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Watch Eric Martel on Bombardier’s Current and Future Strategies - Bloomberg

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00:00We are pleased to be joined by Eric Martel the CEO bombard J.Eric thanks so much for being with us today. Yeah. Good morning. It's a pleasure.So we of course know Bombard J as a giant in the Canadian industrial landscape and a global player and various bases andin recent years as a company in restructuring mode repositioning selling certain lines of business. It feels a little bit Eric asthough you've just achieved a certain milestone. So I wanted to start with where the company is today. For people that think ofit as a restructuring play or a repositioning play what is the new bump.Yeah. As you just said you know we went through major restructuring in the last year or so and we are extremelypleased with where we stand right now. You know 12 months 14 months later into this restructuring today we are a pure playbusiness jet company with a very strong focus you know with basically three business unit. One is our global platform youknow which is well renowned for the flagship of the industry. The Challenger Business Unit also which we have like competingin the media market segment and business jet which is about 2000 airplanes flying out there. And our services group which youknow we are expanding globally across the world. And of course through all of that there have been no newinvestments made. And concerns about your level of debt just talk about the balance sheet and where it stands today. Howhealthy is bond by day's current balance sheet. Yeah our balance sheet has improved quite significantly. You know yes we werevery much leverage a year ago but with the three divestiture that we did last year we were able to reimburse a major amountof debt. You know we had many maturities to to face in the next five year. So today the next maturity that we will be facingwill be December 24. So gives us plenty of time. You know in the current market you know with the investment and the focus thatwe have to continue to reshape the balance sheet. But today we're on a very strong and good position. And I think thefinancial market has been reacting pretty well to our situation. You know our stock actually quadrupled since the beginning ofthe year. And you know we look forward. We've made clear objective and commitment to the market for 20 25. And we are onon the path to deliver those commitments over the next four years now. Eric of course the credit markets have been very openin the last year or so. Lots of opportunity. Have you been able to take advantage of that to to restructureyour balance sheet and get the durations of debt that you're looking for. Yeah. Actually yes.The answer to that is yes. We you know we've laid out a plan in early March this year you know giving you know guidance and ourcommitment you know for this year but obviously also for the next five year.And the market as reacted very favorably. So yes we were able to tap into market reduce our debt reduce the interest. Also readthat we're being on the different bond. So we are extremely pleased to where we are. You know we have a very much focusright now company but also you know understanding of how we're going to be improving our profitability. As an example you knowwe have the flagship of the industry to Global 70 500 which are a learning curve. You know improving the productivity is comingdown exactly ISE per plan. We have a very aggressive cost reduction plan you know for about400 million dollar over the next few years and also the growth of our services business. You know this is amuch more resilient business. We love that business. We are expanding globally. That business like we're building right nowcapability in Europe. You know in London we are quadrupling the space we have here in Florida quadrupling the space we have inSingapore and building also in Australia. So we want to reach out to our customer so that they come. We have a plan right nowto grow our our percentage of revenue from about 18 to 27 percent in the next five years.So we are extremely bullish about that business. We love that business with a solid base of 5000 airplane flying around theworld. And we want to tap into this into this market even more aggressively than today.And presumably the service business is a smoothing one. In other words there's a cyclicality to the aerospace industry to thesale of jets very tied to the economic fortunes of various countries. So as you grow that business what what what's yourexpectation of how it offsets that volatility and also how it changes the margin picture inside the company. Yeah. So clearlyyou're absolutely right. You know one of the reason to grow the services my business and it is a much more resilient businessincome in case of an economy downturn in around the world. But at the same time if you understand well bombards you. There wasa strategic mean in keeping the global and Challenger business which is large and medium segment the large segment as proven tobe very very resilient over the last 20 years. If you go back to 2028 I remember I was around we deliver like 20 percent moreairplane. You know what. Our competitor. The following year. So the large segment is resilient. The service business isresilient. And yes the medium could be a bit more volatile but it represent 20 25 percent of our revenue with the challenger.So we have that part but the rest is very robust to any potential downturn.One of the I think surprising things and maybe you folks have bombard day will say you saw it coming all along but as you gotout of as you really focus on only business jets you got out of some other very high profile kind of important industries. Wesaw this quite amazing shift globally in aerospace to the business jet market. And I don't think anybody would havepredicted how much that would happen. And Eric certainly not during a global pandemic. So is this shift that we're seeing.It's obviously a good one for run by J. Plays into your your focus. Is it a permanent one. Is this a change in the mix of themarket as we look down the road. You know this is a very fair question Amanda and I have to saythat in May last year bombards you we we thought that this was going to happen but to be unable here and we didn't think it wasgonna happen so fast. So it got accelerated. And clearly if you go back to 2020 you know during April and May there was a lot ofnervousness in the market. You know the commercial aircraft business all the airline work rumbling their fleet a lot lessflight. So people have started. We've seen a shift during the summer last year in 2020. July August of people is starting tofly more the business jet. And I think the first one that I've seen it are the the fleet operator you know the fractionaloperator. I'm thinking that jet flex jet fees that jet these type of fleet. They've seen an enormous amount of people goingtheir way. They felt that first of all there was no available flight you know from from the commercial world. And at the sametime they felt that it was a safer way to either fly their family or their executive. So we've seen it a major shift thathappened rapidly faster than we expected. And this keep going since last summer. So this was the first single of I wouldqualify it. As a friend of people you know going to business jet. And I think we knew that this was going to happen over theyears but it kind of accelerated probably you know what could have happened in 10 12 years over one year. Today if you talk tothe fleet operator they basically have 30 to 40 percent more people on their list of customers than they had precluded. Soclearly there was an acceleration. To your other question do we believe that this is going to stay. The answer is we believelike the majority will continue to fly on a business jet. There is there was an understanding that you know it's a lot moreexpensive. I think if you want to fly you know premium class all the time with a commercial airline you realize yes it's maybeslightly more expensive but maybe not that much expensive. And there's different ways some people have elected to buy their ownjet. So we see also a lot of customer that never purchased a jet before coming to us. Plus as I mentioned earlier the fleetoperator are seeing tremendous growth right now. And we feel that you know that trend is going to start. Will there be a bitof leakage going back to commercial. Yes there will be. But we feel that the majority of people that I've adopted you know thebusiness aircraft world will probably stay with us. And to that end you just launched a new jet just a couple ofweeks ago. What does it represent for you in terms of the market and where and what role will it play for you. Yeah know this isvery important. This is that challenger thirty five hundred you're talking about which is an evolution of you know aplatform that I've been extremely successful for us. The Challenger 300 the challenger 350. So these two program I'vebeen you know for the last 15 20 years always number one in the market. They were competing you know despite we're competingwith three competitor probably we've been more than 50 percent of the delivery. So we have a major installed base that theprogram was still the number one program. Now we're raising the bar in that market segment with a completely refresh interior.You know very stylish. I think it's one of the thing that bombards me as a reputation for is the quality of the interiorthe aesthetic of our product. You know the quality of the craftsmanship. And I think this one again you know is justraising the bar in that market field. So I always think that you know we can do a lot of things to improve an airplane. But atthe end of the day the people that are buying the airplane the majority of the time they sit in the back of the airplane andthey want to feel that they're either in their office or w they're at home. So connectivity is important. You know we havetremendous capability now. So which is an improvement to our our previous platform. So we feel that you know we've raised the barin that market segment. We're going to be like offering Dutch jet again for the next room following years in that marketsegment which is extremely popular right now as an entry level for a lot of corporation or even individual.You know when we think of the path to sustainability and some of the big commitments that have already been made and might beeven you know newly made a cop 26 in November we of course know that global air travel will be a target. ISE a massive source ofemissions. Where is sustainability in your thinking in your innovation and how do you offset the risk that it represents interms of higher costs not just you but your customers. Yeah. Fair question. And I always like to see thatall our R and D budget today is dedicated to improving you know gas emission or reducing gas emission I should say. So we spendyou know we like to see that we put our money where our mouth is. And this is exactly the example. So the entire RNC budgetright now is about reducing emission you know hug. How can we have a better shape on the airplane reduce the aerodynamic moreelectrical component you know to reduce the weight of the airplane. And we feel that we have some very potentialaggressive targets we can meet to do that. Plus on top of it we're working with the OEM of engine which are doing also somework there. And plus the sustainable fuel is important. And as an example this week when we did launched the Challenger. Thirtyfive hundred we clearly you know position ourself as a leader. You know we are offering to our customer sustainable material asan example material that you know are recycled from different fiber or other stuff so that the customer will be able to selectalso these material to put it on the airplane. So so this is really at the forefront of what we're doing and what we'rethinking for for the future. Of course we know there will be a variety of policy options thatmay be put in place a price on carbon is one of them and we see small steps being taken around the world. And that frankly Iwhen you think about the best solution there must be kind of I suppose internal planning or thinking around what would be idealor the right way to achieve the goal. It's hard to imagine a zero emission plane. Maybe we get there Eric but in the meantimewhat's the policy path to meeting climate change goals that would best suit your needs.No. You know what. And I think we'll be supportive of any policy change in that regard. Because we need to do it. So that's whywe're trying to be early adopter of new technology. We we believe that collectively I can see a path in 12 years 15 yearsfrom now where the new airplane going into service could fly with I don't know potentially 40 percent less emission. So thatwould be clearly a game changer in the industry. More difficult to see a path to zero. Your point today would the existingtechnology. But clearly with what the engine we are working on right now ourselves plus the different you know fuel that wecould use on the airplane today we clearly see a path how to get there. So I guess you know I think it's going to be importantthat you know we collectively continue to be aggressive on reducing emission. We know the reason for that. And I think youknow we'll make sure that our business remains competitive in that environment. One of the things that of course changed forbombarded over the past few years has been the ownership structure you had to have government investment in the business.How has that changed your operations in any way. How do you answer to your investors. Are they just one of many. Or does itchange the tone at all inside. I know you're familiar with government operations so I wonderedactually whether that was that an asset to you. These days have having been at Hydro Quebec. You no. So you're right. I left Ibroke it back for five years before coming back to bombards you last year. But clearly you know today we are in a differentplace. A lot of the investment from the government you know are either with the commercial aircraft business that we divest ayear ago like with our previous C series. Now the Airbus to. And today if you look at bombards you we only have you know aabove through 250 to 300 million dollar of federal government money which is basically something we're repaying also withmoney that we've borrowed you know from the government to develop the global 70 500. And this is today the only moneygovernment money we have. So we have full autonomy in terms of how we're guiding the business for the future and to our plan.So there'll be a time you know we'll see you know how things evolve. One day we'll need to launch a new program and we'llhave to reassess how we do that to make sure that we remain competitive.But clearly today you know there's very little government money within Michael Barr as it exists now as a pure play business jetcompany. When you think about that part for it and as you say you want togrow the service component and there's lots of good reasons to do that. But it will grow. One imagines as you get customersaround the world. It's kind of a natural outcome when you think of how you divide your cap ex or your expenditures on thefuture. How much of it goes into that new planes attracting new business and how much of it goes into supporting that growingcustomer base and as you say building actual operations to service business around the world. Yeah. You know we areextremely disciplined with our CapEx business as we committed to the market. We have an envelope on the next five years of 200 to250 million of investment. That could be infrastructure that could be new program like like the 30 500 you know was startedlast year. We're completing most of it this year and we're going to be starting to deliver the airplane next year. So a portionof our envelope of 200 to 250 is being used to to do that. So a very disciplined approach. We always look at every dollar weinvest to say where do we get the best return. And clearly services you know stands out as we are investing. As I said youknow in in different part of the world right now with service center. And our strategy is very simple. It's a question ofbeing present customer in Asia as an example we open Singapore you know six seven years ago we had no presence in Asia. Sopeople don't feel like they want to fly like a bit back to North America to get their maintenance done or support. So having thatpresence as a know we aim at basically the customer also prefer to go to do the OEM if they are present in their region. Sowe've seen tremendous growth as an example. Singapore is one of them right now. As I said earlier we are quadrupling the spacein Singapore. So people come to us we are more jet in service. Again we have about 5000 jet in service. Despite that we're notgoing to be producing the Lear jet anymore. We're going to be serving these two thousand jet flying all around the world. Sothis is an important base for us and we're gonna keep going doing that. So so clearly this is this is part of our plan. Webelieve we can have a much bigger portion of our revenue from about 18 to 27 percent coming from that business. And this isnot a business that is capital intensive. This is a business. But that offer an amazing return home.It is of course labor intensive I imagine. How are you on finding the labor you need. It's something we hear from CEOsglobally that it is a tough time right now. Has it been okay for you.This is this is a I think a major challenge for all of us. You know so far we've been able to maintain the rate you know keepour supply chain also fairly healthy. But I think as as businesses resume you know what going to happen with the otherwe I'm on the commercial aircraft potentially ramping up their capacity. So how will the supply chain resist. That is clearlysomething we're working. We have to work deeply right now. And I think the bottleneck of that will be to attract the right talentyou know to have the skill. Our industry aerospace we need skilled worker. And despite that it's in for four services.Despite that it's for raising increasing our supply chain capability. We're going to have to face that challengeconnectivity. But I think you know we're working with the different community. This is community by community to make surethat if we have a service center in Fort Lauderdale or in Tucson in Arizona that we work locally to bring the people we're goingto be needing. That will will be neat. We will need in the next two to three years. So we're trying to be extremely proactivearound that. I have to ask you it has been a rough few years for Gone By J.You're in a new chapter internally. What is the morale. Is there any hangover from you know the failure of the C series or atleast the disappointment of the C series. Or is does it feel as though it's a fresh start for this company and it's in place.The employees really feel that we're turning that corner right now. You know it's been tough. And I think we have to admit thatfor the employee the employee morale. But I think right now they're starting to see that we are winning and winning more.You know we had lunch on your program this week. We had three amazing quarter. The financial community reacts well to our toour our plans. So the morale is really improving very rapidly internally. So we're happy with that. The employee feel thatmomentum.

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Eric Martel on Bombardier’s Current and Future Strategies

Eric Martel, CEO, Bombardier, discusses current and future strategies for the jet manufacturing company with Bloomberg's Amanda Lang, Anchor, at the Bloomberg Canadian Fixed Income Conference. (Source: Bloomberg)