And we're off with Bombardier's Q4 and FY 2016 earnings.

Bombardier delivered "another solid quarter." Interesting way to describe a quarter in which you recorded a $259 million net loss.

This definitely illustrates the tyranny of projections and plans with Wall Street, because the stock is pre-priced on the basis of short run projections, which creates a ton of variability and allows companies to game their share price by setting low expectations.

These orders are so long ago that we have put them out of our mind, but both the Air Canada and Delta orders actually happened in 2016.


"The aircraft [the CSeries] is exceeding expectations... in terms of reliability. It has flown 4,300 flight hours and 3,600 revenue flights."

To date, the Global 7000 has completed more than 100 test hours, a process which CEO Alain Bellemare characterizes as having benefited from the presence of the CSeries. 

Another focus for Bombardier is on growing services on the install base of 4,600 aircraft. 


So Bombardier is talking about improving its performance YOY and hitting guidance with growth in EBIT (earnings before interests and taxes) - but commercial aircraft EBIT isn't going to improve in 2017 after a massive negative net margin of 15.9% even after you adjust for Bombardier's own definition of "special items." The learning curve says that this shouldn't be the case. You can't say that you "successfully ramped up CSeries production," if your cost per frame is going to jump year over year.

So some combination of the Canadian government and Bombardier transportation ($657 million EBIT before special items).

Some of the figures for business aircraft do look strong however. While revenue did decline 18% YOY to $5.7 billion on an 18% drop in deliveries to 163 planes, Bombardier's book to bill ratio swung higher as it recorded 114 net orders (152 absolute) in 2016 after a negative figure (-24 to be precise) in 2015. The unadjusted EBIT margin on this business also swung from -17.9% to 8.3% in 2016, an improvement of more than 26 percentage points. 

Oh look revenues at BBA also outperformed guidance - seems like there's a pattern here.

2016 was "a pivotal year" for Bombardier Commercial Aircraft with the delivery of 5 CSeries (CS100s) to Swiss, 2 CS300s to Air Baltic, and 46 CRJs and 33 Q400s. Deliveries were up 13% YOY to 86 jets, while net orders were up sharply (216% YOY) to 161 jets. 


The backlog of the CSeries is up to ~330 orders and close to 550 including options. Only Bombardier amongst manufacturers spends any time patting itself on the back for options.

So Bombardier Commercial Aircraft (BCA) came in roughly $130 million better than expected - just how rough was Bombardier expecting Q4 and FY results to turn out?


It's interesting to me that BCA nearly brought down the entire company despite representing just 16% of the overall revenue base. BCA is less than half the size of the business aircraft division and about a third of the size of transportation. 


In 2017, Bombardier is affirming its guidance announced in late 2016, with EBIT growth (excluding special items) YOY planned of more than $200 million and a resumption of revenue growth.


So 2017 should be the last year for Bombardier with negative free cash flow, which is good to hear.


Of the 30-35 CSeries deliveries in 2017, the majority will happen in the back half of the year. 


Bombardier will build its next several flight test vehicles (FTVs) for the Global 7000, which will ding free cash flow (as these aircraft will deliver no financial returns in revenues for several years if at all).


So Bombardier is confident in growing CSeries orders in 2017 despite not winning any purchases since Delta. It's probably fair of Bombardier to characterize the CSeries as "the best 100-150 seat aircraft on the market." But that hasn't mattered to date for sales per se...

On the topic of the Global 7000 close to $700 million of capital expenditures (mainly on building those FTVs) will happen in 2017. The CSeries will have roughly $400 million in capex for production ramp up.

So Bombardier claims that the Triumph Group (a wing supplier) has no basis and characterizes/downplays a $340 million lawsuit as a mere difference of opinion.

Interesting question on the border adjustment taxes that the Trump administration has proposed. 

Bombardier's approach here is that since it has so much production of aircraft components in the US (with close to 7,000 workers) importing much of its "systems," it won't be affected as substantially.  


Alain says that he sees the Trump administration's "pro-business" stance as good for business. Is Trump pro foreign businesses?

To Bombardier's credit for sure, they have managed delays to the Pratt & Whitney geared turbofan (GTF) engine without a peep even as that engine had wreaked substantial havoc for Airbus and its A320neo. 


High dispatch reliability and low severity of issues on the CSeries is a nice combination. I don't think anyone ever doubted that the CSeries is a magnificent aircraft technically, and after the delays, Bombardier built a truly excellent machine. 

Empty commentary from Bombardier about having multiple sales campaigns in progress right now. The excellence of its performance however does increase the likelihood that existing carriers like Swiss will actually top up their fleets. 

The first flight of the Global 7000 "went extremely well." And apparently the status of the 7000 is "two to three times better" than the CSeries at the same stage in its development. 

The global 7000 is up to 100 flight hours. 

Overall, Bombardier continues to make progress technically on the Global 7000 and the CSeries, as well as financially in every business excluding BCA. With the Canadian government bailing out the CSeries (and just recently) the Global 7000, the risk to Bombardier's financial results has largely been mitigated. Against a very poor baseline set previously, Bombardier probably exceeded expectations in Q4 but its important to note that this is still a very unhealthy business that generated a negative free cash flow of more than a billion dollars in 2016 and will only cross over to positive free cash flow by 2018.