Bombardier Inc
TSX:BBD.B
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Bombardier Inc
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Good morning, ladies and gentlemen, and welcome to the Bombardier Fourth Quarter and Full Year 2022 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. Francis Richer de La Fleche, Vice President, FP&A and Investor Relations for Bombardier. Please go ahead, Mr. Richer de La Fleche.
Good morning, everyone, and welcome to Bombardier's earnings call for the fourth quarter and full year end December 31, 2022. 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 results or events may differ materially from these statements. For additional information on looking statements and underlying assumptions, please refer to the MD&A.
I'm making this cautionary statement on behalf of each speaker on this call. With me today is our President and Chief Executive Officer, Eric Martel; and our Executive Vice President and Chief Financial Officer, Bart Demosky, to review our operations and financial results for the fourth quarter and full year of 2022. I would now like to turn over the discussion to Eric.
Good morning, everyone, and thank you for joining us today. I know that many of you listening today are eager to unpack our guidance figures and discuss where we see the business jet market going. Bart and I are excited to walk you through this in detail and showcase the team's solid work. I do want to take a few moments upfront to reflect on how great the last year has been for Bombardier. No matter how you measure our company, our products or our people, Bombardier has delivered excellent results and met or exceeded commitment across the board. I look at Bombardier's 2022 success through a few lenses. First, at the core of everything we do is the products. We announced that we are developing the fastest jet in the industry, the Global 8000. We then secured NetJet to fleet launch customer with a milestone order in Q4. This key customer will transition their entire Global 7500 fleet to Global 8000 aircraft. The team also brought the Challenger 3500 into service on plan.
All of this keeps us, our portfolio at the top of each market we compete in when it comes to quality and performance. Next, services. With not one or even two major announcements, but five major facility projects announced or completed as part of expansions planned in Singapore, Australia, the U.K., the U.S. and the United Arab Emirates. Defense was another key market. We reoriented the offering under a fully integrated Bombardier defense banner. This team will play a key role in Wichita, which we designed at our U.S. headquarters. Defense will also be in Canada and the many other markets where governments and harms are proudly selecting Bombardier jets for their missions. On the financial side, I can't talk about 2022 achievement without mentioning deleveraging, what a job the team has done. We repaid $1.1 billion of debt with cash from our balance sheet and operations, $1.1 billion.
And finally, ESG. Once again, we can point to efforts by talented Bombardier team member to lead the industry. In 2022, we revealed our EcoJet research project. Simply put, it is a tangible and promising solution for business aviation path to net zero. In the short term, we have adopted sustainable fuel for all of our operations through book and claims, which immediately lower our flight operation emission by 25% on an annual basis. I want to express my sincere thanks to the Bombardier team member who made all of this possible. I also want to recognize the many partners that supported us and our vision along the way. what a simply fantastic way to mark the company's 80th anniversary.
All of these achievements also translated to business performance or in the most cases, over performance. I have certainly talked a lot about our proactive supply chain efforts. Let me be clear, managing supply chain has not been easy and will continue to require a lot of focus. The efforts we make allow me to sit here today and confirm 123 deliveries for 2022. This is a testament to our execution especially considering the work to deliver 49 airplanes in Q4 alone. We have successfully ramped up to deliver the growth we have been forecasting for this year. Bombardier is now expecting to deliver more than 138 units in 2023. This is well in line with the plan we have been sharing. Looking at this more closely, this delivery guidance will represent an increase of at least 15% in our deliveries versus 2022, excluding Learjet.
Our facilities have this work in progress at the higher rate. We are also once again in a comfortable position with the Skyline full for the year. Our $14.8 billion backlog provides a high degree of comfort with our production plan well into 2024 as well. All this to say, we are operating in a sweet spot that allows us to remain predictable. I do want to pause for a moment here to speak about demand and sustaining a higher delivery profile. It is important to note that our plan is simply as it was presented in 2021 and did not depend on market upside. We did end up getting that upside in 2021 and in the first half of 2022.
Now as we see the market stabilizing, we are not going to over-tweak our rates. We are going to stick to the plan and ensure our production remain derisked. I talked last quarter about reaching a book-to-bill cruising altitude of 1. That's where we are at today. You can expect quarter-over-quarter variances slightly above or below that due to the seasonability of the delivery schedule. The demand itself is stable to the level of full year production and further padded by our healthy backlog. The way to look at it -- the way to look at this for Bombardier is simple. We are seeing steady demand on the higher production base this year. Industry fundamentals remains favorable in the medium and long terms. And Bombardier has the right product mix to compete and win.
Turning back to the results. I am delighted to confirm that our $6.9 billion in revenue included an impressive $1.5 billion from service activities. We have highlighted potential market share growth in this field, and I'm proud to see the execution as much the ambitions. Opening new facilities and expanding existing ones is a significant step. Now the hard work continues to ramp up, higher more skilled technician and capture the customer through a world-class offering. In 2023, our guided revenue of more than $7.6 billion reflects our increase in deliveries as well as continued and steady growth from services. Overall, steady and predictable growth is at the art of our success. That approach is accelerating our bottom line growth. In 2022, we came in well over guidance recording adjusted EBITDA of $930 million. This is a year-over-year increase of 45%. Our efforts to tighten our cost structure and generate recurring savings are ahead of plan with more than 80% of our target already benefiting our P&L.
And we have full line of sight on the remaining initiative. In fact, Q4 2022 margin reached the most impressive levels we have seen in a while. Adding to this, we are where we need to be on key programs like the Global 7500 and now setting ourselves up to smoothly cut in the Global 8000 jet ahead of its plan entry into service in 2025. All in all, this puts us in a solid position to guide more than $1.125 billion in adjusted EBITDA for 2023. Making a jump of that proportion in 1 year is impressive. But a lot of our team members can take pride in their effort because 3 straight years of significant EBITDA growth is quite an accomplishment. When it comes to free cash flow and liquidity, Bart will go into much more detail shortly.
I do want to highlight that overachieving on this metric is really welcome from a management perspective. We beat our revised full year guidance by million, and we again see positive free cash flow generation in 2023. We have a clear and repeatable ability to generate free cash going forward. The Bombardier team and I will continue to prioritize retiring debt or be opportunistic refinancing maturities. We have made significant moves towards this and in turn, lowered the cost of carrying what remains. Like on liquidity, Bart will deep dive into that shortly, but I want to highlight that in the past year, we have retired more than $1 billion of debt with cash from our balance sheet.
We are ahead of our plan. We have flexibility. We are being proactive and opportunistic and most importantly, we are succeeding. I am encouraged by the credit rating increases we saw from Moody's and S&P as well as the simple positive energy that has surrounded discussion of Bombardier's future over the past months. To conclude, I am proud of how the team executed in 2022. We have built a strong business, which can grow volumes, generate cash and predictability deliver growing EBITDA margin. We are well placed to capture demand where interest is increasing to offset where it may plateau in the coming months after nearly 2 years of historical high. Before I leave the floor to Bart for the deep dive into our impressive number, I want to fully recognize all the people beyond the results. Today, there are 15,900 women and men at Bombardier that probably stands behind each of our products and services. They have all played a key part in winning as a team, and delivering today's exceptional results.
It's also important to note that this is a team that is growing as we recruit all over the world. I am so proud of everyone's passion and commitment, and I am excited for our continued growth centered on our people and our customers. Thank you. And Bart, over to you.
Thank you, Eric, and good morning, everyone. As we cap off what was clearly a very strong year, I am pleased to speak to you today about our outstanding results as well as how our company is set up for continued success. Today, we are confirming the very strong preliminary results we released a few weeks ago, and we are also sharing with you our 2023 outlook, which continues to demonstrate strong growth. We are planning for a minimum of 15% growth in our Global and Challenger deliveries versus the prior year, a more than 21% year-over-year growth in our EBITDA and most important, continued positive cash flow generation. I'll touch more on our guidance in a few minutes. But before talking about 2023, I will recap some of the progress we have made in '22 on our key strategic initiatives, starting with deleveraging.
As Eric said earlier, we reduced our debt by $1.1 billion in '22, which came with a recurring annual interest savings of more than $80 million. That's a 15% reduction in our gross debt in a single year. And if we look back to December of 2020, we have reduced our debt by more than 40%. The significant amount we repaid in '22 was the result of several factors, which include a strong and consistent free cash flow generation, being opportunistic in the markets, timing of calls, tenders and open market repurchases. And finally, cash optimization through securing a 5-year revolving credit facility, allowing us to reduce cash on our balance sheet.
Our vastly improved debt and leverage profile provided another benefit as our credit ratings were raised by both Moody's and S&P last summer. The benefits from our efforts can also be seen through our debt refinancing last month, where we were able to refinance some of our debt at stable interest rates despite the broader market seeing interest rates rise significantly. On that note, we have successfully called all of the outstanding 2024 maturities with the final settlement plans for next week. And while our tender on the 25 notes reached $258 million of our $396 million repayment target, we fully expect to deploy the entirety of the proceeds from our refinancing towards debt repayment. I'm also happy to say that the $400 million of restricted cash we have held on the balance sheet for the past 2 years has been released and is now sitting in our bank account available for us to use.
At the end of 2022, inclusive of this cash, our adjusted net leverage stood at 4.6x, down from 7.7x in 2021, representing an improvement of more than 3x. Looking ahead, we continue to see many opportunities to further reduce our debt and leverage and deleveraging remains our top priority and #1 use of excess liquidity. Our operational achievements last year were equally as impressive. Our EBITDA grew 45% between 2021 and 2022. We did this while growing deliveries by 3 aircraft and growing revenues by 14%. This impressive margin expansion is attributable to the execution of our key priorities, maturing the Global 7500 contribution, delivery cost and productivity improvements and growing our aftermarket. The Global 7500 EBITDA contribution materially improved throughout 2022. In fact, we were at our targeted unit costs for most of the year. And during the course of '23, we will have fully transitioned from our launch pricing to current market pricing. Our cost reduction program continues to track exceptionally well, and we again outperformed the savings assumed in our original guidance, finishing the year at $330 million in recurring savings.
The remaining balance to reach our $400 million run rate target is included in our 2023 guidance, and all of the initiatives have been launched to achieve that run rate. Last but not least, our aftermarket business had a remarkable year, growing its revenues by 22% versus the prior year, as we executed on our service center expansion strategy. Flight hours of Bombardier aircraft over the same period were up approximately 11%. Clearly, our strategy is working, and we are gaining market share and are now at $1.5 billion of aftermarket revenues on track with reaching our $2 billion objective.
There are two other impressive metrics that I would like to highlight and that is our adjusted net income and resulting earnings per share, which, for the first time in many years, are both positive. These metrics really embody the reduction in interest costs coming from our accelerated debt reduction, the rapid growth in our profitability and the recognition of the significant tax attributes on our balance sheet. Furthermore, we believe we've reached the point where we are structurally able to generate positive adjusted net income on an annual basis. I'll now dive a bit deeper into our '22 results before talking about our 2023 guidance. We ended the year with revenues of $6.9 billion, resulting from 123 aircraft deliveries as well as $1.5 billion in aftermarket revenues. This represents a year-over-year improvement of 14%. Our aircraft manufacturing and other revenues grew by $557 million, largely the result of 3 incremental deliveries, further compounded by improved aircraft mix.
As we replace -- our large cabin aircraft were up 4 deliveries and our challenges were up 6%. As I mentioned earlier, our aftermarket business also increased its revenues by an impressive 22% year-over-year, which also helped tilt our consolidated revenue mix in favor of aftermarket, now representing 22% of our total revenues versus 20% in 2021. I'm also very proud to report that in Q4 of last year, our aftermarket revenues topped $400 million for the first time. Another impressive milestone, illustrating the progress we've made from the $252 million we generated in Q4 of 2020. Moving to our profitability. Total adjusted EBITDA for the year was $930 million, representing an adjusted margin of 13.5% and a 300 basis point margin expansion over 2021. Our adjusted EBITDA growth is largely attributable to maturing our Global 7500, generating incremental cost reductions and our aftermarket expansion. Our adjusted EBIT totaled $512 million more than doubling our 2021 result of $223 million. As I mentioned earlier, our adjusted net income also had meaningfully improved to a gain of $101 million versus a loss of $326 million a year earlier.
Turning our focus to free cash flow. We had an impressive '22 with a cash generation of $735 million, an improvement of $635 million from the prior year. In Q4, we saw a free cash flow generation of $169 million. This cash generation resulted from our strong EBITDA generation of $352 million, a positive working capital driven by a $481 million release in inventory from 49 aircraft deliveries, partly offset by a reduction in our accounts payable, a drop in advances of $312 million due to those same 49 deliveries and a book-to-bill that was a bit below 1, but again reflects the high number of deliveries rather than a drop in demand. Our CapEx finished at $337 million, a bit on the high side of the range we have provided previously, largely the result of greater investments to our Pearson facility as well as timing related to a land sale for which today, we continue to be active on.
So now let's turn to our 2023 guidance. We are very pleased to continue demonstrating consistent progress towards our 2025 objectives. Our aircraft deliveries are expected to be greater than 138, in line with our prior commitments. We expect Global 7500 deliveries to remain stable and the growth to come relatively equally from the Global 5500 and 6500 platforms and the Challenger platforms, also offsetting the 3 Learjet deliveries we had in 2022. Given the strong backlog we have entering the year, we have very nice predictability and visibility in our top line. With the planned increase in deliveries, combined with expected continued growth in our aftermarket, we see our revenues being greater than $7.6 billion, which translates into a more than 10% increase versus 2022.
On profitability, we are expecting to increase our EBITDA to greater than $1.125 billion, representing at least a 21% increase versus last year. We also expect our EBIT to grow to greater than $695 million, an increase of greater than 36% year-over-year. Our profitability growth is again outpacing our revenue growth, as we continue to expand our margins by delivering on our strategic priorities. The bridge from the $930 million of EBITDA in 2022 to our 2023 guidance of greater than $1.125 billion can be explained by margin conversion of the incremental revenues, positive tailwinds from the Global 7500 as well as delivering the last portion of our cost reduction plan, for which we have around $70 million to go.
We do see some headwinds, which partly offset our growth drivers, including increased bill of material and production costs, resulting from the high inflation environment we have been in for much of 2022 as well as supplier disruption costs, as we continue to adjust to accommodate supply chain challenges. Earlier last year, we shared our expectation that pricing and inflation would offset over the next few years, and this is still how we see things playing out. Our free cash flow guidance is coming in at greater than $250 million, including a nonrecurring cost related to legacy RVG liabilities, which totals about $125 million for the year. The bridge from EBITDA is straightforward from our greater than $1.125 billion in EBITDA, we expect to remove cash interest, which should be in the neighborhood of $400 million to $450 million. And our CapEx is expected to be around $350 million.
The CapEx for '23 is higher than our previously mentioned range, mostly a result from some higher construction costs at our Pearson facility. We do fully expect to return to a $200 million to $300 million range in 2024. Our working capital is assumed to be relatively neutral, as we are planning for a book-to-bill of around 1, and cash taxes continue to be negligible, even as we materially grow our earnings. From there, we must deduct the aforementioned $125 million in nonrecurring RVG payments to reach our guidance for '23. This is the last year of significant RVG payments. In fact, between 2021 and 2023, we will have paid out more than $225 million of RVGs within our free cash flow performance. So let me wrap up by providing some color on our first quarter of this year.
We expect growth to both our revenues and EBITDA in Q1 when compared to the same quarter of last year, while delivering around 20 aircrafts, which is in line with our production schedules. Delivery ramp-up throughout '23 will be progressive, and we again expect to see a high delivery output in the second half of this year. We also expect our working capital to be negative in the first quarter, driven by a buildup of inventory in support of our higher deliveries later this year. We expect that this working capital build coupled with seasonally lower EBITDA and continued investments on our peers in global facility will result in a negative free cash flow. In conclusion, with the past 2 years of hard work, putting us on a very firm footing, the team is ready and focused to continue building on our success, and we look forward to another strong performance in 2023. I also look forward to sharing with you an update of our strategic plan during our March '23 Investor Day. Thank you very much. And with that, let me turn it back over to Francis to begin the Q&A.
Thanks, Mark. I'd like to remind you that Bombardier Investor Relations team is available following the call and in the coming days to answer any questions you may have. With that, we will open it up for questions. Operator, we're ready to begin.
[Operator Instructions]. And your first question will be from Benoit Poirier at Dejan Bank Capital Markets.
Congratulations on the nice achievements. Just looking at the booking activity, could you mention some color in terms of what you're seeing by customer type model and geographies and whether you see any change in the market dynamics, given the fact that the used inventory are slightly increasing and maybe the higher production rate expected at Gulfstream.
And I guess I think what we see is a resilient start of the year. So we all understand there's a nervousness in the economy right now, but we see our start to be a normal start. And I would call it resilient towards the market. So I think the category of customers that we are working with remain attracted by our products. So we see activity not just on one category of airplane, but very much across the board. So that's the -- maybe to answer your first question. And I think second also, we still see the activity well distributed with maybe a little bit more in Asia than we had probably over the last year.
So that's how I would probably describe the activity so far. And maybe, yes, the used airplane inventory is going up very slightly when I look at our product, but it's far from being into a normal number. We're still at about 4.8% right now, I've used inventory by the end of Q4 when you and I know that usually things are around 10%, 12%, sometimes even 14%. So we're still way below what a normal situation would be.
Okay. And maybe just a quick one for Bart. With respect to the CapEx of $350 million, how much is related to Pearson and maybe the trend going forward in terms of CapEx beyond 2023?
Yes. Great question, Benoit. So we're looking in '23 for Pearson to be around -- it will be somewhere between 1/3 and 40% of CapEx during the year. It's the most significant use of CapEx of the $350 million forecast. It's the last year where we will be spending significant dollars on getting our Pearson facility up and running. I'm very pleased to say, Eric and I just took a review of the project this past week. We're absolutely on track to commission on schedule beginning in August of this year, which is quite an accomplishment for the team, just given how difficult labor markets and supply chain has been.
So hats off to the team who has been working on the project. For the coming years, because Pearson will be out of the mix, we do see ourselves returning to a more normalized CapEx range of $200 million to $300 million per year.
Next question will be from Seth Seifman at JPMorgan.
Congratulations on a very strong year. I just wanted to ask about the aftermarket and thoughts about -- I know tracking to the 2025 target, but we see the growth in flight hours kind of slowing. And as you think about the flight hour growth that's kind of required from here to generate the aftermarket for both in 2023 and beyond versus what comes from the additional capacity that you're adding in terms of service centers, how do we think about that? And does an environment in which flight hours are not growing or maybe even shrinking a little bit, still conducive to the targets that you have?
That's a great question. But what we've seen so far this year is a very, very strong market on the after service. Actually, we see amazing spare parts ordering and sales we see our facility filling up very nicely. Of course, we emptied some of it by the end of the year. But we're going back to having pretty much everything sold out very rapidly in the year. And I think we still see the Bombardier airplane flying quite a bit. The fleet operator are still flying quite a bit. So the hours are there. And even when we compare 12 months over a year ago, we're pretty much being ahead across the board. And of course, we've installed, as you know, 1 million square foot of extra capacity, which allows us to go and bring market share at our place that we didn't have before. So all this together gives us a pretty strong start, and we feel pretty good about being able to meet our objective for the year.
Next question will be from Walter Spracklin at RBC Capital Markets.
I want to touch a bit on your production guide. Eric, you're clearly pointing to what you had indicated of the 15% guide to 2023. It looks like it's going to be in that kind of 140-ish range, and just on a go-forward basis. And I'm just curious, you mentioned that this is something that you want to maintained from a run rate perspective. Is that therefore something that we should just kind of model out that kind of 140, 145 for a number of years? Or is it -- and you touched a little bit on the supply chain issues, could you flex -- if you didn't have those issues right now, would you be flexing higher than that 140 to 145? And perhaps touch on how much higher could you go in that run rate or that line rate without having to expand your footprint?
That's a great question. So first of all, we still have quite a bit of room to increase our rate without having any footprint. So our line actually that we have either in Toronto or Montreal, mainly could take on more airplanes. I would say in the magnitude, think probably of 200 overall capacity so that we still have quite a bit of room to get there before engaging into adding footprint. In terms of how I characterize our number is for this year, I think we were talking about being 15% higher than this year -- than last year, sorry, guiding greater than 138 and yes, we are recognizing in that guidance that there's supply chain risk and everything that we want to make sure we manage properly. So that's reflective of that.
In terms of what we're going to be saying for next year, our backlog is super solid. We have all the reason to think about that, but I think at Investor Day at the end of March, I will be in a position with, Bart too, give you more precision probably about our intention for 2024.
That's great. And really, it's on that '25 guide, and I know you'll give us an update in March, but I want to make sure that we're properly characterizing how you looked at 2025 back when you provided it a number of years ago. And I think I just wanted to, again, be clear, 2025 was not an end goal that's the run rate that growth after that is going to be just modest. I think what you've been indicating here is that it was kind of a first step in that. With 2025, we may see other aspects of growth, either on supply chain issues decline and you're able to potentially raise your run rate, but also looking at new revenue opportunities with certified preowned, is that the right way to look at it, that 2025 was just kind of your first step and that it's not over after that. You're going to be looking at some other areas of new revenue growth as well. Is that fair?
Yes. No, you're looking at it exactly the right way, Walter. So 2025 was what we guided for in 2021. But clearly, last year, we've spent detailed time to look at post 2025. And clearly, you know exactly to what you said between CPO, defense and other things we're doing today, we definitely foresee growth in the future.
Forward to hear...
If I could just add one small comment. In that first forecast and strategic plan we laid out, we gave a target of $7.5 billion of revenues for 2025. And our guidance for this year is $7.6 billion. So to Eric's point, there is a lot of work that the teams are doing to develop and ultimately deliver incremental growth. We're really excited about it, and we'll share more towards the end of March when we have our Investor Day.
Next question will be from Noah Poponak at Goldman Sachs.
Bart, I just wanted to ask a few more follow-ups on the cash flow plan. Given how much you've done with the balance sheet, how does that cash interest line move into the 2025 target? Just want to confirm 100% RVG is 0 next year. I'm curious about the advances given how positive those were last year. Does that just kind of level out and it's a net 0? Or do we have to think of that as a headwind at some point? And on the capital plan, there had been this meeting piece of you had the placeholder in '25, then there was sort of a de facto raise but not raised because there was maybe some investments in the '25 capital plan? What's the latest thinking on that?
Yes. Thanks, Noah. So let me talk about the cash flow first. You're essentially right on the RVGs. This is the last significant year. We do have a $10 million or $20 million left that will come off over the following couple of years, but it's -- we're basically down to 0. So you can -- for all intents and purposes, you can model that out now after 2023. So on the cash advances, the only thing I would say there is when we originally came over with our forecasts, our production and delivery levels were in the original model and we're a bit lower than what we're seeing in actual terms today.
So if we look at a book-to-bill of 1 just for modeling purposes going forward, naturally, we're going to deliver more free cash flow than we would have otherwise. And with interest expense coming down a lot more quickly than we had built into even our modeling, that's a great help as well. For '25, what I would say today, given that we are going to talk more about this at Investor Day, is that because our debt is coming down more quickly, we've also been able to reduce our absolute average interest rate modestly, but that's helping as well.
We do see a clear path now to delever to a level that's better than what was in our original '25 outlook and guidance. And we'll talk more about that at Investor Day, and we'll give you some clearer pictures as to what our longer-term goals are. Hopefully, that's helpful.
That helps. And if I could just ask you on your margin goals. Obviously, the performance and the progression has been impressive. The '23 guidance, I think, implies the EBITDA margin up 100, 150 basis points, getting kind of in that 15% zone, you do still have the target of 20% in 2025 that still looks somewhat steep, I guess, despite everything you've accomplished. How do we still get to that target in 2025?
Well, so again, I mean, we'll come to that in a little more detail both the longer-term goals and objectives when we were more at Investor Day. All I would say to this point, Noah, is that I mean, we came from about 5% to 15% in 3 years adjusting for Accounting differences, I think we're now getting very close to the point where we are on a margin basis, the leader in our space with the other OEMs. We do have incremental margin expansion coming this year and next year, a little bit from getting full pricing from our 7500 platform. We refreshed our Challenger 350 into the Challenger 3,500. The sales has been very impressive after that aircraft, just incredibly impressive. And of course, when you do a refresh like that, we get some margin expansion as well. And then, of course, we're growing our aftermarket, and it's becoming a higher percentage of our overall revenues annually.
And so as it continues to contribute more and it's a greater than 20% EBITDA margin business, it puts us in a place to continue to see growth in EBITDA. So we're very pleased with where we're at today. We see a clear path or the $1.5 billion of EBITDA that we had projected a couple of years ago is clearly in sight for us. And we'll talk more about how much more than that is achievable and how we might get there when we meet on Investor Day here later next month.
Next question is from Konark Gupta at Scotia Bank.
My first question is on the leadership changes that you guys announced pretty recently. I was just wondering if you can provide any color on what was the kind of basis of making those changes?
Yes. Great question, Noah. So it's important -- First of all, I had one thing that one of my member of my team was going to be retiring mid-June this year, Michel -- and I just want to thank him also at the same time for everything is -- he's done an amazing job. He was behind the 7,500 and he had an amazing career, but he's retiring next June. So that has triggered, of course, for me, the ability to make a change. I was thinking about it for a while or two. I had some of my team members that were in their current job for at least two of them for more than 7 years. So all this to say that when you're the CEO, you have to think also about development of your team and where do I? And two things you're trying to do. First is make sure you keep the business running properly, make sure that you can still deliver the plan and the growth that you are anticipating. And believe me, that structure will. I had the opportunity also to bring a very talented person from the outside. Somebody that's been with us for 18 years that knows our business inside out also.
So I feel that I have a very, very solid team. And the way we work together is anyway -- anything can happen when there's challenges in one area, everything stepped into this area to help. So I think in a spirit of giving -- making sure we can deliver our plan, making sure that we give opportunity for our people to develop and beef up our succession plan in the future, that's with the spirit of the most recent announcement we're made so. I hope that helps.
No, that helps, Eric. And just maybe a quick follow-up. One of the comments I think I heard from you this morning was the Skyline is full for 2023 and maybe it extends into '24. But you are also assuming a onetime book-to-bill ratio. So my question of clarification is really, if you get any new orders this year, net new orders after cancellation and changes, would that mean that you might exceed the 138 delivery target or that supports the target?
No, I think we're pretty much sold out right now. We still have a few airplane options and things like that, but we are on solid ground in terms of backlog. I think where there could be opportunity this year with the -- if we can have a better performance of the supply chain. And I think that's where the opportunity resides.
Next question will be from Fadi Chamoun of BMO.
Congratulations on the progress you've made so far. I have a question about the underwriting new projects or new programs going forward. I mean, I think with -- you kind of being more focused on the maintenance CapEx over the last number of years and bringing the Global 7500 and all those into production. Are you getting from a balance sheet perspective to a place what you -- makes you more comfortable to underwrite some bigger projects? Or is there a balance sheet target that you can have in mind before you can enter into those types of maybe larger programs that you need to support long-term growth?
I think Fadi that's an excellent question that we've been discussing in detail here with the management team and the Board. But clearly, we are very disciplined in our approach to new program. And there's different criteria that we have, some are related to technology, some are related to the market expectations, some are related to what our competition is doing. But clearly, one of them and probably the most important or one of the most important clearly, is a clear criteria about our the state of our balance sheet and our ratios. And we're going to be very disciplined about it.
The good news is that, that criteria is where, as Bart said this morning, we're ahead of plan in terms of improving our balance sheet. We still have work to do. So clearly, I want this to be clear, we still have work to do to get to our target that we had in terms of net leverage ratio. We're better than we were supposed to be this year. We're already at 4-point something and aiming to continue to improve that, especially with our EBITDA improving and as cash will become available, will continue as a priority to reduce that debt. But we are getting into a place right now. And if you do the street math, it's fairly easy. Bart did them with you this morning. And all of you guys can do it, but if we take our target of 2025, which for now remain $1.5 billion and we'll discuss that at the end of March.
But you take the interest rate, the CapEx we're talking about, we have a lot of room, and we're generating some pretty solid cash as a business after the RVGs are done, so you have CapEx, you have interest rate, and it means there's a lot available. And then it's going to be a question of capital allocation. What do we do with that capital? And clearly, a new program will be an option if the other criterias are there too. So -- but we haven't crossed that road yet, but we are setting ourselves up for having the flexibility to make the right decision.
Okay. Great. Appreciate the answer. On the $400 million of cash that freed up, I guess, now, is the plan to use that to repay debt? Or to kind of stronger liquidity, I guess, in an environment like this?
Yes. Great question, Fadi. So we'll -- I think -- what I'm telling you exactly how we're going to deploy the cash. What I would say is that you should expect us to be consistent with the way we've done things in the past. And that -- by that, I mean, cash and liquidity that's available above $1.5 billion to us is excess. And what we've said is that excess cash will be put towards debt retirement. So with that money coming into our accounts and now being there, it would qualify as excess to our needs.
Next question will be from Myles Walton at Wolfe Research.
I was hoping to go to Pearson, if I could, not physically, but mentally. And maybe you see the cut in that's going to happen in August, and I'm just wondering are the commissioning happens in August since is not trivial to lift and place a final assembly line for the Global. So is there conservatism based on the EBITDA margins due to that move, particularly?
No, not really, Myles. I think we are still targeting all our delivery this year. The move is very well orchestrated and start -- will be starting this coming fall with, of course, a couple of months of moving station by station and our people and ramping up production. So we foresee the building still being ready on time and on track for this. And we'll be having a bit of working capital to transition because -- transition, but it's all in our plan, it's all budgeted and we're planning for that, but no impact on EBITDA.
Yes. Myles, just to add maybe one or two other comments to Eric. The cutover on a production basis for our globals because it happens in the second half of this year would not impact any of our '23 deliveries if there was going to be any impact, it would be '24. We're not anticipating any impact whatsoever the cutover plan is very, very well laid out. All of the capabilities, people, machinery tool and everything is -- facilities are actually quite close to one another. So we're not having to travel long distances, and it's simpler for us. And we're doing a bit of a lift and shift into the new facility rather than building all kinds of new things that would add complexity.
In terms of the margin, we're showing strong year-over-year margin growth. We still see a clear path forward for a lot more growth from here. And my only other comment would be that we've been very consistent since our first numbers we put out in early 2021 in that we are -- we tend to be a bit conservative in our approach and our guidance. And we'll be consistent with that today and going forward.
And just one clarification, the land sale. Is that embedded in the CapEx guidance for '24? Or is that -- would that be a lower net CapEx if that occurred?
Yes, there's a potential for a bit of a reduction, an offset from that land sale if we're able to execute on it. It's not a huge number, but it's an opportunity for us, for sure.
Operator, we'll have time for one last question.
Your last question will be from Cai von Rumohr at Cowen.
So to maybe follow up on Seth's question, services, what sort of growth do you see this year? And what do you need for flights going forward because it looks like to get to $2 billion, you need 10% growth over the next 3 years.
I think, Cai, that's a great question. We are clearly, as I said, foreseeing, the growth will come from different angles. One is market share gain because of the 1 million square foot we've added last year, there will be a significant part of that, that will come our way. I think we're being successful also in having more and more customer adherent our Smart Parts program. So that's another way for us to do that. So this is, I would call it, the market share category. Plus, of course, the activity level is very, very strong.
Our airplane keep flying quite a bit. You have to also think about us as being clearly a leader in -- with the fleet operator. The fleet operator are flying quite a lot. And every airplane they have usually fly a 1,000 and more hours a year so -- which is a great business for us, also looking forward. So all this together, we do foresee a clear path to our objective of going to $2 billion over 5 years. So we've achieved $1.5 billion. And we do foresee with the 1 million square foot and everything else we're doing, the ability to get there.
And so what sort of growth do you see this year? Because by my numbers, it looks like, obviously, your sales are going to be better than -- and it would look like aftermarket might be down as a percent of sales this year?
This year, we foresee that we should be in the $1.6 billion to $1.7 billion range for the aftermarket.
And I would like to turn the call back over to Mr. Martel.
Thank you. So maybe the first thing that I would like to say is thanks to all of you this morning for joining us. We look forward to connecting again during our Investor Day. There is a lot right now, I think, to be excited about when looking at Bombardier's activities and how we are realizing our potential. So overall, we have accelerated and plan to stay the course predictably. In March, we will be excited to dive further into the nuts and bolts and spend a longer morning together virtually. So thank you all for your time today and your continued interest and confidence in Bombardier.
Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines. Enjoy the rest of your day.