Bombardier Inc.

Good morning, ladies and gentlemen, and welcome to the Bombardier second quarter 2026 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.

Thank you, guys. Thank you, sir.

Your next question comes from Fadi Shaman from BMO Capital Markets. Please go ahead.

Thank you. Good morning. Good morning, thank you. So you talked about demand outgrowing deliveries. I wanted to ask you, where are you in the plans to expand output, specifically on how should we think about the timing of that expansion in the delivery output and the magnitude, like what level of production is currently supported by the backlog or the demand picture that you see out there?

Yeah, that's a great question and a question we're debating here every day. But we have to be mindful of that. The backlog is there, the potential is there, and I can probably easily convince myself to increase the rate across the board. But we have to approach it in a... Thank you very much. Thank you. And that's why, you know, we've already announced, you know, and if you come to our manufacturing site in Montreal right now, we're building a new facility. It's actually progressing very well to exactly do that, to have some capacity. So we've been selective and it's in the context also that we know as an industry that there is supply chain constraints. So I need two things basically with the team to make that decision is first, We foresee a long-term demand for that product. And the second one is, you know, that the supply chain is capable. And we've taken, I would say, a more careful approach there that we probably did in the past. Like, you know, the one we're increasing now, we've studied it for more than a year probably. And we have other opportunity that we haven't made a decision yet. But it's based on those two criteria. It's a long-term play, so we see that we can increase and keep those rates for a while. And the second one is, can the supply chain support us properly? So we've been prudent. We're trying to give more time to our supplier to ramp up also, even more than what the contract says. And it's just being careful here. So we are building, we are increasing capability right now, and this has been mentioned publicly. And there's a few other things we're working on right now and evaluating.

And just to follow up on that, you know, you're clearly having kind of a very strong year for advances and bookings. Bart, I wanted to ask you, usually when you have this situation, you have some kind of investment in working capital supporting production increases or higher output. Is there a way for us to think about what kind of cash flow do we look through into 2027? How to think about really kind of more normalized run rate of free cash flow performance? Clearly, this year is going to be a very strong year given this demand and the advances in growth security. I just want to make sure we're cognizant that some of these advances have to go into inventories at some point, just if you have any color on that.

Yeah, good morning, Fatih, and thanks. Yeah, so we did grow, to your last point, we did grow inventory in Q2 by over 400 million. That's to support what's going to be a very active delivery quarter in the fourth quarter. We'll have a fairly traditional delivery quarter here in Q3, and things are going well from that point of view. If you think back to our, to just try and help frame up a bit of an answer to your question, if you think back to our guidance when we first set out, you know, five, six years ago now, we started with a view that we had a book to bill of one time, so we're going to get to about $500 million of free cash flow by last year. We increased that to $900 million a couple of years into the plan, and that's based on a book to bill of one. So mix is obviously very important in that, as you know, because one global 8,000 is the equivalent of three or four 3,500. So mix is important. But as we're sitting here today with earnings growth happening each year, that does mean that beyond $900 million of free cash flow per year in a normal planning environment of a book to bill of one is a reasonable expectation for our company in the future and currently as well. This year, we're one and a half times book to bill in the first half of the year. So obviously, the customer advances are allowing us to perform on free cash flow above what would be, I'll call it a more normalized environment. So hopefully that gives you a bit of a sense of what we're talking about.

And again, also, Fadi, if I may add, it's the diversity of our portfolio today, having the services business, but also the defense business. I mentioned earlier, you know, a lot of the things you hear in the news today about, you know, countries buying airplanes, there's not even a firm contract, you know, for our partner. And those will translate probably not even this year, but probably later next year or maybe even the year after into real backlog for us. And of course, which comes with advances and payment. So, So to echo what Bart said, we feel pretty good about the future also on cash flow.

Thank you. Thanks, Fadi.

Your next question comes from Benoit Poirier from Desjardins. Please go ahead.

Yes, thank you very much, and congrats for the results this morning. Just to pursue on the strong free cash flow generation, when we look at your balance sheet, you end up the quarter with a leverage of 1.6 times, which is closer to the bottom end of the range, while we know that there's a seasonal free cash flow buildup upcoming in the second half. So any progress on discussion around capital deployment,

Yeah, Ben Y., great to hear from you this morning and thanks for the question.

I'm going to echo comments we had and made with our board that this is a great problem to have, to be sitting on a very strong liquidity and cash position. I think what it allows us to do is to Thank you very clearly about how we want to deploy that capital in the coming months and years. Not only in terms of investing in our business and our growth and our portfolio, both organically and inorganically, but really turning our attention towards return of cash to shareholders as well. So we're actively investing Reviewing all of that right now, we have a number of opportunities. We have a very strong organic growth profile that will require us to spend some money, particularly to support production growth that is coming. And we've already started to invest in. And the timing of when we want to start talking about that more is early next year. So we're planning our next investor day. We're working through all of the details, and that's the timing of when we want to come back to the market and give you more color and clarity on that.

That's great color. And maybe just in terms of follow-up, aftermarket also a strong performance at 14% year-over-year. It looks like that aftermarket growth is maybe a little bit above expectation. So any thoughts about what's driving this? Obviously, the number of hours and what kind of expectation we might be looking at going forward. Thank you.

Thanks, Benoit. Merci pour la question. Hino Services has been amazingly, on an amazing growth path, as you know, since we started to carefully look at it in 2020. And, you know, we had a very simple strategy, but we executed that strategy nicely, which was increasing our footprint, bringing more customers to come to us, and, you know, what we've seen in Q2, we see a very similar trend going forward this year. The level of activity is very strong. And you pointed out, you know, the airplanes, again, are flying 5% more than last year worldwide. And I have to highlight, you know, the main, you know, the Challenger is 7% up, the Global is 8% up, actually, compared to last year. So our two main platforms are performing extremely well. And the fleet operators are also doing amazingly well this year. So the demand is there. I think it's a reflection. You know, we've talked earlier about wealth creation. People are flying more and more private. You know, this is why there's pretty much no pre-owned airplane available on the market. Our backlog are full and people are flying. Those that don't have their plane, they're chartering the airplane of their friends or somebody they know. It makes the demand for services going up and up. Again, 14% compared to last year. I will admit it's higher than our expectation, probably at the early of the year. And again, we're one month into this quarter already, into Q3, and the demand is pretty strong. So we've been excited about that business for the last six years, and the possibilities are remaining very, very strong ahead of us.

That's great, Calder. Thank you very much for the time.

Merci, Benoit.

Your next question comes from Tim James from TD Bank. Please go ahead.

Thanks very much for your time. Good morning. I'm just wondering, Éric, first of all, if maybe you can talk about M&A as an investment opportunity here. What areas of the business, or maybe you can just update us on what areas of the business you would be considering, you know, in terms of Thank you very much. Thank you.

Pat, you know, we have growth, you know, potentially producing more VIP airplane. Defense is also, you know, a path, and services, as we just discussed. So clearly, there's a possibility for us, if I look at services, you know, we do pretty much, you know, the organic growth is very solid, as you can see. But there is also possibilities for us to do things that we don't do today on our plane. and go, you know, have more penetration into the maintenance market. And maybe the best way for us to get there could be by acquisition. So, you know, we're going to be very disciplined about this. You know, we need to make sure that it's not dilutive to our business. but clearly there's possibilities out there that we are considering that could be incremental to our revenue, to our profitability and improving basically our performance. So we're going to look at those. We know the maintenance world pretty well and we foresee some options there. Same thing I would say in defense. We mentioned earlier on this call that we look at starting something greenfield in Canada right now. you know similar something that we know because as I said it's not new because we already do this but there could be also a ways to get there faster maybe elsewhere in the world also from some possibilities to do modification as an example and get there by acquisition and again it's going to be a question you know Bart and I and the team will look at it to see you know what's the best path for us and, again, we'll look at M&A opportunities that are incremental and definitely not dilutive to the opposite, you know, that will make us even in a better profitable situation.

Very helpful. Thank you. My follow-up question, looking at the delivery cadence, you're laying out a heavy fourth quarter here. Can you tell us if or give us a little bit of your thoughts on how much of that heavy Q4 weighting is referenced for that time of year versus your own ability to get aircraft produced and delivered and whether it be due to supply chain issues or just other internal restraints. I don't understand the drivers behind that heavy Q4. Maybe as a part of that question, you know, Thank you for joining us on the call this morning.

There's definitely seasonality in our delivery profile and cadence. Part of it's delivered or based on vacation times, believe it or not, but it's true. We're more active in in the second and fourth, much more active in the second and fourth quarters when it comes to sales activity and deliveries generally, typically for our business. Q4 does attract a higher number of requests from certain customers, particularly those in the US who can benefit from accelerated tax depreciation. So taking delivery in Q4 for those customers, some of those customers, are all very desirable for them. So that does skew things a little bit to the right into Q4. And then I think the last number of years, as an industry, it's not just a Bombardier thing. If you look at everybody's delivery cadence in the fourth quarter, it's higher than it has been traditionally because we've all been dealing with supply chain challenges as materials that are needed to finish aircraft and get them into customers' hands. sometimes are coming later than we would have expected. We've all talked about engines, APUs, et cetera, as being things that have been late to line. That does mean that there's more deliveries happening in Q4 than traditionally. To offset that, what we've done is through contracting terms, we've made sure that progress payments from customers are very well balanced throughout the year, so our free cash flow profile is less seasonal than it has been and much better. and as the supply chain does improve over time, and it has improved already, we'll be able to cloth back some of that and even out the delivery profile. But Q4 will always be heavier. I've asked everyone around this company since I joined six years ago, how do we change this? And the reality is that people who've worked here 30, 40 years will tell you it's always been this way. So we do our best to meet those challenges, but there will always be more deliveries in Q4 than other quarters.

That's helpful, Bart. Thank you very much.

Thanks, Tim.

Your next question comes from Christa Friesen from CIBC. Please go ahead.

Hi, good morning. Thanks for taking my questions. Maybe just to your earlier comment about Q3 metrics being relatively similar year over year, just as we think about the margin, assuming you're referring to EBITDA margin as well, taking into account that your services business continues to be quite strong here, what are some of the puts and takes we should take into consideration for that margin being flat on a year over year basis?

I think, and good morning Krista, thanks for joining us on the call and thank you for your question. Last year, actually early this year when we came out with guidance, we did mention that we believed our margin profile for the year was going to be relatively stable to last year's margin profile. There's a few drivers of that. We're again growing inventory to increase production. Éric talked about that. We are ramping up deliveries in the second half. Last year, we had a very strong delivery profile for defense. If you recall, I think we delivered 11 aircraft in the fourth quarter alone. 11 or 12. And that's basically what we would have expected to have for the full year. So it was a very strong delivery year for defense aircraft. We're going to pull back from that just a modest bit this year. So you're going to see a bit of a different mix in the third quarter relative to the prior year. and you know and aside from that you know we are growing those parts of our business as you mentioned aftermarket services in particular that have a stronger margin profile. So we're looking beyond 26 to begin increasing margins again as we start to deliver or continue to deliver a strong number of global aircraft but a growing part of the defense business and continued growth of aftermarket. So Q3 year over year is looking exactly as we had expected. No concern from our perspective at all on the margin profile.

Thanks for the color on that. And then maybe just to follow up on the previous question around services and the M&A opportunity there, what sort of competition do you see in the market for acquiring some of these businesses? I'll leave it there.

I think right now there is some. I think, you know, we do foresee, though, that we could be seen as a strategic partner and bring things different, you know, so I think we have that capability of, you know, we have volume and in any day, you know, we have on the rest of airplane in our network, which we could direct the work pretty much to a to a potential acquisition and partner or purchase. So I guess this brings value to quite a bit. So that's how we're thinking about this. There is some, but I would say I think we have an advantageous position in that regard.

Thank you. Thank you so much.

Your next question comes from Kevin Parsons from UBS. Please go ahead.

Thank you. Good morning. Good morning. Good morning.

Just to make sure I'm clear, did something specifically get worse in the supply chain in the first half? Is there anything that needs to unlock for that heavy 4Q delivery?

I would say the challenge was slightly different. You know, I would say it's a good news and bad news story. We had a You know, some of the challenges we had before were like there for a long time and took a lot of time to fix. I would say the great news today is that some of those are completely behind us or have improved significantly. What we've seen were kind of one-timer issue, I would say, that, you know, have affected us, but they are being fixed very rapidly. So, you know, they're not going to just carry on. So a bit of a different type of issue, but I would say with probably even a bit less impact. So that's why it makes us confident in terms of delivering what we have to deliver this year.

Thanks. And then a higher level question. I mean, as As fleet operators become a bigger portion of demand, I'd love to hear your thoughts on just the puts and takes of that, the pros and cons.

These guys are very significant and are becoming more significant in a sense that if you look at flight hours on our plane since 19, they're the biggest driver of growth overall in terms of hours flown. We've mentioned wealth creation earlier. There's a lot of people that have enough wealth to be able to fly privately with the fleet operator. There's different programs, as you know, there, and they choose the one that fits their needs. Not everybody needs to fly a couple of hundred hours a year, so that market is very significant and it's growing. And as you know, I think we are extremely well positioned, Bombardier, and I think there's a couple of reasons. You know, we've been selected for years by the main fleet operator and even the new one, you know, we've mentioned, you know, a few names earlier of new operator and they're selecting Bombardier, I would say, for a couple of reasons. The first one is the known reliability and performance of the product, okay? But I think that even the biggest differentiator for us is our ability for our support and services, you know, because it's great to have a plane, but when you fly all around the world, you know, and you're in the middle of Africa or Asia and you need support, you know, it's easier to support the plane when it's in Teterboro, for example. There's a lot of activity there and everybody is there. But we've developed that skill set, Bombardier, of fast turnaround anywhere, you know, having parts availability. You know, we forecast our parts with using AI, and our forecasting process has become more and more precise, you know, for what parts we need and where we need it. And I think it's a real differentiator, and I think that the fleet operator, which are well, you know, Most of them, you know, and they're all well-educated on the market and that the importance of supporting operation, I think we have a huge advantage there compared to everybody else. So I think this is why we've been selected, you know, more and more by fleet operator. and that we are well positioned. But it's great because we do foresee these guys keep growing quite significantly in the next foreseeable future.

Thank you, Éric.

Operator, we'll have time for one last question.

Perfect, thank you. Your next question comes from Ron Epstein from Bank of America. Please go ahead.

Yeah, hey, good morning, guys. Good morning. Good morning. You covered a lot of ground. You know, one topic I'm always interested in is on the defense side, and there's a lot of interesting stuff swirling around, so I just want to get your take on it. If Canada were to make a decision to buy Gripen, would there be work there for you guys in your defense business to do some assembly in Canada? That's one. and then two, over at Farnborough, Canada became an official observer of the TCAP program. And if Canada were to firm up more interest or something on TCAP, is there potentially work for Bombardier on the TCAP program? Be it that, you know, the logic being you are essentially really the only airframer that does much volume in Canada in defense markets. I guess Airbus is across the tarmac there, but they're doing commercial planes. Any commentary on that would be hugely appreciated.

No, I think this is a great question, and I'm being asked that question even in Fondreau a week ago. You know, the way we're thinking about this is, you know, if ever, and this is hypothetical, the government of Canada would select the grippin', You know, especially that Saab has been a long-time partner, if they would need help, I think we would be helping. But we feel also that there is a lot of other people in Canada that could be able to do the assembly. So I said that publicly, you know, when I gave an interview in Farnborough. I feel that, you know, just for us, doing assembly is not, you know, of great interest, I would say. But again, if there is work, part of that assembly, you know, a major structure that we're the only one capable of doing in the country and they want to be in the country, we could definitely support them. To your question on GCAS, yes. I'm definitely interested. I'm happy that Canada is at the table now. And you're right. And it's a different thing here because we have engineering capability, as you know. For us to be part of these programs, there's always things you learn. New technologies are being developed and it's of interest for us to be interested by that. and also, you know, see if we can have a role in the future. You know, this is a very significant project. So I think clearly Bombardier could have an interest in being interested, providing engineering resources and support to the program and learning from this. And then after, you know, if ever opportunities arise that are of interest, we could definitely get into this sphere.

Great. Thank you for that. Thank you, sir. Thank you, Rohana.

I will now turn the call back over to Mr. Éric Martel for closing remarks.

So to all of you, thank you for joining us today and also for the continued support and interest in Bombardier. So before we sign off, I just want to highlight the publication of our latest sustainability report also and our environmental product declaration of the Global 8000. which also reflect the progress we continue to make in an area that remains an important part of the long-term vision of the company and the impact they generate also in the industry. So as for the remaining weeks of the summer, I can tell you that the Bombardier team will be hard at work preparing for what we expect to be a very active and also exciting second half of the year. So thanks for joining us today.

Ladies and gentlemen this concludes today's conference call. You may now disconnect. Thank you.