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Bombardier Posts Q3 Profit; To sell Non-core Assets, Cut 5,000 jobs

Bombardier Inc. (BBD_B.TO,BBD_A.TO) reported that its third-quarter net income was $149 million or $0.04 per share, compared to a loss of $100 million or $0.04 per share in the same quarter last year. Bombardier also announced the sale of a number of non-core assets. It will reduce about 5,000 positions across the organization over the next 12 to 18 months.

Bombardier introduced its guidance for the 2019 fiscal year. Revenues are targeted to grow by approximately 10% to $18 billion or more, as deliveries of the Global 7500 business jet accelerate.

Adjusted earnings per share for the third-quarter was $0.04 compared to break even per share last year.

Bombardier's revenues were $3.6 billion, representing 3% organic growth year over year, from Transportation, Business Aircraft and Aerostructures, as the Company deconsolidated revenues from the C Series program following the closing of the Airbus partnership.

For the full year, Bombardier expects revenues of approximately $16.5 billion, at the low end of its guidance range.

Bombardier said it reached definitive agreements for the sale of the Q Series aircraft program and de Havilland trademark to a wholly owned subsidiary of Longview Aviation Capital Corp. for approximately $300 million; and the sale of Business Aircraft's flight and technical training activities to CAE and the monetization of royalties for approximately $800 million.

Both transactions are expected to close by the second half of 2019, following the usual regulatory approvals. Net proceeds from the transactions are expected to be approximately $900 million after the assumption of certain liabilities, fees, and closing adjustments.

Bombardier also said it launched a new enterprise-wide productivity program to further streamline, lean out and simplify the Company. Bombardier will right-size and redeploy its central aerospace engineering team. Key engineering team members will be redeployed to the business segments, with the largest group moving to Business Aircraft, to ensure they have all the necessary capabilities for future business jet development programs.

Bombardier will also establish a new Advanced Technologies Office (ATO), which will be led by François Caza, who has been appointed Bombardier's Chief Technology Officer. The ATO will focus on systems design and engineering, including applying experience from Bombardier's aerospace programs to its rail transportation business.
Bombardier has launched a company-wide restructuring initiative focused on optimizing production and management processes, flattening management structures and further reducing indirect costs.

Bombardier noted that the actions will result in a reduction of approximately 5,000 positions across the organization over the next 12 to 18 months, leading to annualized savings of approximately $250 million at full run rate, which it expect by 2021. Bombardier anticipates recording a restructuring charge in 2019 of approximately the same amount as special items.

Bombardier also announced that Danny Di Perna has been appointed President, Aerostructures and Engineering Services (BAES), effective immediately. Michael Ryan will assume the role of Chief Operating Officer for BAES.

Bombardier introduced its guidance for the 2019 fiscal year. Revenues are targeted to grow by approximately 10% to $18 billion or more, as deliveries of the Global 7500 business jet accelerate. Profitability is anticipated to grow at a faster pace, with EBIT before special items targeted to grow by approximately 20% to a range of $1.15 billion to $1.25 billion, and EBITDA before special items anticipated to increase by approximately 30% to a range of $1.65 billion to $1.8 billion.

Bombardier also reaffirmed its 2020 financial targets, even after the divestiture of the Q Series program and Business Aircraft's flight and technical training activities.

In a separate press release, CAE confirmed that it has agreed to acquire Bombardier's Business Aircraft Training (BAT) business for an enterprise value of US$645 million.

In its first full year following the closing of the transaction, the acquisition will provide CAE high single-digit percentage earnings accretion and will be accretive to free cash flow. The acquisition of Bombardier's BAT business is subject to regulatory approvals and is expected to close by the second half of calendar year 2019.

CAE has agreed to pay US$155 million to monetize its existing future royalty obligations under the current Authorized Training Provider (ATP) agreement with the business jet manufacturer. This also involves the extension of CAE's ATP agreement to 2038. The monetization represents the discounted sum of royalties payable by CAE over the next 20 years, and the transaction is expected to close by the end of CAE's current fiscal year.

In view of the expected timing of the transactions, CAE's outlook for its current fiscal year 2019 remains unchanged.

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