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spk00: Good morning, ladies and gentlemen, and welcome to the Bombardier first quarter 2024 earnings conference call. Please be advised that this call is being recorded. At this time, I would 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.
spk08: Good morning, everyone, and welcome to Bombardier's earnings call for the first quarter ended March 31st, 2024. 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 first quarter of 2024. I would now like to turn it over to Eric.
spk02: Thank you Francis. Hello and welcome everyone. Good morning everyone and thank you for joining us today. Let me first start by highlighting the great performance demonstrated by our teams during the first quarter of 2024. We continue to execute our plan with discipline and made important strides in positioning ourselves for future growth. Highlights of the quarter include a strong backlog increase, a notable percentage margin improvement, and a highly favorable book to bill. This solid start reinforces our confidence in our ability to reach our guidance for the year. Before we take a closer look at the quarter's result, I would like to come back on the announcement we made yesterday. It's a historic moment for Bombardier. Those who have followed us closely have seen how much we have transformed in terms of our core businesses, our employee engagement, and our balance sheet. So it was time to transform the company brand. The exercise was inspired by people. Our new brand identity reinforces our successful shift towards business aviation and propels the company forward. I hope you have had a chance to take a closer look at our new logo. We have introduced a symbol we call the MOC. It's a forward-facing shape that represents air smoothly flowing over the wing of a jet. Of course, the company's heritage also remains deeply rooted in the name Bombardier itself, after our entrepreneurial founder, Joseph Armand Bombardier. His legacy has carried forward with Laurent and Pierre Beaudoin. Over the next few months, we are excited to show more details about this brand evolution. The first opportunity for most of the financial community on the line today to see its first hand will be during our Investor Day on May 1st. I hope that many of you listening today will be able to attend and see the amazing facility we build at Pearson, but more importantly, the proud and passionate team behind it. To me, our operations in Toronto are practically a metaphor for the transformation Bombardier is completing. We went from a large industrial footprint with many businesses and product lines to a streamlined space that's leaner, greener, focused, and ultra-modern. Our brand evolution elevates what already makes Bombardier unique today. How we put people at the center, creating customer-like family, and creating deep relationships. We truly have a family-like relationship with our customers, and it's a team that is very important today as we examine our earnings for Q1. Customer metrics are at the heart of the good work we have done to start the year. We grew unit orders year over years, as well as posted another double-digit services growth quarter. Jet orders were up 60% versus Q1 last year, which represent excellent traction in our traditional client markets, fleet operators, and new opportunities materializing for Bombardier Defense. Backlog has been a key driver of operational predictability. We saw robust activity on the market with a first quarter unit book to bill of 1.6. This has increased our backlog by 700 million. We therefore continue to stand with a multi-year and well diversified backlog now at 14.9 billion. Services revenue continue their steady progress. posting a 13% year over year gain. Their momentum towards growing into a $2 billion business is remarkable and won't stop there. We continue to fill our newly built services center with more and more of the existing fleet with every passing month. Adding to this, we are seeing a high capture rate for service program like SmartLink Plus on new aircraft deliveries. This is key to continuing our organic growth in the aftermarket. It's a win-win for our customers and who receive peace of mind knowing the OEM is with them every step of the way to help them operate with high reliability and financial predictability. On the delivery front, we remain on track to deliver between 150 and 155 aircraft in 2024. Our teams completed a total of 20 deliveries during this first quarter, down by two aircraft compared to the same quarter last year. This follows our plan for the year, as I already mentioned during our call in February. We adjusted our delivery profile to meet the challenges we are facing with the supply chain. Our focus during the first half of the year is to build our inventory in order to deliver high volumes of aircraft in the second half. We are taking the right step to meet the continued demand for our aircraft and to reach our objectives. The business jet market is resilient and utilization continues to increase. In fact, Bombardier aircraft have recorded a 7% growth in flight hours in March 2024 compared to the same month last year. It's a good sign that people have stuck with business aviation post-pandemic. Regionally speaking, our sales team is well-placed to capture activity as it springs up. We are seeing activity in the Middle East and Asia, and the American market remains strong. We also have signs of an uptick in Europe. From a mixed perspective, You will remember we closed 2023 very strong on challenger 3500 order. The first quarter was marked by strong activity on the large cabin side of the business. As anticipated, we are seeing a lot of activity around the global family, a trend which is expected to continue in 2024. We like what we're seeing with regards to our product and how they line up on the marketplace. Taking a step back to look at our result as a whole, I am pleased to say that we are on track for the year. Bart will go into more details with you shortly on our financials, but I do want to touch on two areas of particular interest. First, deleveraging. It's notable because we continue to do it in a very steady and methodical way. Clearly, we are ahead of where we wanted to be. During the month of March, we further announced a 100 million more debt retirement through use of excess cash. As we balance this all, it will lead to exciting opportunities to move from a transformational and turnaround mindset to future growth. Bart and the team have done a tremendous job of making our balance sheet something everyone can be proud of. Next, when it comes to our operating margins, we have very diligently focused on what we control. This approach has yielded one of the results I am most proud of this quarter, our 16% EBITDA margin. This is a great start to a year and points to how meaningfully we have shifted our cost structure. As mentioned, Services are, of course, a key margin driver, so continuing to grow that business is key to creating a steady base to build on. On the product side, our Challenger aircraft continue to perform extremely well in the market and we're another key driver this quarter. The platform recorded a large increase in deliveries compared to the same quarter last year and had a great impact on our bottom line. Our global family of aircraft also continues to raise the bar with the Global 7500 on track to transition to the Global 8000 in the second half of 2025. With an optimized facility and footprint now in place, we are poised to maintain the program's accretive position. The aircraft is performing on all fronts, on the bottom line and in the air. We have set speed records as have some of our customers. Reliability is very high for a young program and we see a lot of operators using the jet on long legs very routinely. I am delighted that Bombardier has set the bar for the category and will raise it again in 2025 with the Global 8000. Bombardier entered the year with an excellent product mix. We're ramping up Challenger production in 24 and Globals for 25. And while we continue to require more working capital investment in the near term, we will be well placed in the second half of the year and well beyond. Our products will continue to lead the market in that category with the best plane supported by the best people. And before I pass the call to Bart, I want to take a moment to reiterate that it is truly exciting time for Bombardier. We have a clear line of sight on the upcoming year and well as where we need to be for 2025. This represents a generation transformation our employees and stakeholders can be proud of for years to come. Their hard work continues to pay off. And as we round the corner, I wanted to thank everyone who stepped up to the plate to make this all happen.
spk12: Bart, on that note, the floor is yours.
spk03: Thank you, Eric, and good morning, everyone. Let me begin by saying that we are truly off to a great start to 2024. we delivered a first quarter that demonstrated strong operational execution and that was right on plan. In Q1, we continued to expand our margins, grow our aftermarket and defense businesses, and reduce our debt, demonstrating continued commitment and progress towards our core strategic priorities. Our EBITDA margins reached 16% in the quarter, representing a 140 basis point improvement versus the same quarter of 2023. Only a few years ago, we were talking about Q1 margins of 9%. And this performance improvement speaks to our focus on costs, margin expansion, and the continued diversification of our revenues from our aftermarket, defense, and pre-owned businesses. As a matter of fact, our aftermarket revenues again grew in Q1 at a double digit rate of 13% versus last year. and represented 37% of our total revenues in the quarter. Simply put, we love having this business with its strong, predictable revenues and cash flows and expectations of strong growth for years to come. We continued our balance sheet improvement activities in Q1 by launching a $100 million debt retirement through cash on hand, and we pushed out 2026 and 2027 debt maturities to 2031 by executing a $750 million debt refinancing at a coupon of seven and a quarter percent, which brings down our average coupon cost, which now stands at 7.49%. We also finished the quarter strong with 1.4 billion in available liquidity, which is at the high end of our targeted range of one to one and a half billion. And our net leverage for the quarter was 3.6 times. As Eric mentioned, we've seen strong order activity to start the year, with particularly active demand on the global platforms. As a result, our backlog grew by 700 million to 14.9 billion in Q1, on the back of a 1.6 times book-to-bill. Our well-diversified and growing multi-year backlog provides us with strong visibility into our skyline and the future financial performance of our company. Now, turning to our financial performance in the quarter, our revenues were $1.3 billion, supported by 20 aircraft deliveries and $477 million in aftermarket revenues. Overall, this was a 12% decrease year-on-year, but that's explained by the two fewer deliveries and an aircraft delivery mix, which favored our Challenger platform. Challenger deliveries were up 50% year-on-year, putting us in a strong position to grow our full-year deliveries on this platform as is reflected in our guidance of 150 to 155 aircraft deliveries. As I mentioned earlier, the aftermarket continues its strong momentum and produced 13% year-over-year growth, translating into $477 million in revenues. Shifting to profitability, adjusted EBITDA for the first quarter was $205 million, $7 million lower than Q1 of last year, given our lower revenues. Our adjusted EBITDA margin, however, grew to 16%, an almost 10% improvement year over year. The robust growth in adjusted EBITDA margins is mostly attributed to strong contributions from the aftermarket as well as our challenger product line. Our adjusted EBIT grew to $142 million, a 3% rise compared to the prior year, and our adjusted net income continues to be positive at $44 million this quarter. Looking at our free cash flow, we started the year right on plan. Our $387 million cash usage in Q1 reflects working capital build in inventories supporting our production ramp up. We invested heavily in our inventories to the tune of $659 million in the quarter. This investment was partly offset by growth and advances from orders we added to our backlog, as well as progress payments towards future deliveries. Our CapEx expense was down to $44 million, nearly half of what it was in Q1 of 23, as we wrapped up the investments to commission our new aircraft assembly facility at the Pearson Airport. Moving to our 24 guidance, our outlook for the year remains unchanged. We continue to expect to deliver between 150 and 155 aircraft, with the growth versus 23 coming from our Challenger platform. We do expect global deliveries to remain stable in 24 before growing in 25. We continue to expect our quarterly delivery and free cash flow profile to be similar to last year, with deliveries to be heavily skewed to Q4, resulting in a large inventory release after seeing continued investments in inventory during the second and third quarters. Looking ahead to the second quarter, we expect higher year-on-year deliveries with a mix which will favor the Challenger platform. And with continued inventory investment to support growth and deliveries, we do expect some cash usage again in Q2, though improving from Q1. So to conclude, we're off to a strong start to 24, and we are continuing to execute to our plan as we begin the second quarter. This is an exciting time for Bombardier, and I very much look forward to speaking with you more about our path forward next week at our Investor Day. With that, let me turn the floor back over to Francis to begin the Q&A.
spk08: Thanks, Bart. I'd like to remind you that the Bombardier Investor Relations team is available following the call and in the coming days to answer any questions you may have. For the question period, please limit yourself to one question and one follow-up. With that, we'll open it up for questions. Operator?
spk00: Thank you, sir. Ladies and gentlemen, if you would like to ask a question, please press star followed by one on your touchtone phone. you will then hear a three-tone prompt acknowledging your request. If you would like to withdraw from the question queue, please press star followed by two. And if you are using a speakerphone, please lift the handset before pressing any keys. Please go ahead and press star one now if you have any questions. And your first question will be from James McGarrel at RBC. Please go ahead, James.
spk12: Hey, thanks for having me on.
spk05: I just wanted to ask a question on the competition environment and the G700 certification. I know book to build was really solid in the quarter, but can you just talk a little bit about how you see the competitive landscape evolving after the potential G800 gain certification?
spk02: Yeah. That's a great question. And of course, we're always closely monitoring what our competitors are doing and as they do so also. But what I can tell you is we see a strong success right now on the global 7,500 and 8,000 as it only comes around late next year. So we've seen clearly a movement, I would say, towards our platform in the last couple of months. I think people appreciate that we already have in service something like around 170 airplanes. The airplane is performing extremely well. And I think what we need to note is that, you know, despite the airplanes being in service in five years and introduction of new platform, we are still leading the performance. You know, we still have the airplane that makes more range, more speed, you know, cabin pressure, different criteria that are important for the customer. And actually, the 8,000 is going to raise that bar again in a year from now, which is going to be the only four zone, you know, that makes the range of 8,000 nautical mile, you know, achieve a speed of 94.5 and so on. So our airplane are... extremely capable have proven reliability we have a lot in service you know we have starting to see also customers that purchase their airplane at the earlier delivery that are coming for a second one i think which is a nice testimony to to the performance of the product and the reliability yeah i appreciate that and um
spk05: On margins, obviously margins came in really strong in the quarter. Services were solid, but we also saw higher challenger deliveries. Can you walk us through the margin cadence for the rest of the year given what will likely include some higher manufacturing revenues?
spk13: Yeah, good morning, James. It's Bart here. Thank you.
spk03: Yeah, we did have a very strong margin this quarter. We saw margin expansion for the business. We did have, as you said, very, very strong aftermarket sales in the quarter and they're continuing to grow. So that will benefit us through the year and in the coming years as well. The rest of the year as we look forward, we are going to probably as next quarter, we're looking at very strong growth in deliveries. Relative to this quarter, we've been very clear that this year, our production will be tied more closely. Production and deliveries will be tied more closely to our challenger fleet and next year with strong growth for the globals. So we are anticipating overall margin growth year over year for the business. But we don't guide on a quarterly basis. So I'll leave it there.
spk05: I appreciate it. And I'll turn the line over. Thank you.
spk13: Thanks, Jane. Thank you.
spk00: Next question will be from Cameron Dirksen at National Bank Financial. Please go ahead.
spk09: Yeah, thanks very much. Good morning. Bart, I wonder if you can just maybe go into a little more detail on your expectations for working capital investment over the next few quarters. I think at the beginning of the year, or in February, you sort of talked about a total investment gap. I guess, in the first half of 2024 of something like $200 to $500 million in working capital. Is that still the expectation? And will some of that working capital investment, I guess, sort of carry over into Q3, or do you expect it to mostly be done in Q2?
spk03: Yeah, thank you, Cam, and good morning. So, yeah, we had a very strong inventory build in Q1. I think, as I mentioned earlier, $659 million. It's all tied to investing in our aircraft that we're going to be delivering this year and next year. So, I mean, we are going to have very strong inventory release later in the year. The profile for the year will be similar to last year with investment in the first three quarters. but with improvement in the amount of investment Q2 over Q1, and again, to a lesser extent again in Q3, with a very large release in Q4. We have a a delivery profile for the year that is similar to last year. I think about 40% of our deliveries were in the fourth quarter of last year, and you would have seen very, very strong free cash flow from the company. So the profile will be quite similar. And then in 2025, looking forward, we're hoping for, not hoping, but we're planning for improvement, a bit of improvement on that profile as we continue to work through the supply chain challenges.
spk09: Okay, that's helpful. And just to just to follow up on that, on 2025, just as far as working capital investment, and you've talked about the global deliveries being, you know, higher in 2025, is the most of the investment you're in, you're in working capital this year to kind of support 2025 deliveries as well? Or should we anticipate there's going to be additional working capital investment into 2025?
spk03: Well, the investments this year are for both deliveries that will occur in 24 and 25. The order activity in the first quarter, we had 32 net orders, 32 gross orders, no cancellations. And it was biased towards the order activity, as we mentioned, was biased towards the global platforms. We do expect that to continue through the year. We've been clear that 25, we believe, will be a a strong year for global deliveries, and we'll get into more of that next week when we're at Invest Today.
spk09: Okay, that's helpful. Thanks very much.
spk03: Okay, thanks again.
spk00: Next question will be from David Strauss at Barclays. Please go ahead.
spk06: Hi, good morning. Thanks for taking the question. This is actually Josh Korn on for David. I just wanted to follow up on the margin question. I know aftermarket was very strong, but could you break out a little bit of what drove the margin improvement between pricing, mix, aftermarket, things like that? Thanks.
spk03: Yeah, good morning, Joshua. It's Bart here again. I'll try to be as helpful as I can here. Some of the items we don't guide on, obviously, but I would say across the board for our company, we saw improvement in margins. It came in aircraft sales prices. It also came in the aftermarket in a very strong way. We saw a nice margin expansion on that business as well as very strong growth in overall revenues. So those were the two main things. contributors as well. We continue to manage our costs as a company very, very well and in our operations. And I give full credit to the operating teams for their contributions as well. So it's really kind of across the board when we look at where the benefits came from.
spk12: Are you still there, Josh? Thank you. Just one for me. Okay. Thank you.
spk00: Next question will be from Miles Walton at the Wolf Research. Please go ahead.
spk11: Hey, good morning. I'm from Miles.
spk12: Good morning, Lloyd.
spk11: Bart, you talked about the $700 million of cash usage in the first quarter. Just curious, when you sort of gave that guidance, were you assuming such strong advances in the quarter and progress payments, I guess?
spk03: We were. I think as I mentioned earlier, we're actually right on plan for the first quarter for both the amount of working capital build as well as the advances. We were anticipating strong global order activity. We saw it beginning ramping up more in the fourth quarter of last year and just looking at our sales pipeline more forward through this year. We were anticipating strong global activity. Obviously, there's higher the price of the aircraft, the higher the deposits up front. So that was impacting our advances in the quarter. And so we came in basically right on plan. Our budget for the quarter, in fact, our result was only a few million dollars different than our budget for the quarter. So It's part of the value of our business and having a nice backlog as well. We can really have strong predictability into what our free cash flows and financial performance is going to look like.
spk11: Okay, great. Thank you for that. And just one quick follow-up. Were you guys impacted by Canada's recent sanctions on VSMPO?
spk12: No, not at all. So we're not...
spk11: All right, great. Thank you very much.
spk12: Thank you.
spk00: Next question will be from Benoit Poirier at Desjardins. Please go ahead.
spk04: Good morning and congrats for the strong start for the year. My first question is on the booking. Could you maybe provide more color about what's driving the strong booking activity, especially versus peers? You made some comment about the global, but if you could talk about Also, some region following some comments by your main competitor over the last few days. And also, how's the booking trending up so far in Q2?
spk02: Yeah. Okay, good morning, Benoit, and thanks for that. That's a great question. You know, I don't know. I cannot comment for the other OEMs' performance, but I know that, you know, we are extremely proud of our product offering. The product offering we have the performance of the airplane, the reliability of the airplane, the cabin comfort are things that we've been working diligently over the last few years to make sure that we keep our product, you know, always attractive. I think we are, you know, there's a recognition clearly out there just looking at the fleet, you know, operator behavior, you know, which majority choose our airplane, you know, on the medium and large segment. is also a testimony over our product. So I think, you know, we've also made some strategic decision, you know, about a year ago and, you know, in line with the geopolitical situation in the world right now that is more complex than ever to redeploy some of our sales team member in different region where we thought there will be definitely a, you know, some movement, positive movement in terms of in terms of sales. The other one I need to comment on is the defense business. It was a part of our success also in Q1. We had a nice order also on the defense side. I think our strategy is building up. The quarter that we just completed gives us great comfort you know because as bart said we're right on plan everything that happened in q1 we're expecting it there's no surprise so uh it's actually in line with our plan to meet the guidance this year we still feel very we still today feel very comfortable about next year we'll give you more detail when we're together on may 1st but you know the the thing that we've done over the last four years to prepare for that strategy you know grow services is definitely giving us some good benefit. The defense business structure that we've put together, we see the benefit in the quarter. The great news is we see it from quarter to quarter. I think we're getting benefit from the strategic positioning we've done over the last couple of years. The product also, I think we've been careful. We've put our dollar where we felt we had a significant return in the investment. You know, the Global 8000 is an example. The Challenger 3500 has been extremely successful. When you look at that platform last year, we had about a share of almost 50% of the market, despite we have three other competitors. So I think we're marching towards what we said, and next week we'll be giving you even more view on the future.
spk04: That's a great call, Eric. And just for the follow-up question, when we look at the used jet inventory, it's sticking up slowly but still remains well below historical levels. Any thoughts about the market dynamics? I've been told that the increase is largely driven by older planes that less compete against new ones. So I'm just wondering how is pricing on new jets these days, maybe the market dynamics with the use inventory and whether it becomes a driver on your CPO business?
spk02: No, that's a great question. And I think to your point, we still have historical low level of inventory, despite that they went up since 2022. But you're absolutely right. And I was going to say that older airplanes are available on the market. But, you know, if you're looking for an airplane that have like five, six, even less than 10 years, it's more difficult to find one. There is, but it's more difficult. So people are coming towards, you know, new airplane and low inventory remains more expensive, too, because there's just a few airplane that are in that vintage of less than 10 years old. So we see advantage, of course, on the new airplane business. And at the same time, you know, we are out there and we're being opportunistic, you know, buying airplane that we think we can improve their value and generate some sales. And that business has generated some sales. some good work also in Q1, and we have line of sight for the rest of the year. So overall, again, it's a strategy we've put together. Strategy is working, and we feel very, very comfortable here with the level of inventory that we see in the market out there.
spk04: Okay, thank you.
spk03: Hey, Ben Watts, if I could just add one other thing to Eric's comments, one of the other Leading indicators that is pointing towards strong activity and being very supportive for our sales activities is flight hours. For Bombardier aircraft, we saw year-over-year increase in flight hours in the quarter, up by another 7%. The fleet operators, who we are obviously very strong partners with, are up 54%, I believe, since 2019. And we're seeing growth in flight hour activity in basically all markets around the world that we participate in for Bombardier aircraft. So that's just another factor that's being really supportive for us in our efforts, and we're very pleased.
spk04: Okay. Thanks for the time, and see you next week.
spk13: Thank you. Thank you.
spk00: Next question will be from Tim James at TD Cowen. Please go ahead.
spk10: Thanks. Good morning, everyone. You mentioned, Bart, that aftermarket, obviously we've seen the good revenue growth, but you mentioned also nice margin expansion in aftermarket markets. Could you talk about what's driving that or is it really just as simple as increasing the utilization and all the investments that you've made over recent years? And that's just sort of naturally giving you a bias higher in the margins in that business.
spk03: Yeah, Tim, good morning. A great question. You're kind of jumping into next week's topics, but to just give you a little bit of color on it. You know, we invested heavily in expanding our footprint and our global facilities and they came on stream and mostly in 2022. It does take a little bit of time to operationalize those facilities, even though they filled up right away. And we've got record levels of Bombardier aircraft in those facilities around the world. It does take a bit of time to optimize the workflow and get the teams working at productive levels. So we've been anticipating seeing some margin expansion on that front. It's starting to come through, and that's accretive to our margins. The other thing is part sales is very key, and we continue to see very strong part sale activity, much more of which we control now because of our growth. in the percentage of aftermarket that flows through our business. And that's been key as well to margin expansion. So those two things combined, I think, are going to continue to drive the business forward.
spk02: I think if I may add to Bart's comment here, I think by now you know that I love that business and we've been growing this for the last few years and that was our view that this will, as long as I can see in front of us right now, the install base, is growing, it's maturing. And at the same time, it's going towards, you know, platform and packages that have more revenue. So as an example, you know, the install base today, which, you know, has about 5,000 airplanes. There's about 50 airplanes retiring a year. They're mainly Learjet. Smaller work scope on maintenance, but they are being replaced by new airplanes that are more medium and large size, which require, of course, bigger package of maintenance. So just by... you know, our delivery profile and the decision we've made of being in medium and large, you know, we see a clear improvement for us in terms of seeing, you know, that the install base growing, but growing also with a product mix that is favorable. And on top of it, you know, of course, some of these airplanes are flying. And if you had one last thing, the fleet operator, which we're very successful with, are flying much more than any other airplane that we are delivering. So this is a nice place to be, and we foresee that growth for a long period of time.
spk10: Thank you. And then my follow-up question, and again, maybe I'm getting ahead of myself next week as well, so feel free to rein in the question here, but How do I not get more constructive on margins? I just, you know, as I look at this quarter and the deliveries and the delivery mix and then the margin performance, which Eric, you called out as being very happy with. And I just think about what, you know, is happening going forward. Maybe the question should be, is there any particular headwinds to margins that that maybe we're not thinking about or aren't as obvious that will maybe limit the sort of remaining margin expansion opportunities that you have?
spk03: Yeah, it's a great question, Tim. For us, it's not a question of margin headwinds per se. It's more what you're seeing in this quarter in particular is a mix of revenues between aftermarket and particular markets. and the rest of the business. 37% contribution from aftermarket on the revenue side is that business kind of punching above its weight. We had 20 deliveries in the quarter, which was basically right on plan, but we're also going to have delivery growth quarter over quarter, next quarter as an example. So that will impact margins in Q2. But overall, though, for the year, we're continuing to expect margin expansion as a whole. Our aftermarket and defense businesses in particular are going to be strong contributors to that. Those are the things we want to talk a bit more about next week, so I'll just end my comments there.
spk02: I think if I may just add, Tim, one comment here is a bit like I said in the previous question, if you look forward, think about five, six, seven years down the road, we clearly have plans and we've been successful so far to grow services and defense. As you know, these businesses are very positive for us in terms of margin. And the piece of the pie that these businesses will have in the future will be bigger and bigger.
spk12: I think that's how we need to think about that. Okay, great. Thank you. Thank you. Thanks, Tim.
spk00: Next question will be from Karnat Gupta at Scotiabank. Please go ahead.
spk07: Thanks, and morning, everyone. Good to see a pretty strong order activity in Q1. So maybe I can just follow up on that order side of things. Book-to-bill 1.6, pretty strong. Obviously, there's a mixed effect here given your deliveries in Q1, but even the absolute orders look pretty good. But going forward, should we not expect the book-to-bill ratio to remain above 1? as you expect, and I'm talking both the unit and dollar basis, as you expect good continued order activity on globals. However, in terms of deliveries, you expect more challenges this year. So it seems like the mix is skewing the book to build toward one plus at this point, perhaps, you know, not one or below one. Any thoughts?
spk02: I think on the long run, Konark, and thanks for the question, we We have our plans made with a book to bill of one. And I think we've said that before. That's how we're planning. And as you know, there will be time where it's going to be higher than that. And there could be time where it's going to be lower than that. But we foresee on average to be at around one. It's going to depend on the market. It fluctuates. But on the long run, we'll be at one. What the beauty is today of our situation is that we can manage it with the length of the backlog. So if we have a bit less, then, you know, our backlog could decrease slightly. If it's better than our backlog, as we just foresee in Q1, will grow. So overall, you know, I think it's a very realistic plan. History, I think, shows that it's quite possible at one of backlog, you know, for a long period of time. But that's how we're looking at it. And we know from quarter to quarter, there'll be some plus and minus. But overall, the longer trend will be one.
spk07: Okay, that makes sense. Thanks for that. And then if I can follow up on the supply chain. Sorry, one more question on supply chain pretty quick. You talked about the challenges continuing, which is why you have to build sort of more inventory this year in the first half. Any thoughts on the challenges with respect to maybe, you know, the engine makers or your engine suppliers, perhaps GE, et cetera, they are having issues on the bigger ones. What's your sense on how soon can those resolve?
spk02: Yeah. This is clearly one of our top monitoring items. The good news today is I think when we look at our shortages, parts missing, we reduced them by over close to 60% last year. So there's fewer issues, but some of the issues have been, I will say, a bit stubborn. They've been staying there, mainly with engines, as you just mentioned. So the good news, I would say, is at least one of them is in much better shape, one of the OEM, another one has traction. So we're seeing traction in their plan to recover. We would like them to recover, of course, always much faster, but they're recovering. That's the good sign. And I think this is what we're working on. We're working at the highest level in all these organizations to make sure that our teams have the support that we see issue coming up earlier, and that we're fixing the problem once and for all so that they don't occur anymore. But there was a lot of things that still need to be fixed, but the good news is we're getting traction and we see improvement in the plan, which gives us confidence that we can achieve what we said we were going to achieve this year, and we're getting ready also nicely for what we're planning to do next year in 2025.
spk13: I appreciate the answers. Thank you. Thank you.
spk00: Thank you. And our last question will be from Jay Singh at Citi. Please go ahead.
spk01: Hey, thanks for taking my question. It's Jay dialing in for Stephen Trent. My first question is, and actually it's my only one, but some of the U.S. airlines express concern that flight rules and priority goes to private aircraft movement over commercial aircraft movement, especially in places like Florida. So do you think there could be any regulatory developments on this side, or should we just assume this will remain status quo? Thank you.
spk02: No, I think, you know, there's quite a bit of discussion. There will be some movement, I'm pretty sure. But I still believe, you know, that private aviation will reside somewhere. There's discussion, you know, about, you know, dedicating airport in different cities of the world for that kind of application like business aviation. So I guess there will be some movement. I don't anticipate, you know, things being static as they are right now. But we do foresee that, you know, people have a need to travel, you know, with business jet. Business jet is... you know, use for all kinds of needs, you know, that are super important. And I think they will have room always to land these airplanes and let them take off.
spk01: Excellent. Thank you so much.
spk13: Thank you, PJ.
spk00: Thank you. At this time, I would like to turn the call back over to Eric Martel for closing remarks.
spk02: So next, as we mentioned, our investor day will take place at our Pearson facility next week. Bart, the leadership team and I are looking forward to spending quality time with you. I also know the local team on site is so proud to show off their new home that they will be waiting for all of us. Overall, it's been an exciting start of the year. While our brand has a new look and feel, our commitment to product and service remains the same. We are committed to continuing to deliver products and services that are at the altitude of our customer and stakeholder.
spk13: Thank you again.
spk00: Thank you, sir. Ladies and gentlemen, this does indeed conclude the conference call for today. Once again, thank you for attending. And at this time, we ask that you please...
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