CANADA ECONOMICS

NATIONAL FLAG OF CANADA DAY

PM. Statement by the Prime Minister on National Flag of Canada Day Ottawa, Ontario - February 15, 2018

The Prime Minister, Justin Trudeau, today issued the following statement to mark National Flag of Canada Day:

“Today, I join Canadians across the country and abroad to celebrate the 53rd anniversary of our national flag.

“On this day 53 years ago, the National Flag of Canada was raised for the first time over Parliament Hill, in communities across the country, and in Canadian diplomatic and consular missions around the world.

“A single red maple leaf has come to represent the values we hold dear as a society – freedom, generosity, openness, and respect – and the promise of an entire country.

“Through their dreams, sacrifices, and hard work, generation after generation of Canadians have given meaning to the Maple Leaf. Over the past week, we have watched some of these Canadians, on slopes and rinks, reach the top of the Olympic podium and hoist our flag high.

“The Maple Leaf is a source of pride, but it also challenges us. While we have come a long way since the Maple Leaf flew for the first time, our work is not finished. Every day, we must make a conscious choice to live up to our values and the spirit of our ideals, and strive closer to a country that empowers every Canadian, no matter their background or where they are from.

“This year, as National Flag of Canada Day falls during the 2018 Winter Olympics, I invite Canadians to cheer on our Olympic and Paralympic athletes and honour the Maple Leaf that brings us all together.”

INTERNATIONAL TRADE

EDC. FEBRUARY 15, 2018. WEEKLY COMMENTARY. Has China Stopped Buying Canadian?
By Peter G Hall, Vice President and Chief Economist

Canada’s export sales to China shone in 2017. It was a relief, really, because prior growth hadn’t been that great. In fact, China’s hunger for Canadian goods all but evaporated in the 2013-16 period, throwing the future with all its aspirations of diversification into serious doubt. Was 2017 just good luck, or are Canada’s China-bound exports in for a sustained revival?

Radical growth became a New Millennium norm for Canadian exporters to China. Average annual growth of goods shipments was 16.7 per cent, spread nicely across the industrial spectrum. The great challenge was actually keeping up with this pace. Then with little warning, growth was hacked to 5.7 per cent in 2013, and remained alarmingly slow for three more years. It was yet another series of facts used to illustrate a China that was stumbling and trying to regain a foothold.

For a season, it looked like China was finally joining the swollen ranks of slow-growing post-recession economies – the ‘new normal’ finally caught up with the Middle Kingdom. There were worries that permanently slower GDP growth would clash with China’s over-leveraged financial sector, wreaking havoc not only with its own economic potential, but that of the world as well. Recent stronger growth – aided by the ramp-up of the US and European economies – is challenging that view. Canada’s recent export success seems to agree. If so, what really happened during those softer years?

Top Canadian export sales to China have faltered

Canada’s export numbers provide an interesting clue. The sharp weakening in our results was split quite dramatically along industry lines. Collectively, mining and energy exports fell outright by almost 13 per cent, with iron ore down 23 per cent, coal off 17 per cent, and oil & gas plunging 50 per cent. This is in large part due to the collapse in prices that began in mid-2014. But what also stands out in the data is that they were starting to tumble ahead of the swoon in prices, indicating something deeper in the economy, like excessive production. The vast accumulation of steel inventories in the post-recession years accounts for some of the fall-off in demand, and surpluses elsewhere in the system stalled the Chinese industrial complex’s previously insatiable demand for raw materials.

Top Key industries are bucking the trend

However, at the same time, rapid growth continued in other industries. Agri-food exports as a whole averaged 12 per cent growth annually, and their share of Canada’s total global agri-food exports continues to rise steadily. Leading the charge are non-wheat grains, seafood and soybeans, but, as a previous Commentary argues, there is also lots of promise for prepared foods well into the future.

Higher-valued exports also showed impressive gains. Exports of autos and light-duty vehicles have catapulted ahead, rising over forty-fold between 2012 and 2016, and building further on that in 2017. Precious metals were not far behind, on average doubling every year in the same 4-year period. Aerospace products, which are typically volatile, averaged 15 per cent growth in the same timeframe.

These sectors are largely the ‘climbers’, though, rising sharply but from a relatively low base. Mainstay industries are actually also performing well. The growth path for both pulp and oilseeds (net of soybeans) was a smart 7 per cent annually in both cases. These account for 15 and 12 per cent of total merchandise exports to China, respectively.

Trade with China and Canada is alive and well

Clearly, there is still vibrant trade going on between China and Canada. Those who have sounded the death-knell to the diversification we saw in the pre-recession period are lumping two very different stories together. Diversification to this faster-growing space is alive and well, and that will become all the more obvious when China’s inventory overhang begins to melt away. In actual fact, there are clear signs that the thaw is already on: Chinese imports of raw materials are on the up and up again.

The bottom line?

Now is definitely not the time to give up on the China strategy. The Middle Kingdom may have taken a pause in recent years, but there is clear evidence that the page is turning. China’s purchasing power remains a powerful force on the world stage, and as it’s worth $25 billion annually to Canadian exporters, we would do well to watch – and serve – it carefully.

NAFTA

GLOBAL AFFAIRS CANADA. February 15, 2018. NAFTA: Round seven in Mexico

The seventh round of NAFTA renegotiations will be held in Mexico City, Mexico, from February 25 to March 5, 2018.

The Government of Mexico is leading this event and is solely responsible for the registration process.

INFRASTRUCTURE - NATIONAL SECURITY

THE GLOBE AND MAIL. REUTERS. FEBRUARY 15, 2018. Streetwise newsletter: Goodmans and the Aecon deal; inflation fears

Aecon takeover: Crack open a marketing brochure from Goodmans LLP, and you'll find one way the Bay Street law firm sells its services to potential clients is by highlighting work for construction company Aecon Group Inc. Story (Andrew Willis, for subscribers)

Market watch: In the wake of the Great Recession, a golden rule for financial markets emerged: Every few months, investors would inevitably find something new to freak out about. Story (Tim Kiladze, for subscribers)

Insurance: Sun Life Assurance Co. of Canada will become the first major insurance company to add medical marijuana to its group benefits plans for Canadian companies, a pivotal move in the insurance industry that will help ease the financial burden for medical-marijuana users, and a sign of the growing acceptance of cannabis in the Canadian workplace. Story (Clare O'Hara, for subscribers)

FINANCIAL SERVICES WRAP

Earnings: Home Capital Group Inc. reported net a income of $30.6-million in its most recent quarter, about 40 per cent less than it earned in the same quarter last year before it was hit with allegations it misled investors. Story

Earnings: Credit Suisse on Wednesday was upbeat on prospects for the year ahead, as it enters the last leg of Chief Executive Tidjane Thiam's three-year overhaul, hoping to put its third straight annual loss behind it. Story

DEAL WRAP

Tech deal: California-based Hightail, which develops a solution for sharing large files and team collaboration, has been acquired by OpenText. BetaKit

Canadian venture financing: RealWear has raised US$17-million for its AR wearable device aimed at workers in construction and other heavy industries.d Vancouver-based RealWear is already shipping its hands-free HMT-1, which is mounted via a band that goes around your head or safety helmet. VentureBeat

U.S. venture financing: While Vivino has been known for its wine discovery service for a while, the San Francisco-based company is now being transformed by its wine marketplace, whose rapid growth has helped it attract a new US$20-million round of funding. VentureBeat

U.S. venture financing: Varsity Tutors, which connects students with experts in a wide range of subjects, announced today that it has raised US$50-million. Founded in 2007, the St. Louis, Missouri-based startup began as an offline tutor marketplace that allowed students to request in-home lessons. VentureBeat

Canadian PE fund: Whitehorse Liquidity Partners has raised nearly US$730-million for its second private equity secondary fund, the firm said in a U.S. Securities Exchange Commission filing. The Toronto investor has so far accounted for more than three-quarters of the fund's target of US$1-billion. Whitehorse also reported raising US$193-million for an affiliated offshore vehicle. PE Hub

U.S. VC fund: Bay Area-based Norwest Venture Partners announced today that it has closed a new US$1.5-billion fund, called NVP XIV. This is the firm's largest fund to date. VentureBeat

WHAT WE'RE READING ELSEWHERE

MiFID II: Not all bankers get a headache when they contemplate MiFID II. The chief executive officer of Denmark's biggest bank says Europe's major revision of market rules is actually good news for the asset management unit he wants to expand. "MiFID II for us is an opportunity," Danske Bank A/S CEO Thomas F. Borgen said in an interview in Copenhagen. Bloomberg

IN CASE YOU MISSED IT

A dad's discovery: Over 10 months of paternity leave, Report on Business capital markets reporter Tim Kiladze discovered that being a primary caregiver is an onerous task. It is the bedrock of our society, allowing the world as we know it to function, but the job's value, and its complexity, is largely invisible to those who haven't been immersed in it Opinion.

ENERGY

REUTERS. FEBRUARY 15, 2018. A year into OPEC's production cuts, Asia's oil markets have tightened
Henning Gloystein

SINGAPORE (Reuters) - Just over a year into production cuts lead by OPEC and Russia, oil markets in Asia have tightened noticeably as significant amounts of excess crude have been taken off tankers used for storage and delivered to customers across the region.

Shipping data shows about 15 super-tankers are currently filled with oil floating off the coasts of Singapore and surrounding Malaysia, Asia’s main trading and storage hub for crude coming from the Middle East to Asia.

That’s slightly less than last November, and half the number of tankers used for storage in mid-2017.

Traders say onshore tanks in the region, including at Vopak’s site in Johor, Malaysia, are also not booked out any more, marking a turnaround from 2016/17 when a situation known as tank-top was feared in which oil markets are so bloated that they run out of storage.

The fall in storage is a sign production restraint started by the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia in January 2017 is having the intended effect of reducing a global glut.

The main impact of OPEC withholding supplies has been to change the structure of the oil price curve.

During oversupply, crude prices for immediate delivery tend to be lower than those for later dispatch, a market structure known as contango that gives traders an incentive to store oil for later sale.

With markets now tighter, spot prices are more expensive than those for later delivery, removing the incentive.

“Most of the contango stocks afloat are sold,” said Oystein Berentsen, director for crude trading at Strong Petroleum in Singapore.

The oil price curve shows spot prices to be almost $4 per barrel above those for delivery this time next year.

“Floating storage is no longer economical,” Berentsen said.

What’s more, shipping data shows the majority of tankers storing oil around Singapore are only part full. In 2016/17, by contrast, the armada of tankers was filled to the rims.

WHERE FROM HERE?

The main factors that could flip oil markets back into oversupply are an end to OPEC’s and Russia’s production restraint and soaring U.S. output.

But Saudi Arabia, OPEC’s de-facto leader, says it is committed to withholding production.

“If we have to err on over-balancing the market a little bit, so be it,” Saudi Energy Minister Khalid al-Falih said on Wednesday.

U.S. output, however, is rising fast and its exports are increasingly appearing in Asia.

U.S. crude production hit a fresh record of 10.27 million barrels per day this month, more than top exporter Saudi Arabia pumps, and within reach of top producer Russia.

The International Energy Agency warned this week that supplies may start overtaking demand growth again later this year.

Reporting by Henning Gloystein; editing by Richard Pullin

REUTERS. FEBRUARY 14, 2018. Oil slips below $64 as U.S. output, higher inventories weigh
Alex Lawler

LONDON (Reuters) - Oil slipped below $64 a barrel on Thursday as record U.S. production and rising inventories outweighed a weak dollar and Saudi Arabia’s comments that OPEC and other producers were committed to their pact on cutting supplies.

U.S. crude output hit a record 10.27 million barrels per day, the Energy Information Administration said on Wednesday, making it a bigger producer than Saudi Arabia. U.S. crude and gasoline inventories rose last week, U.S. data showed.

Brent crude LCOc1, the global benchmark, fell 78 cents to$63.58 at 1438 GMT, giving up an earlier gain that had extended Wednesday’s rally. U.S. crude CLc1 dropped 51 cents to $60.09.

“What we have now is a bit of a re-adjustment from the price rise we had yesterday, which was a bit overdone,” said Olivier Jakob, analyst at Petromatrix. “I don’t think the data was that supportive,” he added, referring to the EIA’s inventory report.

Crude inventories rose by 1.8 million barrels in the week to Feb. 9, the U.S. Energy Information Administration said, an increase that was less than analysts’ forecasts.

Gasoline stocks rose by 3.6 million barrels, more than double the forecast.

Oil had climbed on Wednesday and early on Thursday after Saudi Energy Minister Khalid al-Falih said OPEC would do better to leave the market tight than end the deal on cutting output too soon.

“Khalid al-Falih gave his strongest hint yet that exiting the current supply agreement is unlikely to be on the agenda this year,” said Tamas Varga of oil broker PVM.

Under the deal, the Organization of the Petroleum Exporting Countries agreed to cut output by 1.8 million barrels per day, almost 2 percent of global supply. The cuts started a year ago and will run until the end of 2018.

But the rebound in U.S. production, encouraged by the higher prices delivered by the OPEC-led cuts, is undermining efforts to curb supplies. The EIA expects U.S. production to top 11 million bpd in late 2018, a year earlier than projected last month.

Rising U.S. output also countered support from a weaker dollar, which fell to a 15-month low against the yen. A weaker dollar makes oil and other dollar-denominated commodities cheaper for holders of other currencies.

Additional reporting by Henning Gloystein; Editing by Adrian Croft and David Evans

AVIATION

THE GLOBE AND MAIL. REUTERS. FEBRUARY 15, 2018. Bombardier narrows loss on strong rail showing; stock jumps
NICOLAS VAN PRAET, MONTREAL

Bombardier Inc. narrowed its net loss for the fourth quarter and boosted revenue as a strong performance in rail allows the company to reclaim a share of that business from its biggest shareholder.

The stock jumped 9 per cent in morning trading on the Toronto Stock Exchange, to $3.59.

The Montreal multinational said Thursday its stake in rail unit Bombardier Transportation will increase to 72.5 per cent from 70 per cent after the unit's financial performance for 2017 exceeded the incentive targets in its ownership deal with Caisse de dépôt et placement du Québec. The pension fund manager's position falls by an equal amount.

Under a deal struck between the partners in 2016, the Caisse bought 30 per cent of Bombardier's rail business for US$1.5-billion. The Caisse's stake is subject to annual adjustments up or down depending on how the unit performs. The better the performance, the lower the Caisse's share of the spoils, down to a minimum ownership threshold of 25 per cent and a 7.5 per cent return.

The shift came as Bombardier announced better-than-expected results for its latest quarter. The company tallied a net loss of US$109-million on revenue of US$4.7-billion, improving on the US$259-million loss and US$4.3-billion revenue in the same quarter last year.

Earnings before interest and taxes was US$149-million, double the year-earlier period. Stripping out all special costs and gains related to restructuring and other matters, the company had a profit of 2 US cents per share. On that basis, analysts were forecasting the company to break even.

"We're starting 2018 with great momentum," Chief Executive Alain Bellemare told analysts on a conference call. "We have a clear line of sight to our 2020 objectives and we expect to reach free cash flow break even this year."

Mr. Bellemare has pulled Bombardier back from the brink of bankruptcy as the company nearly toppled in 2015 under the weight of heavy investments to bring two all new aircraft to market. Now, with those capital-intensive investments coming to an end, he plans to rebuild earnings by growing revenue to US$20-billion by the end of 2020.

Key to that effort will be the company's luxury jet business. The scheduled entry-into-service of its new Global 7000 jet later this year, combined with sales of smaller Challenger and Learjet models, will make up three quarters of a planned $4-billion increase in revenue over the next three years, according to management's turnaround plan.

Bombardier says orders for the Global 7000 are strong, with the aircraft largely sold out through 2021. It says the market for business jets overall is picking up, confirming reports by other manufacturers. Inventory of pre-owned business aircraft has dropped to its lowest level in years and flight hours are increasing, two metrics that bode well for a recovery in orders, Mr. Bellemare said.

Plenty of skeptics remain who question Bombardier's growth prospects, particularly against much better-capitalized rivals. But Mr. Bellemare's team has delivered on its turnaround plan, meeting or beating expectations on most financial metrics over the past two years.

For fiscal 2017, Bombardier surpassed profit margin guidance on all its business segments. The company burned through $786-million in cash for the year, $200-million less than forecasted.

Under a deal struck last year, Airbus Group SE will take control of Bombardier's C Series commercial airliner program, throwing behind it the full weight of its marketing and procurement power and helping set up an assembly line for U.S. orders at its manufacturing site in Mobile, Ala. The partners expect to obtain all approvals this year, Bombardier confirmed again Thursday.

The U.S. International Trade Commission (ITC) last month rejected a petition by Boeing Co. calling for duties on C Series planes imported into the United States. The quasi-judicial body ruled that Boeing suffered no injury from the C Series.

It remains unclear if Boeing will launch an appeal. The ITC's written decision, made public Wednesday evening, confirmed Boeing lost no sales or revenue at the expense of Bombardier's C Series and so was not materially injured. That would seem to undermine the basis for any appeal.

"We have clear sky in front of us for a few years," Mr. Bellemare said.

Bombardier's rail business delivered a particularly strong quarter, with revenue of $US0.5-billion, new orders worth US$10.2-billion and an EBIT margin before special items of 8.4 per cent. The rail backlog at the end of 2017 stood at US$34.4-billion.

REUTERS. FEBRUARY 15, 2018. Bombardier beats earnings estimates on rail strength; shares jump
Allison Lampert, Nivedita Bhattacharjee

(Reuters) - Bombardier reported quarterly results on Thursday that beat expectations thanks to its rail division, sending shares surging, and said a favorable decision by a U.S. trade agency gave it flexibility to deliver CSeries jets to Delta Air Lines this year.

The International Trade Commission on Wednesday said it rejected hefty U.S. duties on the CSeries jets partly because Boeing Co lost no sales or revenue when Delta ordered the aircraft in 2016 from the Canadian plane-and-trainmaker.

During a call with analysts, Bombardier Chief Executive Alain Bellemare called the ITC’s reasoning “good news” and said “it gives us the flexibility to ship the aircraft out of Mirabel (Quebec) to Delta” in 2018.

Bellemare said Bombardier still plans to set up a U.S. assembly line for the CSeries after a deal giving a majority stake in the jet program to Airbus SE closes in 2018.

Bombardier said it expects revenue to grow to $17.0 billion to $17.5 billion in 2018. It is also targeting revenue of more than $20 billion by 2020.

Shares surged around 9 percent in morning trading.

The plane-and-train-maker is in the middle of a five-year turnaround plan to cut costs and boost margins, after years of heavy investments in two new aircraft programs pushed it to the brink of bankruptcy in 2015.

GAINING MOMENTUM

Bellemare said momentum was increasing for the company’s business jets and it was prepared to increase production volume if the market supports it.

BMO analyst Fadi Chamoun said in a note to clients Bombardier was “well positioned to achieve cash flow breakeven in 2018,” after coming in ahead of its 2017 forecast for cash flow.

Revenue at its transportation unit, which includes rail, surged 28 percent to $2.49 billion during the quarter.

The company reported $304 million in earnings before interest, taxation, depreciation and amortization (EBITDA) for the fourth quarter, compared with $203 million a year earlier.

On an adjusted basis, the company made 2 cents per share, while analysts expected it to break even, according to Thomson Reuters I/B/E/S.

Revenue grew 8 percent to $4.72 billion and EBITDA margin before special items rose to 6.4 percent from 4.6 percent.

Reporting by Allison Lampert in Toronto and Nivedita Bhattacharjee in Bangalore; Editing by Patrick Graham and Bernadette Baum

REUTERS. FEBRUARY 15, 2018. Bombardier CEO calls U.S. trade agency reasoning 'good news'

MONTREAL (Reuters) - Bombardier Inc (BBDb.TO) Chief Executive Alain Bellemare on Thursday described a U.S. trade agency’s explanation for why it rejected hefty duties on the company’s CSeries jet sales to American carriers as very “good news.”

Bombardier Inc
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On Wednesday, the International Trade Commission said Boeing Co (BA.N) lost no sales or revenue when U.S. carrier Delta Air Lines (DAL.N) ordered the aircraft in 2016 from the Canadian planemaker.

The International Trade Commission published its reasoning three weeks after announcing its decision to not impose duties on the CSeries.

Reporting By Allison Lampert

REUTERS. FEBRUARY 15, 2018. Delta says some CSeries deliveries will likely be Canadian imports

NEW YORK (Reuters) - Delta Air Lines (DAL.N) on Thursday said it intends to take as many U.S.-made Bombardier (BBDb.TO) CSeries as possible, but at least some of its earlier deliveries will likely be Canadian imports due to contractual obligations on timing.

Delta Air Lines Inc52.38
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“We have contractual commitments to begin taking deliveries later this year and the (U.S. International Trade Commission) decision clears the way for Delta to accept deliveries in Canada as well,” Delta spokesman Morgan Durrant said.

Reporting by Alana WiseEditing by Chizu Nomiyama

REUTERS. FEBRUARY 14, 2018. U.S. ITC details why it rejected CSeries duties, says Boeing not hurt
Allison Lampert, Lesley Wroughton

MONTREAL/WASHINGTON (Reuters) - An independent U.S. trade body on Wednesday said it rejected hefty U.S. duties on Bombardier’s CSeries jets partly because Boeing lost no sales or revenue when Delta Air Lines ordered the aircraft in 2016 from the Canadian planemaker.

The International Trade Commission published its reasoning three weeks after announcing the decision.

The ITC said the 110-seat CSeries jets ordered by Delta (DAL.N) and Boeing Co’s (BA.N) smallest 737 MAX 7 plane do not compete. It also said Bombardier Inc’s (BBDb.TO) CSeries sale to Delta did not come at Boeing’s expense as the planemaker did not offer any new aircraft to the No. 2 U.S. carrier.

“Boeing lost no sales or revenues,” the ITC said in its 194-page ruling.

“The higher standard seating capacity of the 737-700 and 737 MAX 7 limits competition between those models and the CS100 for some purchasers,” it said.

It was not yet clear whether Boeing will seek to appeal the ITC’s decision, a move that could generate uncertainty at a time when the U.S. planemaker’s European rival Airbus SE (AIR.PA) plans to take a majority stake in the CSeries program.

The ITC determined on Jan. 26 in a 4-0 vote that the CSeries did not harm Boeing and discarded a U.S. Commerce Department recommendation to slap a near 300 percent duty on sales of Bombardier 110-to-130-seat CSeries jets for five years.

Spokesmen for both Boeing and Bombardier said the companies are studying the ITC’s decision and did not have an immediate comment.

Former ITC chairman Dan Pearson said the cost to appeal the decision would be marginal compared with what Boeing has already spent.

“Boeing has put a whole lot of money into law firms for this case. They’ve got millions of dollars invested,” Pearson said by phone.

Delta Air Lines Inc
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Boeing has the option of appealing the decision at the Court of International Trade in New York, or a trade dispute settlement panel under the North American Free Trade Agreement (NAFTA).

However, in negotiations to modernize NAFTA, U.S. Trade Representative Robert Lighthizer has pushed to scrap NAFTA’s process to settle trade disputes, which he says is biased against the United States.

Pearson said he believed the commission’s decision will likely improve U.S.-Canadian trade relations, which have been complicated by disputes over tariffs on Canadian lumber and U.S. milk and President Donald Trump’s desire to renegotiate or even abandon NAFTA.

“It does help the bilateral relationship between Canada and the United States, and I hope both sides see it this way.”

In its complaint, Boeing had alleged it was forced to discount its 737 narrow-bodies to compete with Bombardier, which it said used government subsidies to dump the CSeries during the 2016 sale.

But the ITC said the CSeries is not likely to depress prices of U.S.-made jets and that Bombardier is unlikely to offer other prospective buyers the same discounts provided to Delta.

Reporting by Allison Lampert in Montreal and Lesley Wroughton in Washington; Additional reporting by Alana Wise in New York; Editing by Denny Thomas and Leslie Adler

BLOOMBERG. 15 February 2018. Bombardier Jumps as Cash-Flow Surge Boosts CEO’s Turnaround
By Frederic Tomesco

Bellemare says company is moving into ‘a strong growth cycle’
Adjusted earnings of 2 cents a share top analysts’ estimates

Bombardier Inc. climbed after the highest cash flow in seven years bolstered prospects for the company’s turnaround plan.

Free cash flow increased 76 percent to $872 million in the fourth quarter, Canada’s biggest aerospace company said Thursday as it reported earnings. That exceeded analysts’ expectations for the closely watched figure.

The improving results underscore progress under Chief Executive Officer Alain Bellemare after two aircraft-development programs left Bombardier awash in debt. Having shored up liquidity, cut thousands of jobs and agreed to team with Airbus SE on the C Series jetliner, Bellemare now is working to push the company’s next big revenue generator -- the Global 7000 business jet -- into service late this year.

The earnings report was “well ahead of expectations across all segments,” Fadi Chamoun, a BMO Capital Markets analyst, said in a note to clients. “We sense there is greater demand momentum in business aviation and opportunities for growth beyond what is currently reflected in our forecast.”

The company’s widely traded Class B shares rose 8.8 percent to C$3.58 at 12:10 p.m. in Toronto after advancing as much as 12 percent for the biggest intraday gain in almost three weeks. Bombardier climbed 8.6 percent this year through Wednesday, while Canada’s benchmark S&P/TSX Composite Index dropped 5.4 percent.

Exceeding Expectations

Bombardier’s free cash flow topped the $662 million average of analyst estimates compiled by Bloomberg. It was the highest for a fourth quarter since fiscal 2011.

“We are moving out of our investment cycle and into a strong growth cycle,” Bellemare said in the statement. “Our focus is on flawless execution: bringing the Global 7000 into service; delivering on our major rail projects; and closing the Airbus partnership.’’

Adjusted earnings were two cents a share, exceeding expectations that the company would break even. Sales climbed 7.6 percent to $4.72 billion. Analysts had projected $4.75 billion.

Revenue is set to rise in all divisions in 2018, Bombardier said. The Montreal-based company makes trains and aircraft parts in addition to planes.

For all of 2017, Bombardier burned threw $786 million in cash, better than the $1 billion that the company had expected to use. That meant ending the year with a $3.1 billion cash balance, leaving the company “well positioned’’ to break even on a cash-flow basis this year -- a goal of Bellemare’s turnaround plan.

‘Clear Path’

Bombardier sees “a clear path” to annual cash generation of $750 million to $1 billion by 2020, according to a presentation on the company’s website.

The company got an unexpected boost last month when the U.S. International Trade Commission ruled that imports of the C Series don’t harm American companies and workers. Boeing Co. had accused Bombardier of selling its biggest jet in the U.S. at less than fair value, while benefiting from unfair government subsidies.

Shipments of C Series planes to Delta Air Lines Inc. will probably begin this year from Bombardier’s Mirabel, Quebec, facility, Bellemare said Thursday. The carrier has expressed a preference for U.S.-made aircraft.

Alabama Plant

“Clearly the Delta aircraft are in skyline for 2018. They have always been,” he said. The trade commission’s decision gives Bombardier “flexibility to ship the aircraft out of Mirabel to Delta. At this stage, we have to work through the logistics of it.’’ Bombardier remains committed to building a plant in the U.S. next to an existing Airbus factory in Mobile, Alabama, he said.

Delta spokesman Morgan Durrant said the airline intends to take as many deliveries as possible from the new Alabama facility.

“However, as the ITC notes, we have contractual commitments to begin taking deliveries later this year, and the ITC decision clears the way for Delta to accept deliveries in Canada as well,” he said by email. “We are evaluating how to best match Bombardier’s production capacities with our fleet needs.”

Separately, Bombardier said it now holds 72.5 percent of its rail business, up from 70 percent. The unit’s 2017 results, which included a 13 percent jump in revenue, outpaced the performance targets in the company’s agreement with Caisse de Depot et Placement du Quebec, which owns the rest of the division, Bombardier said.

— With assistance by Michael Sasso

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SPECIAL - BOMBARDIER

Bombardier Reports Fourth Quarter and Full Year 2017 Results

February 15, 2018MontréalBombardier Inc., Press Release

Consolidated full-year EBIT before special items(1) increased 57% year-over-year to $672M
Margin(2) guidance exceeded across all business segments; full-year EBIT margins above 8% at Transportation, Business Aircraft and Aerostructures
Full year free cash flow usage(1) better than guidance by over $200M
Strong momentum continues as Company approaches midpoint in turnaround plan
Bombardier’s participation in Transportation increases from 70% to 72.5% as results surpass incentive targets underlying CDPQ investment

Bombardier (TSX: BBD.B) today reported its fourth quarter and full year 2017 results, highlighting solid financial and operational performance across the company.

“Bombardier closed out the second full year of its five-year turnaround plan with very strong performance,” said Alain Bellemare, President and Chief Executive Officer, Bombardier Inc. “Because of this solid performance, we begin 2018 with great momentum. Our operational transformation is in full motion; our growth programs - including the Global 7000 - are on track and we have a clear line of sight to our 2020 objectives.”

In 2017, Bombardier’s full-year EBIT before special items grew 57% year-over-year, from $427 million to $672 million, while EBITDA before special items(1) reached close to $1 billion. Full year EBIT margins exceeded guidance at Transportation, Business Aircraft and Aerostructures. Before special items, EBIT margins(1) were 8.4% at Transportation and Business Aircraft; and 10.0% at Aerostructures. Consolidated revenues for the year were $16.2 billion, in line with our guidance.

Free cash flow performance(2) for 2017 was better than guidance by more than $200 million, with a usage of $786 million. This over performance allowed Bombardier to end the year with a $3.1 billion cash balance and well positioned to achieve cash flow breakeven in 2018(3), a key objective of the Company’s turnaround plan.

“2018 will be a pivotal year for Bombardier,” Bellemare continued. “We are moving out of our investment cycle and into a strong growth cycle. Our focus is on flawless execution: bringing the Global 7000 into service; delivering on our major rail projects; and closing the Airbus partnership following regulatory approvals later this year.”

The company also announced that Transportation’s strong results in 2017 outpaced the performance targets underlying CDPQ’s investment in BT Holdco. Accordingly, for the 12-month period starting on February 12, 2018, Bombardier’s percentage of ownership on conversion of CDPQ’s shares will increase by 2.5%, up from 70% to 72.5%. Any dividends paid by BT Holdco to its shareholders during this period will be distributed on the basis of each shareholder’s percentage of ownership on conversion, being 72.5% for Bombardier and 27.5% for the CDPQ. These adjustments will become effective once the audited consolidated financial statements of BT Holdco are duly approved by its Board of Directors.

Selected results (PDF)

SEGMENTED RESULTS AND HIGHLIGHTS

Business Aircraft

Results (PDF)

Business Aircraft’s 2017 financial performance met or exceeded guidance delivering 140 aircraft. Revenues were $5.0 billion with EBIT margins before special items of 8.4%.
For the fourth quarter, deliveries reached 44 units, including a strong mix of Challenger and Global family aircraft, representing 29 and 13 deliveries respectively. These families of aircraft continued to lead their respective market segments during the quarter.
The 200 bps improvement in EBIT margin before special items reflects our continued operating discipline, and stronger contribution from the aftermarket business, benefiting from recent investments to increase service capacity and portfolio of offerings. In line with the aftermarket growth strategy, revenues from these activities grew by more than 10% in 2017.
Demonstrating continued focus on driving financial performance in any market, EBIT before special items grew 35% over the past two years, from $308 million to $416 million, even as we managed lower revenues of approximately 30%. As such, the segment is poised to benefit from its increased production efficiency and leaner cost structure when the Global 7000 enters-into-service and the business aircraft market recovers.
The fourth quarter of 2017 was the strongest in terms of order intake compared to the previous three quarters of 2017, and higher than the fourth quarters of 2016 and 2015 respectively.
The Global 7000 aircraft continues to perform extremely well and to exhibit a high level of reliability. The availability of four FTVs for the entire fourth quarter has accelerated flight testing and the fifth and final FTV has joined the test program on January 30, 2018. The program has cumulated over 1,500 flight test hours to date and with multiple aircraft in final assembly, the Global 7000 aircraft is on track for EIS in the second half of 2018.(6)

Commercial Aircraft

Results (PDF)

We are moving ahead and making progress obtaining regulatory approvals for the announced partnership with Airbus for the C Series aircraft. We expect to obtain all approvals for the partnership in 2018, and in the meantime, we are conducting site visits and planning for the operation of the U.S. final assembly line in Mobile, Alabama, and working on other integration streams, consistent with antitrust law. On January 26, 2018, the U.S. International Trade Commission rejected Boeing’s attempt to have tariffs imposed on C Series aircraft, clearing the path for us to support Delta this year as we work to close our partnership with Airbus.
We delivered 73 aircraft during the year, within the overall guidance range, including 30 Q400, 26 CRJ, and 17 C Series aircraft. This includes 22 aircraft in the fourth quarter, in line with the previous year.
- We delivered the first two CS300 aircraft to Korean Air Lines, the program’s Asian launch customer, in the final week of December 2017, and supported their preparation for commercial service, which began in January 2018.
The year was marked by a book-to-bill ratio(7) of 1.0 for Commercial Aircraft. During the fourth quarter, we received orders across all three aircraft families. These orders included the following:
- On December 29, 2017, we executed a firm agreement for the sale of 12 CS300 aircraft with EgyptAir, along with purchase rights for an additional 12 CS300 aircraft. Based on the list price of the CS300 airliner, the firm-order contract would be valued at approximately $1.1 billion.
- On the same day, we signed an agreement for six CRJ900 aircraft with options for six additional CRJ900regional jets with an unidentified customer. Based on list price, the firm orders would be valued at approximately $290 million.
- We also signed two Q400 orders, for two aircraft each, with Qazaq Air and Cemair, valued at approximately $133 million based on list prices.
Commercial Aircraft’s financial performance for 2017 was marked by the continued production ramp-up of the C Seriesaircraft program. As announced in our third quarter financial results, engine delivery delays from Pratt & Whitney impacted our C Series aircraft deliveries, particularly in the fourth quarter. While revenues reached $2.4 billion, in line with our guidance, the EBIT loss before special items at $377 million compared favorably relative to expectations.

Aerostructures and Engineering Services

Results (PDF)

Financial performance in 2017 for the Aerostructures and Engineering Services segment was in line with our expectations. Revenues for the year totalled $1.6 billion, while EBIT margin before special items was 10.0%. The significant increase in EBIT margin before special items in the fourth quarter at 15.3%, relative to guidance and the prior year, demonstrates the positive evolution of anticipated cost reductions on components manufactured by us for the C Series aircraft, as accounted for under long-term contract accounting.
During the quarter, Aerostructures and Engineering Services announced that it has been selected by Airbus as a supplier on a new engine nacelle program for the Pratt & Whitney powered A320neo family of aircraft. This contract reinforces our long-term strategy to grow our capabilities in the nacelles market and to focus on delivering innovative, higher value products and services.

Transportation

Results (PDF)

We delivered superior financial performance in 2017, while also positioning our segment for further growth in both revenues and profitability.
- Revenues grew 13% year over year to $8.5 billion, in line with guidance.
- EBIT margin before special items grew 100 bps, to 8.4% in 2017, representing the fifth consecutive quarter with margins at or above 8%. With two-thirds of the transformation initiatives completed at year-end, continued execution of the plan is expected to lead to further margin expansion.
- Backlog reached $34.4 billion as of December 31, 2017, fuelled by a 20% increase in order intake across all product segments primarily in Europe and Asia-Pacific. This order activity led to a book-to-bill(9) of 1.2 for the full year, the fourth consecutive year with a ratio above 1.0.
Our products have achieved key milestones, setting the stage for increased future deliveries and revenues including:
- The test train for the New York City subway passed its in-service test in December 2017, allowing the remaining cars to be delivered and to be placed in service;
- The first Queensland New Generation Rollingstock trains entered passenger service along the South-East Queensland rail network in Australia in December 2017;
- In September 2017, the TWINDEXX Vario double deck trains for Deutsche Bahn (DB) have received single traction homologation from the German Federal Railway Authority (EBA) and started operational service; and
- In January 2018, we announced that the first rail cars for the San Francisco Bay Area Rapid Transit District (BART) are entering passenger service after successfully completing comprehensive testing and receiving certification from the California Public Utilities Commission.
Transportation’s strong results in 2017 outpaced the performance targets underlying CDPQ’s investment in BT Holdco. Accordingly, for the 12-month period starting on February 12, 2018, Bombardier’s percentage of ownership on conversion of CDPQ’s shares will increase by 2.5%, up from 70% to 72.5%. Any dividends paid by BT Holdco to its shareholders during this period will be distributed on the basis of each shareholder’s percentage of ownership on conversion, being 72.5% for Bombardier and 27.5% for the CDPQ. These adjustments will become effective once the audited consolidated financial statements of BT Holdco are duly approved by its Board of Directors.