© 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 Fourth Quarter and Full Year 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, Investor Relations for Bombardier. Please go ahead, Mr. Ghoche.
Good morning, everyone. And welcome to Bombardier's earnings call for the fourth quarter and full year ended December 31, 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 am 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 Executive Vice President and Chief Financial Officer, Bart Demosky, to review our operations and financial results for the fourth quarter and year ended December 31, 2020.I would now like to turn over the discussion to Éric.
Thank you, Patrick. Good morning, everyone, and thank you for joining us today. Let me start this morning with a few general comments about the past year. Clearly, 2020 was one of the most difficult period for our company, for our industry and for all of us individually. At Bombardier, the year will be remembered for the challenges it brought, but even more so for how our employee rose to meet those challenges.At the onset of the pandemic, our team acted swiftly to protect the health and safety of our employees, to support government mandates to slow the spread of the virus and to support our customers to the best of our ability. As the crisis spread, our people took immediate step to reduce costs, preserve cash and improve liquidity. After absorbing the initial impact, we moved quickly to reset our production rates and global supply chain to align with the new market condition and customer requirements. This was a massive undertaking that would not have been possible without the commitment and hard work of many people across our company. And I want to use this opportunity to recognize and thank them all.The past year was also a period of transformation for Bombardier, as we worked through the crisis to complete our strategic repositioning to a pure-play business aviation company. Again, this was another huge undertaking. Amid a global pandemic, we successfully closed 3 of the largest industrial transactions of the year: the sale of our regional aircraft program to MHI, the sale of our Aerostructure business to Spirit and the sale of our rail business to Alstom.Completing 3 large transactions under the conditions we experienced in 2020 is a real testament to the skill and commitment of our people. With these transactions behind us, we are now entirely focused on designing, building and servicing the world's best business jet. So I'll focus my remarks this morning on the business aviation market outlook and the steps we're taking to increase profitability and cash generation as we continue to navigate the pandemic and prepare for an eventual recovery.As a starting point, we begin our journey with a solid foundation to build upon. We have an unmatched product portfolio, a world-class customer service network and incredibly talented employees. And hopefully, the worst of the pandemic is moving behind us with the global deployment of a vaccine now underway.We are further encouraged by the momentum we saw in Q4. As you saw in our press release this morning, we ended 2020 with 44 deliveries, including a record 16 Global 7500. Cash generation was also strong at $523 million for aviation which was ahead of plan. And order activity remained healthy with 43 gross orders in the quarter.Key market indicators are also encouraging. Used inventory levels are coming down and pricing is trending in the right direction. And if there is a silver lining to the pandemic, it is the attention it brought to the end in safety private air travel provides and the new customer it brought to our industry. Of course, we are carefully looking at how these newcomers to private air travel will shape and drive demand when business and long-range travel fully recovered.Notwithstanding the positive momentum we are seeing, it remains very difficult to predict the time line to a full market recovery, which will not happen until borders reopen and international travel restrictions are lifted. Assuming no major setback on vaccine deployment, we estimate it will likely take a few years for the industry to return to 2019 delivery level. Given this outlook, we think it is best to be conservative in our planning, which is reflected in our 2021 guidance as we see 2021 to be a transition year.For this year, we expect to see deliveries roughly in line with 2020, modest revenue growth, but incremental year-over-year improvement in EBITDA and free cash flow generation. But the real story for Bombardier this year is our return to profitability and the company-wide initiative we're taking to transform the way we operate to drive productivity and efficiency ensuring that we are profitable in the current market condition and prepared to scale up at lower cost basis -- at a lower cost basis when the market recovers.With our disclosure this morning, we announced a number of specific actions with more to come. Collectively, we aim to generate $400 million in recurring savings by 2023. Specific actions include consolidating our global aircraft completion work in Montreal, reviewing options for our underutilized industrial space and reducing our workforce by approximately 1,600 positions, bringing our global workforce to about 13,000 people by year-end. Of course, headcount reduction are always very difficult. We regret seeing talented and dedicated employees leave the company for any reason. But these reductions are absolutely necessary for us to rebuild our company while we continue to navigate through the pandemic.We've also made the difficult decision to end the production of Learjet this year. Again, this is a decision we did not take likely. With more than 3,000 aircraft delivered since its entry into service in 1963, the iconic Learjet has had a remarkable and lasting impact on business aviation. Pilots and passengers all over the world love to fly this great aircraft and count on its unmatched performance and reliability.However, given the number of new entrants in the light jet segment and the challenging market dynamic, we need to focus our future efforts on our more profitable Global and Challenger aircraft families. Of course, we will continue to fully support the Learjet fleet well into the future. Highlighting this commitment today, we announced the launch of the Learjet RACER remanufacturing program for the Learjet 40 and the Learjet 45 aircraft. The RACER manufacturing program include a bundled set of enhancements, including interior and exterior component, new avionic, high-speed connectivity, engine enhancement and improved aircraft maintenance costs.Even though we're winding down Learjet production, Bombardier's Wichita facility will continue to serve as the company primary flight test center and be key part of its global service network. We've also designated Wichita as the Center of Excellence for our specialized aircraft business and expect the facility will play a leading role in the design and manufacture of future special mission contracts.Beyond the action we're taking to drive profitability in the coming years, we're focused on 3 things: First, in addressing our capital structure through debt reduction. With all our divestiture now complete, we're finalizing our debt management strategy and look forward to sharing the details with you shortly. Second is growing our services business. With the additional capacity we're bringing online with our major expansion project in Singapore, London, Melbourne and Miami, we'll be well positioned for significant growth as the pandemic subsides.And finally, we'll continue building and reinforce a winning culture to become an organization that is truly people and customer-centric, that value performance, operational excellence and team spirit, a company that is transparent and authentic at all times and at every level. At our upcoming Investor Day, we'll talk in more detail about each of these 3 areas and how we view 2021 as a transition year as we execute on our productivity actions, further mature the Global 7500 production and begin to address our capital structure.But for now, let me stop here and turn it over to Bart to discuss the details of our fourth quarter results and our 2021 guidance.
Thank you, Éric, and good morning, everyone. Let me start this morning by saying that I am honored and excited to join Bombardier at this point in its journey. And I look forward to working with Éric and the entire leadership team to achieve the vision and the goals that Éric has described. With all our divestitures now complete and the company strategically repositioned, we now look forward to a period of stability to focus our attentions on our operations and our capital structure.As a starting point, with the $3.6 billion in proceeds generated from the sale of BT, I see an opportunity to start healing our balance sheet, while at the same time, we expect to -- pardon me, just a moment, please, while at the same time, positioning the company for a better long-term future. The restructuring actions we announced this morning are a first step in that process. They will eventually make our business stronger, more profitable and importantly, cash generative. I know a lot hinges on our capital structure. And I believe that with significant cash on hand and more to come as we monetize shares in Alstom, we have options.Since I joined in December, I've been looking at ways to optimize cash deployment and to reduce debt. At this point, I can tell you that we will be prudent, disciplined and methodical in our deployment, perhaps even conservative, recognizing that the business needs time to reach its full potential and the path to a full economic recovery from the pandemic is still uncertain. While we expect to finalize our cash deployment strategy in the coming weeks and to share it with you at our upcoming Investor Day, we took a first step this past week towards repaying half of the $750 million drawn on the $1 billion secured facility and associated fees. This repayment is required upon the sale of BT and represents a good use of our capital, given the high cost of that facility.So with that, let's turn to our results and the outlook for 2021. 2020 was an unusual and challenging year in many ways. But the Aviation business managed to finish strong and with significant momentum, delivering 44 aircraft in the final quarter. With Business Aircraft revenues of $5.6 billion for the year, Bombardier is the only business aviation OEM to post growth for the full year, with revenues up 3% year-over-year, driven by the Global 7500.Looking ahead, we are remaining conservative with our forecasts and expect modest revenue growth for 2021. Priority will be given to building backlog before increasing production rates as part of our goal to drive more predictability and better pricing while reducing whitetail exposure.Consistent with these goals, we start 2021 with fewer open positions than a year ago, and with early market activity pointing to improved order flow. Potential upside to our 2021 plan comes from the services business, which could benefit from an early and sustained recovery in customer flight hours that are now hovering above 80% of pre-pandemic levels.From an earnings point of view, 2020 margins were clearly suboptimal, with adjusted EBITDA down to 3.1% and negative adjusted EBIT. While we expected earnings dilution from the ramp-up of the Global 7500, this was definitely compounded by the effects of the pandemic. To offset the pandemic impact, early measures were taken midyear to rightsize direct labor to match our reduced production rates, but we also needed to revisit our entire operations and our manufacturing footprint to drive efficiency and productivity.The actions Éric described earlier put us on a path to targeted cash savings of approximately $400 million by 2023. For 2021, we expect approximately $100 million in contribution to EBITDA from these initiatives, while we also expect to spend approximately $50 million in restructuring charges.As we start capitalizing on these savings and move down the Global 7500 learning curve, we are guiding to adjusted EBITDA of greater than $500 million for 2021 and amortization stable at approximately $400 million. The cost improvement expected on the Global 7500 is the most meaningful earnings growth driver for the next 2 years and should contribute to gradual margin expansion as we progress through 2021. This quarter, we are entering a steep portion of the learning curve as we move past the 50th production aircraft. As we do, margins should gradually improve through the year.Let's move on to free cash flow. 2020 was a very challenging year with cash usage from continuing operations, which excludes BT, of approximately $1.9 billion. This usage was largely driven by the impact of the pandemic on the order flow, particularly in the second and third quarters and on inventory as we reset our production rates. It also included the full burden of interest cost on close to $10 billion of debt. Fourth quarter free cash flow generation from continuing operations, before interest and taxes, was strong, reaching $523 million, better than expected despite repaying $160 million to support the wind-down of Aviation's reverse factoring facility. We are encouraged by this performance, led by record Global 7500 deliveries.We now enter 2021 as a different, less complex and more focused organization. And with our cost optimization program, stabilized production rates, significantly improving order environment and reducing interest cost, we expect free cash flow usage from continuing operations of approximately $300 million for 2021 before onetime cash outflows, which I will describe shortly.Our 2021 free cash flow plan includes working capital investments on the Global 7500 and factors stable CapEx year-over-year at around $200 million net of divestitures. Our CapEx plan for 2021 includes starting the construction of a new production facility in Toronto for the global line. And you'll recall that in 2018, Bombardier sold the Downsview complex where green Global aircraft are manufactured. This required that we exit the building by 2023. We plan to invest close to $150 million in '21 in a new state-of-the-art building at Pearson Airport and expect to mostly fund this initial investment through proceeds from other building sales.Now as I mentioned a minute ago, we do have some onetime cash outflows in '21 that will reduce total cash usage to $500 million or better. We estimate $200 million in nonrecurring outflows, which are largely tied to legacy issues. They include the remaining balance of the reverse factoring program that is being wound down, some RBG liabilities, and finally, the restructuring costs I mentioned earlier. While free cash flow usage in '21 is a meaningful improvement over '20, we still have work to do as we look to reduce leverage to more sustainable levels. This is clearly a priority for us. And we'll share more about our path to positive cash flow at our upcoming Investor Day.Looking at the current quarter, where cash usage is typically highest during the year, we expect it to improve against the $760 million usage for the same quarter last year for continuing operations. This quarter's free cash flow still includes most of the interest cost on $10 billion of debt, and approximately $80 million out of this year's $200 million one-time items I mentioned earlier.So in conclusion, despite a difficult 2020 and some continued uncertainty going into 2021, we are moving aggressively to restore margins and build the foundation to generate sustainable free cash flow in the future. As Éric mentioned earlier, we will remain squarely focused on addressing our capital structure through debt reduction, growing our services business and building a culture focused on operational excellence. I look forward to talking with you at our Investor Day on March 4 and sharing more about our plan for the next 5 years.And with that, I'll conclude my remarks, and we'll turn it back over to Patrick. Patrick?
Thank you. So we'll now open up for questions. I would ask you to keep these at a strategic level. The IR team will be available throughout the day for any modeling questions. So with that, operator, we'll open it up for questions.
[Operator Instructions] Our first question is from Benoit Poirier from Desjardins Capital Markets.
First question. Bart, I understand -- in terms of EBITDA longer term, how should we be thinking? You just mentioned some color about 2021, but with the potential to -- for further cost saving by 2023, should we be adding up the $400 million on top of $500 million? Is it kind of the way investors should get the potential EBITDA generation longer term?
Yes. So I think, Benoit, your question is a very important one. The way we foresee EBITDA right now, as we are guiding this year, we're seeing greater than $500 million for this year. I think it's also important to recognize that the cost-saving program that we are talking about today will bring us $400 million in 2023. Part of the $500 million this year, there's only a portion of it, which is about $100 million, but there's also charges that this year will happen, that will not be recurring. So from the program, the net impact this year is around $50 million.So of course, the program will have its full impact in 2023. On top of it, as you know, we are -- we've delivered already 50 airplanes -- close to 50 airplanes right now on the 7500. So the learning curve is getting behind us. The program learning curve is doing exactly like it is supposed to behave, so it's going down. Airplane will become more and more profitable moving forward. So that's going to be another significant bucket of EBITDA contribution.And there is also the fact that we are growing our service business. So our service business, we're looking for a different revenue mix in the future. You know where we have a bigger contribution from services and clearly also some EBITDA gain will come from that business unit.
The following question is from David Strauss, Barclays.
So wanted to ask, obviously, you have some onetime items in free cash flow in 2021. But how should we think about the longer-term potential for the business to convert EBITDA to free cash flow? Is it -- do you think this can be more than a 20%, 30% conversion business on EBITDA longer term?
David, I think as Éric was describing with the actions that are going to drive EBIT, you're going to see, obviously, free cash flow move along forward with the growth in EBIT as well. One of the other factors I'd obviously point out is that as we deploy our cash to pay down debt, that's going to reduce interest cost and drive free cash flow as well.The progress on the learning curve, as Éric mentioned, is going to drive both EBIT and free cash flow. And we're going to continue to work on optimizing our cash structure. As Éric was talking about, there's only $100 million of the $400 million benefit that we expect by 2023 that will come into -- that will hit our numbers in 2021.And we will continue to, obviously, watch our CapEx very carefully and keep it relatively low as we benefit from having an aircraft fleet that is fully developed and well positioned without having to build new program. I will have a bit more to say on that -- on your point on Investor Day around conversion, but hopefully, that helps give you some color.
Our following question is from Cameron Doerksen from National Bank Financial.
Maybe just first, a clarification just on the $400 million in annualized cost savings. Are you including in that number the benefit from moving down the learning curve on the Global 7500? Or is that -- is the learning curve impact over and above the $400 million?
In the $4 million, Cameron -- so first of all, the learning curve is not included. So the $400 million is really cost saving on different other fields. But it's not including the learning curve, which is going to be over and above that $400 million.
Okay. Perfect. And I guess my main question here was just around the services business. I mean, Bombardier has made, I think, a fair amount of investment in expanding your service network. What further investment is required? I mean, is there any significant capital that you need to invest over the next few years to grow that services business?
No. In a nutshell, we pretty much announced everywhere where we're building right now. We are growing our facility in Singapore. We are already in the middle of finishing the extension in Biggin Hill. We already announced Australia. So yes, there is, it's part of our capital envelope that we have mentioned. So it's actually -- we're not planning any major investments. So clearly, those will be the investment that will allow us to capture more market, especially in those regions and, of course, grow our business significantly.
Following question is from Robert Spingarn from Crédit Suisse.
Following on the prior questions, maybe a strategic, like Patrick suggested, but a little bit longer term, how do you see a few years out the mix of revenues between aircraft delivery and service? And what should a longer-term -- I will be very direct here, what should the longer-term EBITDA margin look like? So once you get through all these learning curves, all these cost savings, is this a 10% EBITDA margin? Is it 12.5%? What are we looking at down the road?
So I think, Rob, clearly, on the Investor Day, we'll give you a bit more color onto this. But what I can say today is that we're guiding this year for $500 million and more. And we're announcing that we'll have an extra contribution by 2023 of $400 million. So some of it will start impacting '21, some of it will be -- there'll be a further impact in '22 and the full impact in '23. As we deliver more and more airplane, and you saw we delivered 16 Global 7500 last quarter, our learning curve is going down very nicely. And there'll be a bigger contribution of the margin there.So I think with what just I'm saying, you can do the math. And clearly, we are focused right now on growing our EBITDA and having a nice cash flow generating coming from that business for year-over-year. So I guess we're -- the management team here is very focused. Cash flow, of course, a significant part of the improvement also will come from our debt reduction, as Bart just mentioned.But clearly, the EBITDA right now and free cash flow is our main focus, and we need to make our number predictable, as we know, and that's what this management team is focused on right now. So yes, and I said that, we're conservative for this year as there's still a bit of uncertainty. But we foresee the future being a lot more solid.
Well, and I think we should also be anticipating that the top line, both in original equipment and in service, would be somewhat higher 2 or 3 years out when you're doing that $900 million plus in EBITDA.
Absolutely. The service business will be a bigger piece of our business. As you know, it's a more resilient business. So it's a business we like. And I think it is represented right now in how we do allocate our capital. We do capital allocation, where we believe we can have the best return. And I think we foresee better return in services right now, and this is why we're investing in that business with new site -- with growing our sites in Singapore, Miami, Biggin Hill and also Australia.
Okay. And then have you said of the 110 to 120 aircraft you're going to deliver this year in '21, what the mix is?
No. For competitive reasons, Rob, we don't disclose exactly the product mix, but we feel pretty comfortable about our guidance between 110 and 120.
The following question is from Noah Poponak from Goldman Sachs.
So in 2021, even after significant debt pay down with the cash you have, the interest expense will still be higher than EBITDA. And so as we think through the forward, in continuing to repair the balance sheet, the challenges, you can't have positive free cash flow until the interest expense is less than the EBITDA, but you can't pay down the debt until you have positive free cash flow. So one, should -- do we need to think about a few years of cash flow that's slightly negative or only slightly positive until you can ramp the EBITDA? And/or is there an opportunity to refinance what you have? It seems like you could have significant interest savings, but I'm not sure where you are with the cost to refinance.
Noah, it's Bart. Thank you for the question. And it's a good question. I mean, the first thing I would say is that our goal is to perform and generate free -- to be cash flow positive at the lower volumes that we're seeing today. So when you think about the cost reduction activities and the $400 million of benefit that we see by 2023, and that's the full $400 million in 2023, that's how we're describing it, that will bring us a long way towards being free cash flow positive. So obviously, it's somewhere between this year and 2023 is when we start to see ourselves come into a free cash flow positive position. There's a few factors, other factors that are going to support this position.Obviously, we plan to keep our CapEx relatively low and stable. We're in and around that $200 million level right now. We do expect '22 on a free cash flow basis to be better than '21. And as we start to generate more positive and free cash flow, we'll be in a position to pay down more of our debt and bring the interest expense down. We're working today on our cash deployment plans and how we'll use that money to reduce our debt and bring interest expense down, and we will be in a position to share more on that with you at our Investor Day on the 4th of March. So hopefully, that's helpful.
That's helpful. Just one clarification in there for 2021. With the -- you've mentioned not all of the proceeds are available, and it sounds like that's at least all or partially related to shares from Alstom. How much of the proceeds are available to deploy in 2021?
It will be north of $3 billion will be available. We've got -- the shares themselves today are worth about $600 million. Those become available to us in May, and we'll be deploying that cash at that time. There is a little bit of the cash that will be tied up for a period of time in '21 as well, but we'll be working to free that up and deploy into debt repayment as well. So it will be north of $3 billion, but again, a little more color probably on Investor Day for you, okay?
A following question is from Tim James from TD Securities.
I'm just wondering if you can talk about 2020 business jet orders and maybe as you look forward into 2021, how you're pricing aircraft? And I mean, with a view to what type of margin profile longer term, to the extent that you can kind of help us shape that sort of long-term thinking, that would be helpful.
So I think it's interesting here, it's Éric. Thanks for the question, Tim. Clearly, the -- we had a solid sales activity in Q4. This was our best gross order activity in many years, probably in 1 quarter. Our gross book-to-bill is 1.43 versus 1.44. The Global 7500 deliveries accelerated much faster than orders, of course. And the backlog also decreased as we were claiming 12 positions back from one of our customers, which eventually will help us because we're going to be able to resell those airplanes at better price and obtain better margin on those airplanes.But clearly, we saw also in Q4 with the level of activity, the pricing already starting to come back. So this was very encouraging. And we see that trend continuing in this quarter. So I guess, as beyond the pandemic on whole, as we said earlier, we feel positive. I think it's one of our objective is to build backlog for us. I think it brings stability to our business. So we are very focused on this right now, making sure that we keep the rate at the right level to be -- build backlog moving forward.
The following question is from Cai von Rumohr from Cowen.
Yes. So 2 questions on bizjet. First, what does your revenue estimate assume for growth in service? You talk of the opportunity, but what have you assumed roughly for 2021? And secondly, on the 7500, presumably, it's going to start out the year being margin dilutive. At what point do you think it can become breakeven with the margins equal to the rest of the portfolio and then better?
Cai, it's Bart here. I'll maybe address the second part of your question, and then I'll ask you to repeat the first part because I just missed part of it. But for the 7500, we're coming up on our 50th aircraft right away. So we're well along the learning curve now. We do expect the aircraft to be turning profitable this year as we work through the significant learning curve improvements. And by 2023, we see the 7500 reaching its full potential. So we're going to be seeing benefit both this year and in 2022. Could you just touch on the first -- your first part?
Yes. The first part was on service. You mentioned all the opportunities. And clearly, departures are coming back. So roughly, what sort of a range should we look for service growth to be in this year?
So I guess, the -- one of the earning driver clearly will be our growth in services this year and next year. So last year, of course, we saw a bit of a slowdown because of the flying hours. We are confident in the key driver of that business. We are expecting that the aftermarket to grow in 2021 from the bottom in 2020. So I guess, in a nutshell, we see more flying hours, which were very low last year, so which is important for us. I can tell you that our service center are already pretty much pretty busy right now, which is a good thing for us. We're pretty much filled at capacity right now. So we look at -- clearly, 2020 was a bottom year. And we see growth in '21 and, of course, further growth in '22 and '23.
If I could follow-up, when do you expect to get back to 2019 levels?
It is still a bit of an unpredictable right now as the market, and that's what we're seeing. I think we're being prudent right now. And potentially, some of you will say we're conservative, and I'm -- that's how we want to look at the business right now. But clearly, we see good sign, but I think it's a little early to declare victory on the full market coming back. But of course, as the vaccine is kicking in, borders are reopening, international flight will happen. Today, when you look at business jet, we got about 87%. At year-end, we were back to about 87%, 89% of the flight that we had pre-COVID if you compare the same period, which was very encouraging because there's pretty much very little low international flight. So I guess we feel that this is recovering slowly but nicely. And this, of course, will have an impact as airplanes are flying on our service business, which is already starting to see some positive sign.
The following question is from Fadi Chamoun from BMO.
Question on the services business. When you kind of think about the active fleet that you have out there and how much you're doing on that active fleet and the size of the opportunity, obviously, you've made a lot of investment in the last 2, 3 years to kind of expand the service network and grab a bigger share. Like what this $1 billion service business looked like 5 years out? Can it be $1.5 billion? Like I'm just trying to understand the size of the opportunity that you're going after in the services?
Yes. So I think, Fadi, this is a good question. And of course, we've been putting a lot of thinking through this right now. But when you look at our fleet today, we have about 4,800, almost 5,000 airplanes flying out there. We're not touching all of those airplanes ourselves. And we foresee a huge potential there and that's why we're building the capacity. We've improved our service. We want to make sure that we have the most competitive pricing and turnaround time in the industry, which will attract business.So in terms of growing our market share there, there's clearly a nice potential for us to do that. We have our fly-by-the-hour program called Smart Parts, which is also very popular and, of course, offers us some also good potential. We have our sole contract with some of the fleet operator, which are major. And the fleet operator contracts are growing right now in terms of number of airplanes.And of course, as airplane aging, they need more maintenance. So we do clearly see a nice upside potential there over the next 5 years. So part of our strat plan, as I said, and we'll share more with you on March 4, we want to -- we're targeting a much bigger portion of our revenue to come from services. And as I mentioned earlier, this is a more resilient business. This is a business that the ROCE is much -- is pretty solid. So we like that business, and we want to grow it over the next 5 years.
Okay. That's helpful. Just a couple of quick follow-ups. If you can share with us what kind of book to sales are you assuming in the cash flow guidance for 2021? And this question came up a lot during this hour. But like, if you can also share with us like what -- maybe even a range of what the Global 7500 dilution effect on that 2021 guidance looks like, so we can understand kind of what's the long-term potential here as you mature this aircraft production line?
So we're targeting a book-to-bill this year slightly higher than 1, as things stabilize. So I think for the 7500, it's a bit lower than 1. We have a bit of a reshuffle of our backlog right now. One of the challenges, and I think we're making good progress there is, we have long lead time right now. For a customer that knock on our door right now, there was not much availability in the next 2 years. There was actually pretty much no availability on the 7500. And on the other platform, we had availability right away.So what we've been able to achieve in the last quarter and that we are continuing to progress is, of course, we are reducing to the backlog on the 7500, which is a good position to be in. You want to be in an 18 to 24 months, which would be a normal window, which was higher than that before. And also, you want to have more backlog on the other platform. So there's a bit of a shift in the backlog right now mix for us, which is good, which will give us opportunity on the 7500, but will also be a more -- bring predictability for our business, having more backlog on the other platform.So that's how we're looking into that. And we accelerated our delivery, of course, on the 7500. And of course, as we reduce the backlog, we'll be able to pick up more orders. So overall, an overall book-to-bill higher than 1, but of course, lower than 1 on the 7500 for this year. I hope it's helpful, Fadi.
The following question is from Seth Seifman from JPMorgan.
I guess just real quick on the Lear. I mean, people have been asking for years about shutting down the production of the new jets. And I assume there was a reason why that didn't happen and then you kind of made the decision to go ahead now. So I guess, what had been the advantage of maintaining that production? And then why is it sort of no longer necessary to have whatever that advantage was?
Okay. So I think one of the main reason right now is, I want to make sure the organization is very focused. And I think we have elected to compete and be a strong competitor on the Challenger and the Global platform with great focus. This is where it's a question at some point when I say focus, where do you allocate your capital? What is your capital allocation strategy? And I think we believe right now that we have amazing product on the Learjet, but the product have a lot of competition. This is not the market segment that brings profitability right now. We are basically saying let's focus on where we are having a leading product and where basically we believe that the margin will be better moving forward.So -- and again, I think it's important, we're not abandoning our customer support here. We will continue to maintain the thousands of airplanes flying at Learjet. Actually, this morning, as I mentioned earlier, we're launching the Learjet RACER program to improve -- to give an opportunity to our customer to improve the Learjet 40 and 45. But clearly, that was the bulk of the decision focus. And of course, looking at the potential of that business moving forward, the competitive landfill, we decided to make that difficult decision but to focus on the 2 products that brings most of the profitability.
A following question is from Konark Gupta from Scotiabank.
Welcome, Bart. So perhaps a question for you, Bart, here. What's the minimum cash balance for the business you think is right going forward? And can you suggest any cash transactions that you anticipate this year outside of free cash flow, which you guided and the $1.9 billion debt that's due? I mean anything pending from the recent sales or any other kind of cash payments that we have not kind of heard about on this call?
Yes, thank you, Konark. Thank you for the welcome. We're right now in the middle of working on what we believe to be the optimal amount of cash to hold on balance sheet. We are monitoring the market recovery. Obviously, as Éric said, we're planning on a conservative basis and to be prudent and not planning for much growth this year in terms of overall aircraft sales. So we do need to obviously keep cash on the balance sheet to absorb our intra-quarter fluctuations. We think that is likely in the $1.50 billion to $2 billion range, but we'll be able to provide a little more color on that on our Investor Day as well.We do expect though that over time that number will go down as we move to become more free cash flow positive. And we have additional cash to deploy into debt repayment. In terms of other sources of cash that you mentioned, other asset sales or things that might come in, I did mention in my comments that we do have a couple of, call it, property sales that we're looking at this year that should bring in the order of somewhere north of $100 million. Hope that helps.
Okay. Yes, absolutely, that helps. And just a clarification. On the full year delivery guidance, I was just wondering if you guys have assumed any last Learjet deliveries there?
I'm sorry, I missed the end of your question, Konark. What's...
Yes, sorry, for the full year delivery guidance, 110 to 120, I was hoping if you can suggest if there are any Learjet deliveries in that number?
Yes. There is Learjet in that number. So we're announcing today that we're going to be stopping production by year-end. So we still have work in our facility. Right now, we're going to complete those airplanes, sell them and then be strictly focused starting next year on producing Challenger and Global.
The following question is from Walter Spracklin from RBC.
So my question really is, I think, Éric, you touched on it, where you are -- you hinted that you're kind of at capacity from a production standpoint for your Global 7500, but below capacity -- productive capacity for the rest of your portfolio. What -- my question is, what level of demand do you need to see for your Global 7500 before you start to look at investing in instead of pushing them out further and further those orders.And you look at either converting some of your existing capacity or building new capacity into 7500 production. And if you could ballpark as to what type of capital expenditure you would require to get what level of additional capacity? I'm under the assumption here that you're at about 40 aircraft per year, but correct me if I'm wrong.
No, that's about right. So of course, Walter, I mentioned, we have a multiyear backlog still ahead of us, despite the fact that we took back about a dozen airplanes last quarter. We feel pretty good about the product. It is extremely well received. I would say, it is the flagship of Bombardier, but it's also the flagship of the industry. We have close to 50 aircraft right now in service. The customer feedback is excellent. Actually, the reliability performance right now is at par with the legacy Global 6500 and 5500, which is amazing after 50 airplane. We've reached right now, you're right, maturity of our production rate at 35 and 40 aircraft.So right now, we are focused on, of course, selling Challenger and other Global platform because we have the capacity. We need to grow that backlog, which we started to do in Q4, and it is also having some momentum. So right now, we have that production rate of 35 to 40 airplanes on the 7500. We will continue to assess the market over the next coming year. We are investing, of course, also in moving our facility in Toronto right now to the Pearson Airport, which we're going to be up and running over there by the end of 2023. So that's happening. But clearly, right now, we are going to keep those level of activity, 35 to 40 airplane, and we'll see what happens with the market moving forward.
Okay. That's great. I appreciate that, Éric. And just a follow-up on Challenger. It's been a while since a refresh there. As you mentioned, you want to get that -- the production and sales of that up to the capacity that it has. Would a refresh be in order here to help kickstart that? And what -- again, what order of magnitude from a CapEx spend standpoint, would you expect a Challenger refresh to be?
We are seeing extremely good interest for Challenger 350 and 650 still. Last year, our 350 despite that it's competing with 4 airplanes -- 3 other airplanes and 4 airplanes in its own, we had like 57% of the market share. So our product continues to lead. And I think it's part of Bombardier's DNA and history that we are always looking at improving our product. It doesn't mean that you go from -- always from a fresh start completely on the platform.But I think we have demonstrated that 650 is the best example. That airplane was certified in 1978. And I'm telling you today, we've been refreshing the airplane to a 604 to a 601, 604, 605, 650 today, and the airplane remains very competitive. This is probably the best cabin in the industry out there in the medium market segment and still being very attractive for a lot of our customers.So we're known as a company also for the reliability and the performance of our product. So we will continue to innovate, refresh our product on this platform. Of course, in due course, we will make the necessary announcement. But today, I can reassure you on one thing is that we always refresh and innovate in those platforms. And of course, the 350 and 650 are part of that. We, of course, just refresh our platform on the Global. Even the Global 5500 and 6500 were awarded being the best airplane that went into service last year. So we're very pleased with that. And those airplanes, again, were a testimony of Bombardier always refreshing its product in due course.
Operator, we'll take our last question, please.
Our last question is from Myles Walton from UBS.
Maybe I could just go back to the cost savings initiatives, Éric. And you've spun out becoming more pure-play business aviation company. I mentioned there's cost savings associated with that. You're doing restructurings, cost savings associated with that. I'm surprised pleasantly that it's only costing $50 million to achieve sort of this trajectory. Should we anticipate that there's a couple of hundred million more to invest in '22 to achieve this $400 million goal? Or is this really this good a payoff to achieve that level of cost savings?
No, we feel that the $50 million charge is enough to achieve the $400 million. There is some project that I would say are auto finance. As an example, we need to reduce the size of some of our factory. But in order to do that, we are selling a big portion of the land and the money that this will generate will help us basically reducing the footprint that we have. And that's just an example. But overall, we feel that with the $50 million, we'll be in a position to achieve the $400 million.
Okay. And then just a modest one. The fourth quarter EBITDA margins were obviously breakeven and you're targeting 10% for the full year for '21. Can you give us a little bit of color as to why we should feel confident in that level of ramp in the trajectory? I know you have the 7500 learning curve, but maybe just give us a little bit more of a foundation there to get from breakeven to 10% as an annualized run rate?
Yes. There's -- Myles, it's Bart here. There's a few factors at play to be sure the Global learning curve, given that we're just passing our 50th aircraft now is significant. So you shouldn't underestimate the benefit that, that will bring. We're also looking forward to some aftermarket recovery as the year progresses, and we start to see more flying time by the fleet in the marketplace. We do have the cost savings built in this year of about $100 million from the $400 million program. And so when you start to look at those 3 factors, there's a fairly significant ramp-up in EBIT margin for the year.
And I think there is -- we took some charges in Q4, which were significant.
We did, yes.
And that will benefit us in the future years. So that's also worth to mention.
Sorry, were those in the adjusted EBITDA or excluded already?
Included.
Included.
Good. So to all of you, so thank you again for joining us this morning. I guess, if you have any additional question, Patrick will be available for your calls. And I look forward to speaking with you, all of you, at the next month at our Investor Day on March 4. So until then, please stay healthy and take care. Thank you.
Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.