Bombardier Announces Financial Results for the Third Quarter Ended September 30, 2015 Government of Québec Partners with Bombardier for $1 billion in C Series as Certification Nears

Bombardier today reported its financial results for the third quarter ended September 30, 2015. Revenues totalled $4.1 billion for the quarter, compared to $4.9 billion for the same period last fiscal year.

For the third quarter ended September 30, 2015, earnings (loss) before financing expense, financing income and income taxes (EBIT) totalled a loss of $4.6 billion, compared to earnings of $171 million for the same period last fiscal year.

Net loss totalled $4.9 billion, or loss per share of $2.20, due to special items mainly related to impairment charges on C Series and Learjet 85 program tooling, compared to net income of $74 million, or earnings per share (EPS) of $0.03, for the same period the previous year. On an adjusted basis, net income amounted to $2 million, or EPS of nil, for the third quarter ended September 30, 2015, compared to $222 million, or $0.12, for the same period the previous year.

For the three-month period ended September 30, 2015, free cash flow usage (cash flows from operating activities less net additions to property, plant and equipment (PP&E) and intangible assets) amounted to $816 million, compared to a usage of $368 million for the same period last year. As at September 30, 2015, available short-term capital resources of $3.7 billion included cash and cash equivalents of $2.3 billion, compared to $3.8 billion and $2.5 billion, respectively as at December 31, 2014. The overall backlog reached $61.8 billion as at September 30, 2015, compared to $69.1 billion as at December 31, 2014.

“After just a few months, we have strengthened the management team, we have conducted in-depth reviews of our business and have a much clearer picture of what we need to do,” said Alain Bellemare, President and Chief Executive Officer, Bombardier Inc. “We are taking the right actions and we have solidified our liquidity position, giving us the confidence to execute our long-term strategic plan.”

“Today, we are proud to announce that the government of Québec will invest $1 billion in the C Series aircraft program. This partnership comes at a pivotal time, with the C Series on the verge of certification. The market is there, our leadership is in place, we have the best product and with the support of the government, we are ready to make this aircraft a commercial success,” added Mr. Bellemare.

Consistent with its strategy, Bombardier is pursuing the placement of a minority stake in its Transportation business segment. Bombardier Transportation is a global market leader with a local production presence in over 20 countries, the broadest portfolio of products and services and the largest engineering organization in the industry. The excellent outlook for the rail transportation sector has been acknowledged in preliminary conversations with potential investors and the Corporation expects to make an announcement soon.

Since launching the Bombardier transformation plan in the second quarter of 2015, the Corporation has completed a bottom-up assessment of the operational changes needed to succeed. Through this process, the transformation teams identified many key initiatives to deliver important cash savings over the next five years. These initiatives are either in the validation phase or being executed by the business segment teams to generate the forecasted savings. The focus is currently on reducing inventory and product costs, which represent important drivers of Bombardier’s competitiveness.

In September 2015, airline industry veteran Nico Buchholz was appointed as Senior Vice President and Chief Procurement Officer, Bombardier Inc. Previously, Mr. Buchholz spent 14 years at Lufthansa, where he was in charge of the corporate fleet, including the procurement of airframes and engines. In this new position, his main role is to ensure that goods and services purchased by Bombardier meet the highest standards in terms of quality, on-time delivery and cost-efficiency.

Government of Québec's investment in the C Series aircraft program

Bombardier has entered into a memorandum of understanding which contemplates a $1.0 billion investment by the Ministère de l’Économie, de l’Innovation et des Exportations du Québec (through Investissement Québec) (the Government) for a 49.5% equity stake in a newly-created limited partnership (the Investment) to which would be transferred the assets, liabilities and obligations of the C Series aircraft program. This newly created limited partnership will be owned 50.5% by Bombardier and, as a subsidiary of Bombardier, will  carry on the operations related to the Corporation’s C Series aircraft program. After the Investment, the newly created limited partnership will continue to be consolidated in Bombardier's financial results. The Investment has been approved by the Board of Directors of Bombardier and the Cabinet of the Government of Québec, and remains conditional upon the completion of definitive agreements, the receipt of consents from third parties, the completion of an internal pre-closing reorganization, the receipt of required regulatory approvals and other customary conditions precedent. The proceeds of the Investment will be used entirely for cash flow purposes of the C Seriesprogram.

The Investment also includes the issuance to the Government of warrants exercisable to acquire up to 200,000,000 Class B Shares (subordinate voting) in the capital of Bombardier (Class B Shares) (representing approximately 8.18% of the aggregate issued and outstanding Class A Shares (multiple voting) in the capital of Bombardier (Class A Shares) and Class B Shares assuming the exercise of the warrants, and approximately 8.90% of the aggregate issued and outstanding Class A Shares and Class B Shares on a non-diluted basis), at an exercise price per share equal to the US$ equivalent of $2.21 Cdn on the date of execution of definitive agreements, which represents a premium to the 5-day VWAP of the Class B Shares on the TSX as of   October 20, 2015. The TSX has determined to accept notice of the private placement of warrants and has conditionally approved the listing of the Class B Shares issuable pursuant to the terms of the warrants on the TSX. Listing will be subject to Bombardier fulfilling all of the listing requirements of the TSX. The warrants will have a five-year term from the date of issue and will not be listed on the TSX. The warrants (and any Class B Shares issuable pursuant to the exercise of the warrants prior to the expiration of the applicable hold period), will be subject to a statutory four-month hold period. The warrants will contain market standard adjustment provisions, including in the event of corporate changes, stock splits, non-cash dividends, distributions of rights, options or warrants to all or substantially all shareholders or consolidations.

Security holder approval is required under TSX rules due to the fact that the warrants will be issued later than 45 days from the date upon which the exercise price was established, as set out in Section 607(f)(i) of the TSX Company Manual. Such approval has been obtained, as agreed with the TSX, by way of written consent of shareholders holding more than 50% of the voting rights attached to all of Bombardier’s issued and outstanding shares.

The Investment was negotiated between Bombardier and the Government at arm’s length and will not materially affect control of Bombardier.

The definitive agreements are expected to be entered into on or before January 1, 2016, or such other date as the Corporation and the Government shall agree, and disbursement of the Investment and issuance of the warrants will occur over two equal installments, expected to take place on April 1, 2016 and June 30, 2016, respectively, subject to the conditions to closing.

The Investment contemplates a continuity undertaking providing that Bombardier shall maintain in the Province of Québec, for a period of 20 years, the newly-created limited partnership’s operational, financial and strategic headquarters, manufacturing and engineering activities, shared services, policies, practices and investment plans for research and development, in each case in respect of the design, manufacture and marketing of CS100 and CS300 aircraft and after-sales services for these aircraft and that Bombardier will operate the facilities located in Mirabel for these purposes.

The Government’s interest in the partnership will be redeemable in certain circumstances.

SEGMENTED RESULTS AND HIGHLIGHTS

Business Aircraft

Results of the quarter (PDF)

• On October 28, 2015, due to the lack of sales following the prolonged market weakness, Bombardier cancelled theLearjet 85 aircraft program. As a result, a $1.2-billion charge was recorded in special items in the third quarter of fiscal year 2015, mainly related to the impairment of the remaining Learjet 85 development costs as well as to an increase in other provisions. Bombardier remains committed to the Learjet family of aircraft.
• The engines have been mounted on the first Global 7000 Flight Test Vehicule (FTV). All structural components have been joined on FTV1, including the rear, centre and forward fuselage sections, the wing, the landing gear and vertical and horizontal stabilizers. In addition, installation of the wiring harnesses and functional test procedures have commenced on FTV1.
• FTV2 is in final assembly with major structural components joined, including the rear, centre and forward fuselage sections and cockpit. Two additional FTVs are in various stages of production and assembly.
• The Integrated Systems Test and Certification Rig (ISTCR) has been commissioned and safety-of-flight testing is underway. The avionics System Integrated Test Stand (SITS) rig has been installed in Toronto and the Global 7000Complete Airframe Static Test (CAST) rig has been commissioned. These comprehensive test articles will ensure the maturity of the aircraft’s structure and systems throughout the flight test program and before entry-into-service (EIS). Engine development by our supplier as well as ground and flight testing of the engine are progressing as expected. The aircraft is expected to enter into service in the second half of 2018.
• The Challenger 650 certification program is currently 95% complete and is progressing towards EIS in the fourth quarter of 2015. A Challenger 605 aircraft with upgraded avionics was used to perform certification testing.

Commercial Aircraft

Results of the quarter (PDF)

• Following the completion of an in-depth review of the C Series aircraft program as well as discussions with the Government of Québec, which resulted in the memorandum of understanding, a charge of $3.2 billion was recorded in special items in the third quarter of 2015, mainly related to the impairment of aerospace program tooling. Bombardier continues to believe that the C Series aircraft program meets specific market requirements and that it has long-term market potential.
• More than 2800 flight-test hours have been accumulated on the CS100 aircraft, representing 97% of the flight test program, and overall, more than 90% of the CS100 certification program is complete. The certification configuration has now been frozen. The CS100 aircraft has completed all noise performance testing, confirming it is the quietest in-production commercial jet in its class.(1)
• The type certification for the CS100 aircraft is targeted for completion by the end of 2015. The CS100 and CS300aircraft have over 95% parts commonality, as well as the same type rating. The CS300 aircraft’s certification is over 60% complete and type certification is expected to follow approximately six months after that of the CS100 aircraft. The EIS of the CS100 aircraft is expected to occur in the first half of 2016 with Swiss International Air Lines (SWISS) as the first operator. SWISS is currently working with Bombardier’s Customer Services training crews and readying its operations for the EIS of the CS100 aircraft.
• Flight testing activities on five CS100 FTVs are ongoing with multiple milestone tests completed and all systems are performing well. Passengers flew on board the CS100 aircraft for the first time as part of the cabin testing program. The first CS300 FTV has been performing planned tests, such as flutter, handling, cruise performance, cross-wind takeoff and landing, braking and anti-skid testing. All the aircraft are displaying a high level of reliability and the aircraft performance and test results are in line with expectations. Assembly of the second CS300 FTV is ongoing at the C Series aircraft assembly facility in Mirabel, Québec. It is now powered-on and is expected to come off the production line later this year.
• Flight and aircraft structural test performance results continue to exceed original targets for fuel burn, payload, range and airfield performance.(1)
• During the fourth quarter of 2015, the final phase of flight testing began when the first production CS100 aircraft commenced function and reliability testing. To complete these tests, the aircraft will operate on a schedule similar to that of a commercial airline. More production aircraft are moving down the assembly line, including units for launch operator SWISS.

(1) Key performance targets under certain operating conditions when compared to aircraft currently in production for flights of 500 nautical miles. See the C Series family of aircraft program disclaimer at the end of the MD&A for the quarter ended September 30, 2015.

Aerostructures and Engineering Services

Results of the quarter (PDF)

Transportation

Results of the quarter (PDF)

• Bombardier Transportation signed two contracts with Transport for London (TfL) to build and maintain 45 four-car new electric multiple units for a value of approximately $558 million. The first contract is covering the design, manufacture, commissioning and entry into service of 180 new vehicles and the second is a 35-year agreement to provide maintenance for the new vehicles. In addition to the base contracts, the contracts also include an option for up to 24 additional trains and another to extend the maintenance support for five years.
• Bombardier Sifang Transportation, a Chinese entity in which Bombardier holds a 50 % interest, has been awarded a contract with China Railway Corp. (CRC) to supply 15 CHR380D very high-speed trains valued at approximately $381 million. The order confirms Bombardier's successful business model for this restricted market and our leading position amongst Western players in China.
• Crosslinx Transit Solutions Maintenance General Partnership from Toronto (Canada) awarded a contract to Bombardier Transportation for 30 years of maintenance on FLEXITY Freedom light rail vehicles to be built for service on the new Toronto Eglinton Crosstown line for a value of approximately $308 million.
• Bombardier Transportation has signed a contract to provide 62 TRAXX AC locomotives to Israel Railways. Based on list price, the new order is valued at approximately $262 million. The contract also includes an option for an additional 32 locomotives.
• Several small and medium orders across various regions and product segments were also won in the third quarter of 2015 and Bombardier Transportation maintained a leading position(1) in the overall accessible rail market(2).
• The previously announced placement of a minority stake in Bombardier Transportation is progressing well. Following the placement, Bombardier Transportation will continue to be controlled by Bombardier Inc. and consolidated in its financial results.

(1)   Based on a rolling 36-month order intake with latest data published by companies publishing order intake for at least 36 months.

(2) The overall accessible rail market is the world rail market, excluding the share of markets associated with contracts that are awarded to local players without open-bid competition. Bombardier Transportation’s accessible market also excludes the infrastructure, freight wagon and shunter segments.

Reconciliation of segment to consolidated results (PDF)