Bombardier Inc. (BBDB) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Bombardier Third Quarter 2023 Earnings 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 de La Fleche, Vice President, FP&A and Investor Relations for Bombardier. Please go ahead, sir.

Good morning, everyone, and welcome to Bombardier earnings call for the third quarter ended September 30, 2023. 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 the call. With me today is our President and Chief Executive Officer, Eric Martel; and our Executive Vice President and Chief Financial Officer; Bart Demosky, to review our operations and financial results for the third quarter of 2023. I would now like to turn over the discussion to Eric.

[Foreign Language] Good morning, everyone, and thank you for joining us today. I am pleased to share that Bombardier had an excellent third quarter, powered by exceptional performance on all fronts. The strong results we will review today demonstrate that our plan is working and continue to position us for sustainable and long-term success. These results also show the underlying strength and the resilience of our business as well as our ability to deliver on our commitment in any marketplace. Our aircraft consistently meet market demand and position us favorably around the world. Our services are growing with a solid and consistent CAGR. And finally, both our top and bottom line performance has grown year-over-year. I also want to highlight the incredible work our teams accomplished throughout the quarter. We executed the plan and performed very well in a dynamic business environment faced with geopolitical headwinds. Our rigor and focus have enabled us to record a remarkable revenue increase of $401 million or 28% year-over-year and put a cash positive quarter on the Board. Taking a step back, these results come after a series of consistent years of Bombardier that led to the company being ranked on the TSX study. This prestigious recognition highlights the top 30 performing stock over a 3-year period ended June 30, 2023. Over this time, our share price grew by 522% while our market cap increased by 533%. This is quite an accomplishment. While we know the share price has been more volatile and pressure over the past months, the TSX30 ranking demonstrate that we have set the right foundation to deliver impressive returns. We are confident that our plan will drive long-term shareholder value. This is a testament to our team's hard work and especially the disciplined leadership from Bombardier's group. Bart will go into the detail of this quarter's results in a few minutes. But first, I would like to walk you through some key highlights. Profitability remains a priority of our team and continues on a positive trajectory. Our adjusted EBITDA rose by an impressive 36% year-over-year. Consistent with the previous quarter, this double-digit growth is largely driven by improving operating margins, a higher contribution from our market aftermarket business and diligent cost management. Our services team continue to play a key role as we execute on our commitments. They are driving significant and sustained revenue growth. In Q3, they recorded an 11% increase in revenue year-over-year. If you look at the last 9 months, we increased revenue by nearly 16% when compared to the same period in 2022. After a rapid and successful expansion of our service center network in 2022, we are now focused on operationalizing and optimizing our facilities. A more business keeps coming through our new sites, our teams remain active on the recruitment side to ensure we have the workforce to bring more and more of our jet home. The aftermarket team also continued to put customer satisfaction at the forefront and is taking concrete actions to ensure we deliver an exceptional experience. To that end, we recently launched a new smart services lead program, the most comprehensive cost per flight hours offering. Turning to the preowned market. Our certified pre-own program keeps drawing attention by offering a premium product. With this program, Bombardier created a new segment within the market and an OEM-backed option for clients looking for Creon jet. We meticulously update each of these planes and leverage the expertise of our service center to present our clients with a turnkey product. We presented a CPO aircraft to the North American market for the very first time at NBAA 2 weeks ago. The 2010 Challenger 300 we had on static display supported a new interior in fresh coat of paint as well as the latest avionic and connectivity offering. It's received a tremendous response from attendees and demonstrated once again the significant value of this program. When it comes to new aircraft delivery, we also performed extremely well, with 31 recorded during the third quarter, we remain on track to deliver more than 133 aircraft in 2020. On this front, I want to highlight the efforts from our team and the plans as we ramp up deliveries to end of the year, all while expertly managing the move into our new Pearson Airport facility without creating disruption to our deliveries this and next year. Overall, we have a good line of sight for the fourth quarter and everything is in place to deliver greater than 56 aircraft with some already behind us. Let me also acknowledge our supply chain organization, which has been instrumental in ensuring that we can meet our delivery objectives. When you look at what is going on across the industry, you won't be surprised to hear me say that the supply chain continues to put a considerable amount of pressure on our operation. However, while the global supply chain base is still under the strength of various disruptions and challenges, our team is very agile and is able to react to identified problems before they escalate. Thanks to their proactiveness, we have been very successful in mitigating challenges and keeping our delivery projection on track. Speaking of deliveries, our backlog remains solid at $14.7 billion, which translate into an order book that is averaging 18 to 24 months. On top of this, our long-term skyline includes more than 200 order options from large operators. We ended the quarter with a book-to-bill of 1.1, which provides us with the visibility and predictability required to look at the future with confidence. This is exactly where we said we would be. And I am happy with our [indiscernible]. We also benefit from a diversified customer mix, which, of course, includes large fleet operator, corporation and individuals, but also companies that are choosing Bombardier aircraft to expand their business and their fleet in a meaningful way. The most recent example is AB Jet space in Phoenix, who jointly celebrated the purchase of 3 Challenger 2500 jets with us in Las Vegas. This company is growing and has positioned itself well to capture demand from individual customer as well as from large fleets who sometimes require backup. These jets will be transformational for them as they open the door to a larger market segment in the super midsized space. Our Defense division represents another key example of our diversified customer base. Over the last few weeks, a number of important international defense shows were held in the U.S. and in Asia. Our global 6,500 aircraft gained a lot of attention and was put forth at the platform of choice for a wide range of missions. In fact, it was reported that the Sierra Nevada Corporation was selected to provide surveillance aircraft that are based on the Global 6500. This is the latest addition to a long list of programs that rely on our global platform to complete defense missions, including the successful Bacon platform operated by the U.S. Air Force for which we also announced last week the delivery of the 7 airplane. As you might have noticed, our platform are recognized around the world. Our Defense division is striving and demonstrating its profound expertise and flexibility with many large-scale modern as well as equipped on force. With that said, overall, we see steady order activity in a normalized demand environment. Our Q4 order pipeline looks robust due to continued demand for our challenger in global jets. Our increased profitability has allowed us to record a cash flow positive quarter and to generate $80 million. This convincing results puts us on track to deliver on our full year guidance of greater than $250 million in free cash flow for 2023. Our consistency in meeting our objectives demonstrate that we have the right business model to deliver strong results and outperform well into the future in any marketplace. We continue to stay focused on delivery of business fundamentals. And with the talented and engaged team we have in place, I am confident that we will continue to meet and exceed expectations. Now I'd like to invite Bart to share further information regarding our excellent performance over the last quarter and how it paves the way for success in meeting our full year guidance. Bart the floor is yours.

Thank you, Eric, and good morning, everyone. It's absolutely great to be here with you today. And I have to say that was one heck of a quarter we just had. When I take a step back and look at what we accomplished, our business is firing on all cylinders. To emphasize this point, let me share with you a few of the key highlights. First, we grew our deliveries by 6 aircraft this quarter when the entire industry has been struggling with an exceptionally difficult supply chain. Our revenues are up 28%. Our margins are up 100 basis points year-on-year. Our adjusted EBITDA is up 36%. Our adjusted EBIT is up 54%. Our year-to-date adjusted EPS is higher than last year by $3.91. And finally, our leverage is 25% improved versus last year and is now on the cusp of going below 4x, and we are generating free cash flow. Any way I look at it, this company is completely different than when this management team stepped in 3 years ago. And it isn't by luck. It is by design. It is a testament to our continued focus on managing things that we control most. We are managing our costs, ramping up our aftermarket and delivering growing aircraft margins. These actions ensure margin lift in all environments. For the full year, we remain on track to meet or beat all of our guided metrics, including aircraft deliveries. This will be the third year in a row we expect to meet our delivery commitments. Supply chain is difficult, but we are not using it as an excuse for missing our commitments. Looking at our balance sheet, available liquidity is strong at $1.25 billion, and our adjusted net leverage continues to improve. At the end of Q3, we are down to 4.1x net debt to EBITDA. And what is even more impressive is that we anticipate to be below 4x by the end of the year as we deliver our full year guidance. Looking at our debt maturities, we continue to monitor markets for the right conditions and remain opportunistic in our deleveraging approach. We have around 18 months until our next debt maturity, which leaves us with ample time and flexibility to act in the most beneficial way for the company. Putting all these pieces together, Bombardier has made significant improvements to its fundamentals. With higher and sustainable profitability, strong liquidity and a materially delivered balance sheet, we have built a company that is able to perform in all business environments. Let me now turn to the financial highlights for our third quarter. Our revenues were up by an impressive 28% year-over-year, reaching $1.9 billion versus $1.5 billion last year. Our aircraft manufacturing and other revenues grew by $364 million or 34%, the result of 6 incremental deliveries versus a year ago with a total of 31 aircraft delivered in Q3 of this year. On that note, I am very proud to say that at NBAA in Las Vegas last month, we celebrated the delivery of our 150th industry-defining Global 7500 aircraft. Our aftermarket business also saw impressive growth as revenues increased by 11% year-over-year, reaching $414 million. With the majority of our footprint expansion strategy completed and the ongoing operationalization of our facilities, we are aggressively focused on continuing to gain market share and grow the business at a high rate. Turning to our profitability. Total adjusted EBITDA for the quarter was $285 million, representing an adjusted EBITDA margin of 15.4% and an impressive 100 basis point margin expansion over the same quarter last year. Our adjusted EBITDA margin growth continues to be underpinned by improving aircraft margins, growing our aftermarket business, taking in the benefits of our cost reduction plan and the diligent management of our cost structure in a higher inflationary environment. Our adjusted EBIT totaled $193 million, up 54% versus the same period of last year. Our adjusted net income has also significantly improved to a gain of $80 million versus a loss of $2 million a year earlier, and our adjusted EPS came in at $0.73 for the quarter versus a $0.10 loss in Q3 of last year. As I mentioned on previous calls, in 2023, we have reached profitability levels where we have become structurally net income generative and we expect to see continued growth in these metrics in the future. Moving on to free cash flow. We generated $80 million of cash in the quarter. Our cash conversion bridge is quite straightforward. We delivered $285 million of EBITDA. And from there, we removed our cash interest cost of $75 million as well as $99 million in CapEx, the majority of which was to support the completion of our new global assembly facility at Pearson Airport. Working capital was essentially neutral in the quarter with additional inventory net payables built being offset by incremental events. With only 2 months left in the year, we continue to expect our full year performance to be in line with guidance. Deliveries are on track for greater than 138 and with 82 deliveries achieved to the end of Q3, we have a clear path to greater than 56 deliveries to go. Our unchanged delivery outlook and excellent aftermarket performance continue to support the greater than $7.6 billion in top line we expect for the year. So far this year, we have generated $772 million of EBITDA, and we have a clear path to reach our 2023 adjusted EBITDA guidance of greater than $1.125 billion. On free cash flow, we continue to expect to generate greater than $250 million for the full year. This implies a fourth quarter cash flow generation of greater than $639 million. Our cash usage over the past 9 months was largely driven by inventory ramp-up for which we expect to see a significant release in the fourth quarter as we delivered more than 56 aircraft. So to conclude, Bombardier had a very strong performance in the third quarter, and our entire management team is focused on delivering on our full year commitments. Above the quarterly results, we are very happy with the progress we continue to make on growth and our balance sheet, and we believe that we are in an excellent position to continue to perform and bring value to our stakeholders. Thank you very much. And with that, I will turn it over to Francis to begin the Q&A, Francis?

Thanks Bart. I'd like to remind you that Bombardier Investor Relations team is available following the call 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 up for questions. Operator?

My first question, returning to the aftermarket service business, very nice growth again in the quarter. I'm wondering, Eric, if you could maybe talk about the market growth versus the growth that Bombardier is driving specifically through new service center openings. Just trying to disaggregate market share growth versus just the overall growth in the industry and flying activity.

I think the growth we do observe right now comes from different form. I think, first of all, we clearly have growth because we've added about 1 million square foot last year, and we've been filling the capacity very nicely all across the board. But to your point, also, we see growth in flying hours. The growth in flying hours, of course, bring the airplane more often to our service center. So this has been a bit of a leading indicator also for us. And the reality is also our 5,000 aircraft out there are aging, too. So airplane, a lot of the global, a lot of the end, this is one thing we were planning for. A lot of the global -- or a lot of the challenge are coming to mid-life inspection or coming to 10-year inspection, which require quite a bit of maintenance. So I would say between our, of course, bigger offering, if I may say it this way, plus the flying hours that we've been observing increasing over the last couple of years, the fleet aging, I think that we clearly foresee that growth. And we're on target to meet what we said we're going to do for about $2 billion or greater in 2025.

And then if I could just follow up, the Global 7500, again, of course, cited as one of the drivers of your gross margin expansion. Could you just update us on where the company or that platform is specifically in terms of realizing full margin potential? How much still lies ahead or perhaps maybe just more of a time frame you're thinking about until that platform, those margins have really reached a full run rate, if I can call it that.

Tim, it's Bart here. We've had obviously a tremendous margin growth on the 7500 platform since we started delivering the first aircraft a number of years ago. The early part of it was really based on unit cost reduction, which we achieved fully about 18 months ago approximately. So we're now in pricing margin expansion. We are mostly through the launch aircraft pricing. We did have some strong aircraft sales back in 2019 and 2020. And prices have gone up a fair amount actually on the per unit basis since then. So we'll be delivering those aircraft in '24 and even into a little bit in '25. We expect 25 will be to full run rate on margin on the 7500 platform.

Next question will be from Walter Spracklin at RBC.

Great results, by the way. I was wondering if you could perhaps, Eric, speak to the cadence of demand. I know that's been a big question, Bart, out there for many as to whether you see any signs of weakening demand? I know the used aircraft delivery or used aircraft percent went up a little bit here. But as you go into a very strong fourth quarter here for deliveries do you think you can maintain a book-to-bill that ends for the year at above 1 and sustainable into 2024?

I think, Walter, the short answer is definitely we have a line of sight for a book-to-bill of one. The demand right now is very strong. Still, we remain positive and there's a lot of activity and quite around the globe actually. We have strong activity in North America. Europe, I was myself in Europe with the team a few weeks ago and quite impressive activity, especially on the large platform in Europe and also in APAC and even in the Middle East despite what's going on right now. So I have to say that we're pleased with the demand. People are still considering to buy the jet, and we have quite a high level of activity as we speak.

And as my follow-up question, Bart, you called it a heck of a quarter, and indeed it was. Just curious now that with the strength of the year-to-date in the third quarter here, whenever you have an annual guide in the third quarter, you effectively have a fourth quarter guide in place. And when I look at that, your trends seem to be meaningfully coming in above that. Is he aware of in the fourth quarter due to seasonality or any margin pressure that we should build into our models that perhaps isn't there right now to temper some of the fourth quarter given the full year guide that you have out there.

And as my follow-up question, Bart, you called it a heck of a quarter, and indeed it was. Just curious now that with the strength of the year-to-date in the third quarter here, whenever you have an annual guide in the third quarter, you effectively have a fourth quarter guide in place. And when I look at that, your trends seem to be meaningfully coming in above that. Is he aware of in the fourth quarter due to seasonality or any margin pressure that we should build into our models that perhaps isn't there right now to temper some of the fourth quarter given the full year guide that you have out there.

Next question will be from Fadi Chamoun at BMO.

Congrats on good results here. But I want to ask about the orders momentum going into Q4. It seems like you've been in that high 20 orders a quarter for the last 9 months. I know that seasonality typically going into the fourth quarter. But we're looking for orders of about 50 in Q4. Is that normal seasonality? Are you expecting Q4 to be stronger than typical seasonality? And if so, what's driving that stronger? Like is there a specific order that you feel strong about to meet that target for the year? That's one. And then follow-up is when we look into your bridge into 150 deliveries by 2025. How should we characterize that going to 24? Do we take a small step in ‘24 into eventually 150 deliveries by ’25? Is the supply chain organized in a way that helps you make that step up in '24 and into 2025?

Clearly, we've seen our book-to-bill to be around 1 so far this year. And there was a lot of deals that we've been working on and have been maturing towards the last couple of months. And right now, they are all lining up in a sense that we've started to work on contract. We've started to have the real conversation with the customer to close this deal in the quarter. So we've seen a bit of a profile of the pipeline maturing and it's happening in Q4. And I'm not just talking about traditional customer, but I'm talking also about some of the defense deal could be fleet deals. There's a few things that are lining up to happen in Q4. And to be able to support our book-to-bill and still have a line of sight for a book-to-bill of 1 this year. So that's what's happening. And when we look at the pipeline, there's quite a bit of things that we know will be happening into next year that are already being put forward in this quarter. It's actually pretty encouraging. The level of activity is actually very good.

And on the bridge to 2025 and confidence in the supply chain to make a step up in '20.

No, absolutely. As I've explained before and highlighted this morning, my team has done a tremendous job in proactively managing issue way before they hurt our assembly line. And again, I think, yes, we have some challenge. The team has been creative. I think when you look at what we're delivering today, we're still allowing to meet guidance for Q4. We pretty much have all our parts and everything already with us under the roof as we like to say here, to be able to deliver the airplane. So it's pretty much all under our control right now. And when we look at -- we already have visibility and working with our supply chain, especially engine OEM for 2024 and '25. So far, we do anticipate the supply chain to be able to support the growth we have. And we still see clear line of sight again also for our 2025 targets overall.

Next question will be from Cameron Doerksen of National Bank Financial.

Just a question around cash flow and working capital investment. Obviously, there's going to be the reversal of the inventory investment here in Q4. I know it's still going to be too early to talk about 2024, but I'm just wondering if you can just directionally talk about working capital investment needs as we move into next year. We're out of production right now that's a little more stable, but maybe incrementally higher in the next couple of years. What is the investment that's going to be needed in inventory to support that as we head into next year?

You're right. We did have a fairly large inventory build earlier on in the year, really over the full first 9 months with the strong delivery activity and pace of activity that we're going to have here in Q4, we're going to recover a lot of that. And so that's going to be driving a fair amount of incremental free cash flow in the quarter as well. So we're very positive on that. As we look into next year, as you can imagine, when you've got a quarter like we're going to have in the fourth where we've got so many deliveries, we will need to rebuild some inventory in the early part of next year. That will have a bit of an impact on our results. So you should anticipate that. As you said, it's a bit early for us to give you guidance. But directionally, that's how I would have you think about it in terms of model.

But as the way you think about structural levels of inventory, there shouldn't be a significant increase on a full year basis in 2024, maybe a modest increase? Is that how I should be thinking about it?

Well, there'll be -- you should expect to see some increase for sure. We're rebuilding inventory. And as well as Eric pointed, we pointed out, we believe we're right on track with support from the supply chain and our own ambitions and the sales order activity we have to grow to our targeted levels of around 150 aircraft delivery. That would imply some inventory build to meet that higher delivery target, both in '24 and '25.

Next question will be from Gavin Parsons at UBS.

I just wanted to ask on the backlog versus the unit book-to-bill. I think historically, that's been because you had so much visibility into the Global 7500. So I wanted to ask if you could share insight on how sold out that platform is and when you might expect to see orders refilling there that the backlog continues to grow with the unit book-to-bill.

We're actually very pleased with our mix of backlog. We've got 18 to 24 months of backlog across all platforms, including the 700. So we're in a good position when it comes to backlog. This past quarter -- and if you look at where we're at on a backlog basis, on a dollar basis, we're really about flat from the beginning of the year until today, which is what you'd expect in an environment of a book-to-bill of around 1. So that makes good sense. We did have very strong delivery activity on the 7500 platform in the last few years. And last year and coming into this year, we had very strong sales activity as well. And that's why the backlog on the 7500 has stayed fairly stable. Q4 is shaping up based on pipeline, at least today, to be another strong quarter for the 7500 platform. So we're comfortable where we are and feel really good about the position on the backlog for that platform and all of our platforms.

And then without maybe asking you to opine on how your competitors are treating their supply chain. And any thoughts on why maybe you haven't been as impacted as some of your peers?

I'm glad you noticed we're going to be delivering our guidance for a second year in a row. And I agree with you. I think I can pretty much say most of the other OEMs have reduced their guidance so far. But I think I said it earlier, my team has done an amazing job. And it goes back to -- I remember summer and fall 2020, making probably a very different decision than most of the people in the supply chain by adding people in the supply chain instead of reducing the workforce. Actually having people that are out there in the field working with our supplier to make sure they have the people to do the work. And if they don't then we were reacting. This actually translated in the last 2 years into us taking back some work or moving work elsewhere. We probably increase our population by taking work in by just about 500 in Montreal, another 700 in Mexico. So we took back some work in-house to make sure that our supply chain was reliable. We have people out there working with the major OEM even at the Tier 2 level, extremely proactively. As I always like to say, the sooner you know about an issue, the more chance you have to be successful in fixing it and not impacting your line. I think we've been managing this way for the last 3 years, very early when the pandemic started to hit and I think today and last year, we've seen the benefit of that.

The next question will be from Benoit Poirier at Desjardins Capital Markets.

Congrats for the solid execution in the quarter. First question, any color on the ability to get financing for this jet operators in light of this higher interest rate environment?

Yes, Benoit. A couple of things you mentioned the BizJet operators, but I would extend this to the actual purchasers of the aircraft as well who are not in the fleet space. But we see no impact whatsoever in terms of fleet operators being able to raise capital, whether that be through equity, through cash flow generation, the debt markets, we continue to see very strong fleet activity. As Eric highlighted, we announced a deal at NBAA just a few weeks ago. We've got a number of other deals in the pipeline. So we're seeing no slowdown there whatsoever. In fact, it's more of a growth story for the fleet operators, and we're very pleased to be partnering with them and helping support them. We did meet as we always do at NBAA a few weeks back with the various financing companies that participate in the business aviation space. All of them are seeing growth in their books. They're being very supportive of the industry. No signs of pulling back. In fact, to a group, they all said that they're deploying more capital into business aviation because it's been high performing for them. So no negative impact. In fact, if anything, it it's the opposite. This business is attractive capital because financial institutions who supported are seeing it as a growth area.

And if I may have, Benoit, it's Eric. Just to build on what Bart just said, the fleet operator also, I think, are generating their own cash. You've seen -- if you look at the flight hours, between '19 and last year, they were up by about 45% for these guys. And again, in the last 12 months, when I look for month-to-month, the fleet operator, I'm talking about the Bombardier airplane here flying with the fleet operator went up by another 15% in the last 12 months, which is significant growth. So these guys are growing at a fast pace. They are flying a lot of airplanes for all the reasons we've explained before, and I think generating cash flow at the same time.

And just for the follow-up question, if you could provide an update on the move from Downsview to Pearson, that would be great.

No, we're pleased. Things are moving forward. We don't expect any disruption of our operation. The move has actually already started. So we have [indiscernible] working at Pearson. We had a lineup of truck the other day moving wings, moving fixtures and equipment. This is happening as we speak. And so everything is lining up for us to be fully operational sometime in Q1.

Next question will be from Noah Poponak at Goldman Sachs.

The stock is down 40% from its highs. It's a $45 stock, you have guidance for 2025 free cash flow per share, that's somewhere around $10. So the stock doesn't believe something you were saying or doesn't believe something you're saying is sustainable. I have a lot of questions in my inbox about the exact orders in the quarter, where they go from here. The orders are down, but they're down from a torrid pace. But you have plans to increase supply. And if you're increasing supply, while orders are declining, you can't do that forever. So are we in a tricky macro such that you have a big backlog, you can burn a little backlog and then 2, 3 years down the line, demand accelerates and links up with where you've taken supply? Or is there another way to think about that? I know it's a little bit of a strange question. I have a lot of questions on line items in the model. But this seems like the biggest question given what the stock is doing in the face of you beating numbers every quarter. So how would you take that on? What would you say to the market in response to that?

And I'm sure you realize I won't comment on the stock moving and everything. What I can tell you is everything we've said so far, we've been delivering on. I think we're still reiterating our guidance. We're talking about 2025. I understand where some people may come from. But I have to tell you, we are extremely disciplined here. And I'm not just trying to be opportunistic to say, “Oh, the growth was there. We built backlog.” We are preserving the backlog we have. And that's our modus of R&D right now. We like the 18 to 24 months window we have, and we will accordingly adjust rate, if needed, to preserve that backlog or depending on the order. But the level of activity, and I think that one thing that we've said also that needs to be understood when we restructure this company, we took a lot of time at the time to make sure that our company was going to be resilient. And clearly, the demand is there and the demand is important. I understand that, but we will be disciplined in keeping the flow. The global demand remains high even in an environment where the economy could be struggling. We know that the global has been usually still pacing well. The same thing with our service business. So when I talk about the global and service business, you're not talking about 75% of our revenue roughly. It's an interesting model we've built. That's why we grew also our service business quite a bit. But we feel we have a line of sight again next year, even '25. We have quite a few airplanes sold already in '25, and we're in a good place. So we see the demand, we'll do what we have to do. We are being very careful with managing our costs, but preserving the 18 to 24 months is key in this business. And that's what's going to dictate and will give us the discipline to make sure we don't build inventory and get white tail and things like that. So that's not going to happen.

And Bart, can you put numbers on this working capital question like how much specifically in absolute millions of dollars, are you assuming you recover in 4Q? Or what's in the $250 million? What's in the $925 million? Just because, to your point, it is a simple bridge from the EBITDA to the free cash flow, and I can get to your numbers with that simple bridge, but the 4Q number is big. The ramp to 25 is big. We are guessing on -- we don't know how linear 24 is. So I don't know if you'd be willing to just give us a range or some hard numbers around the working capital that's in each of those periods of time.

We've tried to be as clear as we can around how timing at least and pace of working capital build and how that will get released in the fourth quarter. But we don't -- getting down the specifics is not something that we've talked about in the past. So what I will say is we did have some free cash flow usage, obviously, in the first 9 months of the year -- first 6 months and cash intake coming into the business, $80 million in the third quarter. We are set up for a very big quarter. When you talk about the number of deliveries that are going to be happening. You can just imagine that compare that to deliveries over the first couple of quarters and the delta between those, you're talking 20 aircraft more 20-plus aircraft more. That in and of itself, when you think in terms of number of aircraft, should help you understand how much inventory build we had versus how much we'll release. We've got a lot of deliveries coming. The aftermarket continues to just fire on all cylinders and is growing. It's a very strong PDP quarter for us. So lots of cash coming in. And as well as Eric highlighted and I've highlighted, we've got a really strong pipeline on the new order side. That's really all I can say at this point in time around that. But if you think of it in those 20 aircraft terms, that's about the strongest indicator I can provide you.

Is next year's free cash flow shaped by quarter similar to this year? Or is a little flatter there's less growth in the total year, maybe supply chain is a little better? Or is it a...

We've got a couple of things that will be helpful next year. RVGs, as you know, is something we're basically going to be done with this year. We've got one real tiny payment in 2025, but that was about $125 million headwind. So you can add that in. Think of it in terms of perhaps a little bit more, although I can't guide you right now, but directionally, at least a few higher deliveries. And we'll get back to you with some firm numbers on guidance early in the new year.

Next question will be from Konark Gupta at Scotiabank.

I echo my congratulations on a good quarter. Meanwhile my first question is on Q3 book-to-bill. So 1:1 on a unit basis, on a dollar basis, it looks like a 10% below 1. Obviously, pricing on the charts are going up across the board. But should we attribute this delta between unit and dollar book-to-bill to greater SQ to challenge a jet in the quarter?

Yes, clearly, in terms of number of airplanes, we've had a positive book-to-bill. But overall, I would be careful that it's a product mix thing. It may happen. We deliver a few -- we pick up order, deliver a few more global, pick up a few more, but it usually equalized during the year. If you look at our book-to-bill, not book-to-bill but backlog since the end of last year, it's pretty much flat. I think overall, we're pleased where we want it to be. As I said earlier, we are preserving our backlog, which is what's important right now and despite increasing deliveries. I think if you look across the board, we have a good story for deliveries in Q3 and actually, we see the backlog being protected by pretty much there, plus or minus a couple of maybe not even a $100 million. So it's been stable. The backlog has been stable since the beginning of the year. And that's what we're building the company on right now to try to preserve the backlog is how we're seeing that moving forward.

And then a follow-up for Bart, maybe based on the guidance for this year, it looks like you will have a lot of excess liquidity by the end of this year. Presumably, you need obviously some liquidity right in first half next year for inventory buildup, but you should still have a lot of excess liquidity next year. Do you anticipate redeeming some more debt in 2024?

If you look at our longer-term goals out to 2025 that we've highlighted and our objective to get to somewhere between 2 and 2.5x net debt to EBITDA. That implies about $1 billion of debt reduction from now until the end of that year. So, where and when it will come over the next 24 to 26 months, I can't really say today. But Q4 does tend to be a very strong cash flow quarter for us that sets us up with strong liquidity at the beginning of the year. And our strategy to date and it's something that we'll expect to continue to use in the next couple of years as we fully repair the balance sheet is to deploy cash into debt reduction when we have excess cash beyond our desired liquidity range, which in that range being $1 billion to $1.5 billion. So none of those things are going to change. Those are the things we expect to use as our guide to when we'll deploy that cash. And as I say, based on our forecast, that should allow us the opportunity to reduce about another $1 billion over the next couple of years or so.

Questions will come from Myles Walton at Wolfe Research.

And Bart, you're starting down the path of the cash flow walk for '24, so I figured I try and get you down for the path. I think you mentioned the RVG tailwind into next year. I think CapEx is a similar size, maybe $75 million to $100 million tailwind into next year and then interest is probably another $50 million tailwind into next year, and that's before considering growth in deliveries and earnings. Maybe you can give us the headwinds because it just looks like 3, 4 tailwinds.

The tailwinds that you described, those we do see as being helpful in the coming year, really in the next couple of coming years. I wouldn't necessarily agree with all of your numbers, but certainly, those will be beneficial. In terms of headwind, I see it more as an opportunity. As Eric highlighted, we've been able to maintain our book-to-bill and as well maintain our backlog. We've guided that -- we think we're going to get to somewhere around 150 deliveries by ‘25. At least directionally, that implies potentially more deliveries next year. Obviously, inventory to deliver those aircraft, et cetera, is a place we might use some cash. So when you balance those things out, could we see a continuation of positive free cash flow next year, that is certainly what we see, but we'll come out with more clear guidance here in the next few months.

Is most of the Pearson investment done this year? Or does it continue into '24?

Yes. Most of it is done now, Myles. In fact, we have video and pictures in the facility. Many of us have been there recently. It's coming along very nicely. And as Eric said, we expect to be fully into the facility in the first quarter. So we're mostly through that CapEx now.

Please proceed with closing remarks.

Thanks to you all for joining us today. And as we said earlier, the fourth quarter is already well underway as we discussed earlier, and we are progressing to meet all our 2023 objectives. Our team across the world are already hard at work to make sure that we successfully closed 2023 and can look back with pride on a great year for Bombardier. Our priority remains our people, and I would therefore like to take this opportunity to thank our team members and highlight the exceptional work that they do every day. I look forward to reconnecting with you all in the new year to discuss what 2024 will bring for Bombardier. In the meantime, I wish you all a safe and enjoyable rest of the year. Thank you.

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. At this time, we ask that you please disconnect your lines.