Bombardier Inc
TSX:BBD.B
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
44.45
111.36
|
| Price Target |
|
We'll email you a reminder when the closing price reaches CAD.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Bombardier Inc
You don't have any saved screeners yet
Good morning, ladies and gentlemen, and welcome to the Bombardier's First Quarter 2020 Earnings Conference Call. Please be advised that this call is being recorded. At this time, I would 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 first quarter ended March 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 future 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 new President and Chief Executive Officer, Eric Martel; and our Chief Financial Officer, John Di Bert to review our operations and financial results for the first quarter of 2020. I would now like to turn over the discussion to Eric.
Thank you, Patrick, and good morning, everyone that are joining us this morning, and thank you for being present. Let me start this morning by, first of all, recognizing that these are very unusual and challenging times for all of us, and I hope that you and your families are well and remaining safe. It is clear that we are facing a complete new reality. It is critical to embrace this new reality very quickly. We will need to change significantly how we operate, how we lead, and how we move forward, and this is exactly what we're doing. Our number one priority, of course, is the health and safety of our employees and communities. And I'd like to recognize and thank the Bombardier site leaders and team members working around the clock to ensure that we have the right procedures and safeguards in place to protect the well-being of our employees around the world.I also want to take this opportunity to thank all the essential workers on the frontline fighting the COVID-19 pandemic. We truly appreciate your efforts and sacrifices. I am also proud of the Bombardier the employees who are supporting these efforts. This includes our colleagues out in the field, ensuring that public transportation systems remain operational as well as our employees working to provide first responders with the equipment they need. To go from making railcars and business jets to assembling lifesaving protective equipment and ventilators in just days is a testament to the skill and commitment of our people at Bombardier. While our world has changed dramatically, Bombardier remains a company defined by its strong product portfolio and by dozens of smart, passionate, and thoughtful employees who want to be part of a winning team.As most of you know, this is my first earning call as Bombardier's President and CEO, and I am honored and excited to be back at Bombardier. There is truly nowhere I would rather be given my passion for the company and the opportunities I see to elevate our culture and performance. Since rejoining Bombardier, my primary focus has been on managing the business through this crisis. This includes daily leadership calls, an intense focus on managing cost and cash flows as well as regular communication with customers and to suppliers confirming orders and resetting delivery schedules as we deal with the current reality.I've also been getting up to speed on all aspects of the business. This includes deep dive into our major aerospace program and largest rail projects. To better understand the risk, the challenge, but also the opportunities. And while the COVID-19 related travel restriction and shutdown have limited my abilities to visit our operation, I have had the opportunity to meet virtually with the top leaders across the business and to set clear priorities for both the immediate and the near-term future. So these priorities include, first, continuing to proactively manage our business through the COVID-19 crisis to ensure our company long-term sustainability. Number two, making our rail business predictable by being consistent in our performance. Number three, aligning Bombardier's aviation production with market demand to be more profitable and a steadier cash flow generating business. Number four, driving business aviation aftermarket growth opportunities.Number five, completing the aerospace divestiture currently underway, and the sale of Bombardier Transportation to address our balance sheet challenges. And finally, number six, set the foundation for long-term success by defining a clear vision for our company and resetting our culture to be more people and customer centric, more accountable, and more focus on operational excellence. With these priorities and culture, our objectives are clear, navigate through the crisis, and make Bombardier a more profitable and predictable company with a healthier balance sheet. This is how we will redefine winning going forward.Turning now to the current situation and the actions we're taking in response to the COVID-19 pandemic. While there is still a great deal of uncertainty surrounding the duration and impact of the pandemic, we believe that we are taking the right actions to best position the company to navigate the crisis. You will recall that when the crisis began to unfold, we acted swiftly to protect the health and safety of our employees, to support government mandates, to slow the spread of the virus, and to service our customer to the best of our ability. We also manage our operation to reduce cost, preserve cash, and ensure sufficient liquidity. This includes ongoing dialogue with government, where we have major operation regarding additional support program, should they be necessary to navigate through the extended crisis.With respect to our previously announced divestitures, we expect the CRJ sale, as confirmed by MHI, to close on June 1. The aerostructure sale to Spirit remains on track to close in the coming months. Collectively, when completed, these transactions will improve our cash position by over $1 billion. They will also mark the completion of Bombardier's exit from the commercial aerospace market. We also continue to make progress working with Alstom to complete the sale of our transportation business. Throughout the crisis, our most senior leaders and planning teams have remained in constant contact, and we currently do not expect any delays to the original timeline as a result of the COVID-19 pandemic.The pandemic will, however, have a material impact on our financial performance and cash consumption. We saw a significant impact in Q1 with more to come in Q2, as a large part of our operation has been shut down for the past 8 weeks and international border remain closed. For the first quarter, the cash impact is estimated to be between 600 and $800 million. This reflects our inability to deliver aircraft, following the government imposed travel restriction and border closings, production shutdowns at a number of our facilities, and lower than anticipated order intake at both transportation and aviation, John will walk you through the Q1 details in a few minutes.From an operation perspective, we are beginning the process of gradually resuming manufacturing activities at both aviation and transportation. This is a tremendous undertaking. It involves restarting operation at dozens of facilities around the world with new stringent health and safety procedures, recalling thousands of furloughed employees, restoring disrupted supply chains, and resetting delivery schedule with customer. We expect this process will adhere over the remainder of the quarter, and it will likely generate some challenges along the way. Given this uncertainty, we'll continue to manage costs, defer capital expenditure, and ensure that our production rates align with the current market demand and customer ability to accept deliveries. We look to give you more color on our outlook as we get clear visibility on the full impact of the pandemic. However, based on our current assessment and timeline for gradual resumption and stabilization of operation, we expect business activity to hit a low point in the second quarter with similar cash usage as Q1, therefore, gradually recovering in the second half of the year.Let me say a few words on each of our business units here. In the first quarter, Bombardier Aviation led the industry with 26 business aircraft delivery, including 6 Global 7500. Since the onset of the pandemic and travel restriction, sales activity has slowed down significantly. Most analysts predicted a 30 to 35 industry-wide reduction for 2020 deliveries, with the large cabin segment less impacted. While this feels directionally right for the short term, we think it's still too early to call the market with any certainty, and note that we've seen limited cancellation in our backlog and remain in close contact with all our customers.Lower aircraft usage will have a negative impact on revenues associated with flight hours, including part sales. However, our service center remains busy, and most maintenance activities are continuing as scheduled. As we resume operation, we are focusing on completing the aircraft currently in production, and the firm order in the backlog as we watch how the market responds. For the Global 7500 where we have a solid backlog, our focus will be on achieving our learning curve goals as we ramp up production in the second half of the year. With the most time from the shutdowns, we'll deliver a few less 7500s than originally planned.At transportation, the focus has been on production ramp-up in the U.K., Switzerland, and Germany, which is reflected in the strong Q1 revenue growth. Progress in the first quarter also included reaching a commercial agreement with SBB, transferring title to the 32 trains in revenue service, and reflecting the significant reliability improvements that have been made. Going forward, the COVID-19 related production shutdown and supply chain disruption will delay the achievement of certain future milestones and associated cash inflows. We are currently working with our customers and our suppliers to re-establish new milestones and delivery schedules, and we'll look to provide a more complete update with our Q2 earnings call.We also negotiated a new $386 million equity injection from the CDPQ in BT in the quarter, providing additional flexibility as we manage through the crisis and schedule reset. From an overall market perspective, while passenger rail operator have seen an unprecedented drop in ridership and revenue due to COVID-19, long term, the outlook remains positive, with continued growth expected in the coming years.Okay. Let me stop here now and hand it off to John to walk you through the Q1 numbers and our liquidity position in detail. John, over to you.
Thank you, Eric, and good morning, everyone. In my commentary this morning, I'll focus on 3 key areas. First, our liquidity status at the end of Q1 and the additional liquidity initiatives that are underway. Second, I'll provide color on Q1 financial performance across our businesses. And third, I'll provide insight on our short-term outlook and the actions we are taking as we navigate the current health crisis and its impacts on our operations.We've always managed our liquidity prudently, and we have been proactive in maintaining adequate cash on hand and a long runway to debt maturities. Specifically, we entered 2020 with over $2.6 billion of cash on hand and almost $4 billion of total available liquidity. Moreover, our next debt maturity is a $450 million Eurobond due one year from now in May 2021. And although the current pandemic poses additional challenges to our business, our financial strategy remains intact, to strengthen our balance sheet, notably by completing our planned divestitures, and to build the bridge to a stronger and better capitalized Business Jet franchise. To that end, we are managing our operations with discipline, and we are making the adjustments necessary to protect our balance sheet and build added flexibility.As Eric mentioned, we are making progress in our early initiatives to add cash to the balance sheet and increase our capacity to support higher working capital during the crisis. We have completed our exit of the A220 program and received $530 million in proceeds during Q1. And we have also benefited from the additional $386 million of the CDPQ equity injection into BT. Let me provide some details on the new CDPQ investment. CDPQ invested $386 million in the first quarter, the equivalent of EUR350 million, directly into transportations, equity, and generally under the same terms and conditions as the original investment. The cash provides BT with financial flexibility to manage working capital as we deal with disruptions to operations. As the business recovers, it should generate sufficient cash to buy back this equity ahead of the closing of the sale to Alstom. It's important to note that this injection will not affect the expected net proceeds to Bombardier from the transaction, whether it is repaid ahead or as part of the closing, so long as the minimum cash threshold is achieved on closing.In conjunction with this equity injection, we further increased our financial flexibility by amending the financial covenants under BT's credit facilities. Our banks have been very supportive in the process, providing temporary financial covenant relief. With these measures, we had total liquidity of $2.9 billion on March 31, including $2.1 billion of cash on hand. We feel we have the liquidity and the financial support from our partners to weather the storm. And as we continue to work diligently to strengthen our balance sheet in the short term with the upcoming close of MHI's transaction set for June 1, which will bring our pro forma liquidity $3.5 billion. In addition, we continue to make steady progress on the Spirit transaction, which will add another $500 million to cash. These deals bridge us to the transaction with Alstom, which when completed, will significantly improve the health of our balance sheet.Turning now to Q1 results, which got off to a strong start on revenue growth before being interrupted mid-March by the COVID-19 crisis. Consolidated revenues reached $3.7 billion, 5% higher year-over-year, reflecting an 8% increase at aviation, which includes 60% growth from Business Aircraft activities alone. This impressive growth was driven by 6 Global 7500 deliveries, but was offset by the decreasing activities in commercial aircraft. At transportation, we experienced 5% organic growth, mainly reflecting production ramp ups in the U.K. and Germany. BT's revenues were offset by some unfavorable currency impacts, as the euro weakens year-over-year. Adjusted EBITDA totaled $171 million, and adjusted EBIT was $60 million, representing a 1.6% margin. Aviation's margin was 1.6%, below the mid-single-digit margin range we were targeting. The dilution came from an unfavorable product mix, which included Global 7500 and less Legacy aircraft, as some March deliveries were delayed due to the travel restrictions.At transportation, the margin was 2.4%, generally in the line with our low single-digit expectations, as we execute and burn down low margin contracts in the backlog. Our free cash flow usage was $1.6 billion for the quarter, and includes a significant shortfall associated with the pandemic, estimated at between 600 and $800 million. A third of this shortfall is from transportation, where cash inflows tied to certain milestones were delayed, and this was caused by disruptions to our engineering and production activities, the inability to homologate trains and customers' inability to accept the rolling stock during this period, and finally, the deferral of certain orders, which reduced cash deposits and advances.The larger share of the shortfall is associated with aviation, where more than a handful of aircraft could not be delivered for logistical reasons despite our best efforts. Additionally, our order intake slowed as the crisis mounted reducing cash advances. Finally, we paid out approximately $100 million for RVGs related to the CRJ business being divested. Post-closing of the transaction with MHI the amount due on these are RBGs will be below $300 million and will be spread much more evenly over the next 3 years.Looking at the outlook for the remainder of the year. Given the unprecedented uncertainties related to the global macroeconomic situation and our operations, we suspended our full year guidance and believe it is still too early to provide longer-term forecast. For the second quarter, we expect business activity to hit a low point before gradually recover. As Eric mentioned, we are dealing with production shutdown that extended through April and are continuing in May. We expect a reduction of our production and deliveries and therefore revenues by almost half versus the same quarter last year.With the lower top line anticipated and while we are highly focused on managing costs in the short term, we nonetheless expect to incur an EBIT loss for the second quarter. As we move through the rest of the year, we will look for revenue normalization and we will be fully adjusting our cost structure to return to profitability.From a free cash flow perspective, we expect usage to be significant in the quarter as we deal with lower output and order intake and suboptimal productivity. We'll also be too early to see any benefit from any cash flows deferred from the first quarter. We expect, however, that as we focus on consuming existing working capital and reducing spending, we can limit cash usage in-line with the first quarter.We'll also be pursuing several initiatives to improve our cash flows, including applying for various wage subsidies as well as tax deferral and pension holiday programs enacted by the government. Finally, we are managing down cost through aggressive company-wide actions limiting nonessential or discretionary spending. This includes reducing CapEx and tooling investments mainly at BA by a couple of hundred million dollars to approximately $300 million to $400 million on a consolidated basis for 2020.For the full year, we are running multiple cash flow scenarios that include lower production rates at aviation and rescheduled deliveries at transportation we expect that our strength and liquidity, combined with the anticipated closing of the aerospace transactions will be sufficient to absorb the volatility associated with the operating uncertainties. And as we continue to monitor the situation, we will keep the market updated on developments.With that, operator, we're ready for our first question.
[Operator Instructions] Our first question is from Myles Walton from UBS.
This is [ Lou ] for Myles. Can you help me understand what you are seeing from demand-wise in biz jet? Is it completely -- the order environment is stopped. And do you see that 30% to 35% lining up? Can you provide any additional color for us?
Okay. Good. Fair question, Myles. As I said this morning, most of the analysts right now -- and I would say also our competitors -- are talking about a 25% to 35% reduction on delivery for this year. And what I said earlier is that we are approximately in the same zone so within that range also in terms of reducing our delivery that we're committed earlier this year, but at the same time we are seeing it is a little bit too early to assess and we see some movement. As an example, we have a very, very solid backlog in the 7500 and we don't see that part moving a lot. So the large segment is better-protected, I would say as we can see it right now when we talk to customer-by-customer. But when we look at the light segment and the medium size, it is a little bit more volatile right now. So we are taking the time to assess this properly and I would say our customers are pretty much saying the same thing, 'I need to know exactly what's going to happen with the pandemic. Is it going to last another 2 weeks or is it going to last another 3 months?' You heard pretty much the same thing on the recall, there is no clear science on this right now. Most of the economy including ourself, we're restarting our operation because we do believe that the worst is behind and that we can do it properly. So that's how we are assessing the market today.
Okay. And then just one quick follow-up, do you see second half free cash flow being positive?
Maybe I'll take that one, [ Lou ]. I think at this point in time we've not given full-year guidance. I do believe that from what we see today and as we kind of stabilized through operations, particularly in the first half, I would expect that the second half would start to breakeven or be positive on cash flow. It's an early signal at this point in time, but that would be my expectation.
Our following question is from Cai von Rumohr from Cowen and Company.
This is Dan on for Cai. I guess I'm wondering how quickly can you guys deliver the biz jet aircraft once the shutdowns are lifted. I know there might be lack of visibility into that currently, but if you have any insight on that and just how many aircrafts are currently sitting waiting to be delivered? And related, are customers kind of obligated to accept delivery of those? Does it depend based on the class of their aircraft? Any insight you could offer on that would be helpful.
Clearly, in the large segment, but also in the medium one, we had airplane that were ready for delivery at the end of Q1. But unfortunately with the pandemic and the borders closing, there was difficulties. Some we've been able to, but some others were just sitting there and customer were not even able to get them either inspect the airplane or take delivery of the airplane. So we have lost a couple of airplane right at the end of the quarter. Clearly, as we resume our operation, our focus will be to make sure that we deliver those airplanes as much, as fast as possible. So that will be of course as you can imagine helpful for our cash flow and of course we are assessing the market and restarting with prudence, I would say our operation, but we are being ready to go back to full production when ready. Our business is a long lead time and brings some particularities. So we are able to deliver -- to answer your question -- some short-term delivery and as we resume, the cadence that we had before, we'll be able to start restart our delivery process.
Okay. Great. And then how many production facilities are currently shut right now? How many are running or scheduled to reopen soon?
It's a good point. At some point, I think pretty much all our facility were closed at a certain point in time. But we are resuming everywhere. Actually since probably May 4 and even a little bit before in April, we have started gradually, putting new measure in place to start. There is only one facility to know that I know it's Crespin in France that has not been restarting, but it's planned to restart the next month.
Following question is from Benoit Poirier from Desjardins Capital Markets.
John, could you talk a little bit about action or measure to be taken to reduce or adjust the production rate lower and maybe talk about the magnitude of some potential charges that could be taken on the back of the lower production rates.
Benoit, I would say that as Eric said, we're in the current process now of assessing with the right rates to be in the second half. I think that we reacted pretty quickly right out of the gate in March in terms of managing the operations here. Still, we've taken out quite a bit of [ just the ] -- as I mentioned, all the discretionary spending, but also we've been able to limit overhead spending and as we went to the second quarter, I think that will help us mitigate the impacts. In terms of special charges, I think it's a bit early to call now -- it's important that we get a good beat on what the production rates will be. I think there's a few important things to note here and Eric mentioned them. One, you got a 7500 that's sold out over several years. So we see pretty good steady state there. It's a matter of really the interruption in the business and trying to get back straight up and running and I think that will happen as Eric described. On the rest of the portfolio you do have some open orders in the production rate. So I think that overall from a restructuring charge or any kind of special charges, we'll give you guys better color as we get through the middle of the year.
Okay. Perfect. And second question, could you talk, John, maybe about additional measure taken to boost liquidity and meet the upcoming debt maturities in 2021?
Sure, Benoit. It's a good question. So I think it's important to just take a step back here. Nobody comes in prepared for this kind of an event that's for sure, but I think that we have been pretty prepared in terms of liquidity and planning with respect to our balance sheet even with the heavy debt load. So when you think about it, just in simple terms, we came into the year with about $4 billion of liquidity right out of the gate; so $2.6 billion of cash and over $1.3 billion of facilities. We described in my commentary, kind of a $1.6 billion burn in the first quarter and we expect something in that neighborhood in the second quarter. So just take that is kind of just the general $3 billion just for easy math.From there, I think we got off to a good start with liquidity builds in Q1. You had the A220 closed, cash in the bank, it's $0.5 billion. CDPQ just rounding in that out, that's $1 billion between the 2. So when you think about that, we've already put $1 billion of new liquidity onto that before even though we have some significant COVID-related burn here.And then from here, we announced that overnight -- this morning -- that we're set on track now for June first on MHI. That's $0.5 billion and then a $0.5 billion to come from Spirit. So by enlarge, we're $2 billion into this thing here, as we complete the transactions that we're working on and I would say the second half as I mentioned just previously on my comments, we are going to build up to trying to stem this and bring cash generation back over the last 6 months. So I think with this we're putting ourself in a place here where we have a good bridge to the Alstom transaction. It's hard to call when that closes, but certainly seem as we all expect the first half of 2021 and that's continuing to progress very nicely. So long and short of it is, I think we've got a runway to deal with the liquidity. Of course, we're looking at things as they are today.
Okay. Perfect. And maybe just a quick one on transportation. Do you experience any cancellation or deferrals at BT given the drop in the public transit demand? Or is there a desire from customers to increase rail spending, too, as a government's stimulus?
No. So far we haven't, Benoit, and we feel right now that of course the ridership being extremely low right now. You saw some of our major customers this week announcing some major loss. But clearly, the transportation business is a business that people will still need and we feel that everywhere right now, we have clear sign that the government are stepping in to support our customers.
Our following question is from Yilma Abebe from JPMorgan.
I guess the first question is on the free cash flow. John, as you look at the second quarter free cash flow being similar to the first quarter and second half breakeven or positive, which business is more negative in terms of free cash flow usage in the upcoming quarter and in the second half?
So I'd say that the when you look at the first quarter, it was a pretty abrupt impact. We came out of this thing in March and we're building up a lot of inventory across the board. Typically we would do that in the first quarter anyway, as we build off the year. And as Eric mentioned, we've got caught with a lot of aircraft that logistically we couldn't deliver and a few also that were in the process of sales that's just got kind of distracted and interrupted so stayed behind. So I'd say that at BA it's really a jet delivery-related and coming out of that last couple of weeks. At BT, I'd say that we had a lot of milestones that in the first quarter were closing up. We were building up a lot of inventory as we have a big ramp in the second half especially in U.K., and Germany and France. So we're now trying to stem the inventories -- especially we took decisions in March to slow down the supply chains on both sides of the businesses. So when you look at the second half, I would say that you will see a benefit at BT from resetting the supply chains and kind of balancing out the production rate which was destined for big ramp and big deliveries in the second half. So I think that that will get the bigger benefit. On BA, I expect a similar quarter as Q1. So a little bit of improvement at BT in Q2, similar quarter in BA as we had in Q1 for the second quarter because we're going to have quite a bit less delivery in objects.
And then I guess the follow-up, the question would be around sort of the cost reduction efforts you're putting in place. I think as we look at sort of the second quarter, you talked about seeing some of the benefits. In terms of right-sizing the costs for demand, how should we be thinking about the second quarter and into the second half? Maybe you can give us a little bit more color in terms of what the benefits are going to look like as we move on the next couple of quarters here?
Well, like I said, we're in the middle of planning and completing those kind of production adjustments, but we've made decisions on CapEx. I think that's something you can think about being pretty much now signed and sealed, will get a couple of hundred million dollars of savings in terms of just not needing the same kind of capacity rates and some other discretionary capable spend that we would have had this year. That's kind of pushed out now and it we'll revisit that at a future date. For 2020, that's pretty much locked in. I'd say that the next piece of this is going to be, what kind of rate we set up the BA and then we'll make the right adjustments on variable costs and the production rates. I mean it's as simple as that. So it will be a really about sizing the output capability of the business and making sure that we're building the right amount of jets for the market demand. I think we have some of that in the backlog, which is nice and the rest of it will have to adjust to the market. I wouldn't say that there is more commentary on -- we've got discretionary spent pretty locked down. My expectation here is that the second half under the circumstance I see today, should be able to go back to generating some amount of cash, but it's really going to be about what kind of a rate we put out there. And BT is different, it's a $33 billion backlog. BT, it's really all about just getting the supply chain and getting the operations up and running again productively. Then we got a $33 billion backlog that we chew into. So it's about working with the customers and making sure that we can reset contracts and schedules with them as to how they can take.
Our following question is from Doug Karson from Bank of America.
I have a question around the CDPQ. If you could shed any light of like how discussions went and I know you can't speak for them, but what was one of their decision points to invest more equity in the train business and can one extrapolate that -- that could kind of point to a more likely closing of the opening train sale? Is that kind of reaching too far? I think Van Hool is reacting positively to that equity investment. I want to see if we can learn a little bit more about it.
First of all, I can't speak for the case but they're a partner. They have been a partner since day one in our train transportation franchise and honestly, it's been a very good partnership and we've been able to successfully -- to bring the transaction would ask them to bear as well. So you can see that it in a lot of collaboration from the get-go.I think that they just -- they're significant minority interest shareholder and they want to see the business be successful, we want to create flexibility at BT. We knew we're coming into something -- a challenging year. We didn't want to short-change the management or the liquidity that we want to make sure the business had. We were in the conversations with the CDPQ and they've looked favorably upon making additional injection, reading into the Alstom transaction. I think that, notwithstanding what they may or may not be thinking at CDPQ. I think that it's fair to say that we continue to make good progress. We have a very strong cadence of reviews on the transaction and we still are very excited. We think that it brings value to the market and I think I can't speak for Alstom either, but I would believe that they will continue to be fully engaged in their view of a very positive outcome of this.
Are there any covenants in that equity investment, if the transaction doesn't go through, the money goes back to them or I haven't really read all the details of that yet this morning, if there are any out there. But are there any limitations to that equity investment?
No, I will keep it simple to say that it really -- it has the same terms that we had in the original investment. It increases their ownership and with that increased ownership, whether we make the sale or not. I mean they are a larger equity holder of BT.
Okay. If I could just ask one more question as a might out of the cash flow, I wasn't expecting the $1.6 billion burn. But I guess it's understandable given this crisis is unprecedented. And am I right in thinking that 2Q could be at a similar level of another $1.6 billion and then I think you talked about like a progression to a break-even or positive cash flow in the second half. But it seems like a lot of cash burn in the first half to get to a break-even or positive in the second half. So I'm concerned about 3Q and 4Q. I know you can't give guidance on that, but how do you expect to go from a huge cash negative to a break-even or cash positive in the second half?
Yes, so I think, Doug, first thing is that, good or bad, it's our seasonal pattern. Is that we tend to have quite a bit of cash in Q1 and we tend to have a very strong Q4. And so we're working through obviously the -- all the operational logistics have been showing that we sustain that -- the ability to move a lot of products to help through the fourth quarter. I speak to you now, viewing the world as it is today, right? So as things progress or more and there's a level of unknown that's out there. So -- but from our view of the business now, Q1 is typically in absolute terms, pretty deep burn quarter anyway. We talk $6800 million are COVID related. In fact, I think you know probably Q2 has more COVID related burn than Q1 in it and that as I said and you mentioned that gets us kind of a similar cash burn in absolute for Q1 and Q2, but more of Q2 will be COVID related. It's going to be about being down on operations here, almost 2 months and low productivity and then getting back up and running and managing supply chains and outputs at the same time with customers. So I think that -- we're trying to be prudent and at the same time realistic and making sure we are in front of the stuff and where we can be. In Q3, we're assuming now some level of normalcy, and that's all I can say, doesn't mean it's business as usual. It just means that we're in a more normal environment. And with that I think you get to pivot into Q4 and make sure you move out a lot of the product that we have and we'll keep you guys posted. But at this point in time, we were also be very, very, I think, strong on working capital management and how we set those rates is going to be responsible.So that's the kind of color I can give you. CapEx, like I said early decisions, so all those things will benefit us in the second half as we are adjusting the size of our operation as well. So those are second half benefits. I think they're there, it takes a little bit of time to get everything in place.
No, that's very helpful. It's very helpful color. And I guess last one I'll sneak in, and I promise that will be it. A lot of big companies are hitting the market with liquidity measures, whether Boeing or Ford, alike, kind of this downside protection. Have you guys anticipated potentially any kind of like a safety net liquidity that you may try to raise in the event that Alstom doesn't come through? Are you guys kind of thinking about that at all?
Yes. No, absolutely. And I would say that we've already engaged discussion, in case we may have some need with the different government that we are working with, I would say across the world, because we have, as you know, a vast operation. So clearly, some discussion have already taken place to make sure that if ever we have a need, and I will call it a temporary need because that's what we're talking about here to get through, then of course those discussion will be advancing more.
Our following question is from Konark Gupta from Scotiabank.
Sorry, can you hear me?
Yes.
So first I wanted to ask you on the guidance our kind of indication you provided for aircraft deliveries down 30% to 35% and the full year. Just wanted to clarify. You had a lot of obviously CRJs last year and you will have very few this year. So that 30% to 35%, should I assume that includes CRJs in both years or Business Jets?
Just Business Jet.
It was just Business Jet.
Yes, on this one, I think on the CRJ, we're just managing out the remainder of the Skyline and delivering the backlog to that. And then with the MHRA transaction closing June 1, now it kind of won't be a factor in the count.
Okay. That makes sense. And then secondly on the cash, John, so thanks for providing good color on quarterly cadence and stuff. I mean, you obviously have some covenants and some restrictions on the cash. So if you can help us understand what is -- in the new kind of structure, what is the minimum cash position at any time you require? And then any goal posts you have set for our cash position at the end of 2020?
So just -- I missed the last part of that question. Can you just repeat, Konark?
Yes. It's any goal posts for cash position at the end of 2020? I know you have 2.1 at the end of March 31. But what do you expect cash at the end of this year?
Okay. Okay. So I think that the first thing is that it's important to note that there are no minimum liquidity cash requirements. We did have that one point of covenant under the CDPQ arrangement, but that had expired with the fourth anniversary year, I believe, so would have been Feb of this year. So there is no requirement on a minimum cash basis for the company. On the covenants, maybe just a bit of color there. I think that the only covenants we have are at BT, and they support the revolver and some letters of credit we issue on performance and so on. And so the good news is that we have a very supportive syndicated banks. We've been working very closely with them, particularly over this period of uncertainty. And in the first quarter, we were able to make some adjustments. I think it's important that we came out of the gate.I mean, this hit everybody pretty hard, and we wanted to just make sure that we had the right flexibility. So we've taken care of that, I'd say, for the first couple of quarters of the year. What's important now is that they also have, at BT, a pretty good credit. So it's important to know that, that their balance sheet and their lending arrangement is under a pretty good credit backdrop. So long and short of it is that we support with also CDPQ here their financial covenants. The access to the revolver is full. It's not impacted during the intra-quarters. We can borrow all the way down to the 1.3 at the end of the quarter. We do have to make sure we make those covenants. The injection by CDPQ was helpful in that regard. And of course, the flexibility of the banks are giving us relative to the situation is as well. So going forward, I got to stay close to that. But at the end of the day, I do believe that we will have that well managed. So it's not the biggest first piece of concern, but it's one that we're working out.On the full year, I do hesitate, to be honest, to give out too many goalposts or expectations. I did a little bit of math for you. If you just take that maybe and kind of conclude it on yourself in terms of just overall liquidity. We started the year with about 4. We talked to you about the first half being, call it, 3 from just math's sake down, we're adding 2 from all the activities that we're pursuing between the equity investments at CDPQ, the sale of A220, MHI, and Spirit in combination. All of those. And then the second half, we expect that probably we turn the corner and start to have some generation. I won't comment on the size. Breakeven or positive. And so if you do a bit of math there, you get a number that kind of says that we close the year with probably something in the neighborhood of maybe $1.5 billion, plus, minus. We'll see.
Our following question is from Walter Spracklin from RBC Capital Markets.
This is the Ryall Stroud calling in for Walter Spracklin at RBC. Just wanted to quickly touch on covenants again. You mentioned you're seeing some relief there, but indicated that it was temporary. I'm just curious how long is the relief in place for, and where are you in terms of your covenants right now?
Well, we're in full compliance, and so that's -- I mean, no -- when I say temporary, it just means that the metrics have been adjusted for the early part of the year here, so into the first half. And then that we'll be monitoring the situation. And in fairness to the banks, I mean, we want to have an ongoing dialogue. So this is just a question of saying we'll give you guys an update at that point in time. We'll be working with them to look for what's appropriate in the second half. Again, I don't want to get too far ahead here, but we also have the flexibility at corporate to make injections as necessary. But we do always stay in good control of our situation on the covenants. And like I said, only in BT.
Great. Great, that's helpful. And I guess just one more for me. Maybe looking beyond COVID, what types of aircraft do you envision garnering the most significant customer demand, post the pandemic? And do you see there being a potential for an acceleration in demand for certain aircraft models?
Actually, it's interesting. So of course, there is still discussion, I would say as we speak, going on with our customers. So our typical customer right now may have some time available, so they're calling us and getting informed on what's going on and what airplane could be available. And we haven't seen a major -- actually, we haven't seen much cancellation, which is great news. I think everybody is assessing right now, our customers are doing the same thing, what will be the outcome of this pandemic, when will be the outcome of that this pandemic. So clearly, it is moving at a slow pace. There is no decision being made. And hopefully -- and that's what we're starting to see, is that we think that when we have more visibility on the pandemic, that the activity level will be restarting. So, so far, there is a little activity. It's more information. But those customers are approaching us right now to understand what could be possible, when delivery, what airplane could be available. So that's positive. And hopefully, when everybody has more a solid ground in understanding the real impact, we foresee that the activity level will start to pick up again.
Our following question is from Brian Reilly from Barclays.
John, maybe just a couple questions following up on some of the previous. First, I believe you'd mentioned in your prepared remarks that the sale of the additional equity, the CDPQ, wouldn't change the net proceeds back to you guys. Could you maybe walk us through that in a bit more detail how that mechanism works? I guess as a bit of a follow-on to that, would those proceeds to you move if you had a significant revolver draw at transportation at closing. I get the sense that there's still some market confusion, if you will, around how that $1 billion transportation cash relates to the $8.2 billion enterprise value. So any help on that would be great. And then I have one follow-up.
Sure. Well, let me try to keep it simple here and see if this does the trick. But you can ask a follow-on, if it doesn't. I think that at the end of the day, there's a minimum cash requirement at the end of the year when deal closing for BT, so struck at December 31, 2020. And essentially, it's ensuring that we have positive cash on the books there. So what it means is that to the extent that we generate cash from the business sufficient to have positive cash on hand at the end of the year, then the injection of CDPQ, either one, is paid out from that cash on hand and maintains that positive balance, so it's sufficient cash there, including the equity injection that were storing. Or two, the cash stays there, but it is added to the total sales proceeds received because it's new cash into the business.So I think that that's the way to think about it. When we go back to the announcement of the transaction, I think we signaled up to about $1 billion of cash on the balance sheet that at BT -- that would go with BT. So maybe if I can simplify it, again, I'll just kind of keep it simple, to the extent that you don't have a burn of more than $1 billion incremental to that view, you would protect the proceeds at BT. Does that makes sense?
Got it, okay. Yes, I guess -- I mean, it is -- I mean, again, maybe I'm alone in this, but it is a little confusing relative to the total enterprise value. But I'm happy to follow up a bit offline, if that's okay.
Yes, absolutely. Please.
And then maybe a second one, just more broadly. I know you touched on this a couple of times, but -- and appreciate all the proactive work on the liquidity front. But still with so much uncertainty. Could you -- to a question earlier, could you expand on maybe what pools of liquidity from government support specifically that you might be able to access? And I don't believe that you have kind of a typical secured debt access, given the negative [ ones ] in your indentures. I guess is -- one, is that correct? And does that change how you think about future issuance and how potential pools of liquidity could develop if you did in fact need them if this progresses longer, the weakness lasts longer, et cetera?
So you're correct in what you say. It's also true though just as a matter of fact that we can use the working capital, essentially inventory, as a form of security. So that is an option that we do have with respect to our ability to generate any additional debt. So we could look at securing any kind of temporary support if we needed it with some kind of a working capital facility. And just think about the nature of what we're going through here, and just be very pragmatic about it, is that we're going through a kind of a system shock, and that system shock is causing us to build up working capital. So if there was an area where we wanted to get some additional flexibility, we would do so, could do so, through the working capital that we have and making sure we got some financing against that.I think in terms of government support and so on, I don't want to speculate here on any specifics. But the reality is that I think that all of the major jurisdictions where we operate want to see our business go back to some form of normal. We are a big employer in many of the regions that we operate. We have great businesses that make products that make a difference in all those communities, particularly on the train side. The aircraft business, a very important industry for Canada and Quebec as well. So those are just important parts of the sector, and we're an important part of just getting the general economy started. So I think to the extent that it was important for us to have some support, we would have open lines of communication and dialogue. And I think the people have been getting educated on just how we're managing through this and making sure that they know where we are. And at the same time, we're being responsible all on our own, and at the same time, I think all of that will be placed probably over the next few months, based on what's the right thing to do. So that's some of the optionality we have.
Our last question is from David Strauss from Barclays.
This is [ Kate ] on for David. I wanted to ask Eric -- I know that he was at aircraft during the prior aircraft downturn. So now that you're back, Eric, what do you see is different about the business this time? How do you see kind of detrimental margins being different? And then just another related question, do you think Global 7500 volumes, are those still targeted at kind of the prior ultimate 35 to 40 annually or could that be lost?
Thanks, [ Katie ], that's a good question. Actually there is clearly some similarities between this to user expression, the shop right now that is happening, to use John's expression. I'm going back-forward and I remember when the price of oil drop in December 2014 by about half. We had a major reaction from our customer base and what was interesting at the time is that we saw a major cancellation right away. I would say what is different today is that, as I mentioned earlier, we haven't seen that rush of cancellation despite the shop that is evident, but in 2014 we did. Also we have limited exposure today on the light jet versus either 2008 or even 2014, but we always felt going through those crisis that the large segment market was much more robust. And today as you know, we are much more dependent on that segment, which makes me believe that our backlog will remain much more solid. I'm not saying there will be no cancellation. I'm sure there will be, but I think it will be minimal compared to what we may have seen as an example in 2018. That market, by the way never really completely recovered since then on the light market. But we feel that our large market segment is very robust. As John said earlier, our backlog is extremely solid especially in the 7500 and we are just coming out also with a brand new product, the 6500 which is also an amazing product out there. I hope it answered your question.
Yes. And then could you just comment on Global 7500 volumes? Do you guys think that you could still get to the 35 to 40? Or I guess you're kind of making decisions now for kind of how much capacity and how much kind of what your cost base is going to be. So are you guys considering the lower rate than previously targeted?
On the 7500 today, because the backlog is strong, we do anticipate the same rate moving forward. Of course, we're going to be losing a couple of planes probably this year because of the weeks we haven't produced, but then we should go back to normal.I would like to just say a few word and first of all, to thank you for joining us this morning. I do appreciate your questions, but also interests in Bombardier. I'm also looking forward to spending more time with you as soon as travel restriction will allow. I'm interested in hearing your concerns, also share more on my vision and also my priorities for Bombardier. I think that you will find that I am a strong believer in open 2-way communication with our stakeholders. While the current environment is extremely challenging right now, I am optimistic about our future and also excited to be leading a company with such a strong product portfolio, but also so many great people. I am looking forward to working with this team to advance the priorities I outlined at the beginning of the call.Of course, I recognize one thing, is that our action, not our words, will dictate your views and confidence in our future. I have given the clear message inside the company that we have not met expectations and must become much more predictable. Going forward, we will be fully transparent and set clear priorities -- among them of course restoring our reputation and culture around operational excellence.And finally, and most importantly, in closing, I hope that you and your families remain safe and healthy in the days ahead. So thank you and thanks for participating this morning.
Thank you. The conference has now ended. Please disconnect your lines at this time and we thank you for your participation.