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Operator
Good morning, ladies and gentlemen, and welcome to the Bombardier Third Quarter 2022 Financial Results 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.
Francis Richer
Good morning, everyone, and welcome to Bombardier's earnings call for the third quarter ended September 30th, 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 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 President and Chief Executive Officer, Eric Martel, and our Executive Vice President and Chief Financial Officer, Bart Demoski, to review our operations and financial results for the third quarter of 2022. I would now like to turn over the discussion to Eric.
Eric Martel
Thank you very much, Francis. Hello and welcome everyone. Good morning, everyone. And you need to know that I'm speaking to you today from Miami, Florida. where we have just finished a very successful week. We inaugurated the latest addition to our service network, a brand-new, ultra-modern service center. This is one of the key pillars to our aftermarket growth strategy. I'll speak to how this event marked a key milestone in our expansion in a moment because it illustrates the types of initiatives we have put in place to deliver service revenue growth. But first, I wanted to reflect on the month that just passed. The center opening came at the end of a busy October. We introduced an innovative new interior option for the Global 7500 and Global 8000 called the Executive Cabin, which was very well received by corporate customers. Finally, we made one of the biggest commitments in business aviation to sustainable fuels. Sustainability is at the heart of all discussion when it comes to business aviation and the future. This is why we took the bold and decisive step to transition all of our flight operations to SAF. Yes, we pay a slight premium to do so, but it is well worth the 25% annual net carbon emission reduction that will come with it. We have found a capable partner in Signature Aviation to help us on this journey. For anyone saying that we need higher demand before broader SAF production can begin, let me make it clear. Demand is here and companies like Bombardier are signing the check when it comes to preserving our future. We are all very passionate about this topic within our company and I can talk about it all morning. But first, Let's get to third quarter results, as I am also eager to show how well the team performed in the context of our greater plan. You know, when we began Bombardier's journey as a company focused on business, Jet, you heard me repeat that we were going to focus on building backlog and remaining disciplined. We have done just that, and that's why I can confidentially tell you today that that we are well equipped to face any market condition that will be ahead of us. I am even prouder to say that the fundamentals you will see in our Q3 results, things like liquidity, free cash flow, profitability, our debt management, have all showed that the foundation for how we expect to perform in 2025 has been firmly set. First, let me start with debt. Simply put, we have less of it. We have less costs associated with it, and we received another credit rating upgrade since we last spoke in August, this time from S&P upgrading us to B- with a stable outlook. Bart's team has done an excellent job managing maturities and setting us up for success. Bart will speak to some of this in detail shortly, but being able to pay $100 million back during a quarter that is traditionally light on deliveries due to seasonality, to me, is very noteworthy. Overall, we are on track to deliver more than 120 jets this year. We saw a healthy and stable $1.5 billion in revenue in Q3, and I would like to particularly highlight the contribution from our service business. We grew by 20% year over year. A portion of this can for sure be attributed to flight hours continuing to increase, but we are starting to see the benefits of our newly built or expanded facilities coming online. The team has kept all these complex projects on track through the pandemic, and we are ready for them to continue to give us tailwind as customers continue to choose to bring their jets home to the OEM. We have also seen very positive feedback on market acceptance on our certified pre-owned offering. Each aircraft is carefully cared for by Bombardier experts who create a product that is very appealing. And they have been, on average, selling 50% faster than other jets. helping keep our inventories at good levels and balance sheet clean in turn. This is a margin-accreditive business, and we will keep steadily progressing once again with discipline. When it comes to the market as a whole, we have seen activity stabilize after a huge surge the past quarters, and we are reaching what I would call a cruising altitude of around one on our book-to-bill going forward. This is right where we want to be to maintain a good balance of operational predictability and aircraft availability. We now have the luxury of looking to the future with a $15 billion backlog to work with and can continue to make prudent and disciplined decisions when it comes to production to continue protecting pricing. When it comes to macroeconomic factors, we see a lot of varying prediction on what the coming months and year will bring. But remember that we have gained some upside this year, especially on free cash flow, where we ended at $2 million for the quarter and are well on track to meet the guidance we raised just last August. We have further given ourselves flexibility by securing a revolver facility that Bart will detail shortly. All in all, we are well positioned to maintain our growth curve steadily as outlined in our investor date this year towards 2025. If you look at Bombardier's Q3 adjusted EBITDA, it's another encouraging statistic that boils down to execution. It rose $210 million. which represent a 48 year-over-year improvement. With an adjusted EBITDA margin of 14.4, we are in a great place and are seeing our hard work on the global 7500 learning curve mature. We are seeing service contribution grow and finalizing and implementing recurring savings initiatives. I do want to reiterate that when it comes to capital allocation, debt reduction remains our top priority. When you factor our restricted cash, which we expect to have access to early next year, we're already at $4.5 billion of adjusted net debt, which we initially thought we would reach in 2025. We are well ahead of schedule. In regards to supply chain, we have a good visibility on what we have to achieve to meet our commitment. This includes our planned 15% to 20% production increase next year, which we have previously discussed together. Our teams continue to be deployed around the world to identify and mitigate risk. It is not without its challenges, but bold and decisive moves to bring work in-house continue to pay off for us in terms of stabilizing our product. I am very proud of our performance. Looking at our balance sheet, it reflects the vision we set out for our company, and we have demonstrated we can perform. I'll now hand it over to Bart to dive deeper into the details.
Francis
Thank you, Eric, and good morning, everyone. This is certainly an exciting time for Bombardier. When I look at the state of our business, I feel very good about how we've performed to date, and I feel equally good about the road ahead. Again, in Q3, we had an outstanding quarter on many fronts. First, from a product and market standpoint, we continue to lead the industry and drive innovation, as demonstrated by the announcements of our groundbreaking sustainable aviation fuel strategy and the three-zone executive cabin option, on our global 7,500 and 8,000 platforms. We took another major step forward this quarter towards achieving our long-term liquidity objectives through the establishment of our inaugural syndicated revolving credit facility. This $300 million secured facility when combined with our greater than $1.7 billion of adjusted liquidity puts us at more than $2 billion in pro forma liquidity. Our new revolver is a five-year committed facility, and as I said, of up to $300 million, to be secured by working capital collateral. We have been working on this for some time, and I would like to thank all the teams involved, as well as our banking syndicate. This is an important step in continuing to strengthen our financial position and speaks to the work we have accomplished over the past two years. Continuing with our balance sheet, we have remained active on debt management since our last earnings call, having repaid an incremental $100 million of our bonds through open market repurchases. Our gross debt has now been reduced to $6.2 billion and we are now approaching annualized savings of $300 million in cash interest via our debt reduction activities compared with December of 2020. As Eric said earlier, we have already reached our 2025 objectives in terms of net debt. We have over $2 billion of pro forma liquidity, including restricted cash soon to be returned to us, versus $6.2 billion of gross debt. So we are not done here, and we expect to continue being active and opportunistic on our debt repayment in the coming quarters. Operationally, we delivered very strong results in the quarter, We continue to execute on our strategic priorities as planned, and I am particularly pleased with the pace of growth in our aftermarket business, where revenues are up 20% year over year. Our margins also continue to improve, as exemplified by our 460 basis point year over year adjusted EBITDA margin expansion, contributing to our sixth straight quarter of positive free cash flow and putting us on track to deliver our full-year guidance across all metrics. Finally, our backlog continues to grow. After having another strong 1.3 times book-to-bill in Q3, our backlog now stands at $15 billion. This represents a 34% year-over-year increase and gives us plenty of visibility and predictability into our 2023 top line and financial performance. So with that, let's move on to our Q3 results. Our revenues for the quarter stood at $1.5 billion, resulting from 25 aircraft deliveries and $372 million in aftermarket revenues. Our manufacturing and other revenues were 5% lower year over year, mainly due to two fewer large aircraft deliveries, in line with our expectations and production schedules. Meanwhile, our aftermarket revenues saw 20% growth year over year, from $310 million in 2021 to $372 million this year, and represented 26% of our overall revenues in the third quarter. This is supported by growth in flight hours, as well as execution of our expansion strategy to gain market share. With our Miami facility inaugurated this week and the earlier openings of Australia, London and Singapore, we now have the required footprint to deliver our 2025 growth objectives. We will be aggressively ramping up these facilities over the next 12 to 18 months. We had a very impressive quarter in terms of profitability, our adjusted EBITDA of $210 million is an increase of 48% year over year. Even more impressive is our EBITDA margins, which rose 460 basis points to 14.4% versus 9.8% a year earlier. This margin expansion clearly demonstrates that our plan is working to significantly increase our profitability without the need for large increases in aircraft deliveries. Free cash flow was also strong, coming in at $52 million and bringing our year-to-date cash generation to $566 million. Our working capital for the quarter was relatively neutral, with higher inventories tied to our planned rate increases, essentially offset by an increase in customer advances as well as an increase in our accounts payable balance. Looking at the last months of this year, we are in a great place entering Q4, and we are absolutely on track to meet or exceed our 2022 full year guidance. We continue to expect deliveries of greater than 120 aircraft for the full year. With 74 aircraft delivered in the first three quarters, we expect a strong output of at least seven deliveries in Q4. With deliveries in line with our expectations, and aftermarket continuing to perform, we fully expect to meet our revenue and profitability objectives, though Q4 adjusted EBITDA margin percentage should retract a bit versus Q3, as new aircraft is expected to have a larger share of the revenue mix versus aftermarket. Free cash flow has already met the revised guidance we provided in August, and we expect to be cash positive in Q4. So in conclusion, Bombardier continues to deliver on its commitments and is well prepared to manage through potential volatility. We are focusing on the things that we can control and are confident we will continue to see upside to our financial performance in the future. Thank you very much. With that, let me turn it over to Francis to begin the Q&A.
Francis Richer
Thanks, Bart. I'd like to remind you that the Bavardia Investor Relations team is available following the call and in the coming days to answer any questions you may have. With that, we'll open it up for questions. Operator?
Operator
Thank you. If you have a question, please press star 1 on your touchtone telephone. If you are using a speakerphone, please lift your handset and then press star one. Should you wish to cancel your question, please press star two. To allocate time for all participants, please limit yourself to one question and one follow-up. Our first question is from Noah Popernak from Goldman Sachs. Please go ahead.
Noah Popernak
Hi, good morning, everyone. I wondered, you know, now that we're approaching the end of 2022 here, and you have the degree of backlog and visibility that you do, if you might just refresh us on how you plan to load the delivery profile over the medium term.
Eric Martel
Okay, so probably definitely for Q4, we're in a solid position. I would say we have... pretty much everything under the roof of our facility right now to be capable of delivering what we said we were going to do. Greater than 120. Still in reach on both sides. And about next year, I think we've reiterated earlier in a few weeks ago, that we were still aiming, you know, for a 15% to 20% increase in terms of delivery. So, you know, despite all the challenges that the supply chain is offering, you know, we've been extremely proactive for the last two years and a half, you know, managing the situation, and we're looking forward with that confidence, you know, in terms of our deliveries.
Noah Popernak
Okay. Eric, you mentioned... You mentioned kind of landing around book to bill of one. And I'm sort of trying to map out where the bookings go from here versus the revenue. If I take the bookings in the quarter and annualize that, that would approximately equate the manufacturing or the new aircraft revenue for the year. So you would therefore need to grow bookings from the level they landed at in the third quarter to keep the book-to-bill at one as you grow production. And so is that correct? And I guess how much visibility do you have at this point into the future bookings? You've extended backlog and gained visibility into production, but do you now have a customer set that plans further in advance and gives you more visibility on that front end of the process as well?
Eric Martel
Yes. No, we clearly have some of our customers that are planning more ahead even than the booking we have today. So some, especially fleet operator, will have conversation about 25, 26, and even further. In terms of we are being prudent going into when we forecast the future, especially starting next year. We are planning for a book-to-bill of one. That's what we've been thinking of. That we do have today, which is close to two years pretty much on all platforms. So we're in a very good place. This gives us the confidence that if we maintain... So a book to be loved one will preserve the backlog that we have today. But also when I say that, you know, we are ready to face any situation ahead of us. is that if we would have a book-to-bill lower than one because there's a major recession going into next year, then we would probably use some of the backlog, but make an assumption that we may, let's say it's just an hypothesis here, at 0.75, then you would lose probably three months of the two years, which is still pretty good and gives you the visibility you need to manage the business with confidence and predictability.
Walter
Okay. Thanks very much.
Eric Martel
Thank you. Thank you, Noah. Thank you.
Operator
Thank you. Our following question is from Walters Bracklin from RBC Capital Markets. Please go ahead.
Walter
Yeah, thanks very much. Good morning, everyone, and congrats on a good quarter. I want to zero in on the certified pre-owned market. I know you cover this a lot, Eric, at NBAA, but This is a really interesting opportunity. And correct me if I'm wrong, I mean, this has been made possible by your investment in the aftermarket and the footprint that you've created, the hangar space that you've created with that investment is now giving you the opportunity to go into a market that you couldn't address before. And I'm just curious, what level of revenue opportunity are you targeting here? You mentioned margin accretive. and particularly what timeframe do you think you could ramp up to that level of whatever market addressing, whatever addressable market you're targeting, how quickly could you get to that level?
Eric Martel
Thanks, Walter, for the question. I think you're aware if I talk about the business a bit that we're creating here, first of all, it's important to know that we have 5,000 airplanes flying out there. So, which creates an opportunity, an enormous opportunity, and we know from history, and even during the pandemic, there's around 400 airplanes of Bombardier every year that are involved in a transaction. So, from those 400 pre-owned transactions, and then to capture a fair market share of those, By bringing these airplanes to us, and you're absolutely right, highlighting that today, adding additional capacity, you know, we added a million square foot this year to our facility and service. We're giving ourselves the ability to bring these airplanes, and as an OEM, you know, refresh the interior, put a new avionic in, and, you know, basically... take these airplanes after, I don't know, 15 years or 20 years or 10 years they've been in service, refresh them, and put them back on the market because these airplanes have a long life cycle. So we are uniquely positioned to offer that significant value to customers. So I'm not going to state a percentage, but think about a market of 400 airplanes a year that are involved in a transaction, and we intend to take a market share, you know, of those transactions. So this brings a strong margin contribution. We launched a program, as you know, about 18 months ago, now in July 2021, and we're starting to reach today double-digit deliveries. So that's a nice indicator. So we are well-positioned. We do believe in that business. We're going to continue to grow that business. We have the capability to do so, and that's how we're thinking about it.
Walter
That's great. A follow-up question here is on cash flow. This one's from Bart. Obviously, you hit your free cash flow guide, your multi-year free cash flow guide for 2025 and year one. You kind of indicated when you raised your guidance last time that, look, there was a lot of good events that happened this year that helped you on that. Naturally, I think by maintaining your $500 million free cash flow guide for 2025, I think you're implicitly saying, okay, we had a bit of a windfall this year. Maybe go back down to some some normalized level and then back up to 2025 at a more sustainable level. But my question, I guess, is the things that allowed you to get that free cash flow benefit this year, won't a lot of those factors be in play going into next year as well? And secondly, if that's happening, how soon could you hit your leverage target, your If you're getting your 2025 free cash flow target well in advance, how much sooner do you see yourself as being able to achieve your leverage target, your 2025 leverage target?
Francis
Yeah, great questions, Walter. And so let me just start by saying, you know, we've been quite aggressive on our debt reduction plans and strategies to date. We're well ahead, and I'll give you a couple of metrics here in a moment, on our debt reduction plan. And you're right, the market dynamics certainly helped accelerate our debt reduction relative to the original targets that we provided to the market about a year and a half ago, just over a year and a half ago. Proud to say that we've reimbursed almost $900 million of debt today from cash generated from the business. which is the most important thing. I mentioned last quarter that we believe we've now reached a place where we will be cash flow positive at a 1.0 book to bill quarter over quarter going forward. Obviously, we can do better than that as our earnings continue to grow because the earnings growth is primarily coming from the things that we control, taking costs out and growing our aftermarket businesses. In terms of the 2025 objective, we had said that we wanted to get to $1.5 billion of EBITDA and $4.5 billion of net debt in order to have a three times debt to EBITDA. We have already achieved the $4.5 billion of net debt this quarter, $6.2 billion of gross debt, less about $1.4 billion of cash on hand. $400 million of restricted cash and $300 million of the new revolver in place for us. So we have liquidity now in excess of $2 billion. So we've already achieved, in fact, exceeded our 2025 target. So the expectations for us from here with higher deliveries coming, as Eric mentioned, next year and continued progress on all of the not only EBITDA but cash flow improvement activities that are underway right now that will in all likelihood, well exceed our 2025 targets by 2025. And to be clear, the $500 million of free cash flow target that we set for 2025, the actual target is much higher than that. We highlighted this in our investor date in March of this year, that when you think about a billion and a half of of EBITDA, less about $100 million of sustaining capex a year, and I'll call it $400 million of interest costs annualized. That leaves us with a billion of cash flow that we can put to work. So we're very excited about what the future is bringing, and particularly about how the balance sheet and the free cash flow is shaping up. Hopefully that helps, Walter.
Walter
Yeah, it does indeed. Thanks very much, and thanks for taking my question. Terrific. Thank you, Walter.
Operator
Thank you. Our following question is from Miles Walton from Wolf Research. Please go ahead.
Miles Walton
Thanks. Good morning. I was hoping you could drill in a little bit on the aftermarket enterprise, and in particular, I don't know if you can do this, but I'll ask the question. On a same-stores basis, that is, sort of considering or taking aside the expansion of your aftermarket enterprise, do you have a sense as to How much of the growth is being driven by transactional expansion versus square footage expansion? And broadly into 23, how much square footage expansion on a net basis would there be under a flat utilization criteria?
Eric Martel
That's a great question. So clearly, you know, the aftermarket profitability is driven by part sales. And our strategy, I think, has been coming from one fold mainly, was about having a presence. And we are growing the market share of the entire availability. If you look at all the hours and maintenance and part sales possible on the 5,000 airplanes flying out there, we are basically... This year we added a million square feet to our facility in order to bring more airplanes in and channel more parts, of course. And that's how we've been able to grow. As you know, this year we've announced a million. Always looking at further opportunities. So we are thinking about other regions where we may We may do that. So this is, you know, you saw the result this morning. We grew by 20% year over year versus three. There's also the smart park program that is growing. As we have a bigger installed base and most of our customers, you know, when an airplane is new, the value of the program increases. That's another area where we are growing also our presence. So this program has been at Bombardier for many, many years, but it's been very successful in the last few years in terms of growing as people understand that it also helps the residual value of the product. So labor is a conduct, you know, basically for incremental part sales. And that's been our strategy and it's working extremely well. So just to picture that a little bit, you know, we usually have an average number of airplanes. And that number of airplanes, since we've added the space, you know, the space has been fulfilled and, you know, very rapidly. meaning that there is a demand out there and that demand, you know, people like to come to the OEM. And on top of it, I think a leading indicator, as you know, is clearly the flying hours. The fleet is today flying around 15% to 20% more hours than it was pre-COVID in 2019, if we compare pre-COVID. So anyway, we are... in a very good place. All the indicators are heading in the right place. And, uh, we do believe that we will achieve the target we have for, uh, growing that business.
Miles Walton
Okay. And Bart, maybe just a quick one for you with the $300 million revolver. Does that point you to being comfortable carrying just 1.2 billion in cash versus the 1.5? I think you had a placeholder for previously.
Francis
Yeah, Miles. Thanks. Um, yeah, uh, you've, you've got it right. The, um, The target for us for, I'll call it liquidity on hand now rather than just cash on hand, remains at about $1.5 billion. We've been staying pretty close to that. But with the standby facility we now have in place, committed facility, it's a five-year commitment of $300 million. That means we require less cash on hand to maintain that 1.5. So you're right, it's 1.2 plus 300. That would be the general target we would carry forward from here.
Miles
Awesome. Thank you.
Francis
Okay. Thanks, Myles.
Miles
Thank you.
Operator
Thank you. The following question is from Konark Gupta from Scotiabank. Please go ahead.
Miles
Thanks, Apartheid. Good morning, everyone. So we just wanted to dig into the inventory levels here. But I think Q3 inventories went up by more than $300 million sequentially from Q2. How much of that do you think could reverse in Q4? And are there any other notable cash flow items we should be mindful of in Q4?
Francis
Yeah, we're, as you're probably aware, Conarch, and good morning and thanks for the question. As we're ramping up production to meet the higher delivery targets that we've set for 23 and probably beyond as well, but we'll come to that when we get to guidance, that requires us to build some inventory. So you're definitely noticing that happening. In terms of free cash flow, Q4, we do expect to be positive in the quarter. We've got about $250 million of profit to go and get to our $825 million minimum for the quarter, and we've made it clear that we expect to exceed that number. Interest costs, just to kind of break it down for you here, are about $170 million, including debt and other lease accounting interests. And CapEx spend will be a bit greater in the fourth quarter than Q3, which was $70 million, but in line with our expectations because we're continuing to build out our brand-new world-class production facility in Toronto. Working capital-wise, inventory will decrease on stronger deliveries, but that's... as you would expect, I guess, with a strong delivery book in Q4. I mentioned at least 47 deliveries. Some of that should be reversed. And then ultimately, the working capital will again be influenced by advances depending on, you know, how many new aircraft orders we get and where our book to build lands. So those are all kind of the key factors that will influence things in the fourth quarter. And that's a lot of moving parts, but should be quite positive from what we're seeing.
Miles
That's great, Kaliban. Thanks so much. And then just one quick follow-up on the leverage ratio. I noticed in your disclosure you guys say five and a half times net debt to EBITDA, I think. But obviously, if you look at the EBITDA, the trailing EBITDA, which is not a true reflection of your current operations. So would you say your EBITDA margin today, after baking in all the improvements you have achieved so far, notwithstanding the future improvements, would you say the EBITDA margin would be closer to 15% today for the operations?
Francis
I hate doing math on the run, Conor. So directionally, yeah, it's probably a little bit higher. Trailing is about 800, just over 800 million, I believe, 810 million trailing. So yes, if you look at the greater than 825, it would be a bit higher as a margin. So that is correct. And, you know, as we've outlined, we're looking to continue to grow. Margins have been improving year over year, and we expect to continue. That will be a continuation from here on out. I did mention Q3 will be a little bit lighter just based on the, you know, the significant delivery book that we have for the quarter.
Miles
That's good, Khaled. Sorry to put you on the spot here, but thanks for that.
Francis
No, no, no. It's okay, Conor.
Miles
All good.
Francis
Thank you.
Operator
Thank you. Our following question is from Benoit Poirier, Desjardins Capital Markets. Please go ahead.
Benoit Poirier
Yeah, good morning and congratulations for the good quarter. When we look at the quarter, we've seen some SPAC IPOs, so I would be curious to know about the booking activity so far and whether the the spec IPO we've seen, whether this will translate into a strong booking activity. And maybe if you could provide some color about the new entrants that you're still seeing so far, Q3, Q4.
Eric Martel
I think it's worth to note that we've seen quite a bit of consolidation on the fleet operator. I think in the last quarter, year or so, you've seen acquisition. There's been a lot of small operator that got consolidated under the bigger one. And I think, Benoit, that this could be a trend moving forward also as everybody is looking for capacity right now. Fleet operator, I've seen a huge surge in demand. So they're looking for capacity to buy airplane, to operate airplane, to charter them. And I think the good news for Bombardier into this is that we are extremely, extremely well positioned with the biggest fleet operator. I'm thinking about FlexJet, VistaJet, and FlexJet here, and a few others. So, you know, it's been, I've said that before, it's a fair percentage of our growth. They are happy with our product, you know, whatever, if it's reliability, the performance of it, our ability also to maintain their airplane. So all this to say that, you know, we are in a good place, but I think we have to anticipate that there will be probably further consolidation, which could be to our advantage.
Benoit Poirier
That's great, Father. Thank you. Yeah, and just as we add to 2023, I understand you have not released any numbers so far, but how should we be thinking in terms of free cash flow expectation versus 2022? It looks like, obviously, there will be higher deliveries, higher bids up, but potentially softer booking delivery. So without being precise, should we expect free cash flow to be up or potentially down versus 2022?
Francis
Hi, Benoit. It's Bart here. So, yeah, look, we're going to stick to our guns and bring out our guidance in the first quarter of next year, and we'll look forward to sharing it with you then. Okay, Benoit?
Benoit Poirier
Yeah, perfect. Okay, thanks.
Francis
Okay, perfect.
Benoit Poirier
Thank you.
Francis
Thank you, Benoit.
Eric Martel
Thank you.
Operator
Thank you. The following question is from Kevin Rumor from Cohen. Please go ahead.
Kevin Rumor
This is Spencer Brightsey on for Kai. Thanks for taking the question. What impact should we expect on Bombardier's results from the U.S. dollar appreciating versus the Canadian dollar? Thank you.
Francis
Yeah, Kai, thanks. As we do outline in our financials, kind of a sensitivity to each one-cent move in the exchange rate. It's about... a $15 million tailwind when the Canadian dollar is, or the U.S. dollar is strengthening against the Canadian dollar. That's $15 million per one cent. We have a hedging program in place. We've had it in place for many years. So we do try to manage our currency exposure going forward. We do hedge a fairly considerable amount. So while we expect to see some benefit starting in 2023, it'll move to a more full benefit of the stronger Canadian dollar beginning in 2024. Thank you.
Miles
Okay.
Francis
Thank you, Spencer. Thanks.
Operator
Thank you. Our following question is from Tim James from TD Securities. Please go ahead.
Tim James
Thanks very much. Good morning. Thank you for taking my call. Just one question here for Eric, I guess. I'm wondering if you can talk, and it's a little bit open-ended, but I'm curious to get your thoughts. As you look at 2023, if you had to pick the two most significant kind of watch items for you in terms of risks as you enter 2023, and I'm thinking of the question just because the company is obviously momentum, it's strong, you're executing, you're hitting your results. And obviously, there are kind of clouds on the horizon for many other industries. So what are you thinking about or watching most closely as you go into 2023?
Eric Martel
I think it's a great question, Tim, and we're asking ourselves that question every day. The two that are definitely coming on top of mind are geopolitical. So clearly, this could change, but I guess it could change the world for Bombardier, but for everybody else, probably. So I think this one is clearly a risk that we are all facing that is ahead of us. But, you know, despite this one, this is one that we don't have much control. The other one that we have partially control is supply chain. But I think, you know, we've took the step, as I said earlier, we're going to be, we need to watch. You know, there was quite a bit of shock induced in the supply chain in the last two years because of COVID. And we are still... created other situations. But anyway, I think this is recovering slowly but surely. We are always watching if there's going to be further. But I think those are the two main ones that, you know, are keeping us on our toes and making sure that, you know, we're going to be managing them proactively as much as we can. But those were the two that could have an impact. But Still, you know, in the supply chain, we feel, you know, comfortable, and that's why we're reiterating our 15% to 20% increase. The other one is, I would say, I think we can claim altogether that it's out of our control, but we'll see what happened there.
Tim James
Great. Thank you very much. Thank you.
Operator
Thank you. Our following question is from Stephen Trent from City. Please go ahead.
spk14
Good morning, gentlemen, and thanks very much for taking my question. Apologies if I missed it, but I was just curious if you could provide a little more color on what you're doing with sustainable aviation fuel, kind of, you know, what's the size of the investment and what sort of, you know, operational guideposts should we be watching in the coming years? Thank you.
Eric Martel
Perfect. Now, this is a great question, and this is something that brings a lot of interest in my management team, including myself. We've been extremely proactive on reducing our green gas house emission ourselves. First of all, we're looking at a 25% reduction from 2019 to 2025 within our company, and we're well on our way to do that. I think it was a bullish announcement we made to a couple of in Orlando about sustainable aviation fuel. So we had just announced a partnership with Signature and basically bombarded all our demo flights that we do when we sell airplanes, all the test flights that we do when we either test a new program or test an airplane because we just built it, all the certification flights. will be running with SAF. And we have a very comprehensive program with Signature, which we call a book to claim, which is, I like it because it's pretty smart. It means, you know, sustainable fuel availability is always the challenge. Not every airport has sustainable fuel available. But what we're going to do is we're going to be paying, you know, a premium to put sustainable fuel. It doesn't mean it's going to go into our airplane, but somebody else close to a factory can where they're producing the fuel, will be putting it into another airplane. So overall, the benefits are there, and you avoid transporting the fuel throughout all North America or Europe. So I think it makes a lot of sense. That helps to reduce emissions, and we're doing that. In terms of the investment, I would say it's not material. It is something we've put into our budget for next year. It doesn't change anything in the big scheme of things, but we thought it was an investment that was worth to do as we are all facing a challenge that we all need to contribute to.
spk14
That's super helpful. Really appreciate that. And for my one follow-up, I was thinking about longer term, it seems that you guys might get down to a relatively low financial leverage fairly quickly. Any high-level thoughts with respect to capital allocation, whether you think about new products down the road or maybe another big investment in aftermarket? Thank you.
Eric Martel
I think that's a great question. Clearly, I think we've been extremely clear. Capital allocation priority today remains reducing debt, and we will do that, continue to do that. And eventually, you're right. In the long run, we're going to have to think about a new program. We're going to have to decide first of all. But I think we, as a management team, have been extremely disciplined, and we would only launch a new program under certain conditions in terms of leverage ratio, cash availability, liquidity, and I think that's going to be criteria number one. We will not launch a program if we haven't achieved these parameters that we gave ourselves to do so. And of course, there's other questions that come into play like availability of technology, of course, the market and everything and our ability to execute, but clearly the discipline that I think we've been showing as a management team for the last two years will also remain when it's going to be time to face a new... Okay, I appreciate that.
spk14
...allocate our capital to reduce debt. Super, and sorry to interrupt, but thank you very much for that.
Eric Martel
You're welcome.
spk14
Thank you.
Operator
Thank you. The following question is from Chris Murray from ATB Capital Markets. Please go ahead.
Chris Murray
Yeah, thanks. Good morning, folks. Bart, maybe this is one more for you. A couple thoughts around just near-term debt repayment. I guess, first of all, we didn't see a tender offer for the $100 million, so just wondering if you're actually buying stock back in the market, or sorry, bonds back in the market, or if you've got, call it a roster of folks who sell back to you. And then if you can also provide us with a little more color around that restricted cash and timing and when you think that it'll become available to you, that would be helpful.
Francis
Yeah, thanks, Chris. You're right. This past quarter, we didn't come out with a formal publicly announced tender. Instead, we purchased or repurchased bonds in the market, in the open market, through open market purchase activities. It was a very productive repurchasing of bonds. As you can imagine, there was quite a bit of volatility in all capital markets in the quarter, which gave us the opportunity to buy $100 million of face value of notes back for less than that amount. So it was a very productive repurchasing of bonds. So we're very pleased with being able to execute on that in the quarter. In terms of the roughly $400 million US of restricted cash that's out there right now, the letters of credit that that cash is supporting, they expire right towards the end of January of next year. So that's the timing of when we would expect to receive that cash back.
Chris Murray
All right, and that cash, I'm assuming, once you've got it, you can use it for debt repayment or any other corporate purposes as you see fit, right?
Francis
Yeah, absolutely. We'll stick to our plan of trying to stay about $1.5 billion of liquidity now available, and assuming that cash is excess, certainly it could be used for debt repayment.
Chris Murray
Okay, and then just looking forward, I just want to make sure on the timing of it, it sounds like, at least from your indications, you know, you've opened, I guess, a few of the, um, the service centers. I think if I read it correctly in your notes, you thought London should be, uh, kind of fully up maybe, uh, towards the end of this month or early in December. Um, you know, any, any updates on timing on the Toronto facility and any thoughts on any additional capital needs into next year or should be fairly modest?
Eric Martel
No, I think everything is on track right now. So we got, uh, You're absolutely right. We're going to be officially announcing London in the next month. And the facility has already started. Actually, it's filling very nicely with airplanes right now. But we will officially announce the facility in a few weeks. And in regards to Pearson, we're right on track. I visited the facility myself yesterday. you know, a few weeks ago. You know, we've built a structure. We're closing the wall right now. And we have a detailed plan to start moving, you know, our equipment station by station starting, you know, sometime next year in the summer or in the fall. And the plan is still to have everything moved and open it, you know, early in 23. Early in 24, sorry.
Miles
Okay. Thank you very much.
spk08
Thank you.
Operator
Thank you. Our following question is from Cameron Dirksen from National Bank Financial. Please go ahead.
spk08
Thanks. Good morning. Maybe just a quick, I guess, clarification question for Bart. Just wondering if you can sort of indicate what your run rate interest expense is today based on that kind of $4.5 billion in net debt.
Francis
Yeah, run rate today, so we've got $6.2 billion of gross debt. Our interest rate Average coupon rate on that debt is just under 7.5%. So the run rate is about $460-465 million interest expense. And that's down almost, pleased to say, but that's down almost $300 million from December of 2020. So we're very excited about all that extra cash that is coming back to the business now.
spk08
Yeah, absolutely. And maybe just a question for Eric. Just on the, I guess, the backlog composition, I'm wondering if you can maybe just talk a little bit how it breaks down today between fleet operators versus high net worth individuals versus, I guess, corporate customers. And maybe more importantly, has anything kind of changed in the last quarter as far as the composition of that backlog or the split?
Eric Martel
Yeah, that's a great question. You know, so it's pretty similar to what we said at investor data. So we're in the zone of about 18%, you know, or 20% for fleet operator. And as I said earlier, we are extremely well positioned with these guys, and these guys have the capability probably to continue growing. So it's about 20%, I would say, of our backlog. And, you know, it's around the same number than it was probably earlier this year. Okay, perfect. That's very helpful. Thanks very much. Thank you. Thanks, Cameron.
Operator
Thank you. Our following question is from David Strauss from Barclays. Please go ahead.
David Strauss
Hi, this is Brad Barnon for David. Good morning. I just want to talk. You talked about your target for 2025 from the free cash flow side, but you appear to be progressing a little ahead of the target for $7.5 billion in revenue. Can you just talk to that?
Eric Martel
I can certainly do, and Bart, you can chip in, but, you know, clearly, you know, we are doing extremely well right now on what we committed, what we're going to do for 2025. We're ahead on the deliveraging, and I think right now we're in a situation where, you know, we have also built backlog, have visibility issues, So we are going to be reassessing, as we do every year, our 2025. And I think that you can expect that probably early next year when we talk about our guidance, of course, and do Investor Day, that we will be providing an update for the 2025 outlook.
David Strauss
Okay, great. And then just on deliveries for this last quarter – Last quarter, you said Q3 was going to be flat year over year, but came in a little lower versus 2021. So just what happened there?
Eric Martel
Yeah, I think in Q3, the devil's in the detail. We delivered 25 airplanes. If you compare to last year, we delivered 27, but that was with inclusive of four Learjet airplanes. So reality is if you compare Apple with Apple, for the Challenger and Global total, we delivered two more airplanes. And that was basically what the plan was, plus or minus one airplane. We had one airplane at the end of the quarter that we ended up with a financing discussion or something happened and the customer decided to do it differently. But anyway, there's nothing to... to take away from this right now. We're happy with where we ended up in Q3, and Q4 looks solid, and we're looking forward for the quarter. We have a lot of airplanes in Q4, but they're all in a good place right now to deliver. Great. Thank you.
David Strauss
Thank you.
Francis Richer
Operator, we're out of time for more questions, so we'll pass it to Eric to make some closing remarks. Perfect. Merci beaucoup.
Eric Martel
So I would like to thank you all for joining us today. As you know, we have a very busy fourth quarter ahead of us, and we are committed to closing out the year on a high note. I look forward to reconvening with you all in the new year to discuss what 2003 will bring for Bombardier. I'd also like to take the opportunity to sincerely thank every one of you on the call who I was able to meet with during the NBA Bay Show a few weeks ago. It's a real pleasure to get to interact in person. It is essentially what business aviation is all about. So I wish you all safe further travel and a productive closeout to 2022. Thank you.
Operator
Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.
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