before to a prior question, I think both will start to develop pretty good cash flows through 2020, and that's an important part of how we get to our breakeven positive cash flows for the full year. And with respect to first half, second half, I would just say that we will have the typical pattern here.So Q1, we'll see some usage as we build up working cap and inventory for deliveries through the year. At the same time, we will have most of the RVG payments go through the first half of the year. So that does put a drag as it's counted as part of free cash flow.In the second half, I think you're going to see a lot of the release from BT start to move through the system. So that will produce some solid cash flows from deliveries of working capital that's been trapped up. And then, of course, the 7500 continues to ramp through the year. It will be a good ramp, but at the same time, better than the second half. So Q4 will be another big quarter but I think more normalized this time around.
Our following question is from Noah Poponak from Goldman Sachs.
So at this point, I'm actually just very confused as to what the strategy of the company is because your qualitative commentary sounds pretty good. It's -- we're ending 2019 stronger than we started it, the BT challenged programs are making progress, the turnaround continues.But you've now sold several businesses, a few of which seemed kind of recurring revenue, high-margin businesses. Rest of A220 out this morning at a number that I think was much lower than the market thought and certainly that you had on the books. And there's several media outlets reporting that you're in discussions on both sides of the remaining business. So it's starting to look more like an asset liquidation than a turnaround.So I guess my question is, is -- has this always been the plan? I mean does this look like what the plan looked like when you started 3 years ago? And specifically, with the recent review of strategic alternatives, why is there this sort of quick look to do all of this if the business is, in fact, getting better and turning around right now?
One simple term, Noah. It's like balance sheet. That's -- it's complicated, and I will repeat that again. I mean the reason why we're looking at strategic options is to accelerate the deleveraging of the business. That's the reason. That is the fundamental reason.We have a strong liquidity position. We have strong assets now. We have been doing a lot of cleanup over the past 5 years, addressing some of the underperforming businesses, the Q400, the CRJ, like -- the C Series was the biggest challenge in 2015 when we joined the company. We were losing a lot of money. It was a cash drain.Today, I mean, we've just finalized that and the asset is at a good place. So the strategy was always to exit commercial aircraft, and we've done that very successfully and as I said in my comments, while protecting jobs. So we've done that in a very responsible manner.We are now ending up with like 2 very strong franchises, the train side and the business aircraft side, a strong cash position. And we have options and we're going to continue looking at our options to see if there's ways that we can accelerate the deleveraging phase of the turnaround plan.
But Alain, why is there this urgency right now? If -- you've made the progress you've made. You're guiding to slightly positive free cash flow this year. You increased the liquidity already. You pushed out maturities. The C Series program was several billion dollars to develop. You've now taken in $600 million. I guess I just don't understand the urgency right now on these asset moves relative to the progress that you are saying you have made in the underlying cash flows of good businesses.
Yes, Noah. It's not about urgency. It's about being proactive. It's very different. And we have been managing this business in a very proactive way for 5 years straight now. We've always committed to preserving $2.5 billion of cash on hand and more as we were going through this very complex turnaround journey. And now we are sitting at a very good place and we have options and we're looking at all of the options. And I guess this is what you would expect us to do is to be proactive and look at how we can create value moving forward for shareholders.
Our following question is from Konark Gupta from Scotiabank.
Just wanted to follow-up on the asset sales. So you have C Series, CRJ and Aerostructures, all 3 kind of divested here. And you spoke about some of the debt numbers that you have on the balance sheet and the pension and all those things.Just wanted to make sure, these asset sales, have they reduced some of the debt numbers on the balance sheet, including long-term debt or any other debt that you owe to the government or suppliers? I know about -- there still were guarantees, but anything else on the balance sheet that they have reduced? And then is there any tax obligation that you owe from the sale proceeds?
Yes. So tax obligations, none. These were all direct proceeds. We have plenty of tax attributes to absorb them. We've done, I think, a tremendous job of derisking the balance sheet through these divestitures, probably in excess of $2 billion of liability. So if you think about it -- I mean I'll just list them off.One is any future funding on the A220 and we talked about that today, $700 million. We have significant pension plans for all these divested assets, and those have all been moved over to the buyer, probably in excess of $400 million of liabilities, reduced government loans, I would say, on programs that were supported for growth and particularly the U.K., of over $200 million, $300 million there.And I would say that on an RBG basis, I mean if you recall, in 2015, we started off with a total potential exposure of over $2 billion. And today, essentially, we have moved off or settled or transferred all liabilities, except for about $400 million or so that we've retained, which are all settled and no longer moving. And of those $400 million or so, about half of them come through in 2020 and the other half over the next couple of years, so between '21 and '23.I feel very good actually about the derisking of the balance sheet through all of the work that we've done and essentially now can focus on generating cash and using the liquidity on hand to start to work through the deleveraging and the debt paydown phase eventually.
Okay. That's great color, John. And then secondly, on the liquidity position, obviously, so you talked about more than $4 billion in cash position. So I just wanted to understand. So you have some free cash flow this year that's excluding the $200 million RBG payment, so you are basically generating more cash and then, so that should improve the cash position. And then would you have any other cash outlay? You have preferred dividend. Would you have any dividends paid to the BT Holdco that you anticipate and any other cash outlay that we have not factored in, in these numbers?
Yes. Sure, no problem. I think below free cash flow, you -- because of the way IFRS does accounting, there's probably somewhere around $75 million to $100 million of lease liability payments that fall below the free cash flow line, and then we have probably somewhere in the neighborhood of $50 million or $75 million of -- I call them separation or transition costs as we separate some of these businesses. That will happen probably in 2020 and they'd probably happen again in '21.We do some support necessarily, as in other things, as we move the assets to the new buyers. So we put aside some cash for that. And essentially, that's outside of free cash flow as well. So long and short of it, I would say is that you've got lease liabilities, a couple of other payments for separation, the RBG, as we talked about, and that's kind of it. We had an initial payment at the beginning of the year for the CSALP that we have made prior to including the transaction. That's out of the system now. So what's left is just the inbound divestitures that's going to approximate about $1.5 billion, $1.6 billion.
So just to be sure, nothing on BT, CDPQ dividend payment?
Yes. No, good question. So we don't expect a dividend payment in 2020. We'll reevaluate that during the year. But I expect probably, as we improve the business, we'll go back to a dividend probably in '21. So for 2020, don't expect any leakage there. So all this together, I'd say that -- we would say that it's something around approaching $4 billion.If you think about the comments I made, you said that we're about $4 billion and change the year pro forma. We had $2.6 billion at the end of '19. You add to that the divestitures, gets you to just above 4%. And I would say that if you take that, assume free cash flow breakeven, deduct RBGs and maybe the other payments I mentioned and you're still somewhere approaching $4 billion end of year 2020.
Our last question is from Stephen Trent from Citi.
Just 2 questions from me. The first question, in terms of the transport segment, I'm wondering how you guys are thinking about marketing campaigns in terms of potential new business, especially in emerging markets? And kind of what's your view on what level of diversity we could see in that business longer term?
Well, as you've heard this morning, there's like -- we had a very, very strong order intake in 2019. One of the major projects was Cairo. So we are competing around the world. That's the beauty of the train franchise. It's very global, and we work in all parts of the world, sometimes alone and sometimes with partners and in South Asia and China. So we believe that the business is well positioned to keep growing on the top line front.
Great. And sorry, I had trouble getting onto your call, so I had actually missed that comment. Just one last follow-up. When we think about transport contracts in the EU versus outside of the EU, is there anything more onerous about EU contracts, either from a litigation perspective or the government demands that maybe make those contracts a bit tougher versus other markets?
I wouldn't say so. I think it's -- each customer, they have their own set of requirements and expectations. So it's pretty much similar over the world. It is a very global business. It's a solid business, solid growth. It's like mid-single-digit growth. So it's a big -- it's always a bit better than GDP growth.And we are really focused right now on reuse, exercise of options, so working with the existing customer base that we have and new customers where they see the application of our existing platforms to suit their needs. So I would say, very global. There's -- I don't see a big difference between EU or the rest of -- and the rest of the world, whether it's like North America, Asia or other regions.
Okay. Thank you, operator. That concludes our call.
Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.