We are a leading manufacturer of both planes and trains, operating under two reportable segments: Aviation and

Transportation. We provide efficient, sustainable and enjoyable transportation solutions. Our products, services,

and most of all, our 60,000 dedicated and highly skilled employees are what makes us a global leader in mobility

and innovation. As at the date of this report, we have over 70 production and engineering sites in over 25

countries and a worldwide network of service centres.

AVIATION

Revenues(1)

Designs, develops, manufactures, markets $7.5

and provides aftermarket support for three billion

class-leading families of business jets -

Learjet, Challenger and Global, in addition Order backlog(2)

to outfitting various aircraft platforms for

$16.3

specialized use.

billion

Employees(3)

24,350

TRANSPORTATION

Revenues(1)

Offers a wide-ranging portfolio of innovative $8.3

and efficient solutions in the rail industry. billion

Covers the full spectrum of rail solutions,

ranging from global mobility solutions to a Order backlog(2)

variety of trains and sub-systems, services,

$35.8

system integration and signalling to meet

billion

the market’s needs and expectations.

Employees(3)

36,050

All amounts in this financial report are in US dollars unless otherwise indicated.

(1) For fiscal year 2019.

(2) As at December 31, 2019. Order backlog for Aviation includes $14.4 billion for business aircraft and $1.9 billion for other aviation.

(3) As at December 31, 2019, including contractual and 1,700 inactive employees. Approximately 200 Corporate office employees are not

allocated to a reportable segment.

SETTING A PATH TO COMPLETE THE TURNAROUND

Bombardier has come a long way since launching its turnaround plan. We have addressed our

underperforming aerospace assets, completed our heavy investment cycle, and put the

company on a solid path toward organic growth and margin expansion, while prudently

managing our liquidity and heavy debt. We enter 2020, focused on initiating the final phase of

our turnaround plan, deleveraging our balance sheet and addressing our capital structure to

provide Bombardier with the financial flexibility necessary to compete and win in the future.

Dear Shareholders, jobs and attracting major OEM’s (Airbus and

MHI) to Montréal’s aerospace cluster.

While 2019 was challenging from a financial

performance standpoint, the actions taken by In 2019, we also successfully completed a

the team throughout the year moved us much number of important structural actions to

closer to achieving our turnaround goals. Of streamline our operations and reduce costs

course, this progress would not have been across the portfolio. These actions included:

possible without the dedication and hard work of (i) the consolidation of all our aerospace assets

our more than 60,000 employees around the and engineering capabilities into a single

world, who have demonstrated exceptional Bombardier Aviation business unit; and (ii) the

talent in making our turnaround possible. On acquisition and successful integration of the

behalf of all our shareholders, I thank our Global 7500 wing program from Triumph to

employees for their many contributions, for secure our growth.

embracing change and for making Bombardier a

truly amazing company. There were many notable accomplishments at

Bombardier Aviation in 2019, including the

Since we launched our turnaround plan and production ramp-up of our new Global 7500

given our high debt load, a fundamental business jet, which continues to lead the

objective was to protect shareholder value by industry setting records for speed, distance,

having sufficient liquidity to manage all possible efficiency and cabin comfort. In addition, we

scenarios, contingencies and market conditions. significantly strengthened our portfolio with the

In 2019, we took the right actions to ensure we successful completion and entry-into-service of

maintained a minimum of $2.5 billion to the Global 5500 and Global 6500 aircraft; on-

$3.0 billion cash-on-hand. We successfully time, on-budget, and with better than promised

raised $2 billion of debt, mainly used to push out performance capabilities. Aviation’s aftermarket

maturities from 2020-21 to 2027; and we nearly growth also remains on plan, delivering double-

doubled the size of our revolver credit facility at digit organic growth in 2019 and successfully

Transportation. executing on major expansion projects around

the world, including new facilities in Singapore,

Over the past two years, we also announced London and Miami.

M&A transactions, including the sale of the CRJ

program and our Aerostructures business in At Transportation, the focus in 2019 was on

2019, which will collectively generate $2 billion completing the transformation and reshaping of

of gross proceeds and eliminate nearly $1 billion the business. While steady progress was made

of net liabilities.(1) toward this goal, production ramp-up challenges

and delays in achieving certain technical

The significance of the CRJ and Aerostructures milestones and software certifications resulted in

transactions should not be overlooked. They the company incurring additional costs and

represent major steps in Bombardier’s exit from delayed cash flow, negatively impacting

the commercial aircraft business, a business Bombardier’s financial performance.

that lost approximately $400 million in 2016.

While not reflected in the financial performance, Among the actions taken to ensure improved

Bombardier’s exit from commercial aerospace execution and operating performance at

has been widely recognized by all stakeholders, Transportation was strengthening and

customers, employees, partners and reorganizing the Leadership team. This included

governments for the responsible manner in naming a new President, a new Chief

which it was done and for the positive impact it Commercial Officer, a new Chief Engineer and

will have on the aerospace sector in Québec new regional Presidents, all of whom bring the

and Canada, including preserving thousands of strong technical, operational and customer focus

BOMBARDIER INC. / 2019 FINANCIAL REPORT 1

necessary for Transportation to deliver world- Research Info Source, Inc. In their annual

class project execution and sustained financial ranking of Canada’s Innovation Leaders,

performance. Bombardier was named the leading corporate

R&D investor for the seventh consecutive year.

These actions resulted in a positive impact, most

notably in the improved backlog and the major Since the launch of our turnaround plan, every

project wins, such as the Cairo Monorail, as well action taken has been with an eye towards the

as progress made addressing the challenges ultimate goals, de-leveraging of the balance

associated with our legacy projects. sheet, addressing our capital structure and

providing Bombardier with the financial flexibility

Transportation’s 2019 backlog growth and to compete and win. In 2019, we proactively

margin improvement were impressive. Total launched a comprehensive process to evaluate

order intake exceeded $10 billion, a record level. a range of alternatives that would allow the

Almost 70% of these orders came from service company to accelerate its deleveraging and

contracts, signalling projects, high reuse position the business for long-term success.

platforms and/or options on existing rolling stock

contracts, which carry much lower execution Successfully concluding our strategic review and

risk. any resulting actions, while simultaneously

driving improved operational and financial

Project execution in 2019 also improved as performance across the organization, are the

evidenced by the successful completion of key objectives for 2020.(1)

several large legacy projects in New York City,

London and Toronto. Significant progress was Consistent with these goals, in February 2020,

made - and continues to be made - on the we announced an agreement to transfer our

remaining legacy projects, including London remaining interests in the Airbus Canada Limited

Overground's LoTrain project and the Swiss Partnership to Airbus and Investissement

Federal Railways (SBB) trains. These remaining Québec. This transaction further strengthens

projects are expected to be largely completed liquidity with approximately $600 million of cash

along with final commercial resolutions by the proceeds and the elimination of capital

end of 2020. At that time, Transportation’s full requirements over the next two years.

earnings and cash generation ability will become

clear as we reap the benefits of our refreshed In closing, we are confident that we are taking

product portfolio, higher-margin backlog and the right actions to place Bombardier in the best

solid growth fundamentals. position for sustainable long-term growth and

success and the entire leadership is very excited

In 2019, Bombardier reaffirmed its commitment about the tremendous opportunities ahead. We

to supporting the communities where it operates. look forward to updating shareholders on our

In Canada, for example, we launched a progress throughout the coming year.

refreshed internship program that included a

commitment to providing more than 1,000 paid

internship positions over the coming academic

year. We also supported the education of the

next generation of aerospace technicians with

the recently announced donations of a CRJ

regional jet and Global 7500 Flight-Test Vehicle

to Centennial College in Toronto, ensuring

students will receive valuable hands-on-training Alain Bellemare

before entering the workforce. Bombardier’s President and Chief Executive Officer

ongoing commitment to innovation and R&D

investment was also recognized by Canada’s

(1) Forward-looking statement. See the forward-looking statements assumptions on which the guidance is based and forward-looking

statements disclaimer in Overview.

2 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

Table of Contents

MANAGEMENT’S CONSOLIDATED

DISCUSSION FINANCIAL

AND ANALYSIS STATEMENTS

For the fiscal year ended For the fiscal years ended

December 31, 2019 December 31, 2019 and 2018

4 131

BOMBARDIER INC. / 2019 FINANCIAL REPORT 3

BOMBARDIER INC.

MANAGEMENT’S DISCUSSION

AND ANALYSIS

For the fiscal year ended

December 31, 2019

Table of Contents

OVERVIEW AVIATION TRANSPORTATION OTHER

6 52 72 91

All amounts in this report are expressed in U.S. dollars, and all amounts in the tables are in millions of U.S. dollars, unless

otherwise indicated.

This MD&A is the responsibility of management and has been reviewed and approved by the Board of Directors of

Bombardier Inc. (the “Corporation” or “Bombardier”). This MD&A has been prepared in accordance with the requirements of

the Canadian Securities Administrators. The Board of Directors is responsible for ensuring that we fulfill our responsibilities

for financial reporting and is ultimately responsible for reviewing and approving the MD&A. The Board of Directors carries out

this responsibility principally through its Audit Committee. The Audit Committee is appointed by the Board of Directors and is

comprised entirely of independent and financially literate directors. The Audit Committee reports its findings to the Board of

Directors for its consideration when it approves the MD&A and financial statements for issuance to shareholders.

The data presented in this MD&A is structured by reportable segment: Aviation and Transportation.

IFRS and non-GAAP measures

This MD&A contains both IFRS and non-GAAP measures. Non-GAAP measures are defined and reconciled to the most

comparable IFRS measure (see the Non-GAAP financial measures and Liquidity and capital resources sections in Overview

and each reportable segment's Analysis of results section).

Materiality for disclosures

We determine whether information is material based on whether we believe a reasonable investor’s decision to buy, sell or

hold securities of the Corporation would likely be influenced or changed if the information were omitted or misstated.

Certain totals, subtotals and percentages may not agree due to rounding.

The Financial Report for fiscal year 2019 comprises the message from our President and Chief Executive Officer to

shareholders, this MD&A and our consolidated financial statements.

4 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

The following table shows the abbreviations used in the MD&A and the consolidated financial statements.

Term Description Term Description

ACLP Airbus Canada Limited Partnership (formerly FVOCI Fair value through other comprehensive income

CSALP) (loss)

AFS Available for sale FVTP&L Fair value through profit and loss

bps Basis points GAAP Generally accepted accounting principles

BT Bombardier Transportation (Investment) UK GDP Gross domestic product

Holdco Limited

HFT Held for trading

CAGR Compound annual growth rate IAS International Accounting Standard(s)

CCTD Cumulative currency translation difference IASB International Accounting Standards Board

CDPQ Caisse de dépôt et placement du Québec IFRIC International Financial Reporting Interpretation

Committee

CGU Cash generating unit

CIS Commonwealth of Independent States IFRS International Financial Reporting Standard(s)

CSALP C Series Aircraft Limited Partnership Libor London Interbank Offered Rate

DB Defined benefit MD&A Management’s discussion and analysis

DC Defined contribution N/A Not applicable

DDHR Derivative designated in a hedge relationship NCI Non-controlling interests

DSU Deferred share unit nmf Information not meaningful

EBIT Earnings (loss) before financing expense, OCI Other comprehensive income (loss)

financing income and income taxes

PP&E Property, plant and equipment

EBITDA Earnings (loss) before financing expense, PSU Performance share unit

financing income, income taxes, amortization and

impairment charges on PP&E and intangible R&D Research and development

assets

RSU Restricted share unit

EBT Earnings (loss) before income taxes RVG Residual value guarantee

EIS Entry-into-service SG&A Selling, general and administrative

EPS Earnings (loss) per share attributable to equity U.K. United Kingdom

holders of Bombardier Inc.

U.S. United States of America

Euribor Euro Interbank Offered Rate

BOMBARDIER INC. / 2019 FINANCIAL REPORT 5

OVERVIEW

Table of Contents

HIGHLIGHTS KEY STRATEGIC SEGMENT GUIDANCE AND CONSOLIDATED

OF THE YEAR PERFORMANCE PRIORITIES REPORTING FORWARD- RESULTS OF

MEASURES AND LOOKING OPERATIONS

METRICS STATEMENTS

7 10 12 14 16 22

CONSOLIDATED LIQUIDITY AND CAPITAL RETIREMENT RISK NON-GAAP

FINANCIAL CAPITAL STRUCTURE BENEFITS MANAGEMENT FINANCIAL

POSITION RESOURCES MEASURES

28 29 37 38 43 49

6 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

HIGHLIGHTS OF THE YEAR

Transitioning towards sustainable financial performance

RESULTS

For the fiscal years ended December 31 2019 (1) 2018 Variance

Revenues $ 15,757 $16,236 (3)%

Adjusted EBITDA(2) $ 896 $ 1,304 (31)%

Adjusted EBITDA margin(2) 5.7% 8.0% (230) bps

Adjusted EBIT(2) $ 470 $ 1,029 (54)%

Adjusted EBIT margin(2) 3.0% 6.3% (330) bps

EBIT $ (498) $ 1,001 nmf

EBIT margin (3.2)% 6.2% (940) bps

Net income (loss) $ (1,607) $ 318 nmf

Diluted EPS (in dollars) $ (0.76) $ 0.09 $ (0.85)

Adjusted net income (loss)(2) $ (396) $ 438 nmf

Adjusted EPS (in dollars)(2) $ (0.25) $ 0.14 $ (0.39)

Cash flows from operating activities $ (680) $ 597 nmf

Net additions to PP&E and intangible assets $ 523 $ 415 (3) 26%

Free cash flow (usage)(2) $ (1,203) $ 182 (3) nmf

As at December 31 2019 2018 Variance

Cash and cash equivalents(4) $ 2,629 $ 3,187 (18)%

Available short-term capital resources(5)(6) $ 3,925 $ 4,373 (10)%

Order backlog (in billions of dollars)

Aviation

Business aircraft $ 14.4 $ 14.3 1%

Other aviation(6) $ 1.9 $ 4.3 (56)%

Transportation $ 35.8 $ 34.5 4%

(1) Refer to Note 3 - Changes in accounting policies, to our Consolidated financial statements, for the impact of the adoption of IFRS 16,

Leases. Under the modified retrospective approach adopted by the Corporation, 2018 figures are not restated.

(2) Non-GAAP financial measures. Refer to the Non-GAAP financial measures section in Overview for definitions of these metrics and to the

Analysis of results section and Liquidity and capital resources section for reconciliations to the most comparable IFRS measures. Prior to

the first quarter of fiscal year 2019, the Corporation reported non-GAAP measures labelled “EBIT before special items” and “EBITDA

before special items”. Beginning in the first quarter of fiscal year 2019, the Corporation changed the label of these non-GAAP measures

to "adjusted EBIT" and "adjusted EBITDA", respectively, without making any change to the composition of these non-GAAP measures.

The Corporation believes that this new label aligns better with broad market practice in its industry and better distinguishes these

measures from the IFRS measurement "EBIT".

(3) Included the proceeds from the sale of the Downsview property for approximately $600 million in 2018.

(4) Includes cash and cash equivalents of the aerostructures businesses presented under Assets held for sale totalling $51 million as of

December 31, 2019. Refer to Reshaping the portfolio section in Aviation, Note 15 - Cash and cash equivalents and Note 30 - Assets held

for sale in the Consolidated financial statements for more details on the transactions as well as the accounting treatments.

(5) Defined as cash and cash equivalents plus the amount available under our revolving credit facilities.

(6) Including 20 firm orders for CRJ900 as of December 31, 2019 and 45 firm orders for CRJ900 as of December 31, 2018. CRJ production

is expected to conclude in the second half of 2020, following the delivery of the current backlog of the aircraft.

BOMBARDIER INC. / 2019 FINANCIAL REPORT / OVERVIEW 7

KEY HIGHLIGHTS AND EVENTS

Financial performance reflects ongoing turnaround of the businesses, as Aviation reshapes its portfolio

and Transportation moves forward on completion of challenging projects.

• Revenues totalled $15.8 billion, led by an 8.5% growth in business aircraft activities, offset by the divestiture

of commercial aircraft programs and lower revenues at Transportation, mainly on account of contract

estimate revisions.

• Adjusted EBITDA(1) and adjusted EBIT(1) of $896 million and $470 million respectively reflect improvements

at Aviation as it exits underperforming commercial programs and ramps-up production on the Global 7500,

while Transportation's results were impacted by additional charges and investments to complete

challenging projects. Reported EBIT loss for the year of $498 million includes an impairment charge related

to the ACLP investments.

• Free cash flow usage(1) for the year of $1.2 billion was driven by additional investments made to address

legacy rail projects as well as the deferral of deliveries, mainly at Transportation.

Fourth quarter cash generation reached $1.0 billion, in line with the prior year but short of expectations

due to delayed cash inflows.

Cash from operating activities amounted to $(680) million for the full year, and to $1.1 billion in the

fourth quarter.

• Business Aircraft and Transportation backlog continued to increase in 2019, reaching over $50 billion in

aggregate, while the CRJ backlog declines as production winds down.

• Year-end cash on hand of approximately $2.6 billion and $1.3 billion available on revolving credit facility;

liquidity to be further strengthened by the additional $1.6 billion of proceeds expected by mid-year of 2020

from the sale of the remaining ACLP interests, CRJ program and the aerostructures business(2)

Reshaping the Aviation portfolio with increased focus on Business Aircraft

• Completed the sales of Business Aircraft’s flight and technical training activities to CAE Inc. and the

Q Series program assets and operations to De Havilland Aircraft of Canada for combined proceeds of

approximately $800 million.

• Entered into a definitive agreement with Mitsubishi Heavy Industries, Ltd. (MHI) in June 2019 for the sale of

the CRJ program for a cash consideration of $550 million payable upon closing, and the assumption by MHI

of certain financial assets and liabilities, including credit and residual value guarantees and lease subsidies.

• Entered into a definitive agreement with Spirit AeroSystems Holding, Inc. (Spirit) in October 2019, whereby

Spirit will acquire Bombardier’s Belfast and Casablanca aerostructures operations and the Dallas

maintenance, repair and overhaul (MRO) facility, for a cash consideration of $500 million and the

assumption of approximately $700 million of liabilities, including government refundable advances and

pension obligations.

• On February 12, 2020, Bombardier entered into an agreement with Airbus SE and the Government of

Quebec, under which Bombardier transferred its shares in the Airbus Canada Limited Partnership (ACLP) to

Airbus and the Government of Quebec, improving Bombardier’s cash position. This includes cash proceeds

of approximately $600 million from Airbus, of which $531 million was paid upon closing with the balance to

be paid over 2020-21, and the elimination of all future capital requirements for the A220 program, estimated

at approximately $700 million.

(1) Non-GAAP financial measures. Refer to the Non-GAAP financial measures section in Overview for definitions of these metrics and to the

Analysis of results section and Liquidity and capital resources section for reconciliations to the most comparable IFRS measures.

(2) Forward-looking statement. See the forward-looking statements assumptions on which the guidance is based and forward-looking

statements disclaimer in Overview.

8 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

Positioning Transportation for Stronger Financial Performance

• Actions and initiatives undertaken in 2019 to progress Transportation challenging projects:

Completed delivery of several large legacy projects, including Metropolitan Transportation Authority

(MTA) in New York City, Crossrail in the U.K. and Toronto Transit Commission (TTC) in Toronto.

Achieved key milestones on other major projects, including in-service reliability improvement on Swiss

Federal Railways (SBB) in Switzerland and the homologation of the multi-unit software for LoTrain in

the U.K., paving the way for train deliveries.

• Transportation continued to grow and improve the quality of its backlog with $10.0 billion in new orders, and

a book-to-bill ratio(1) of 1.2 for the year. Backlog reached $35.8 billion at the end of 2019.

Approximately 70% of 2019 orders coming from service contracts, signalling projects and options on

rolling stock contracts, carrying lower execution risk.

Backlog share of services and signalling contracts increased to 48% (42% a year ago).

Acceleration of Deleveraging Phase of Turnaround

• Consistent with Bombardier’s five-year turnaround plan, and following a comprehensive review of strategic

alternatives, the Company is actively pursuing options to strengthen its balance sheet and enhance

shareholder value. The objective is to position the business for long-term success with greater operating

and financial flexibility.(2)

(1) Ratio of new orders over revenues.

(2) Forward-looking statement. See the forward-looking statements assumptions on which the guidance is based and forward-looking

statements disclaimer in Overview.

BOMBARDIER INC. / 2019 FINANCIAL REPORT / OVERVIEW 9

KEY PERFORMANCE MEASURES AND METRICS

The table below summarizes key performance measures and associated metrics evaluated only on a consolidated

basis. Our reportable segments use multiple other key performance measures to evaluate various key metrics.

Refer to each reportable segment’s Key performance measures and metrics section for further details.

KEY PERFORMANCE MEASURES AND ASSOCIATED METRICS

PROFITABILITY • Diluted EPS and adjusted EPS(1), as measures of global performance.

• Available short-term capital resources(2), as a measure of liquidity adequacy.

LIQUIDITY

• Free cash flow(1), as a measure of liquidity generation.

• Adjusted EBIT(1) to adjusted interest(1) ratio, as a measure of interest coverage.

CAPITAL STRUCTURE • Adjusted debt(1) to adjusted EBITDA(1) ratio, as a measure of financial leverage.

• Weighted-average long-term debt maturity, as a measure of debt term structure.

(1) Non-GAAP financial measures. Refer to the Non-GAAP financial measures, Consolidated results of operations and Liquidity and capital

resources sections for definitions of these metrics and reconciliations to the most comparable IFRS measures.

(2) Defined as cash and cash equivalents plus the amount available under our revolving credit facilities.

10 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

FIVE-YEAR SUMMARY

For the fiscal years ended and as at

December 31 2019 (1) 2018 2017 2016 2015

restated(2)

Profitability

Revenues $ 15,757 $ 16,236 $ 16,199 $ 16,339 $ 18,172

Adjusted EBITDA(3)(4) $ 896 $ 1,304 $ 1,046 $ 798 $ 992

Adjusted EBITDA margin(3)(4) 5.7% 8.0% 6.5% 4.9% 5.5%

Adjusted EBIT(3)(4) $ 470 $ 1,029 $ 725 $ 427 $ 554

Adjusted EBIT margin(3)(4) 3.0% 6.3% 4.5% 2.6% 3.0%

EBIT $ (498) $ 1,001 $ 299 $ (58) $ (4,838)

EBIT margin (3.2)% 6.2% 1.8% (0.4)% (26.6)%

Net income (loss) $ (1,607) $ 318 $ (525) $ (981) $ (5,340)

Diluted EPS (in dollars) $ (0.76) $ 0.09 $ (0.24) $ (0.48) $ (2.58)

Adjusted net income (loss)(3) $ (396) $ 438 $ 91 $ (268) $ 326

Adjusted EPS (in dollars)(3) $ (0.25) $ 0.14 $ 0.04 $ (0.15) $ 0.14

Liquidity

Cash flows from operating activities $ (680) $ 597 $ 531 $ 137 $ 20

Net additions to PP&E and intangible

assets $ 523 $ 415 (5) $ 1,317 $ 1,201 $ 1,862

Free cash flow (usage)(3) $ (1,203) $ 182 (5) $ (786) $ (1,064) $ (1,842)

Cash and cash equivalents(6) $ 2,629 $ 3,187 $ 3,057 $ 3,384 $ 2,720

Available short-term capital resources(7) $ 3,925 $ 4,373 $ 4,225 $ 4,477 $ 4,014

Capital structure

Interest coverage ratio(8) 0.6 1.5 1.3 0.8 1.5

Financial leverage ratio(8) 10.9 6.6 7.9 9.7 7.3

Weighted-average long-term debt

maturity (in years) 4.6 4.3 5.3 5.8 6.3

(1) Refer to Note 3 - Changes in accounting policies, to our Consolidated financial statements, for the impact of the adoption of IFRS 16,

Leases. Under the modified retrospective approach adopted by the Corporation, 2018 figures are not restated.

(2) Restated due to the adoption of IFRS 15, Revenue from contracts with customers.

(3) Non-GAAP financial measures. Refer to the Non-GAAP financial measures, Consolidated results of operations and Liquidity and capital

resources sections for definitions of these metrics and reconciliations to the most comparable IFRS measures.

(4) Refer to the Consolidated results of operations section for details of special items recorded in 2019 and 2018.

(5) Included the proceeds from the sale of the Downsview property for approximately $600 million in 2018.

(6) Includes cash and cash equivalents of the aerostructures businesses presented under Assets held for sale totalling $51 million as of

December 31, 2019. Refer to Reshaping the portfolio section in Aviation, Note 15 - Cash and cash equivalents and Note 30 - Assets held for

sale in the Consolidated financial statements for more details on the transactions as well as the accounting treatments. Also included cash

and cash equivalents of the C Series aircraft program presented under Assets held for sale amounting to $69 million as of December 31,

2017.

(7) Defined as cash and cash equivalents plus the amount available under the revolving credit facilities.

(8) Refer to the Capital structure and Non-GAAP financial measures sections for computations of these ratios. In 2019, the Corporation

changed the definitions of these ratios as a result of adopting IFRS 16, Leases.

BOMBARDIER INC. / 2019 FINANCIAL REPORT / OVERVIEW 11

STRATEGIC PRIORITIES

Acceleration of deleveraging phase of turnaround

Since launching the turnaround plan, Bombardier has addressed underperforming aerospace assets, completed

the heavy investment cycle, and set itself on a solid path toward organic growth and margin expansion while

prudently managing liquidity and its heavy debt load.

By the end of 2020, Bombardier expects to start deploying excess cash on hand initiating the deleveraging phase

of the plan. This strong liquidity position is supported by cash on hand of $2.6 billion as of December 31, 2019,

expected approximately $1.6 billion proceeds from the ACLP remaining interest, CRJ program and Aerostructures

sales. Deleveraging is expected to further accelerate as the Corporation transitions toward positive free cash flow

generation expected by the end of the year.(1)

With the final phase of the plan in motion, Bombardier is also actively pursuing alternatives to accelerate debt

paydown in order to position the business for long-term success with greater operating and financial flexibility.

(1) Forward-looking statement. See the forward-looking statements assumptions on which the guidance is based and forward-looking statements

disclaimer in Overview.

12 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

Forward-looking statements

Forward-looking statements(1) in this section of the MD&A are based on and subject to the following material assumptions:

Overall business

• normal execution and delivery of current backlog;

• the ability to understand customer needs and portfolio of products and services to drive market demand and secure new

orders;

• continued deployment and execution of leading initiatives to improve revenue conversion into higher earnings and free

cash flow(2), through improved procurement cost, controlled spending and labour efficiency;

• delivering on the transformation plan targets, through restructurings and other initiatives addressing the direct and

indirect cost structure, focusing on sustained cost reductions and operational improvements, while reducing working

capital consumption;

• the ability of the supply base to support product development and planned production rates on commercially acceptable

terms in a timely manner;

• the ability to identify and enter into further risk sharing partnerships and initiatives;

• the effectiveness of disciplined capital deployment measures in new programs and products to drive revenue growth;

• the ability to recruit and retain highly skilled resources to deploy the product development strategy;

• the stability of the competitive global environment and global economic conditions;

• the stability of foreign exchange rates at current levels; and

• the ability to have sufficient liquidity to execute the strategic plan, to meet financial covenants and to pay down long-term

debt or refinance bank facilities and maturities.

Aviation

• closing of the sale of our regional jet program and Belfast and Morocco aerostructures businesses and Dallas MRO by

mid-year 2020;

• the alignment of production rates to market demand;

• the ability to manage the learning curve as we ramp up production and deliveries of the Global 7500 aircraft;

• continued deployment and execution of growth strategies, and continued growth of the aftermarket business;

• the ability to invest in our product portfolio;

• the accuracy of the analyses and assumptions underlying our business case including estimated cash flows and

revenues over the expected life of our programs and thereafter;

• the accuracy of our assessment of anticipated growth drivers and sector trends; and

• new program aircraft prices, unit costs and ramp-up.

Transportation

• our ability to execute and deliver business model enhancement initiatives;

• our ability to release working capital stemming from delivery challenges experienced;

• our ability to successfully move forward and complete challenging projects;

• our ability to meet project milestones on schedule and reach customer settlements on key projects;

• the ability to leverage the global manufacturing footprint and transfer best practices and technology across production;

• the realization of upcoming tenders and our ability to capture them based on market forecasts(3), leading to estimated

future order intake; and

• successful deployment and execution of growth strategies, including the value chain approach and the creation of

ecosystems, site specialization and the creation of engineering centres of excellence, and the evolution of the backlog

and revenue mix towards less challenging legacy projects and more lower-risk projects, signalling and systems and

operations and maintenance contracts.

For a discussion of the material risk factors associated with the forward-looking information, refer to the Risks and

uncertainties section in Other.

(1) Also refer to the Guidance and forward-looking statements section for the forward-looking statements disclaimer.

(2) Non-GAAP measure. Refer to the Non-GAAP measures for definition of this metric and to the Analysis of results section for a

reconciliation to the most comparable IFRS measures.

(3) For more details, refer to the market indicators in the Industry and economic environment section of the Transportation segment.

BOMBARDIER INC. / 2019 FINANCIAL REPORT / OVERVIEW 13

SEGMENT REPORTING

During the second quarter of 2019, the Corporation announced the strategic formation of Bombardier Aviation,

consolidating all aerospace assets into a single, streamlined and fully integrated business. As a result of our

integration following this announcement, our reportable segments are now Aviation and Transportation. Business

Aircraft, Commercial Aircraft and Aerostructures and Engineering Services are reported under Aviation. The

Corporation’s interest in ACLP is treated as a corporately held investment and therefore is included in Corporate

and Others.

The restated results under the new reportable segments are as follows.

Three-month period ended March 31, 2019

Corporate and

Aviation Transportation Others Total

Revenues $ 1,410 $ 2,107 $ (1) $ 3,516

Adjusted EBITDA(1) $ 202 $ 118 $ (54) (2) $ 266 (2)

Adjusted EBIT(1) $ 144 $ 83 $ (56) (2) $ 171 (2)

EBIT $ 664 $ 83 $ (63) (2) $ 684 (2)

Adjusted EBITDA margin(1) 14.3% 5.6%

Adjusted EBIT margin(1) 10.2% 3.9%

EBIT margin 47.1% 3.9%

Three-month period ended June 30, 2019

Corporate and

Aviation Transportation Others Total

Revenues $ 2,120 $ 2,194 $ — $ 4,314

Adjusted EBITDA(1) $ 222 $ 146 $ (56) (2) $ 312 (2)

Adjusted EBIT(1) $ 151 $ 111 $ (56) (2) $ 206 (2)

EBIT $ 340 $ 87 $ (56) (2) $ 371 (2)

Adjusted EBITDA margin(1) 10.5% 6.7%

Adjusted EBIT margin(1) 7.1% 5.1%

EBIT margin 16.0% 4.0%

(1) Non-GAAP financial measures. Refer to the Non-GAAP financial measures section for definitions of these metrics and reconciliations to the

most comparable IFRS measures.

(2) Includes share of net gain (loss) from ACLP of $1 million for the first quarter of 2019 and $(9) million for the second quarter of 2019.

14 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

Three-month period ended March 31, 2018

Corporate and

Aviation Transportation Others Total

Revenues $ 1,675 $ 2,355 $ (2) $ 4,028

Adjusted EBITDA(1) $ 91 $ 214 $ (40) $ 265

Adjusted EBIT(1) $ 54 $ 189 $ (42) $ 201

EBIT $ 52 $ 191 $ (42) $ 201

Adjusted EBITDA margin(1) 5.4% 9.1%

Adjusted EBIT margin(1) 3.2% 8.0%

EBIT margin 3.1% 8.1%

Three-month period ended June 30, 2018

Corporate and

Aviation Transportation Others Total

Revenues $ 2,003 $ 2,259 $ — $ 4,262

Adjusted EBITDA(1) $ 144 $ 232 $ (40) $ 336

Adjusted EBIT(1) $ 105 $ 207 $ (41) $ 271

EBIT $ 69 $ 163 $ (41) $ 191

Adjusted EBITDA margin(1) 7.2% 10.3%

Adjusted EBIT margin(1) 5.2% 9.2%

EBIT margin 3.4% 7.2%

Three-month period ended September 30, 2018

Corporate and

Aviation Transportation Others Total

Revenues $ 1,504 $ 2,140 $ (1) $ 3,643

Adjusted EBITDA(1) $ 166 $ 212 $ (45) (2) $ 333 (2)

Adjusted EBIT(1) $ 129 $ 187 $ (45) (2) $ 271 (2)

EBIT $ 132 $ 184 $ (49) (2) $ 267 (2)

Adjusted EBITDA margin(1) 11.0% 9.9%

Adjusted EBIT margin(1) 8.6% 8.7%

EBIT margin 8.8% 8.6%

Three-month period ended December 31, 2018

Corporate and

Aviation Transportation Others Total

Revenues $ 2,142 $ 2,161 $ — $ 4,303

Adjusted EBITDA(1) $ 242 $ 193 $ (65) (2) $ 370 (2)

Adjusted EBIT(1) $ 184 $ 167 $ (65) (2) $ 286 (2)

EBIT $ 171 $ 236 $ (65) (2) $ 342 (2)

Adjusted EBITDA margin(1) 11.3% 8.9%

Adjusted EBIT margin(1) 8.6% 7.7%

EBIT margin 8.0% 10.9%

Fiscal year ended December 31, 2018

Corporate and

Aviation Transportation Others Total

Revenues $ 7,324 $ 8,915 $ (3) $ 16,236

Adjusted EBITDA(1) $ 643 $ 851 $ (190) (2) $ 1,304 (2)

Adjusted EBIT(1) $ 472 $ 750 $ (193) (2) $ 1,029 (2)

EBIT $ 424 $ 774 $ (197) (2) $ 1,001 (2)

Adjusted EBITDA margin(1) 8.8% 9.5%

Adjusted EBIT margin(1) 6.4% 8.4%

EBIT margin 5.8% 8.7%

(1) Non-GAAP financial measures. Refer to the Non-GAAP financial measures section for definitions of these metrics and reconciliations to the

most comparable IFRS measures.

(2) Includes share of net loss from ACLP of $13 million for the third quarter of 2018 and $27 million for the fourth quarter of 2018.

BOMBARDIER INC. / 2019 FINANCIAL REPORT / OVERVIEW 15

GUIDANCE AND FORWARD-LOOKING STATEMENTS

Starting in the third quarter of 2019, Bombardier's three existing aerospace units are consolidated into a single

Bombardier Aviation business segment. As a result of this change, the Corporation updated its 2019 guidance.

2019 guidance provided

Updated 2019

in our R20 e1 p8

o

rF t(i 1n )ancial guidance(2) 2019 results

Business Aircraft ~ $6.25 billion

}

Commercial Aircraft ~ $1.4 billion Aviation(3)

$7.5 billion

~ $8.0 billion

Aerostructures and

Revenues $2.25-$2.50 billion

Engineering Services

Transportation ~ $9.5 billion ~ $8.75 billion $8.27 billion

Consolidated $16.5-$17.0 billion $15.8 billion

Adjusted EBITDA(4) Consolidated $1.65-$1.80 billion $1.20-$1.30 billion $0.90 billion

Business Aircraft ~ 7.5%

}

Commercial Aircraft ~ ($125 million) Aviation(3)

7.1%

~ 7.0%

Adjusted EBIT(4) and Aerostructures and

7.5%

adjusted EBIT margin(4) Engineering Services

Transportation ~ 9.0% ~ 5.0% 0.8%

Consolidated $1.15-$1.25 billion $700-$800 million $470 million

EBIT Consolidated N/A N/A $(498) million

Breakeven ± $250

Free cash flow(4) Consolidated ~ ($500 million) $(1,203) million

million

Cash flows from operating

Consolidated N/A N/A $(680) million

activities

Net additions to PP&E and

Consolidated N/A N/A $523 million

intangible assets

Business Aircraft 150 - 155 } Aviation(3)

Aircraft deliveries (in units) 175

175 - 180

Commercial Aircraft ~30 CRJ and Q400

(1) Refer to our 2018 Financial Report for further details.

(2) Refer to our First Quarterly Report for the period ended March 31, 2019, our Second Quarterly Report for the period ended June 30, 2019 and

Segment Reporting section of this MD&A for further details.

(3) Refer to our Segment Reporting section of this MD&A for further details. The assumptions on which the guidance for the aerospace segments

was based continue to apply to the guidance for the Aviation segment.

(4) Non-GAAP financial measures. Refer to the Non-GAAP financial measures and Liquidity and capital resources sections for definitions of these

metrics and reconciliations to the most comparable IFRS measures.

16 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

2019 guidance(1)

CONSOLIDATED

Revenue guidance for the year was revised to be in the range of $16.5 to $17.0 billion as a result of lower revenues

at Transportation, driven by production ramp-up adjustments, unfavourable currency impact and earlier than

anticipated closing of the sale of Business Aircraft’s training activities and the Q400 program. Revenues for the full

year of $15.8 billion were below Guidance mainly as a result of revised estimates on certain rail contracts in the

fourth quarter.

Adjusted EBITDA(2) and adjusted EBIT(2) guidance were revised down to $1.2-$1.3 billion and $700-$800 million,

respectively, mainly reflecting revised margins at Transportation. Full year adjusted EBITDA(2) and adjusted EBIT(2)

were $896 million and $470 million respectively as a result of additional charges related to certain projects in the

U.K., Switzerland, and Germany recognized in the fourth quarter.

Free cash flow(2) guidance for the full year was revised to a usage of approximately $500 million as a result of

additional investments and costs at Transportation, and the timing risk on some key rail projects with delivery

milestones near the end of the year. Full year free cash flow usage(2) was $1.2 billion largely due to the timing of

cash inflows from milestone payments on large Transportation projects, and the later-than-anticipated closing of

certain orders and call-offs.

AVIATION

Revenue guidance was reduced by $250 million from the earlier than anticipated closing of the sale of Business

Aircraft’s training activities and the Q400 program. During the second quarter of 2019, as a result of the

consolidation of the three existing aerospace units into a single Bombardier Aviation business segment, the

corporation updated its 2019 guidance. Full year revenues guidance at Aviation was updated to approximately

$8.0 billion, net of eliminations. Revenues for 2019 at Aviation were $7.5 billion mainly due to certain business

aircraft deliveries shifting into 2020.

New segment adjusted EBIT margin(2) guidance was set at approximately 7% for the year, in line with the previous

aerospace segments guidance, and excluding the Airbus Canada Limited Partnership contribution (reclassified as a

corporately held investment). A total of 175 to 180 aircraft deliveries were expected for 2019. For 2019, Aviation’s

adjusted EBIT margin(2) and deliveries were largely in line with guidance.

TRANSPORTATION

Revenue guidance was lowered to approximately $8.75 billion driven by slower production ramp-up and

unfavourable currency impact. 2019 revenues of $8.3 billion were lower as a result of revised estimates on certain

rail contracts in the fourth quarter.

On the earnings front, adjusted EBIT margin(2) guidance for the full year was revised from approximately 9% to

approximately 5%, mainly as we made additional investments and incurred additional costs to both complete the

legacy projects and to protect the delivery schedule for other projects. For 2019, adjusted EBIT margin(2) was 0.8%

as a result of additional charges related to certain contracts in the U.K., Switzerland, and Germany. This resulted in

approximately 30% of 2019 revenues recorded with neutral or negative margins.

(1) Forward-looking statement. See the forward-looking statements assumptions on which the guidance is based and forward-looking statements

disclaimer in Overview.

(2) Non-GAAP financial measures. Refer to the Non-GAAP financial measures and Liquidity and capital resources sections for definitions of these

metrics and reconciliations to the most comparable IFRS measures.

BOMBARDIER INC. / 2019 FINANCIAL REPORT / OVERVIEW 17

Other Objectives(1)

Cash and cash equivalents and liquidity(2) estimates for December 31, 2019 remained unchanged through the year

at > $3.0 billion and > $4.0 billion, respectively. The Corporation ended the year with cash and cash equivalents of

$2.6 billion and liquidity(2) of $3.9 billion reflecting delayed cash inflows mainly from Transportation in the fourth

quarter.

Net additions to PP&E and intangible assets were estimated at approximately $800 million for the full year. 2019 net

additions to PP&E and intangible assets were favourable relative to expectations, at $523 million.

2020 outlook(3)

Consolidated 2020 Outlook

>$15.0 billion

Revenues From sustaining businesses

Adjusted EBITDA(4) ~7.0%

Adjusted EBIT(4) ~3.5%

Positive,

Free cash flow(4) Excluding RVG Payments

REVENUES

Revenues from sustaining business aircraft and Transportation activities in 2020 are expected to grow organically

by double-digit percentage over the $13.7 billion revenues recorded from these businesses in 2019. This strong

growth is expected mainly from the acceleration of Global 7500 deliveries contributing to a total of 160 aircraft or

more for the year at Aviation. The anticipated consolidated revenue growth is also supported by the ongoing

production ramp-up of Transportation, driven by the solid orders from the past few years.

The 2020 revenue outlook excludes the partial year contribution from the ongoing divestitures of the CRJ and

Aerostructures businesses. In 2019, these businesses along with other non-recurring revenues from divested

businesses (Q400 and Business Aircraft training) generated $2.1 billion of revenues. These revenues are expected

to reduce to less than half of this amount in 2020 given expected transaction closing dates.

(1) Refer to our 2018 Financial Report for further details.

(2) Defined as available short-term capital resources.

(3) Forward-looking statement. See the forward-looking statements assumptions on which the guidance is based and forward-looking statements

disclaimer in Overview. Revenues guidance is based on the assumption that foreign exchange rates remain stable at 1.10 for the conversion

of the amounts in Euro to U.S. dollars.

(4) Non-GAAP financial measures. Refer to the Non-GAAP financial measures and Liquidity and capital resources sections for definitions of these

metrics and reconciliations to the most comparable IFRS measures.

18 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

EARNINGS

Adjusted EBITDA(1)

Adjusted EBIT(1)

Adjusted EBITDA(1) and adjusted EBIT(1) are expected to increase by approximately 130 bps and 50 bps,

respectively, mainly from the acceleration of Global 7500 deliveries at Aviation and gradual margin normalization at

Transportation. Adjusted EBITDA margin(1) is expected at approximately 7.0% for the year. This improvement in

financial performance is largely driven by the progress on the Global 7500 learning curve and continuous growth in

aftermarket services at Aviation. Transportation margin is also expected to increase in 2020 as it normalizes from

the 2019 contract estimate adjustments, while also continuing to carry a large share of projects with no margins.

Adjusted EBIT margin(1) is expected to grow to approximately 3.5%, including a higher amortization expense as

Global 7500 deliveries increase. The full year outlook for earnings reflects partial year contribution from ongoing

divestitures of the CRJ and Aerostructures businesses.

(1) Non-GAAP financial measures. Refer to the Non-GAAP financial measures and Liquidity and capital resources sections for definitions of these

metrics and reconciliations to the most comparable IFRS measures.

BOMBARDIER INC. / 2019 FINANCIAL REPORT / OVERVIEW 19

FREE CASH FLOW(1)

Free cash flow(1) is expected to be positive in 2020, excluding credit and residual value guarantee (RVG) payments

which are estimated at approximately $200 million. These payments are expected to be paid from the CRJ

transaction proceeds. We expect positive free cash flow(1) from both Transportation and business aircraft sustaining

businesses, mainly from a shift towards working capital release and stable year over year investments in PP&E and

intangible assets.

(1) Non-GAAP financial measures. Refer to the Non-GAAP financial measures and Liquidity and capital resources sections for definitions of these

metrics and reconciliations to the most comparable IFRS measures.

This MD&A includes forward-looking statements, which may involve, but are not limited to: statements with respect to our objectives,

anticipations and outlook or guidance in respect of various financial and global metrics and sources of contribution thereto, targets, goals,

priorities, market and strategies, financial position, market position, capabilities, competitive strengths, credit ratings, beliefs, prospects, plans,

expectations, anticipations, estimates and intentions; general economic and business outlook, prospects and trends of an industry; expected

growth in demand for products and services; growth strategy, including in the business aircraft aftermarket business; product development,

including projected design, characteristics, capacity or performance; expected or scheduled entry-into-service of products and services, orders,

deliveries, testing, lead times, certifications and project execution in general; competitive position; expectations regarding progress and

completion of challenging Transportation projects and the release of working capital therefrom within the anticipated timeframe; expectations

regarding revenue and backlog mix; the expected impact of the legislative and regulatory environment and legal proceedings on our business

and operations; strength of capital profile and balance sheet, creditworthiness, available liquidities and capital resources, expected financial

requirements and ongoing review of strategic and financial alternatives; the introduction of productivity enhancements, operational efficiencies

and restructuring initiatives and anticipated costs, intended benefits and timing thereof; the expected objectives and financial targets underlying

our transformation plan and the timing and progress in execution thereof, including the anticipated business transition to growth cycle and cash

generation; expectations and objectives regarding debt repayments and refinancing of bank facilities and maturities; and intentions and

objectives for our programs, assets and operations. As it relates to the pursuit of a divestiture of our operations in Belfast and Morocco and the

sale of the CRJ aircraft program (collectively, the Pending Transactions), this MD&A also contains forward-looking statements with respect to: the

expected terms, conditions, and timing for completion thereof; the respective anticipated proceeds and use thereof and/or consideration therefor,

related costs and expenses, as well as the anticipated benefits of such transactions and their expected impact on our outlook, guidance and

targets, operations, infrastructure, opportunities, financial condition, business plan and overall strategy; and the fact that closing of these

transactions will be conditioned on certain events occurring, including the receipt of necessary regulatory approvals.

Forward-looking statements can generally be identified by the use of forward-looking terminology such as “may”, “will”, “shall”, “can”, “expect”,

“estimate”, “intend”, “anticipate”, “plan”, “foresee”, “believe”, “continue”, “maintain” or “align”, the negative of these terms, variations of them or

similar terminology. Forward-looking statements are presented for the purpose of assisting investors and others in understanding certain key

elements of our current objectives, strategic priorities, expectations, outlook and plans, and in obtaining a better understanding of our business

and anticipated operating environment. Readers are cautioned that such information may not be appropriate for other purposes.

By their nature, forward-looking statements require management to make assumptions and are subject to important known and unknown risks

and uncertainties, which may cause our actual results in future periods to differ materially from forecast results set forth in forward-looking

statements. While management considers these assumptions to be reasonable and appropriate based on information currently available, there is

risk that they may not be accurate. The assumptions underlying the forward-looking statements made in this MD&A in relation to the Pending

Transactions discussed herein include the following material assumptions: the satisfaction of all closing conditions (including receipt of regulatory

approvals on acceptable terms within commonly experienced time frames) and successful completion of such transactions within the anticipated

timeframe, the realization of the intended benefits therefrom (including receipt of expected proceeds) within the anticipated timeframe. For

additional information, including with respect to the other assumptions underlying the forward-looking statements made in this MD&A, refer to the

Strategic Priorities and Guidance and forward-looking statements sections in applicable reportable segment.

Certain factors that could cause actual results to differ materially from those anticipated in the forward-looking statements include, but are not

limited to, risks associated with general economic conditions, risks associated with our business environment (such as risks associated with

“Brexit”, the financial condition of the airline industry, business aircraft customers, and the rail industry; trade policy; increased competition;

political instability and force majeure events or global climate change), operational risks (such as risks related to developing new products and

services; development of new business and awarding of new contracts; book-to-bill ratio and order backlog; the certification and homologation of

products and services; fixed-price and fixed-term commitments and production and project execution, including challenges associated with

20 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

challenging Transportation projects and the risk that actions and initiatives undertaken by Transportation to move forward and complete such

projects may not be successful, and the intended outcome and release of working capital therefrom not being realized, within the timeframe

anticipated or at all; pressures on cash flows and capital expenditures based on project-cycle fluctuations and seasonality; risks associated with

our ability to successfully implement and execute our strategy, transformation plan, productivity enhancements, operational efficiencies and

restructuring initiatives; doing business with partners; inadequacy of cash planning and management and project funding; product performance

warranty and casualty claim losses; regulatory and legal proceedings; environmental, health and safety risks; dependence on certain customers,

contracts and suppliers; supply chain risks; human resources; reliance on information systems; reliance on and protection of intellectual property

rights; reputation risks; risk management; tax matters; and adequacy of insurance coverage), financing risks (such as risks related to liquidity and

access to capital markets; retirement benefit plan risk; exposure to credit risk; substantial existing debt and interest payment requirements;

certain restrictive debt covenants and minimum cash levels; financing support provided for the benefit of certain customers; and reliance on

government support), market risks (such as risks related to foreign currency fluctuations; changing interest rates; decreases in residual values;

increases in commodity prices; and inflation rate fluctuations). For more details, see the Risks and uncertainties section in Other in this MD&A.

With respect to the Pending Transactions discussed herein specifically, certain factors that could cause actual results to differ materially from

those anticipated in the forward-looking statements include, but are not limited to: the failure to receive or delay in receiving regulatory approvals

on acceptable terms or at all, or otherwise satisfy the conditions to the completion of these transactions or delay in completing, and uncertainty

regarding the length of time required to complete, such transactions, and all or part of the intended benefits therefrom not being realized and the

anticipated proceeds therefrom not being available to Bombardier within the anticipated timeframe, or at all; and alternate sources of funding that

would be used to replace the anticipated proceeds from such transactions may not be available when needed, or on desirable terms. For more

details, see the Risks and uncertainties section in Other in this MD&A.

Readers are cautioned that the foregoing list of factors that may affect future growth, results and performance is not exhaustive and undue

reliance should not be placed on forward-looking statements. Other risks and uncertainties not presently known to us or that we presently believe

are not material could also cause actual results or events to differ materially from those expressed or implied in our forward-looking statements.

The forward-looking statements set forth herein reflect management’s expectations as at the date of this report and are subject to change after

such date. Unless otherwise required by applicable securities laws, we expressly disclaim any intention, and assume no obligation to update or

revise any forward-looking statements, whether as a result of new information, future events or otherwise. The forward-looking statements

contained in this MD&A are expressly qualified by this cautionary statement.

BOMBARDIER INC. / 2019 FINANCIAL REPORT / OVERVIEW 21

CONSOLIDATED RESULTS OF OPERATIONS

Results of operations

Fourth quarters Fiscal years

ended December 31 ended December 31

2019 (1) 2018 2019 (1) 2018

Revenues $ 4,205 $ 4,303 $ 15,757 $ 16,236

Cost of sales 3,997 3,637 14,157 13,958

Gross margin 208 666 1,600 2,278

SG&A 235 292 1,013 1,156

R&D 125 72 292 217

Share of income of joint ventures and associates (81) (7) (128) (66)

Other expense (income) (5) 23 (47) (58)

Adjusted EBIT(2) (66) 286 470 1,029

Special items 1,630 (56) 968 28

EBIT (1,696) 342 (498) 1,001

Financing expense 257 261 1,072 712

Financing income (106) (33) (230) (106)

EBT (1,847) 114 (1,340) 395

Income taxes (128) 59 267 77

Net income (loss) $ (1,719) $ 55 $ (1,607) $ 318

Attributable to

Equity holders of Bombardier Inc. $ (1,770) $ 15 $ (1,797) $ 232

NCI $ 51 $ 40 $ 190 $ 86

EPS (in dollars)

Basic $ (0.74) $ 0.02 $ (0.76) $ 0.10

Diluted $ (0.74) $ 0.02 $ (0.76) $ 0.09

As a percentage of total revenues

Adjusted EBIT(2) (1.6)% 6.6% 3.0% 6.3%

EBIT (40.3)% 7.9% (3.2)% 6.2%

(1) Refer to Note 3 - Changes in accounting policies, to our Consolidated financial statements, for the impact of the adoption of IFRS 16,

Leases. Under the modified retrospective approach adopted by the Corporation, 2018 figures are not restated.

(2) Non-GAAP financial measure. Refer to the Non-GAAP financial measures section for a definition of this metric.

Computation of diluted EPS

Fourth quarters Fiscal years

ended December 31 ended December 31

2019 2018 2019 2018

Net income (loss) attributable to equity holders of

Bombardier Inc. $ (1,770) $ 15 $ (1,797) $ 232

Preferred share dividends, including taxes (7) 25 (21) 4

Net income (loss) attributable to common equity

holders of Bombardier Inc. $ (1,777) $ 40 $ (1,818) $ 236

Weighted-average diluted number of common shares

(in thousands of shares) 2,397,868 2,477,954 2,383,987 2,501,047

Diluted EPS (in dollars) $ (0.74) $ 0.02 $ (0.76) $ 0.09

Other non-GAAP financial measure(1)

Fourth quarters Fiscal years

ended December 31 ended December 31

2019 2018 2019 2018

Adjusted EBITDA $ 63 $ 370 $ 896 $ 1,304

Adjusted net income (loss) $ (172) $ 149 $ (396) $ 438

Adjusted EPS $ (0.10) $ 0.05 $ (0.25) $ 0.14

(1) Refer to the Non-GAAP financial measures section for definitions of these metrics and reconciliations to the most comparable IFRS

measures.

22 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

Reconciliation of segment to consolidated results(1)

Fourth quarters Fiscal years

ended December 31 ended December 31

2019 (2) 2018 2019 (2) 2018

Revenues

Aviation $ 2,413 $ 2,142 $ 7,501 $ 7,324

Transportation 1,793 2,161 8,269 8,915

Corporate and Others (1) — (13) (3)

$ 4,205 $ 4,303 $ 15,757 $ 16,236

Adjusted EBIT(3)

Aviation $ 143 $ 184 $ 531 $ 472

Transportation (234) 167 70 750

Corporate and Others(4) 25 (65) (131) (193)

$ (66) $ 286 $ 470 $ 1,029

Special Items

Aviation $ 49 $ 13 $ (663) $ 48

Transportation 2 (69) 48 (24)

Corporate and Others 1,579 — 1,583 4

$ 1,630 $ (56) $ 968 $ 28

EBIT

Aviation $ 94 $ 171 $ 1,194 $ 424

Transportation (236) 236 22 774

Corporate and Others(4) (1,554) (65) (1,714) (197)

$ (1,696) $ 342 $ (498) $ 1,001

(1) Figures are restated as a result of the formation of Bombardier Aviation, our new reportable segment. Refer to the Segment reporting

section in Overview for further details.

(2) Refer to Note 3 - Changes in accounting policies in our Consolidated financial statements, for the impact of the adoption of IFRS 16,

Leases. Under the modified retrospective approach adopted by the Corporation, 2018 figures are not restated.

(3) Non-GAAP financial measure. Refer to the Non-GAAP financial measures section for a definition of this metric.

(4) Includes share of net gains from ACLP of $57 million and $37 million for the fourth quarter and fiscal year ended December 31, 2019,

respectively (share of net losses of $27 million and $40 million for the fourth quarter and fiscal year ended December 31, 2018,

respectively). The share of net gains from ACLP in the fourth quarter of 2019 includes certain provision reversals within ACLP amounting to

approximately $60 million.

BOMBARDIER INC. / 2019 FINANCIAL REPORT / OVERVIEW 23

Analysis of consolidated results

Detailed analyses of revenues and EBIT are provided in each reportable segment’s Analysis of results section.

Special items

Special items comprise items which do not reflect our core performance or where their separate presentation will assist

users in understanding our results for the period. Such items include, among others, the impact of restructuring

charges and significant impairment charges and reversals.

The special items recorded as losses (gains) were as follows:

Fourth quarters Fiscal years

ended December 31 ended December 31

Ref 2019 2018 2019 2018

Impairment on ACLP investments 1 $ 1,578 $ — $ 1,578 $ —

Gain on disposal of a business - Training business 2 — — (516) —

Gain on disposal of a business - Q Series business 3 9 — (210) —

Restructuring charges 4 15 23 99 41

Loss on repurchase of long-term debt 5 — — 84 —

Pension adjustments 6 26 28 26 28

Reversal of Learjet 85 aircraft program cancellation provisions 7 (3) (28) (18) (29)

Primove impairment and other costs 8 1 — 5 4

Purchase of pension annuities 9 4 — 4 32

C Series transaction with Airbus 10 — 7 — 616

Gain on disposal of PP&E 11 — — — (561)

Gains on disposal of PP&E under sale and leaseback

transactions 12 — (66) — (66)

Tax litigation 13 — (31) — (35)

Changes in credit and residual value guarantees 14 — — — (34)

Loss on sale of long-term contract receivables 15 — 31 — 31

Impairment of non-core operations 16 — — — 17

Income taxes (20) 48 217 (23)

$ 1,610 $ 12 $ 1,269 $ 21

Of which is presented in

Special items in EBIT $ 1,630 $ (56) $ 968 $ 28

Financing expense - loss on repurchase of long-term debt 5 — — 84 —

Financing expense - loss on sale of long-term contract

receivables 15 — 31 — 31

Financing income - interest related to tax litigation 13 — (11) — (15)

Income taxes (20) 48 217 (23)

$ 1,610 $ 12 $ 1,269 $ 21

1. The Corporation performed an impairment test in the fourth quarter of 2019 on its investments in ACLP since there

were indicators of impairment. The Corporation determined that the carrying amount of its investment in ACLP

exceeded its recoverable amount, and accordingly recorded an impairment charge of $1,578 million. See Note 40 -

Investments in Joint ventures and Associates for more details.

2. The sale of Business Aircraft’s flight and technical training activities for a total net consideration of $532 million

resulted in a pre-tax accounting gain of $516 million ($383 million after deferred tax impact of $133 million). See

Note 31 - Disposal of a business for more details in respect of the transaction.

3. The sale of the Q Series Aircraft program assets for net proceeds of $285 million resulted in a pre-tax accounting

gain of $210 million ($184 million after tax impact). See Note 31 - Disposal of a business for more details in respect

of the transaction.

24 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

4. For fiscal year 2019, represents severance charges of $86 million partially offset by curtailment gains of $7 million

and by the reversal of previously-recorded impairment charges of $8 million, related to previously-announced

restructuring actions. For fiscal year 2018, represents severance charges of $43 million partially offset by

curtailment gains of $10 million, and impairment charges of PP&E of $8 million, all related to previously-announced

restructuring actions.

Following the announcement that the CRJ production is expected to conclude in the second half of 2020, following

the delivery of the current backlog of aircraft, the Corporation has recorded severance charges of $7 million

partially offset by curtailment gains of $3 million, and has recorded $24 million of other related charges for fiscal

year 2019. In addition, the Corporation has recorded a write down of deferred tax assets of $87 million to reflect

the expected impact of the conclusion of the CRJ announcement.

5. Represents the loss related to the redemption of the $850-million Senior Notes due 2020, and the partial

redemption of the €780-million Senior Notes due 2021 and $1,400-million Senior Notes due 2021.

6. On October 26, 2018, the High Court in the United Kingdom ruled that pension schemes must equalize for the

effect of unequal Guaranteed Minimum Pensions between male and female for benefits earned during specified

periods (“GMP equalization”). The Corporation estimated the impact of the ruling on its pension plans and

recognized an additional obligation of $28 million as at December 31, 2018. The one-time P&L impact was

recognized in fiscal year 2018 as a past service cost under IAS 19 - Employee Benefits. In fiscal year 2019, the

Corporation adjusted the pension obligation related to equalization for an Aviation plan in the U.K. The adjustments

of $26 million was recorded as a past service cost under IAS 19 - Employee Benefits.

7. Based on the ongoing activities with respect to the cancellation of the Learjet 85 aircraft program, the Corporation

reduced the related provisions by $18 million for fiscal year 2019 ($29 million for fiscal year 2018). The reduction in

provisions is treated as a special item since the original provisions were also recorded as special items in 2014

and 2015.

8. Following a reassessment of the value of the Primove e-mobility technology and the status of existing contractual

obligations, the Corporation recorded in fiscal year 2019 an additional contract provision of $5 million ($4 million for

fiscal year 2018).

9. Represents the non-cash loss on the settlement of defined benefit pension plans resulting from the purchase of

annuities with insurance companies. As part of its ongoing de-risking strategies, the Corporation has an initiative

for the buy-out of annuities payable to pensioners or deferred pensioners for certain plans to the extent they are

fully funded on a buy-out basis, subject to compliance with certain conditions including applicable pension

legislations.

10. The acquisition by Airbus of 50.01% of ACLP, the entity that manufactures and sells the C Series aircraft

(rebranded A220) resulted in a pre-tax accounting charge of $616 million ($552 million after tax). The pre-tax

accounting charge reflects all elements of the transaction, including: (i) the $270 million fair value of warrants

issued by Bombardier to Airbus on July 1, 2018, (ii) a $310 million derivative liability which is associated with the

expected off-market return on units to be issued to Bombardier by ACLP under Bombardier’s funding

commitments, and iii) other Bombardier obligations towards ACLP, which mainly comprise supply chain obligations

for Aerostructures and Engineering Services.

11. Related to the sale of the Downsview property to the Public Sector Pension Investment Board (PSP Investments).

12. The Corporation sold and leased back two facilities in Transportation in line with our transformation plan.

13. Represents a change in the estimates used to determine the provision related to tax litigation.

14. The provisions for credit and residual value guarantees were reduced following a change in credit risk assumption

for an airline. The reduction of the provisions was treated as a special item since the original provisions were

recorded as special items in 2015.

BOMBARDIER INC. / 2019 FINANCIAL REPORT / OVERVIEW 25

15. For fiscal year 2018, the Corporation sold long-term contract receivables in Transportation, which resulted in a loss

of $31 million recorded in financing expense.

16. An impairment charge related to non-core operations of $17 million recorded in the fiscal year 2018 with respect to

the expected sale of legal entities, as part of the Transportation transformation plan.

Net financing expense

Net financing expense amounted to $151 million and $842 million, respectively, for the fourth quarter and fiscal year

ended December 31, 2019, compared to $228 million(1) and $606 million(1) for the corresponding periods last fiscal year.

The $77-million decrease for the fourth quarter is mainly due to:

• net gains on certain financial instruments classified as FVTP&L ($142 million); and

• a loss related to the sale of long-term contract receivables in Transportation, which was recorded as a special

item in 2018 ($31 million).

Partially offset by:

• lower borrowing costs capitalized to PP&E and intangible assets following the entry-into-service of Global 7500

($57 million);

• higher interest on long-term debt, after the effect of hedges ($14 million);

• interest component as a result of a change in the estimates used to determine the provision related to tax

litigation, recorded as special items in 2018 ($11 million); and

• interest expense on lease liabilities, as a result of the adoption of IFRS 16, Leases, effective January 1, 2019

($8 million).

The $236-million increase for the fiscal year is mainly due to:

• lower borrowing costs capitalized to PP&E and intangible assets following the entry-into-service of Global 7500

(234 million);

• a loss related to the redemption of the $850-million Senior Notes due 2020, and the partial redemption of the

€780-million Senior Notes due 2021 and $1,400-million Senior Notes due 2021, which was recorded as a

special item in 2019 ($84 million);

• net losses from changes in discount rates of provisions ($36 million);

• higher interest on long-term debt, after the effect of hedges ($50 million); and

• interest expense on lease liabilities, as a result of the adoption of IFRS 16, Leases, effective January 1, 2019

($32 million).

Partially offset by:

• net gains on certain financial instruments classified as FVTP&L ($202 million); and

• a loss related to the sale of long-term contract receivables in Transportation, which was recorded as a special

item in 2018 ($31 million).

(1) Refer to Note 3 - Changes in accounting policies, to our interim consolidated financial statements, for the impact of the adoption of IFRS 16,

Leases. Under the modified retrospective approach adopted by the Corporation, 2018 figures are not restated.

Income taxes

The effective income tax rates for the fourth quarter and fiscal year ended December 31, 2019 were 6.9% and (19.9)%,

respectively, compared to the statutory income tax rate in Canada of 26.6%.

The lower effective income tax rate recovery in the fourth quarter is mainly due to:

• the negative impact of the non-recognition of tax benefits related to tax losses and temporary differences; and

• the negative impact of the permanent differences.

The higher effective income tax rate for the fiscal year ended December 31, 2019 is mainly due to:

• the negative impact of the net non-recognition of tax benefits related tax losses and temporary differences;

• the negative impact of the net write-down of deferred income tax assets; and

• the negative impact of the permanent differences.

26 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

The effective income tax rates for the fourth quarter and fiscal year ended December 31, 2018 were 51.8% and 19.5%,

respectively, compared to the statutory income tax rate in Canada of 26.7%.

The higher effective income tax rate in the fourth quarter is mainly due to:

• the negative impact of the write-down of deferred income tax assets; and

• the negative impact of the net non-recognition of tax benefits related tax losses and temporary differences.

Partially offset by:

• the positive impact of the permanent differences.

The lower effective income tax rate for the fiscal year ended December 31, 2018 is mainly due to:

• the positive impact of the permanent differences; and

• the positive impact of the net recognition of previously unrecognized tax losses and temporary differences.

Partially offset by:

• the negative impact of the write-down of deferred income tax assets.

BOMBARDIER INC. / 2019 FINANCIAL REPORT / OVERVIEW 27

CONSOLIDATED FINANCIAL POSITION

The total assets increased by $14 million in the fiscal

year(1), including a positive currency impact of

$135 million related to foreign exchange. The

$121-million decrease excluding currency impacts is

mainly explained by:

• a $1.1-billion decrease in investments in joint

ventures and associates due to the impairment of

the Corporation’s investment in ACLP(2); and

• a $688-million decrease in cash and cash

equivalents. See the Free cash flow usage and

the Variation in cash and cash equivalents tables

for details.

Partially offset by:

• a $660-million net increase in inventories in

Aviation mainly due to the ramp-up in production

for business aircraft, partially offset by a decrease

due to sale of the Q Series aircraft program;

• a $518-million increase in PP&E mainly due to

the impact of the adoption of IFRS16, Leases(3);

• a $329-million increase in trade and other

receivables in Transportation and Aviation; and

• a $169-million increase in other financial assets

mainly due to changes in fair value of derivative

financial instruments.

The total liabilities and equity increased by $14 million

in the fiscal year(1), including a currency impact of

$135 million. The $121-million decrease excluding

currency impacts is mainly explained by:

• a $2.1-billion decrease in equity mainly due to

the impairment of the Corporation’s investment in

ACLP(2) and remeasurement of defined benefits

plans of $470 million; and

• a $707-million decrease in provisions mainly due

to utilization of provisions in Transportation and

Aviation.

Partially offset by:

• a $1.1-billion increase in contract liabilities mainly

in Aviation mainly related to advances received

on new and existing orders for business aircraft;

• a $495-million increase in retirement benefit

liability mainly due to remeasurement of defined *The total assets and the total liabilities in the above graphs as at

benefits plans; December 31, 2019 include $1.3 billion and $1.8 billion,

• a $469-million increase in other liabilities mainly respectively, related to the CRJ program and aerostructures

businesses, which are presented under Assets held for sale.

due to the impact of the adoption of IFRS16,

Refer to the Reshaping the Portfolio section in Aviation and to

Leases(3);

Note 30 - Assets held for sale in our Consolidated financial

• a $319-million increase in trade and other statements for further details.

payables mainly in Aviation; and

• a $241-million increase in long-term debt.(4)

(1) For the purpose of the Consolidated financial position explanations included in this section, assets and liabilities include assets and

liabilities reclassified as Assets held for sale. Refer to Note 30 - Assets held for sale in our Consolidated financial statements for further

details.

(2) Refer to the Consolidated results of operations section for further details regarding special items.

(3) Refer to Note 3 - Changes in accounting policies in our Consolidated financial statements, for the impact of the adoption of IFRS 16,

Leases. Under the modified retrospective approach adopted by the Corporation, 2018 figures are not restated.

(4) Refer to Note 29 - Long-term debt in our Consolidated financial statements for further details.

28 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

LIQUIDITY AND CAPITAL RESOURCES

Free cash flow(1)

Free cash flow (usage)(1)

Fourth quarters Fiscal years

ended December 31 ended December 31

2019 (2) 2018 2019 (2) 2018

Net income (loss) $ (1,719) $ 55 $ (1,607) $ 318

Non-cash items

Amortization 129 84 422 272

Impairment charges on ACLP investments 1,578 — 1,578 —

Impairment charges (reversals) on PP&E and intangible

assets — — (4) 11

Deferred income taxes (173) (1) 113 (74)

Gains on disposals of PP&E and intangible assets (3) (61) (10) (636)

Losses (gains) on disposals of businesses 9 7 (730) 616

Share of income of joint ventures and associates (81) (7) (128) (66)

Share-based expense (income) (4) (2) 30 65

Loss on repurchase of long-term debt — — 84 —

Loss on sale of long-term contract receivables — 31 — 31

Dividends received from joint ventures and associates 29 23 49 72

Net change in non-cash balances(3) 1,308 1,160 (477) (12)

Cash flows from operating activities 1,073 1,289 (680) 597

Net additions to PP&E and intangible assets (121) (248) (523) (415)

Free cash flow (usage)(1) $ 952 $ 1,041 $ (1,203) $ 182

(1) Non-GAAP financial measure. Refer to the Non-GAAP financial measures section for definitions of this metric.

(2) Refer to Note 3 - Changes in accounting policies, to our Consolidated financial statements, for the impact of the adoption of IFRS 16,

Leases. Under the modified retrospective approach adopted by the Corporation, 2018 figures are not restated.

(3) Refer to Note 35 - Net changes in non-cash balances, to our Consolidated financial statements for further details.

Cash flows from operating activities

The $216-million decrease in cash flows from operating activities for the fourth quarter is mainly due to:

• lower net income before non-cash items ($370 million).

Partially offset by:

• a positive period-over-period variation in net change in non-cash balances ($148 million) (see explanations

below).

The $1,277-million decrease in cash flows from operating activities for the fiscal year is mainly due to:

• lower net income before non-cash items ($789 million), and

• a negative period-over-period variation in net change in non-cash balances ($465 million) (see

explanations below).

BOMBARDIER INC. / 2019 FINANCIAL REPORT / OVERVIEW 29

Net change in non-cash balances

For the fourth quarter ended December 31, 2019, the $1.3-billion inflow is mainly due to:

• a decrease in Transportation's net contract assets due to deliveries and advances received on new and

existing orders;

• a decrease in inventories in Aviation mainly due to deliveries for business aircraft; and

• an increase in trade and other payables in Aviation and Transportation.

For the fourth quarter ended December 31, 2018, the $1.2-billion inflow was mainly due to:

• an increase in contract liabilities in Aviation due to advances received on new and existing orders, as well

as the prepayment of $155 million of royalties by CAE under an extended Authorized Training Provider

agreement;

• an increase in trade and other payables in Transportation and Aviation;

• a decrease in Transportation's other financial assets mainly due to the sale of long-term contract

receivables for proceeds of $133 million;

• a decrease in Transportation's contract assets following deliveries; and

• a decrease in trade and other receivables in Aviation, partially offset by an increase in Transportation.

Partially offset by:

• an increase in inventories in Aviation mainly due to ramp up in production for business aircraft.

For the fiscal year ended December 31, 2019, the $477-million outflow is mainly due to:

• an increase in inventories in Aviation mainly due to the ramp-up in production for business aircraft;

• utilization of provisions in Transportation and Aviation;

• an increase in trade and other receivables in Transportation and Aviation; and

• a decrease in other liabilities mainly in Transportation.

Partially offset by:

• an increase in contract liabilities in Aviation mainly related to advances received on new and existing

orders for business aircraft;

• an increase in trade and other payables in Aviation; and

• a decrease in Transportation’s net contract assets.

For the fiscal year ended December 31, 2018, the $12-million outflow was mainly due to:

• an increase in inventories in Aviation due to ramp up in production for business aircraft;

• an increase in Transportation’s contract assets following ramp up in production ahead of deliveries;

• a decrease in provisions mainly in Transportation;

• a decrease in Transportation's other liabilities mainly due to a decrease in contract provisions and tax

payable; and

• an increase in trade and other receivables in Transportation.

Partially offset by:

• an increase in contract liabilities in Aviation and Transportation due to advances received on new and

existing orders, as well as the prepayment of $155 million of royalties by CAE under an extended

Authorized Training Provider agreement;

• an increase in trade and other payables in Aviation and Transportation; and

• a decrease in Transportation's other financial assets mainly due to the sale of long-term contract

receivables for proceeds of $133 million.

30 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

Net additions to PP&E and intangible assets

Fourth quarters Fiscal years

ended December 31 ended December 31

2019 2018 2019 2018

Additions to PP&E and intangible assets $ (135) $ (334) $ (552) $ (1,164)

Proceeds from disposals of PP&E

and intangible assets 14 86 29 749

Net additions to PP&E and intangible assets $ (121) $ (248) $ (523) $ (415)

The $127-million decrease in net additions to PP&E and intangible assets for the fourth quarter is mainly due to:

• lower investments in aerospace program tooling and lower capitalised borrowing costs following the entry-

into-service of the Global 7500 aircraft program.

Partially offset by:

• lower proceeds from disposals of PP&E due to the sale and leaseback of two facilities in Transportation for

$77 million during the fourth quarter of 2018.

The $108-million increase in net additions to PP&E and intangible assets for the fiscal year is mainly due to:

• lower proceeds from disposals of PP&E due to the sale of the Downsview property for approximately

$600 million and the sale and leaseback of two facilities in Transportation for $77 million during 2018.

Partially offset by:

• lower investments in aerospace program tooling and lower capitalised borrowing costs following the entry-

into-service of the Global 7500 aircraft program;

BOMBARDIER INC. / 2019 FINANCIAL REPORT / OVERVIEW 31

Available short-term capital resources

We continuously monitor our level of liquidity, including available short-term capital resources and cash flows from

operations, to meet expected requirements, including the support of product development initiatives and to ensure

financial flexibility. In evaluating our liquidity requirements, we take into consideration historic volatility and seasonal

needs, the maturity profile of long-term debt, the funding of product development programs, the level of customer

advances, working capital requirements, the availability of working capital financing initiatives, the economic

environment and access to capital markets. We use scenario analyses to stress-test cash flow projections.

Variation in cash and cash equivalents

Fourth quarters Fiscal years

ended December 31 ended December 31

2019 (1) 2018 2019 (1) 2018

Balance at the beginning of period/fiscal year $ 2,255 $ 2,318 $ 3,187 $ 3,057 (3)

Cash flows from operating activities 1,073 1,289 (680) 597

Net additions to PP&E and intangible assets (121) (248) (523) (415)

Deconsolidation of cash and cash equivalents of ACLP — — — (151)

Outflows related to a disposal of business — (11) — (36)

Investments in non-voting units of ACLP — (140) (350) (225)

Capital injection in ACLP (52) — (64) —

Net proceeds from disposal of businesses — — 826 —

Sale of investments in securities — 133 — 133

Net proceeds from issuance of long-term debt — — 1,956 —

Repayments of long-term debt — (4) (1,762) (15)

Net change in short-term borrowings (533) — — —

Payment of lease liabilities(2) (31) — (112) —

Purchase of Class B shares held in trust

under the PSU plans — — — (97)

Dividends paid - preferred shares (5) (5) (20) (20)

Issuance of Class B shares — 2 — 506

Issuance of NCI — — 49 —

Dividends to NCI — (22) (4) (93)

Effect of exchange rates on cash and cash equivalents 47 (24) 130 13

Other (4) (101) (4) (67)

Balance at the end of period/fiscal year $ 2,629 $ 3,187 $ 2,629 $ 3,187

Reclassified as assets held for sale(4) 51 — 51 —

Balance at the end of period/fiscal year $ 2,578 $ 3,187 $ 2,578 $ 3,187

(1) Refer to Note 3 - Changes in accounting policies, to our Consolidated financial statements, for the impact of the adoption of IFRS 16, Leases.

Under the modified retrospective approach adopted by the Corporation, 2018 figures are not restated.

(2) Lease payments related to the interest portion, short term leases, low value assets and variable lease payments not included in lease liabilities

are classified as cash outflows from operating activities. The total cash outflows for the fourth quarter and fiscal year ended December 31, 2019

amounted to $41 million and $168 million, respectively.

(3) Includes cash and cash equivalents of the C Series aircraft program presented under Assets held for sale amounting to $69 million as of

December 31, 2017.

(4) Includes cash and cash equivalents of the aerostructures businesses presented under Assets held for sale totalling $51 million as of December

31, 2019. Refer to Reshaping the portfolio section in Aviation, Note 15 - Cash and cash equivalents and Note 30 - Assets held for sale in the

Consolidated financial statements for more details on the transactions as well as the accounting treatments.

Available short-term capital resources

As at

December 31, 2019 December 31, 2018

Cash and cash equivalents(1) $ 2,629 $ 3,187

Available revolving credit facilities(2) 1,296 1,186

Available short-term capital resources $ 3,925 $ 4,373

(1) Includes cash and cash equivalents of the aerostructures businesses presented under Assets held for sale totalling $51 million as of December

31, 2019. Refer to Reshaping the portfolio section in Aviation, Note 15 - Cash and cash equivalents and Note 30 - Assets held for sale in the

Consolidated financial statements for more details on the transactions as well as the accounting treatments.

32 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

(2) Includes undrawn amount under Transportation’s €1,154 million unsecured revolving credit facility as of December 31, 2019; included undrawn

amounts under Transportation’s €689 million and the Corporation’ s $397 million unsecured revolving credit facilities as of December 31, 2018.

Our available short-term capital resources include cash and cash equivalents and the amounts available under our

unsecured revolving credit facility. The facility is available for cash drawings for the general needs of Transportation.

Under this facility, the same financial covenants must be met as for Transportation’s letter of credit facility. Refer to

the Financial covenants section for details.

The Corporation voluntarily cancelled the $397 million

unsecured revolving credit facility, in the third quarter

of 2019, which was available for the Corporation

excluding Transportation, in order to more efficiently

manage the Corporation’s short-term credit facility

given the Corporation’s strong cash position.

The Corporation has an unsecured revolving credit

facility amounting to €1,154 million ($1,296 million) ,

available to Transportation for cash drawings. The

facility matures in May 2022 and bears interest at

Euribor plus a margin. That facility was unused as of

December 31, 2019.

Uncommitted Short Term credit facilities

The Corporation has a €75 million ($84 million)

uncommitted Short Term credit facility. This facility is Some totals do not agree due to rounding.

available to Transportation for cash drawings. This

facility was unused as of December 31, 2019.

Letter of credit facilities

Letter of credit facilities are only available for the issuance of letters of credit. As these facilities are unfunded

commitments from banks, they typically provide better pricing for the Corporation than credit facility that is

available for cash drawings. Letters of credit are generally issued in support of performance obligations and

advance payments received from customers.

Amount Letters of Amount

committed credit issued available Maturity

December 31, 2019

Transportation facility $ 5,052 (1) $ 4,846 $ 206 2023 (2)

Corporation excluding Transportation facility n/a n/a n/a n/a

$ 5,052 $ 4,846 $ 206

December 31, 2018

Transportation facility $ 4,511 (1) $ 4,024 $ 487 2022

Corporation excluding Transportation facility 361 188 173 2021

$ 4,872 $ 4,212 $ 660

(1) € 4,498 million as at December 31, 2019 (€ 3,940 million as at December 31, 2018).

(2) The facility has an initial three year availability period, when new letters of credit can be issued up to the maximum commitment amount of

the facility, plus a one year amortization period during which new letters of credit cannot be issued. The final maturity date of the facility is

2023.

The Corporation voluntarily cancelled the $361 million letter of credit facility, in the fourth quarter of 2019, which

was available for the Corporation excluding Transportation. The issued letters of credit under this facility were

replaced by various bilateral agreements.

In addition to the outstanding letters of credit shown in the above table, letters of credit of $4,395 million were

outstanding under various bilateral agreements as at December 31, 2019 ($3,874 million as at December 31,

2018).

BOMBARDIER INC. / 2019 FINANCIAL REPORT / OVERVIEW 33

The Corporation also uses numerous bilateral bonding facilities with insurance companies to support

Transportation’s operations. An amount of $3.8 billion was outstanding under such facilities as at December 31,

2019 ($3.7 billion as at December 31, 2018).

See Note 36 – Credit facilities, to the consolidated financial statements, for additional information.

Financial covenants

The Corporation is subject to various financial covenants under the Transportation letter of credit facility and the

Transportation revolving credit facility, which must be met on a quarterly basis. Those facilities include financial

covenants requiring minimum equity as well as a maximum debt to EBITDA ratio, all calculated based on

Transportation stand-alone financial data. These terms and ratios are defined in the respective agreements and

do not correspond to the Corporation’s global metrics as described in Note 37 – Capital management or to the

specific terms used in the MD&A. In addition, the Corporation must maintain a minimum Transportation liquidity of

€750 million ($843 million). Minimum liquidity required is not defined as comprising only cash and cash

equivalents as presented in the consolidated statement of financial position.

The conditions were all met on a quarterly basis and as at December 31, 2019 and 2018 and January 1, 2018.

The Corporation regularly monitors these ratios to ensure it meets all financial covenants, and has controls in

place to ensure that contractual covenants are met.

Future liquidity requirements

Our Aviation segment requires capital to develop industry-leading products and to seize strategic opportunities to

increase competitiveness and execute growth strategies. We take advantage of favourable capital market

conditions when they materialize to extend debt maturity, reduce cost of funds and increase diversity of capital

resources.

On an on-going basis, we manage our liabilities by taking into consideration expected free cash flow(1), debt

repayments and other material cash outlays expected to occur in the future. We have a financing plan to position

ourselves with a flexible and strong financial profile whereby we opportunistically access capital markets,

depending on market conditions, for the issuance of equity and new long-term debt capital.

In March 2019, the Corporation issued, at 99.246% of par, unsecured Senior Notes of $2 billion, bearing an

interest of 7.875%, due on April 15, 2027. The Corporation used the net proceeds to redeem all of its outstanding

7.75% Senior Notes due 2020 of $850 million for a total consideration of $890 million as of September 30, 2019.

In addition, the Corporation redeemed, €366 million ($414 million) aggregate principal amount of the 6.13% Notes

due 2021 of €780 million for a total aggregate purchase price consideration of €401 million ($450 million) and

$382 million aggregate principal amount of the 8.75% Notes due 2021 of $1,400 million for a total aggregate

purchase price consideration of $422 million along with any related fees and expenses. The remaining net

proceeds were used for general corporate purposes.

We continuously evaluate opportunities to strengthen our capital profile by improving leverage ratios, refinancing

debt maturities, and reducing the overall cost of funds by diversifying sources of capital. Bombardier has the

option to buy back CDPQ’s investment in BT Holdco. The CDPQ instrument carries a 15% minimum return

threshold under a Bombardier initiated buyback. Given the cost of this instrument, we may seek to

opportunistically redeem this CDPQ security while preserving an appropriately capitalized balance sheet. There

can be no assurances on the completion, the form, or the timing of such buyback.

(1) Non-GAAP financial measures. Refer to the Non-GAAP financial measures section in Overview for definitions of these metrics and to the

Analysis of results section and Liquidity and capital resources section for reconciliations to the most comparable IFRS measures.

34 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

The weighted average long-term debt maturity was 4.6 years as at December 31, 2019. There is no significant

debt maturing before 2021. $1,483 million of long-term debt due in 2021 is comprised of €414 million ( $465

million) due in May 2021 and $1,008 million due in December 2021. See Note 29 - Long-term debt, to the

consolidated financial statements, for more details.

* Excludes other long-term debt amounting to $26 million as at December 31, 2019. See Note 29 Long-term debt, to the Consolidated financial

statements, for more details.

Expected timing of future liquidity requirements

December 31, 2019

Less than

Total 1 year 1 to 3 years 3 to 5 years Thereafter

Long-term debt(1) $ 9,324 $ 8 $ 3,183 $ 2,250 $ 3,883

Interest payments 3,297 668 1,187 785 657

Purchase obligations(2)(3) 13,134 8,589 4,496 43 6

Trade and other payables 4,682 4,682 — — —

Other financial liabilities 2,140 444 347 367 982

Derivative financial liabilities 205 202 3 — —

$ 32,782 $ 14,593 $ 9,216 $ 3,445 $ 5,528

(1) Includes principal repayments only.

(2) Purchase obligations represent contractual agreements to purchase goods or services in the normal course of business that are legally

binding and specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum, variable or indexed price

provisions; and the appropriate timing of the transaction. These agreements are generally cancellable with a substantial penalty. Purchase

obligations are generally matched with revenues over the normal course of operations.

(3) The purchase obligations comprise approximately $400 million of obligations related to the aerostructures businesses that are presented as

assets held for sale.

The table above presents the expected timing of contractual liquidity requirements. Other payments contingent on

future events, such as payments in connection with credit and residual value guarantees related to the sale of

aircraft and product warranties have not been included in the above table. In addition, required pension

contributions have not been reflected in this table as such contributions depend on periodic actuarial valuations

for funding purposes. See the Retirement benefits section of this MD&A for more details on contributions to

retirement benefit plans. The amounts presented in the table represent the undiscounted payments and do not

give effect to the related hedging instruments, if applicable.

BOMBARDIER INC. / 2019 FINANCIAL REPORT / OVERVIEW 35

The Corporation leases buildings and equipment. The maturity analysis of lease liabilities, was as follows:

As at

December 31, 2019

Within 1 year $ 129

Between 1 to 5 years 148

More than 5 years 243

$ 520

We believe our available short-term capital resources of $3.9 billion should give us sufficient liquidity to execute

our plan in the short-term. We currently anticipate that these resources will enable the development of new

products to enhance our competitiveness and support our growth; will enable us to meet currently anticipated

financial requirements in the foreseeable future; and will allow the payment of dividends on preferred shares, if

and when declared by the Board of Directors.(1)

(1) See the forward-looking statements disclaimer.

Creditworthiness

We assess and manage creditworthiness using the global metrics as described in the Capital structure section.

We continuously monitor our capital structure to ensure sufficient liquidity to fund product development programs.

Our goal is to strengthen our global metrics and credit ratings. Our objective also includes improving our leverage

metrics by de-leveraging the balance sheet with strategic long-term debt repayments in line with active

management of consolidated liquidity, weighted-average cost of capital and term structure.

Credit Ratings

Investment-grade rating Bombardier Inc.’s rating

February 12, 2020 December 31, 2019

Fitch Ratings Ltd. BBB- CCC+ B-

Moody’s Investors Service, Inc. Baa3 B3 B3

Standard & Poor’s Rating Services BBB- B- B-

Over the long term, we strive for our credit ratings to improve as we progress towards profitability and cash flow

targets in line with our strategic priorities. See the Strategic priorities section in Overview of the MD&A for more

details.

36 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

CAPITAL STRUCTURE

We analyze our capital structure using global metrics, which are based on a broad economic view of the

Corporation, in order to assess the creditworthiness of the Corporation. These global metrics are managed and

monitored in order to achieve an investment-grade profile.

Reconciliations of these measures to the most comparable IFRS financial measures are in the Non-GAAP

financial measures section. Adjusted EBIT and adjusted EBITDA exclude special items, such as restructuring

charges, significant impairment charges and reversals, as well as other significant unusual items, which we do not

consider to be representative of our core performance or where their execution will assist users in understanding

our results for the period.

As a result of adopting IFRS 16, Leases, we changed the definitions and naming of adjusted interest, adjusted

debt, adjusted EBIT and adjusted EBITDA, all of which are used in our global metrics. Refer to the Non-GAAP

financial measures section for the definitions of these metrics and reconciliations to the most comparable IFRS

measures.

Our objectives with regard to the global metrics are as follows:

• adjusted EBIT to adjusted interest ratio greater than 5.0; and

• adjusted debt to adjusted EBITDA ratio lower than 2.5.

Interest coverage ratio

For the fiscal year ended December 31

2019

Adjusted EBIT(1) $ 470

Adjusted interest(2) $ 732

Adjusted EBIT to adjusted interest ratio 0.6

(1) Non-GAAP financial measures. Refer to the Non-GAAP financial measures section for definitions of these metrics and reconciliations to the

most comparable IFRS measures. EBIT for the fiscal year 2019 is $(498) million.

(2) Represents interest paid as per the supplemental information provided in the consolidated statements of cash flows.

Financial leverage ratio

As at and for the fiscal year ended December 31

2019

Adjusted debt(1) $ 9,744

Adjusted EBITDA(1) $ 896

Adjusted debt to adjusted EBITDA ratio 10.9

(1) Non-GAAP financial measures. Refer to the Non-GAAP financial measures section for definitions of these metrics and reconciliations to the

most comparable IFRS measures. Long-term debt as at December 31, 2019 is $9,333 million; EBIT for the fiscal year 2019 is

$(498) million.

These global metrics do not represent the calculations required for bank covenants. They represent our key

business metrics and as such are used to analyze our capital structure. For compliance purposes, we regularly

monitor our bank covenants to ensure they are all met.

In addition to the above global metrics, we separately monitor our net retirement benefit liability, which amounted

to $2.3 billion as at December 31, 2019 ($2.2 billion as at December 31, 2018). The measurement of this liability

is dependent on numerous key long-term assumptions such as discount rates, future compensation increases,

inflation rates and mortality rates. In recent years, this liability has been particularly volatile due to changes in

discount rates. Such volatility is exacerbated by the long-term nature of the obligation. We closely monitor the

impact of the net retirement benefit liability on our future cash flows and we have introduced significant risk

mitigation initiatives in recent years to gradually reduce key risks associated with the retirement benefit plans. See

the Retirement benefits section for further details.

BOMBARDIER INC. / 2019 FINANCIAL REPORT / OVERVIEW 37

RETIREMENT BENEFITS

Bombardier sponsors several Canadian and foreign are determined. As a result, there is no deficit or

retirement benefit plans consisting of funded and surplus for DC plans. Hybrid plans are a combination

unfunded defined benefit pension plans, as well as of DB and DC plans.

other unfunded defined benefit plans. Funded plans

are plans for which segregated plan assets are In Canada and the U.S., since September 1, 2013, all

invested in trusts. Unfunded plans are plans for which new non-unionized employees join DC plans (joining

there are no segregated plan assets, as the DB or hybrid plans is no longer an option). In the U.K.,

establishment of segregated plan assets is generally all DB plans are closed to new members. Employees

not permitted or not in line with local practice. who are members of a DB or hybrid plan closed to

new members continue to accrue service in their

Pension plans are categorized as Defined benefit (DB) original plan. As a result of these changes,

or Defined contribution (DC). DB plans specify the contributions to DC plans have increased over the past

amount of benefits an employee is to receive at several years.

retirement, while DC plans specify how contributions

* Mainly comprised of changes in discount rates.

** Net retirement benefit liabilities amounting to $414 million related

to the aerostructures businesses to be sold to Spirit were

reclassified as liabilities directly associated with assets held for

sale.

*** Other is mainly comprised of changes in other actuarial

assumptions, experience adjustments and impact of asset

ceiling.

The value of plan assets is highly dependent on the pension funds’ asset performance and on the level of

contributions. The performance of the financial markets is a key driver in determining the funds’ asset

performance as assets in the plans are composed mostly of publicly traded equity and fixed income securities.

IFRS requires that the excess (deficit) of actual return on plan assets compared to the estimated return be

reported as an actuarial gain or loss in OCI. The estimated return on plan assets must be calculated using the

discount rate that is used to measure the net retirement benefit liability, which is derived using high-quality

corporate bond yields. During 2019, as the actual gain on plan assets of $1,216 million was above expected

return, an actuarial gain of $954 million was recognized.

38 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

* Includes liability arising from minimum funding requirement and

impact of asset ceiling test, if any.

** The balance includes net retirement benefit liability in the

amount of $99 million reclassified as liabilities directly associated

with assets held for sale.

*** Net retirement benefit liability amounting to $414 million related

to the aerostructures businesses to be sold to Spirit were

reclassified as liabilities directly associated with assets held for

sale.

BOMBARDIER INC. / 2019 FINANCIAL REPORT / OVERVIEW 39

DB plan contributions were at $286 million in 2019,

compared to $230 million the previous year. DB plan

contributions are estimated at $276 million for 2020,

including the estimated total contribution for the

aerostructures businesses of approximately $47

million for 2020. The future level of contributions will

be impacted by the evolution of market interest rates

and the actual return on plan assets.

In 2019, DC pension contributions totalled $86 million.

These contributions are estimated at $97 million for

2020.

F: Forecast

* Includes the estimated total contribution for the aerostructures

businesses amounting to approximately $48 million for 2020.

Investment Policy and De-risking Strategies

The investment policies are established to achieve a long-term investment return so that, in conjunction with

contributions, the plans have sufficient assets to pay for the promised benefits while maintaining a level of risk that

is acceptable given the tolerance of plan stakeholders. See below for more information about risk management

initiatives.

The target asset allocation is determined based on expected economic and market conditions, the maturity profile

of the plans’ liabilities, the funded status of the respective plans and the plan stakeholders’ tolerance to risk.

The plans’ investment strategy is to invest broadly in fixed income and equity securities and to have a smaller

portion of the funds’ assets invested in real return asset securities (global infrastructure and real estate listed

securities).

As at December 31, 2019, the average target asset allocation was as follows:

• 54%, 60% and 50% in fixed income securities, for Canadian, U.K. and U.S. plans, respectively;

• 38%, 31% and 50% in equity securities, for Canadian, U.K. and U.S. plans, respectively; and

• 8% and 9% in real return asset securities, for Canadian and U.K. plans, respectively.

In addition, to mitigate interest rate risk, interest rate hedging overlay portfolios (comprised of long-term interest

rate swaps and long-term bond forwards) will be implemented for the pension plans when the market will be

favourable and the plans’ triggers will be reached.

The plan administrators have also established dynamic risk management strategies. As a result, asset allocation

will likely become more conservative in the future and interest rate hedging overlay portfolios are likely to be

established as plan funding status and market conditions continue to improve and the plans become more

mature.

40 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

Under certain pension legislations, and subject to compliance with certain conditions, the buy-out of annuities with

insurance companies would discharge the Corporation and administrators of their respective obligations.

Accordingly, in 2018, annuities were purchased for pensioners of seven pension plans registered in Ontario, the

U.K. and the U.S. Also, in 2019, annuities were purchased for pensioners of the three Bombardier Aviation

pension plans registered in Ontario. Overall, in 2018 and 2019, annuities were purchased for 4,690 pensioners

with total premiums paid to insurers by the pension funds of approximately $676 million. The buy-out of annuities

payable to pensioners of other pension plans will be contemplated in the coming years when these plans become

fully funded on a buy-out basis.

Pension Asset Management Services monitors the de-risking triggers on an ongoing basis to ensure timely and

efficient implementation of these strategies. The Corporation and administrators periodically undertake asset and

liability studies to determine the appropriateness of the investment policies and de-risking strategies.

Risk management initiatives

The Corporation’s pension plans are exposed to various risks, including equity, interest rate, inflation, foreign

exchange, liquidity and longevity risks. Several risk management strategies and policies have been put in place to

mitigate the impact these risks could have on the funded status of DB plans and on the future level of

contributions by the Corporation. The following is a description of key risks together with the mitigation measures

in place to address them.

Equity risk

Equity risk results from fluctuations in equity prices. This risk is managed by maintaining diversification of

portfolios across geographies, industry sectors and investment strategies.

Interest rate risk

Interest rate risk results from fluctuations in the fair value of plan assets and liabilities due to movements in

interest rates. This risk is managed by reducing the mismatch between the duration of plan assets and the

duration of pension obligation. This is accomplished by having a portion of the portfolio invested in long-term fixed

income securities and interest rate hedging overlay portfolios.

Inflation risk

Inflation risk is the risk that benefits indexed to inflation increase significantly as a result of changes in inflation

rates. To manage this risk, the benefit indexation has been capped in certain plans and a portion of plan assets

has been invested in real return fixed income securities and real return asset securities.

Foreign exchange risk

Currency risk exposure arises from fluctuations in the fair value of plan assets denominated in a currency other

than the currency of the plan liabilities. Currency risk is managed with foreign currency hedging strategies as per

plan investment policies.

Liquidity risk

Liquidity risk stems from holding assets which cannot be readily converted to cash when needed for the payment

of benefits or to rebalance the portfolios. Liquidity risk is managed through investments in treasury bills,

government bonds and equity futures and by having no investments in private placements or hedge funds.

Longevity risk

Longevity risk is the risk that increasing life expectancy results in longer-than-expected benefit payments. This

risk is mitigated by using the most recent mortality and mortality improvement tables to set the level of

contributions. The buy-out of annuities with insurance companies transfers all of the risks listed above to insurers

for the annuities purchased.

BOMBARDIER INC. / 2019 FINANCIAL REPORT / OVERVIEW 41

Retirement benefit cost

2019 2018

Pension Other Pension Other

benefits benefits Total benefits benefits Total

DB plans $ 265 $ (8) $ 257 $ 357 $ 16 $ 373

DC plans 86 — 86 91 — 91

Total retirement benefit cost $ 351 $ (8) $ 343 $ 448 $ 16 $ 464

Related to

Funded DB plans $ 231 n/a $ 231 $ 321 n/a $ 321

Unfunded DB plans $ 34 $ (8) $ 26 $ 36 $ 16 $ 52

DC plans $ 86 n/a $ 86 $ 91 n/a $ 91

Recorded as follows

EBIT expense or capitalized cost $ 288 $ (18) $ 270 $ 393 $ 6 $ 399

Financing expense $ 63 $ 10 $ 73 $ 55 $ 10 $ 65

n/a: Not applicable

The retirement benefit cost for fiscal year 2020 for DB plans(1) is estimated at $331 million, of which $263 million

relates to EBIT expense or capitalized cost and $68 million relates to net financing expense.

(1) Including plans for the aerostructures businesses.

Sensitivity analysis

The net retirement benefit liability is highly dependent on discount rates, expected inflation rates, expected rates

of compensation increase, life expectancy assumptions and actual return on plan assets. The discount rates

represent the market rate for high-quality corporate fixed-income investments at the end of the reporting period

consistent with the currency and estimated term of the benefit obligations. As a result, discount rates change

based on market conditions.

A 0.25 percentage point increase in one of the following weighted-average actuarial assumptions would have the

following effects, all other actuarial assumptions remaining unchanged:

Retirement benefit cost (1) Net retirement benefit liability

Increase (decrease) for fiscal year 2020 as at December 31, 2019

(Forecast)

Discount rate $ (24) $ (514)

Inflation rate $ 4 $ 126

Rate of compensation increase $ 6 $ 83

A one-year increase in life expectancy for all DB plan beneficiaries would impact plans in major countries as

follows:

Retirement benefit cost (1) Net retirement benefit liability as

Increase for fiscal year 2020 at December 31, 2019

(Forecast)

Canada $ 7 $ 114

U.K. $ 5 $ 143

U.S. $ 2 $ 35

Details regarding assumptions used are provided in Note 24 – Retirement benefits, to the consolidated financial

statements.

(1) Including plans for the aerostructures businesses.

42 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

RISK MANAGEMENT

Active risk management has been one of our priorities for many years and is a key component of our corporate

strategy framework. To achieve our risk management objectives, we have embedded risk management activities

in the operational responsibilities of management and made these activities an integral part of the overall

governance, planning, decision making, organizational and accountability structure.

For each risk or category of risks, the risk management process includes activities performed in a continuous

cycle. Risk assessment, including risk identification, analysis and evaluation, ensures that each risk is analyzed to

identify the consequence and likelihood of the risk occurring and the adequacy of existing controls. Each

reportable segment is responsible for implementing the appropriate structures, processes and tools to allow

proper identification of risks. Once the risks have been identified, analyzed and evaluated, risk mitigation identifies

the actions to be implemented by management. Each reportable segment has implemented risk management

processes that are embedded in governance and activities to achieve the objectives of our Corporate Risk

Management Policy.

In addition, every year, the Corporate Audit Services and Risk Assessment (CASRA) team assesses our major

risks. Senior management reviews this risk assessment and develops action plans to address the identified risks.

The Board of Directors(1) is ultimately responsible for

reviewing the overall risks faced by the Corporation.

The Board exercises its duty through the Finance

and Risk Management Committee, consisting of

independent directors, which reviews material

business risks and the measures that management

takes to monitor, control and manage such risks,

including the adequacy of policies, procedures and

controls designed by management to assess and

manage these risks. To complement the annual

CASRA review of major risks, each reportable

segment, in coordination with CASRA, has

implemented an annual review process.

A primary area of focus is product development,

where our biggest opportunities to create value

reside, and also our most significant risks.

Recognizing the long-term nature of product

development activities and the significant human

and financial resources required, we follow a

rigorous gated product development process,

designed to ensure early identification and efficient

mitigation of potential risks. At the heart of this

process is our Bombardier Engineering System,

followed for all programs throughout the product

development cycle. This process is regularly refined

to integrate the lessons learned from our own

programs and from the industry. Specific milestones

Source: International Organization for Standardization

must be met before a product can move from one (ISO) 31000:2009

stage of development to another. The gates consist

of exit reviews with different levels of management

and leading experts to demonstrate technical

feasibility, customer acceptance and financial return.

(1) Refer to the Investor information section following the Notes to

the consolidated financial statements for more information on

Board members and Board Committees.

BOMBARDIER INC. / 2019 FINANCIAL REPORT / OVERVIEW 43

We continuously apply what we learn on one program to the other programs, by sharing ideas and learning in our

various functional committees and through regular peer reviews, bringing together the expertise across all

platforms to drive alignment and common approaches, establish best practices and leverage the knowledge and

experience of our people. This review confirms the availability of human and financial resources, the maturity and

manufacturing readiness of new technologies and the overall strength of the business case.

We have also designed disclosure controls and procedures to provide reasonable assurance that material

information relating to the Corporation is properly communicated and that information required to be disclosed in

public filings is recorded, processed, summarized and reported within the time periods specified in securities

legislation. Refer to the Controls and procedures section in Other for more details.

Key exposures to financing and market risks

and related mitigation strategies

Our operations are exposed to various financing and market risks. The following is a description of our key

exposures to those risks together with the strategies in place to mitigate them. Market risks associated with

pension plans are discussed in the Retirement benefits section.

Exposure to foreign exchange risk

Our main exposures to foreign currencies are managed in accordance with the Foreign Exchange Risk

Management Policy in order to mitigate the impact of foreign exchange rate movements. This policy requires each

reportable segment’s management to identify all actual and potential foreign currency exposures arising from their

operations. This information is communicated to the Corporate office central treasury function, which has the

responsibility to execute hedging transactions in accordance with policy requirements. In addition, the central

treasury function manages balance sheet exposures to foreign currency movements by matching asset and

liability positions. This program consists mainly in matching long-term debt in a foreign currency with assets

denominated in the same currency.

44 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

Foreign exchange management

Owner Hedged exposures Hedging policy(1) Risk-mitigation strategies

Forecast cash outflows

Hedge 85% of the identified

denominated in a currency other Use of forward foreign exchange

exposures for the first three

than the functional currency of the contracts, mainly to sell U.S.

AVIATION months, 75% for the next 15

entity incurring the cash flows, dollars and buy Canadian dollars

months and up to 50% for the

mainly in Canadian dollars and and pounds sterling.

following six months.

pounds sterling.

Use of forward foreign exchange

Forecast cash inflows and outflows contracts, mainly to sell or

Hedge 100% of the identified

denominated in a currency other purchase Canadian dollars, euros,

TRANSPORTATION exposures at the time of order

than the functional currency of the U.S. dollars, Swiss francs,

intake.

entity incurring the cash flows. Swedish krona and other Western

European currencies.

Forecast cash outflows other than

Hedge 85% of the identified

interest, denominated in a currency Use of forward foreign exchange

exposures for the first 18 months

other than the functional currency contracts mainly to sell U.S. dollars

and up to 75% for the following six

of the entity incurring the cash and buy Canadian dollars.

months.

flows, mainly in Canadian dollars.

Hedge 100% of the identified

exposure unless the exposure is Use of forward foreign exchange

CORPORATE Interest cash outflows in currencies recognized as an economic hedge contracts mainly to sell U.S. dollars

OFFICE other than the U.S. dollar, i.e. the of an exposure arising from the and buy euros and Canadian

euro and the Canadian dollar. translation of financial statements dollars.

in foreign currencies to the U.S.

dollar.

Asset/liability management

Balance sheet exposures, techniques.

including long-term debt and net Hedge 100% of the identified

investments in foreign operations exposures affecting the Designation of long-term debt as

with non-U.S. dollar functional Corporation’s net income. hedges of our net investments in

currencies. foreign operations with non-U.S.

dollar functional currencies.

(1) Deviations from the policy are allowed, subject to pre-authorization and maximum pre-determined risk limits.

Aviation

As at December 31, 2019, the hedged portion of our Aviation’s significant foreign currency denominated costs for

the fiscal years ending December 31, 2020 and 2021 was as follows:

Canadian dollars Pounds sterling

For fiscal years 2020 2021 2020 2021

Expected costs denominated in foreign currency $2,384 $2,364 £258 £248

Hedged portion of expected costs denominated in

79% 33% 82% 12%

foreign currency

Weighted-average hedge rates – foreign currency/USD 0.7716 0.7575 1.3252 1.2464

Sensitivity analysis

A U.S. one-cent change in the value of the Canadian dollar compared to the U.S. dollar would impact Aviation’s

expected costs for the year ending December 31, 2020 by approximately $24 million, before giving effect to

forward foreign exchange contracts ($5 million, after giving effect to such contracts).

A U.S. one-cent change in the value of the pound sterling compared to the U.S. dollar would impact Aviation’s

expected costs for the fiscal year ending December 31, 2020 by approximately $3 million, before giving effect to

forward foreign exchange contracts (less than $1 million impact after giving effect to such contracts).

BOMBARDIER INC. / 2019 FINANCIAL REPORT / OVERVIEW 45

Transportation and Corporate office

Transportation’s foreign currency exposure, arising from its long-term contracts, spreads over many years. Such

exposures are generally entirely hedged at the time of order intake, contract-by-contract, for a period that is often

shorter than the maturity of the cash flow exposure. Upon maturity of the hedges, Transportation enters into new

hedges in a rollover strategy for periods up to the maturity of the cash flow exposure. As such, Transportation’s

results of operations are not significantly exposed to gains and losses from transactions in foreign currencies, but

remain exposed to translation and cash flow risks on a temporary basis. On a cumulative basis, however, cash

outflows or inflows upon rollover of these hedges are offset by cash inflows or outflows in opposite directions

when the cash flow exposure materializes.

The identified cash flow exposures at our Corporate office are not significant and mainly arise from expenses

denominated in Canadian dollars. Balance sheet exposure at Corporate office arises mainly from investments in

foreign operations and long-term debt. Despite our risk mitigation strategies, the impact of foreign currency

fluctuations on equity can be significant given the size of our investments in foreign operations with non-U.S.

dollar functional currencies, mainly the euro.

Sensitivity analysis

For investments in foreign operations exposed to foreign currency movements, a 1% fluctuation of the relevant

currencies as at December 31, 2019 would have impacted equity, before the effect of income taxes, by

$25 million.

46 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

Exposure to credit risk

The effective monitoring and controlling of credit risk is a key component of our risk management activities. Credit

risk is monitored on an ongoing basis using different systems and methodologies depending on the underlying

exposure.

Credit risk management

Owner Key risks Risk mitigation measures initiated by management

Credit risks arising from treasury activities are managed by a central treasury

Through normal treasury

function in accordance with the Corporate Foreign Exchange Risk Management

activities, we are exposed

CORPORATE to credit risk through Policy and the Corporate Investment Policy. The objective of these policies is to

minimize exposure to credit risk from treasury activities by ensuring that we

OFFICE derivative financial transact strictly with investment-grade financial institutions and money market

instruments and investing

funds, based on pre-established consolidated counterparty risk limits per financial

instruments.

institution and fund.

We are exposed to credit

Credit risks arising from normal commercial activities and lending activities are

risk through trade

managed and controlled by each reportable segment, in accordance with the

receivables arising from

Corporate office policy. Customer credit ratings and credit limits are analyzed and

normal commercial

established by internal credit specialists, based on inputs from external rating

activities and lending

BOTH agencies, recognized rating methods and our experience with the customers. The

activities, related primarily

credit risk and credit limits are dynamically reviewed based on fluctuations in the

REPORTABLE to aircraft loans, lease

customers’ financial results and payment behaviour. These customer credit ratings

receivables, and

SEGMENTS and credit limits are critical inputs in determining the conditions under which credit

investments in financing

or financing is extended to customers, including obtaining collateral to reduce

structures provided to

exposure to losses. Specific governance is in place to ensure that credit risk arising

customers in connection

from large transactions is analyzed and approved by the appropriate level of

with the sale of commercial

management before financing or credit support is offered to the customer.

aircraft.

In connection with the sale Credit guarantees provide support through contractually limited payments to the

of certain products, mainly guaranteed party to mitigate default-related losses. Credit guarantees are usually

commercial aircraft, we triggered if customers do not perform during the term of the financing under the

have provided credit relevant financing arrangements. In the event of default, we usually act as agent for

guarantees in the form of the guaranteed parties for the repossession, refurbishment and re-marketing of the

AVIATION

lease and loan payment underlying assets.

guarantees. Substantially all This exposure arising from credit guarantees is partially mitigated by the net benefit

financial support involving expected from the estimated value of aircraft and other assets available to mitigate

potential credit risk lies with exposure under these guarantees. In addition, lease subsidy liabilities would be

regional airline customers. extinguished in the event of credit default by certain customers.

Exposure to liquidity risk

The management of exposure to liquidity risk requires a constant monitoring of expected cash inflows and

outflows, which is achieved through maintenance of detailed forecasts of cash flows and liquidity position, as well

as long-term operating and strategic plans. Liquidity adequacy is continually monitored, taking into consideration

historical volatility, the economic environment, seasonal needs, the maturity profile of indebtedness, access to

capital markets, the level of customer advances, working capital requirements, the availability of working capital

financing initiatives and the funding of product development and other financial commitments. We engage in

certain working capital financing initiatives that impact our cash flows from operating activities such as the sale of

receivables, arrangements for advances from third parties and the negotiation of extended payment terms with

certain suppliers (for more details, refer to Note 38 - Financial Risk Management, to the consolidated financial

statements). We continually monitor any financing opportunities to optimize our capital structure and maintain

appropriate financial flexibility.

BOMBARDIER INC. / 2019 FINANCIAL REPORT / OVERVIEW 47

Exposure to interest rate risk

Our future cash flows are exposed to fluctuations from changing interest rates, arising mainly from assets and

liabilities indexed to variable interest rates, including fixed-rate long-term debt synthetically converted to variable

interest rates. For these items, cash flows could be impacted by a change in benchmark rates such as Libor,

Euribor or Banker’s Acceptance. The Corporate office central treasury function manages these exposures as part

of the overall risk management policy.

We are also exposed to gains and losses on certain assets and liabilities as a result of changes in interest rates,

principally financial instruments carried at fair value and credit and residual value guarantees. The financial

instruments carried at fair value include certain aircraft loans and lease receivables, investments in securities,

investments in financing structures, lease subsidies and derivative financial instruments.

Sensitivity analysis

A 100-basis point increase in interest rates impacting the measurement of financial instruments carried at fair

value and credit and residual value guarantees, excluding net retirement benefit liabilities, would have negatively

impacted EBIT for fiscal year 2019 by $107 million.

48 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

NON-GAAP FINANCIAL MEASURES

This MD&A is based on reported earnings in accordance with IFRS and on the following non-GAAP financial

measures:

Non-GAAP financial measures

Adjusted EBIT(1) EBIT excluding special items. Special items comprise items which do not reflect the Corporation’s

core performance or where their separate presentation will assist users of the consolidated

financial statements in understanding the Corporation’s results for the period. Such items include,

among others, the impact of restructuring charges and significant impairment charges and

reversals.

Adjusted EBITDA(1) Adjusted EBIT plus amortization and impairment charges on PP&E and intangible assets.

Adjusted net income Net income (loss) excluding special items, accretion on net retirement benefit obligations, certain

(loss) net gains and losses arising from changes in measurement of provisions and of financial

instruments carried at FVTP&L and the related tax impacts of these items.

Adjusted EPS EPS calculated based on adjusted net income attributable to equity holders of Bombardier Inc.,

using the treasury stock method, giving effect to the exercise of all dilutive elements.

Free cash flow (usage) Cash flows from operating activities less net additions to PP&E and intangible assets.

Adjusted debt Long-term debt as presented in the consolidated statements of financial position adjusted for the

fair value of derivatives (or settled derivatives) designated in related hedge relationships plus

short-term borrowings and lease liabilities.

(1) Starting January 1, 2019, EBIT before special items and EBITDA before special items are replaced with adjusted EBIT and adjusted

EBITDA, respectively. The definitions of both measures remain unchanged.

Non-GAAP financial measures are mainly derived from the consolidated financial statements but do not have

standardized meanings prescribed by IFRS. The exclusion of certain items from non-GAAP performance

measures does not imply that these items are necessarily non-recurring. Other entities in our industry may define

the above measures differently than we do. In those cases, it may be difficult to compare the performance of

those entities to ours based on these similarly-named non-GAAP measures.

Prior to the first quarter of fiscal year 2019, the Corporation reported non-GAAP measures labelled “EBIT before

special items” and “EBITDA before special items”. Beginning in the first quarter of fiscal year 2019, the

Corporation changed the label of these non-GAAP measures to "adjusted EBIT" and "adjusted EBITDA",

respectively, without making any change to the composition of these non-GAAP measures. The Corporation

believes that this new label aligns better with broad market practice in its industry and better distinguishes these

measures from the IFRS measurement "EBIT".

Adjusted EBIT, adjusted EBITDA, adjusted net income (loss) and adjusted EPS

Management uses adjusted EBIT, adjusted EBITDA, adjusted net income (loss) and adjusted EPS for purposes of

evaluating underlying business performance. Management believes these non-GAAP earnings measures in

addition to IFRS measures provide users of our Financial Report with enhanced understanding of our results and

related trends and increases the transparency and clarity of the core results of our business. Adjusted EBIT,

adjusted EBITDA, adjusted net income (loss) and adjusted EPS exclude items that do not reflect our core

performance or where their exclusion will assist users in understanding our results for the period. For these

reasons, a significant number of users of the MD&A analyze our results based on these financial measures.

Management believes these measures help users of MD&A to better analyze results, enabling better

comparability of our results from one period to another and with peers.

Free cash flow (usage)

Free cash flow is defined as cash flows from operating activities less net additions to PP&E and intangible assets.

Management believes that this non-GAAP cash flow measure provides investors with an important perspective on

the Corporation’s generation of cash available for shareholders, debt repayment, and acquisitions after making

the capital investments required to support ongoing business operations and long-term value creation. This non-

GAAP cash flow measure does not represent the residual cash flow available for discretionary expenditures as it

excludes certain mandatory expenditures such as repayment of maturing debt. Management uses free cash flow

as a measure to assess both business performance and overall liquidity generation.

BOMBARDIER INC. / 2019 FINANCIAL REPORT / OVERVIEW 49

Adjusted debt

We analyze our capital structure using global metrics, based on adjusted debt, adjusted EBIT, adjusted EBITDA

and adjusted interest(1). Refer to the Capital structure section for more detail.

Reconciliations of non-GAAP financial measures to the most comparable IFRS financial measures are provided in

the tables hereafter, except for the following reconciliations:

• adjusted EBIT to EBIT – see the Results of operations tables in the reporting segments and Consolidated

results of operations section; and

• free cash flow usage to cash flows from operating activities – see the Free cash flow usage table in the

Liquidity and capital resources section.

(1) Represents interest paid as per the supplemental information provided in the consolidated statements of cash flows.

Reconciliation of adjusted EBITDA to EBIT

Fourth quarters Fiscal years

ended December 31 ended December 31

2019 2018 2019 2018

EBIT $ (1,696) $ 342 $ (498) $ 1,001

Amortization 129 84 422 272

Impairment charges (reversals) on PP&E and intangible

assets(1) — — (4) 11

Special items excluding impairment charges (reversals) on

PP&E and intangible assets(1) 1,630 (56) 976 20

Adjusted EBITDA $ 63 $ 370 $ 896 $ 1,304

Reconciliation of adjusted net income (loss) to net income (loss) and computation of adjusted EPS

Fourth quarters ended December 31

2019 2018

(per share) (per share)

Net income (loss) $ (1,719) $ 55

Adjustments to EBIT related to special items(1) 1,630 $ 0.68 (56) $ (0.02)

Adjustments to net financing expense related to:

Loss on sale of long-term contract receivables(1) — — 31 0.01

Accretion on net retirement benefit obligations 22 0.01 15 0.00

Net change in provisions arising from changes in interest rates

and net loss on certain financial instruments (84) (0.04) 67 0.02

Interest portion of gains related to special items(1) — — (11) 0.00

Tax impact of special(1) and other adjusting items (21) (0.01) 48 0.02

Adjusted net income (loss) (172) 149

Net income attributable to NCI (51) (40)

Preferred share dividends, including taxes (7) 25

Adjusted net income (loss) attributable to equity holders of

Bombardier Inc. $ (230) $ 134

Weighted-average adjusted diluted number of common shares

(in thousands) 2,397,868 2,477,954

Adjusted EPS $ (0.10) $ 0.05

Reconciliation of adjusted EPS to diluted EPS (in dollars)

Fourth quarters ended December 31

2019 2018

Diluted EPS $ (0.74) $ 0.02

Impact of special(1) and other adjusting items 0.64 0.03

Adjusted EPS $ (0.10) $ 0.05

(1) Refer to the Consolidated results of operations section for details regarding special items.

50 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

Reconciliation of adjusted net income (loss) to net income (loss) and computation of adjusted EPS

Fiscal years ended December 31

2019 2018

(per share) (per share)

Net income (loss) $ (1,607) $ 318

Adjustments to EBIT related to special items(1) 968 $ 0.41 28 $ 0.01

Adjustments to net financing expense related to:

Loss on repurchase of long-term debt(1) 84 0.03 — —

Loss on sale of long-term contract receivables(1) — — 31 0.01

Accretion on net retirement benefit obligations 73 0.03 65 0.03

Net change in provisions arising from changes in interest

rates and net loss (gain) on certain financial instruments (130) (0.05) 36 0.01

Interest portion of gains related to special items(1) — — (15) 0.00

Tax impact of special(1) and other adjusting items 216 0.09 (25) (0.01)

Adjusted net income (loss) (396) 438

Net income attributable to NCI (190) (86)

Preferred share dividends, including taxes (21) 4

Adjusted net income (loss) attributable to equity holders of

Bombardier Inc. $ (607) $ 356

Weighted-average adjusted diluted number of common shares

(in thousands) 2,383,987 2,501,047

Adjusted EPS $ (0.25) $ 0.14

Reconciliation of adjusted EPS to diluted EPS (in dollars)

Fiscal years ended December 31

2019 2018

Diluted EPS $ (0.76) $ 0.09

Impact of special(1) and other adjusting items 0.51 0.05

Adjusted EPS $ (0.25) $ 0.14

Reconciliation of adjusted debt to long-term debt

As at December 31

2019

Long-term debt $ 9,333

Adjustment for the fair value of derivatives designated (or settled derivatives)

in related hedge relationships (76)

Long-term debt, net 9,257

Lease liabilities 487

Adjusted debt $ 9,744

(1) Refer to the Consolidated results of operations section for details regarding special items.

BOMBARDIER INC. / 2019 FINANCIAL REPORT / OVERVIEW 51

AVIATION

Table of Contents

KEY HIGHLIGHTS GUIDANCE PROFILE INDUSTRY AND ANALYSIS OF RESHAPING

PERFORMANCE AND ECONOMIC RESULTS THE

MEASURES AND FORWARD- ENVIRONMENT PORTFOLIO

METRICS LOOKING

STATEMENTS

52 53 55 57 61 64 70

KEY PERFORMANCE MEASURES AND METRICS

The table below summarizes our most relevant key performance measures and related metrics.

KEY PERFORMANCE MEASURES AND ASSOCIATED METRICS

GROWTH AND • Order backlog, as a measure of future revenues.

COMPETITIVE • Revenues and delivery units, as measures of growth.

POSITIONING • Market share (in terms of revenues and units delivered), as measures of our competitive positioning.

PROFITABILITY • EBIT, EBIT margin, adjusted EBIT(1) and adjusted EBIT margin(1), as measures of performance.

LIQUIDITY • Free cash flow(1), as a measure of liquidity generation.

• On-time aircraft deliveries, as a measure of meeting our commitment to customers.

• Fleet dispatch reliability, as a measure of our products’ reliability.

CUSTOMER • Regional availability of parts and technical expertise to support customer requests in a timely

SATISFACTION manner, as a measure of meeting customer needs for the entire life of the aircraft.

• On-time return to service and high-quality workmanship at Bombardier-owned maintenance facilities,

as a measure of efficiency.

EXECUTION • Achievement of program development milestones, as a measure of flawless execution.

(1) Non-GAAP financial measures. Refer to the Non-GAAP financial measures section in Overview for definitions of these metrics and the

Analysis of results section for reconciliations to the most comparable IFRS measures.

52 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

HIGHLIGHTS

Focused on growing business aircraft activities through new programs and

network expansion

RESULTS(1)

For the fiscal years ended December 31 2019 (2) 2018 Variance

Revenues $ 7,501 $ 7,324 2%

Aircraft deliveries (in units)

Business aircraft 142 137 5

Commercial aircraft(3) 33 35 (2)

Adjusted EBITDA(4) $ 812 $ 643 26%

Adjusted EBITDA margin(4) 10.8% 8.8% 200 bps

Adjusted EBIT(4) $ 531 $ 472 13%

Adjusted EBIT margin(4) 7.1% 6.4% 70 bps

EBIT $ 1,194 $ 424 182%

EBIT margin 15.9% 5.8% 1010 bps

Net additions to PP&E and intangible assets $ 373 $ 303 (5) 23%

As at December 31 2019 2018 Variance

Order backlog (in billions of dollars)

Business aircraft $ 14.4 $ 14.3 1%

Other aviation(6) $ 1.9 $ 4.3 (56)%

(1) Figures are restated as a result of the formation of Bombardier Aviation, our new reportable segment. Refer to the Segment reporting

section in Overview for further details.

(2) Refer to Note 3 - Changes in accounting policies, to our Consolidated financial statements, for the impact of the adoption of IFRS 16,

Leases. Under the modified retrospective approach adopted by the Corporation, 2018 figures are not restated.

(3) On May 31, 2019, the Corporation completed the previously announced sale of the Q Series aircraft program assets, including aftermarket

operations and assets, to De Havilland Aircraft of Canada Limited (formerly Longview Aircraft Company of Canada Limited). Hence, the 7

Q Series aircraft deliveries for the fiscal year ended December 31, 2019 are for the first five months only; the deliveries for the fiscal year

ended December 31, 2018 included 15 Q Series aircraft.

(4) Non-GAAP financial measures. Refer to the Non-GAAP financial measures section in Overview for definitions of these metrics and the

Analysis of results section hereafter for reconciliations to the most comparable IFRS measures.

(5) Included the proceeds from the sale of the Downsview property for approximately $600 million in 2018.

(6) Including 20 firm orders for CRJ900 as of December 31, 2019 and 45 firm orders for CRJ900 as of December 31, 2018. CRJ production is

expected to conclude in the second half of 2020, following the delivery of the current backlog of the aircraft.

KEY HIGHLIGHTS AND EVENTS

2019 marked a pivotal year for Aviation, starting with the consolidation of Bombardier’s three aerospace

segments into a single unit, Bombardier Aviation.

Stronger Financial Performance as Aviation Reshapes its Portfolio

• Revenues for Aviation totalled $7.5 billion for 2019. This reflects an 8.5% revenue growth from business

aircraft activities and continued double-digit organic growth from aftermarket.

• The segment achieved 175 aircraft deliveries during the year, comprised of 54 Global, 76 Challenger,

12 Learjet, as well as 33 commercial aircraft.

The fourth quarter’s activity level was high, with deliveries reaching 52 business aircraft as

Global 7500 deliveries accelerated.

• Adjusted EBITDA margin(1) was 10.8% for the year, up 200 bps driven by the exit of the Q400 and C Series

programs. This profitability was nonetheless diluted in 2019 by CRJ activities, accounting for $1.2 billion in

revenues for the year.

(1) Non-GAAP financial measures. Refer to the Non-GAAP financial measures section in Overview for definitions of these metrics and the

Analysis of results section hereafter for reconciliations to the most comparable IFRS measures.

BOMBARDIER INC. / 2019 FINANCIAL REPORT / AVIATION 53

• The adjusted EBIT margin(1) of 7.1% is up 70 bps year-over-year, reflecting the early production ramp up and

higher amortization associated with Global 7500 deliveries, as well as the dilution from commercial aircraft

activities.

• Business aircraft backlog increased slightly for the second consecutive year, reaching $14.4 billion at year

end, while the CRJ backlog declined as production winds down.

Concentrating on Business Aircraft while Addressing Underperforming Programs

• In February 2019, the Corporation acquired the Global 7500 aircraft wing program operations and assets from

Triumph Group Inc. This transaction enabled the company to leverage its extensive technical expertise to

support the ramp-up of the Global 7500 aircraft and secure its long-term success.

• In March 2019, we concluded the sale of Business Aircraft’s flight and technical training activities to CAE Inc.

for net proceeds of $532 million.

• In May 2019, we completed the previously announced sale of the Q Series program assets, including

aftermarket operations and assets, to De Havilland Aircraft of Canada for net proceeds of $285 million.

• In June 2019, the Corporation entered into a definitive agreement with Mitsubishi Heavy Industries, Ltd. (MHI)

for the sale of its regional jet program for a cash consideration of $550 million payable upon closing, and the

assumption by MHI of approximately $200 million of liabilities related to credit and residual value guarantees

and lease subsidies. The transaction is currently expected to close by mid-year 2020 and remains subject to

regulatory approvals and customary closing conditions.(2)

• In October 2019, the Corporation and Spirit AeroSystems Holding, Inc. (Spirit) announced that they have

entered into a definitive agreement, whereby Spirit will acquire Bombardier’s aerostructures activities and

aftermarket services operations in Belfast, U.K. and Casablanca, Morocco, and its aerostructures

maintenance, repair and overhaul facility in Dallas, U.S. for a cash consideration of $500 million and the

assumption of approximately $700 million of liabilities, including government refundable advances and

pension obligations. The transaction is expected to close by mid-year 2020 and remains subject to regulatory

approvals and customary closing conditions.(2)

Positioned for Growth through certification and ramp up of New Programs and Service Network

Expansion

• Reaching full-scale production of the class-defining Global 7500 aircraft. With increased deliveries, the

Global 7500 aircraft is expected to contribute significantly to revenues growth in 2020. As the aircraft

progresses on the learning curve, it will also contribute to margin expansion.(2)

• Certified the new Global 5500 and Global 6500 aircraft, followed by the entry into service of the Global 6500

aircraft in 2019, offering customers the perfect combination of range, speed, field performance and smooth

ride.

• Continued and consistent growth of the aftermarket business, with further expansion of the service network in

Singapore planned for 2020

(1) Non-GAAP financial measures. Refer to the Non-GAAP financial measures section in Overview for definitions of these metrics and the

Analysis of results section hereafter for reconciliations to the most comparable IFRS measures.

(2) Forward-looking statement. See the forward-looking statements assumptions on which the guidance is based and forward-looking

statements disclaimer in Overview.

54 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

GUIDANCE AND FORWARD-LOOKING STATEMENTS

Updated 2019

2019 guidance provided in our 2018 Financial Report(1) 2019 results

guidance(2)

Business Aircraft ~ $6.25 billion

Commercial Aircraft ~ $1.4 billion

Revenues ~ $8.0 billion $7.5 billion

Aerostructures and Engineering Services $2.25-$2.50

billion including intersegment revenues

EBIT margin N/A N/A 15.9%

Business Aircraft ~ 7.5%

Adjusted EBIT(3)

and Commercial Aircraft ~ ($125 million) ~ 7.0% 7.1%

adjusted EBIT margin(3)

Aerostructures and Engineering Services ~ 7.5%

Business Aircraft 150-155

Aircraft deliveries (in units) 175-180 175

Commercial Aircraft ~ 35 CRJ and Q400

2019 guidance

Revenue guidance was reduced by $250 million from the earlier than anticipated closing of the sale of Business

Aircraft’s training activities and the Q400 program. During the second quarter of 2019, as a result of the

consolidation of the three existing aerospace units into a single Bombardier Aviation business segment, the

Corporation updated its 2019 guidance. Full year revenues guidance at Aviation was updated to approximately

$8.0 billion, net of eliminations. Revenues for 2019 at Aviation were $7.5 billion mainly from lower Business Aircraft

revenues.

New segment adjusted EBIT margin(3) was set at approximately 7.0% for the year, in line with the previous

aerospace segments guidance, and excluding the Airbus Canada Limited Partnership contribution (reclassified as

a corporately held investment). A total of 175 to 180 aircraft deliveries were expected for 2019. For 2019, Aviation’s

adjusted EBIT margin(3) and deliveries were largely in line with guidance.

(1) Refer to our 2018 Financial Report for further details.

(2) Refer to our First Quarterly Report for the period ended March 31, 2019, our Second Quarterly Report for the period ended June 30, 2019

and Segment Reporting section of this MD&A for further details.

(3) Profitability guidance is based on adjusted EBIT margin. Refer to the Non-GAAP financial measures section in Overview for a definition of

this metric and to the Analysis of results section for a reconciliation to the most comparable IFRS measures.

BOMBARDIER INC. / 2019 FINANCIAL REPORT / AVIATION 55

Forward-looking statements

Forward-looking statements(1) in this section of the MD&A are based on and subject to the following material assumptions:

• normal execution and delivery of current backlog;

• the ability to understand customer needs and portfolio of products and services to drive market demand and secure new

orders;

• continued deployment and execution of leading initiatives to improve revenue conversion into higher earnings and free

cash flow(2), through improved procurement cost, controlled spending and labour efficiency;

• delivering on the transformation plan targets, through restructurings and other initiatives addressing the direct and

indirect cost structure, focusing on sustained cost reductions and operational improvements, while reducing working

capital consumption;

• the ability of the supply base to support product development and planned production rates on commercially acceptable

terms in a timely manner;

• the ability to identify and enter into further risk sharing partnerships and initiatives;

• the effectiveness of disciplined capital deployment measures in new programs and products to drive revenue growth;

• the ability to recruit and retain highly skilled resources to deploy the product development strategy;

• the stability of the competitive global environment and global economic conditions;

• the stability of foreign exchange rates at current levels;

• the ability to have sufficient liquidity to execute the strategic plan, to meet financial covenants and to pay down long-term

debt or refinance bank facilities and maturities;

• closing of the sale of our regional jet program and Belfast and Morocco aerostructures businesses and Dallas MRO by

mid-year 2020;

• the alignment of production rates to market demand;

• continued deployment and execution of growth strategies, and continued growth of the aftermarket business;

• the ability to invest in our product portfolio;

• the accuracy of the analyses and assumptions underlying our business case including estimated cash flows and

revenues over the expected life of our programs and thereafter;

• the accuracy of our assessment of anticipated growth drivers and sector trends; and

• new program aircraft prices, unit costs and ramp-up.

(1) Also refer to the Guidance and forward-looking statements section in Overview.

(2) Non-GAAP measure. Refer to the Non-GAAP measures for definition of this metric and to the Analysis of results section for a

reconciliation to the most comparable IFRS measures.

56 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

PROFILE

This section will focus on business aircraft, including specialized aircraft and customer services, following the

announcements made by the Corporation during 2019 in relation to the definitive agreement with

Spirit AeroSystems Holding, Inc. for the sale of Bombardier’s aerostructures businesses in Belfast and Morocco,

and the definitive agreement with Mitsubishi Heavy Industries, Ltd. for the sale of the regional jet program.

Strong portfolio positioned for growth

We skillfully design, develop, manufacture, market and provide aftermarket support for three class-leading

families of business jets - Learjet, Challenger and Global. Our business jet portfolio spans from the light to the

large categories, in addition to outfitting various aircraft platforms for specialized use.

With approximately 4,900 aircraft in service worldwide, Bombardier Aviation has developed an aftermarket and

support network of service facilities including wholly-owned service centres in the U.S., Europe and Asia, regional

support office (RSO) locations, mobile repair trucks and world-class aircraft parts availability sustained by parts

facilities, including depots, hubs and repair facilities worldwide.

MARKET SEGMENT: BUSINESS AIRCRAFT

LIGHT BUSINESS JETS

Models: Learjet 70, Learjet 75 and Learjet 75 Liberty(1)

Market category: Light business jets

Key features(2): As part of the legendary Learjet family, of

which more than 3,000 aircraft have been delivered to

date, the class-defining Learjet aircraft continue to set the

standard by bringing large jet features to a light jet

platform. Learjet aircraft feature a flat floor throughout the

cabin, offering a smooth ride and the ultimate in comfort.

The new Learjet 75 Liberty aircraft will offer the only

Executive Suite in the light jet category featuring a

spacious six-seat configuration with a standard pocket

door between the cockpit and cabin for the quietest flight

experience. The Learjet 75 Liberty aircraft will be certified

to more stringent Part 25 regulations prescribed by U.S.

Learjet 75 Liberty aircraft

Federal Aviation Administration (FAA), applicable to

commercial airliners, unlike most competitors in the light

jet category that are certified to Part 23 regulations.

(1) Currently under development. See the Global 8000 and Learjet 75 Liberty aircraft disclaimer at the end of this MD&A.

(2) Under certain operating conditions, when compared to aircraft currently in service.

BOMBARDIER INC. / 2019 FINANCIAL REPORT / AVIATION 57

MID-SIZE BUSINESS JETS

Models: Challenger 350 and Challenger 650

Market category: Medium business jets

Key features(1): A masterful expression of high-end

craftsmanship and functionality, the Challenger family of

aircraft features productivity-enhancing business tools,

with the most comfortable cabins in its category. Each

aircraft offers low operating costs, high reliability, and the

ultimate in-flight experience with industry-leading

connectivity, immersive sound system and cabin

management system that effortlessly bring it all together.

Bombardier has continually invested in the Challenger

platform. In 2019, Bombardier announced a suite of

updates to its Challenger 350 aircraft, further underscoring

its leadership position in the super mid-size segment. New

Challenger 350 aircraft

enhancements include a performance improvement

package particularly effective for short runways, available

compact Head-up Display (HUD) and Enhanced Vision

System (EVS), along with improved cockpit aesthetics and

cabin sound-proofing technology.

The Challenger 300 Series has been the most delivered

medium business jet for the last decade.

The Challenger 600 Series has been the most delivered

business jet in its segment for the last decade.

LARGE BUSINESS JETS

Models: Global 5000, Global 5500, Global 6000,

Global 6500, Global 7500 and Global 8000(2)

Market category: Large business jets

Key features(1): Skillfully designed to leave a lasting

impression, the flagship Global aircraft family covers the

large jet category with six aircraft models that feature a

smooth ride and intelligently crafted interiors with

redesigned cabins that balance luxury with productivity

and feature the industry’s fastest worldwide inflight internet

connectivity combined with comprehensive cabin

management systems to keep passengers entertained

and connected at all times.

The Global 6000 aircraft family is the most delivered

business jet in the large category. Bombardier’s new

Global 7500 aircraft

performance-leading Global 5500 and Global 6500 aircraft

received Transport Canada type certification in

September 2019, followed by entry-into-service of the

Global 6500 business jet in the same month.

The segment-defining Global 7500 aircraft extends the

family with a true four-zone cabin, full crew-rest area and

the longest range to link virtually any key city pair

worldwide, non-stop. The Global 7500 aircraft entered

service in December 2018, and has since achieved

several significant milestones, notably the longest non-

stop city pair flight in business aviation history from

Sydney, Australia, to Detroit, Michigan.

(1) Under certain operating conditions, when compared to aircraft currently in service.

(2) Currently under development. See the Global 8000 and Learjet 75 Liberty aircraft disclaimer at the end of this MD&A.

58 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

BOMBARDIER SPECIALIZED AIRCRAFT

Models: Learjet, Challenger and Global business jets

Market category: Special mission aircraft

Key features: Bombardier Specialized Aircraft designs, develops and delivers a range of capabilities to operators around the

world, with more than 500 specialized aircraft in service. Bombardier’s diverse fleet, which includes the Learjet, Challenger

and Global business aircraft platforms, represents the ideal solution for government missions, from surveillance and

reconnaissance to medical and dignitary transport. Solutions range from turnkey packages comprising the complete design,

building, testing and certification activity, through to specialist engineering support and technical oversight of customer specific

projects.

MARKET SEGMENT: CUSTOMER SERVICES

MAINTENANCE: ADDING VALUE THROUGHOUT THE LIFECYCLE

Services portfolio: Extensive, worldwide capabilities to maximize scheduled maintenance as well as value added packages,

including refurbishment and modification of business aircraft, and component repair and overhaul services. Through original

equipment manufacturer expertise, a wide variety of services can be performed in house, as well as through dispatching

mobile repair teams to customers’ aircraft.

Key features: Offering worldwide service and support through wholly-owned service centres, line maintenance stations,

30 Bombardier mobile response vehicles, two aircraft and a network of authorized service facilities.

OFFERING PEACE OF MIND THROUGH PARTS AND SMART SERVICES

Services portfolio: Providing manufacturer approved parts backed by industry leading 2-year warranty, as well as repairs to

customer owned parts, and a growing portfolio of innovative cost-per-flight-hour parts and maintenance plans available for

Learjet, Challenger and Global aircraft. Options include the Smart Services offering, which can be tailored to include landing

gear overhaul and unscheduled maintenance coverage, among other selections.

Key features: Supporting 24/7 parts support with parts facilities worldwide anchored by three major hubs in Chicago,

Frankfurt and Singapore, as well as six regional depots. A sophisticated inventory management system ensures worldwide

parts availability throughout the depot and hub network as well as the wholly-owned service centres. Repair facilities in North

America and Europe provide repair services on customer-owned parts. Unlimited access to two Mobile Response Team

aircraft to shuttle parts in support of aircraft-on-ground requirements. From coverage on exchanges and repairs of airframe

components, including flight deck avionics, Smart Services provides budget predictability and worldwide parts availability.

BOMBARDIER INC. / 2019 FINANCIAL REPORT / AVIATION 59

24/7 CUSTOMER SUPPORT

Services portfolio: Comprehensive portfolio of business aircraft customer support including 24-hour customer response

centres, customer services engineering, a network of field service personnel, customer response team trucks, regional support

offices, technical publications, and EIS support.

Key features: Providing operators with a single point of contact, 24 hours a day, 365 days a year, for all critical and aircraft-

on-the-ground requests and supporting all customer requirements from EIS throughout ownership of the aircraft by leveraging

a global support network of strategically located teams. Bombardier is enhancing its customer support footprint around the

world with service centre expansion announcements for Miami Opa-Locka and Singapore, new line maintenance stations in

Van Nuys, Teterboro and Dubai. These initiatives underscore Bombardier’s ongoing, transformational commitment to providing

the most comprehensive onsite, mobile and aircraft-on-ground resolution services in the industry.

60 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

INDUSTRY AND ECONOMIC ENVIRONMENT

This section will focus on indices relevant for business aviation, following the announcements made by the

Corporation during 2019 in relation to the definitive agreement with Spirit AeroSystems Holding, Inc. for the sale

of Bombardier’s aerostructures businesses in Belfast and Morocco, and the definitive agreement with

Mitsubishi Heavy Industries, Ltd. for the sale of the regional jet program.

New products elevated 2019 industry deliveries

Business aviation deliveries grew in 2019, driven by new product introductions and low pre-owned inventory

levels. These factors offset the softening of certain key indicators for the industry. World GDP growth in 2019

slowed to 2.6%, from 3.2% in 2018.(1) The slowdown in global growth was due to the uncertainty arising from the

U.S. trade dispute with China. Industry confidence, measured by the Barclays Business Jet Indicator, averaged

just below the threshold of market stability for 2019.(2) Forecasted U.S. corporate profits for 2019 are expected to

maintain stability compared to 2018, arriving at $2.1 trillion.(3) Pre-owned aircraft inventory expressed as a

percentage of the overall fleet has been decreasing and remains healthy at 10.2%.(4) Finally, the industry delivered

an estimated total of 592 units in 2019, up 15% year-over-year, which is above the average of total annual

deliveries over the past 10 years. Large category aircraft deliveries grew for the last 3 years, with their market

share continuing to increase due to rising demand for large cabin and longer range aircraft.(5) Industry revenues

also grew by 17% following the ramp-up of several new products introduced in larger categories.(6)

The following key indicators are used to monitor the health of the business aviation market in the short term:

INDICATOR CURRENT SITUATION STATUS

Based on the latest Barclays Business Jet Indicator, published in December 2019, the

INDUSTRY

measure of industry confidence averaged at 49 points for 2019(2), and was just below the

CONFIDENCE

threshold of market stability.

CORPORATE

Forecasted U.S. corporate profits are expected to maintain stability at $2.1 trillion for 2019.(3)

PROFITS

PRE-OWNED

BUSINESS JETS The total number of pre-owned aircraft available for sale as a percentage of the total

INVENTORY worldwide fleet has increased over the past year to 10.2%, but remains at healthy levels.(4)

LEVELS

AIRCRAFT

Business jet utilization in the U.S. decreased by 2.5% in 2019 compared to 2018.

UTILIZATION

Business jet utilization in Europe decreased by 2.3% in 2019 compared to 2018.(7)

RATES

AIRCRAFT

In the business aircraft market categories in which we compete, we estimate that business

SHIPMENTS

aircraft deliveries went up by 15%(5) and total billings by 17%(6) in 2019 compared to 2018.

AND BILLINGS

Identifies a favourable, neutral or negative status, respectively, in the market categories in which we compete, based on the current

environment.

(1) According to Oxford Economics Global Economic Databank dated January 15, 2020.

(2) According to the Barclays Business Jet Survey dated December 11, 2019. Average has been calculated using the monthly data.

(3) According to the U.S. Bureau of Economic Analysis News Release dated December 20, 2019.

(4) According to JETNET and Ascend (by Cirium).

(5) Based on our estimates, public disclosure records of certain competitors, the General Aviation Manufacturers Association (GAMA) shipment

reports and Ascend (by Cirium).

(6) Based on our estimates, public disclosure records of certain competitors, the General Aviation Manufacturers Association (GAMA) shipment

reports, Ascend (by Cirium) and B&CA Magazine list prices.

(7) According to the U.S. Federal Aviation Administration (FAA) and Eurocontrol websites.

BOMBARDIER INC. / 2019 FINANCIAL REPORT / AVIATION 61

Source: Barclays from the start of 2018, previously UBS Sources: JETNET and Ascend (by Cirium)

* The Business Jet Indicator is a measure of market confidence * As a percentage of total business jet fleet, excluding very light

from industry professionals, gathered through regular surveys of jets.

brokers, dealers, manufacturers, fractional providers, financiers Shaded area indicates what we consider to be the normal

and others. range of total pre-owned business jet inventory available for

Methodologies used in the calculation of the Business jet sale, i.e. between 11% and 14%.

Indicator may differ following a change in the source of the data.

UBS did not issue a survey for Q4 2017.

Source: U.S. Federal Aviation Administration (FAA) website Source: Eurocontrol

Short-term outlook

Global growth is expected to reach 2.5% in 2020(1), in line with recent years. This economic outlook combined with

low pre-owned inventory levels and balanced aircraft backlog should continue to support a stable business jet

market. The business environment for the year is reinforced by the Barclays Business Jet Indicator which jumped

8 points to 47 points for January 2020(2), on the back of increasing customer interest. The potential exit of certain

legacy platforms in the industry should offset the unit growth of new products. Industry revenues are expected to

keep growing with the increasing contribution of large aircraft in the overall industry delivery mix.

(1) According to Oxford Economics Databank dated January 15, 2020.

(2) According to the Barclays Business Jet Survey dated January 23, 2020.

62 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

Long-term outlook

In the longer term, all demand drivers are well-oriented. Wealth creation and the continued emergence of

developing countries are expected to grow our customer base. The retirement of older models combined with the

introduction of new models will help meet the needs of new customers. The evolution of new ownership models,

such as fractional and charter businesses will make business aviation even more accessible.

Business aviation is poised for growth and with the industry’s most comprehensive product portfolio, we believe

we are well positioned.

Customer services

Business Aircraft’s worldwide customer services network includes wholly owned service centres, parts hubs, parts

depots, line maintenance facilities, regional support offices, customer response centres, mobile customer

response teams, as well authorized service facilities and authorized training providers.

The demand for service and support is driven by the size of the fleet of Bombardier business aircraft, by the

number of hours flown by said fleet and the average age of the fleet. Based on the large installed base of

business aircraft, we will continue to focus on these high margin activities.

Market indicators

INDICATOR CURRENT SITUATION STATUS

The installed base for Bombardier business aircraft increased by approximately 2% to

INSTALLED BASE

approximately 4,900 aircraft in 2019 when compared to 2018.(1)

AVERAGE ANNUAL Based on our estimates, Bombardier business aircraft average annual flight hours

FLIGHTS HOURS decreased by 1.8% in 2019 compared to last year.

Typically, aircraft direct maintenance costs increase as an aircraft ages. Therefore, the

AVERAGE AGE OF average age of the fleet of Bombardier aircraft will impact the size of the maintenance

FLEET market. The average age of the Bombardier business aircraft fleet has increased by

1.0% in 2019 when compared to 2018.(1)

Identifies a favourable, neutral or negative status, respectively, in the market categories in which we compete, based on the current

environment.

(1) Based on data obtained from fleet database Ascend (by Cirium).

Short-term outlook

Based on the market indicators above, the demand for parts and service programs is expected to grow

significantly. We continue to actively seek out strategic locations for expansion in order to move closer to

customers, further improve response times and build stronger relationships around the globe.

Historically, the U.S. represented the largest share of the fleet for business aircraft, however, wealth creation and

economic development in non-traditional markets is driving a shift in the proportion of the business aircraft fleet

outside of the U.S. This trend in demand impacts the geographical layout of our support network. In non-

traditional markets, the strategy is to increase our local customer-support presence and leverage third parties to

deploy the full span of services.

Long-term outlook

The continued growth of the installed base is expected to stimulate demand for customer services. While

traditional markets such as North America should dominate in terms of market size, the business aircraft fleet

growth in non-traditional markets should create new opportunities for aftermarket services.

BOMBARDIER INC. / 2019 FINANCIAL REPORT / AVIATION 63

ANALYSIS OF RESULTS

Results of operations(1)

Fourth quarters Fiscal years

ended December 31 ended December 31

2019 (2) 2018 2019 (2) 2018

Revenues

Business aircraft

Manufacturing and other(3) $ 1,640 $ 1,177 $ 4,163 $ 3,794

Services(4) 311 317 1,254 1,200

Commercial aircraft(5) 231 421 1,227 1,756

Aerostructures and engineering services(6) 231 227 857 574

Total revenues $ 2,413 $ 2,142 $ 7,501 $ 7,324

Adjusted EBITDA(7) $ 234 $ 242 $ 812 $ 643

Amortization 91 58 282 171

Impairment reversals on PP&E and intangible assets — — (1) —

Adjusted EBIT(7) 143 184 531 472

Special items 49 13 (663) 48

EBIT $ 94 $ 171 $ 1,194 $ 424

Adjusted EBITDA margin(7) 9.7% 11.3% 10.8% 8.8%

Adjusted EBIT margin(7) 5.9% 8.6% 7.1% 6.4%

EBIT margin 3.9% 8.0% 15.9% 5.8%

(1) Figures are restated as a result of the formation of Bombardier Aviation, our new reportable segment. Refer to the Segment reporting

section in Overview for further details.

(2) Refer to Note 3 - Changes in accounting policies, to our Consolidated financial statements, for the impact of the adoption of IFRS 16,

Leases. Under the modified retrospective approach adopted by the Corporation, 2018 figures are not restated.

(3) Represents revenues from sale of new aircraft, specialized aircraft solutions and pre-owned aircraft.

(4) Represents revenues from aftermarket services including parts, Smart Services, service centres, training and technical publication.

(5) Represents manufacturing, services and other.

(6) Represents external revenues.

(7) Non-GAAP financial measures. Refer to the Non-GAAP financial measures section in Overview for definitions of these metrics.

Revenues

The $271-million increase for the fourth quarter is mainly due to:

• higher revenues from business aircraft manufacturing and other, mainly due to higher deliveries of large

aircraft.

Partially offset by:

• lower revenues from commercial aircraft, mainly due to the sale of the Q Series aircraft program on

May 31, 2019.

The $177-million increase for the fiscal year is due to:

• higher revenues from business aircraft manufacturing and other, mainly due to higher deliveries and a

favourable mix of large aircraft;

• higher revenues from aerostructures and engineering services, mainly due to revenues from contracts

with ACLP(1) being presented as external revenues starting July 1, 2018, partially offset by lower volume

for other external contracts; and

• higher revenues from business aircraft services, mainly due to an increase in sales of spares parts and

increase in activities in service centres, partially offset by the sale of the business aircraft training

activities on March 14, 2019.

Partially offset by:

• lower revenues from commercial aircraft, mainly due to the deconsolidation of ACLP(1) starting in the third

quarter of 2018 and the sale of the Q Series aircraft program on May 31, 2019, partially offset by an

increase in CRJ aircraft deliveries.

(1) Effective June 1, 2019, the name of CSALP is changed to ACLP.

64 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

Special items

Special items comprise items which do not reflect our core performance or where their separate presentation will

assist users in understanding our results for the period. Such items include, among others, the impact of

restructuring charges and significant impairment charges and reversals.

The special items recorded as (gains) losses in EBIT were as follows:

Fourth quarters Fiscal years

ended December 31 ended December 31

Ref 2019 2018 2019 2018

Gain on disposal of a business - Training business 1 $ — $ — $ (516) $ —

Gain on disposal of a business - Q Series business 2 9 — (210) —

Restructuring charges 3 13 29 51 31

Reversal of Learjet 85 aircraft program cancellation

provisions 4 (3) (28) (18) (29)

C Series transaction with Airbus 5 — 7 — 616

Gain on disposal of PP&E 6 — — — (561)

Purchase of pension annuities 7 4 2 4 22

Changes in credit and residual value guarantees 8 — — — (34)

Pension adjustments 9 26 24 26 24

Tax litigation 10 — (21) — (21)

$ 49 $ 13 $ (663) $ 48

EBIT margin impact (2.0)% (0.6)% 8.8% (0.6)%

1. The sale of Business Aircraft’s flight and technical training activities for a total net consideration of

$532 million resulted in a pre-tax accounting gain of $516 million ($383 million after deferred tax impact of

$133 million). See Note 31 - Disposal of businesses.

2. The sale of the Q Series Aircraft program assets for net proceeds of $285 million resulted in a pre-tax

accounting gain of $210 million ($184 million after tax impact). See Note 31 - Disposal of businesses.

3. For the fourth quarter and fiscal year ended December 31, 2019, represents change in severance charges of

$(1) million and $24 million, respectively, partially offset by curtailment gains of nil and $2 million, respectively,

related to previously-announced restructuring actions.

Following the announcement that the CRJ production is expected to conclude in the second half of 2020,

following the delivery of the current backlog of aircraft, the Corporation has recorded severance charges of

$7 million partially offset by curtailment gains of $3 million in the first quarter of 2019, and has recorded

$14 million and $24 million of other related charges for the fourth quarter and the fiscal year of 2019,

respectively.

For the fourth quarter and the fiscal year ended December 31, 2018, represented severance charges of

$35 million and $37 million, respectively, partially offset by curtailment gains of $6 million related to the

previously-announced restructuring actions.

4. Based on the ongoing activities with respect to the cancellation of the Learjet 85 aircraft program, the

Corporation reduced the related provisions by $3 million and $18 million for the fourth quarter and fiscal year

ended December 31, 2019 ($28 million and $29 million for the fourth quarter and fiscal year ended

December 31, 2018). The reduction in provisions is treated as a special item since the original provisions

were also recorded as special items in 2014 and 2015.

5. The acquisition by Airbus of 50.01% of ACLP, the entity that manufactures and sells the C Series aircraft

(rebranded A220) resulted in a pre-tax accounting charge of $616 million ($552 million after tax). The pre-tax

accounting charge reflects all elements of the transaction, including: (i) the $270 million fair value of warrants

issued by Bombardier to Airbus on July 1, 2018, (ii) a $310 million derivative liability which is associated with

the expected off-market return on units to be issued to Bombardier by ACLP under Bombardier’s funding

commitments, and iii) other Bombardier obligations towards ACLP, which mainly comprise supply chain

obligations for Aerostructures and Engineering Services.

6. Related to the sale of the Downsview property to the Public Sector Pension Investment Board (PSP

Investments).

BOMBARDIER INC. / 2019 FINANCIAL REPORT / AVIATION 65

7. Represents the non-cash loss on the settlement of defined benefit pension plans resulting from the purchase

of annuities with insurance companies. As part of its ongoing de-risking strategies, the Corporation has an

initiative for the buy-out of annuities payable to pensioners or deferred pensioners for certain plans to the

extent they are fully funded on a buy-out basis, subject to compliance with certain conditions including

applicable pension legislations.

8. The provisions for credit and residual value guarantees were reduced following a change in credit risk

assumption for an airline. The reduction of the provisions was treated as a special item since the original

provisions were recorded as special items in 2015.

9. On October 26, 2018, the High Court in the United Kingdom ruled that pension schemes must equalize for the

effect of unequal Guaranteed Minimum Pensions between male and female for benefits earned during

specified periods (“GMP equalization”). The Corporation estimated the impact of the ruling on its pension

plans and recognized an additional obligation of $24 million as at December 31, 2018. The one-time P&L

impact was recognized in fiscal year 2018 as a past service cost under IAS 19 - Employee Benefits. In fiscal

year 2019, the Corporation adjusted the pension obligation related to equalization for an Aviation plan in the

U.K. The adjustments of $26 million was recorded as a past service cost under IAS 19 - Employee Benefits.

10. Represents a change in the estimates used to determine the provision related to tax litigation.

EBIT margin

Adjusted EBIT margin(1) for the fourth quarter decreased by 2.7 percentage points mainly due to:

• lower contribution from business aircraft sales which includes higher amortization of aerospace program

tooling as a result of increased Global 7500 deliveries.

Partially offset by:

• lower SG&A expenses.

Including the impact of special items (see explanation of special items above), the EBIT margin for the fourth

quarter decreased by 4.1 percentage points compared to the same period last year.

Adjusted EBIT margin(1) for the fiscal year increased by 0.7 percentage points mainly due to:

• the net impact of the deconsolidation of C Series; and

• lower SG&A expenses.

Partially offset by:

• lower contribution from business aircraft sales which includes higher amortization of aerospace program

tooling.

Including the impact of special items (see explanation of special items above), the EBIT margin for the fiscal year

increased by 10.1 percentage points compared to last fiscal year.

(1) Non-GAAP financial measures. Refer to the Non-GAAP financial measures section in Overview for definitions of these metrics.

66 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

Product development

Investment in product development(1)

Fourth quarters Fiscal years

ended December 31 ended December 31

2019 2018 2019 2018

Program tooling(2) $ 62 $ 226 $ 280 $ 876

R&D expense(3) 6 7 24 25

$ 68 $ 233 $ 304 $ 901

As a percentage of revenues 2.8% 10.9% 4.1% 12.3%

(1) Figures are restated as a result of the formation of Bombardier Aviation, our new reportable segment. Refer to the Segment reporting

section in Overview for further details.

(2) Net amount capitalized in aerospace program tooling, as well as the amount that was paid to suppliers based on reception of parts or

delivery of the aircraft for acquired development costs carried out by them.

(3) Excluding amortization of aerospace program tooling of $59 million and $132 million, respectively, for the fourth quarter and fiscal year

ended December 31, 2019 ($29 million and $70 million, respectively, for the fourth quarter and fiscal year ended December 31, 2018), as

the related investments are already included in aerospace program tooling.

The decrease in aerospace program tooling investment is mainly due to the entry-into-service of the Global 7500

aircraft program in December 2018.

The carrying amount of aerospace program tooling(1) as at December 31, 2019 was $4.6 billion, compared to

$4.5 billion as at December 31, 2018. The net carrying value of aerospace program tooling remains stable due to

completion of major development programs.

The Global 5500 and Global 6500 aircraft program

The first Global 6500 business jet entered into service on September 30, 2019, on schedule. The Global 5500

and Global 6500 aircraft were awarded Transport Canada Type Certification on September 24, 2019, European

Aviation Safety Agency (EASA) certification on October 15, 2019, and U.S. Federal Aviation Administration (FAA)

certification on December 20, 2019.

The Global 5500 and Global 6500 jets are built on the success of the Global 5000 and Global 6000 aircraft

offering 700 and 600 nautical miles of additional range, respectively, for a class-leading 5,900 and 6,600 nautical

miles, top speeds of Mach 0.90 and Bombardier’s advanced wing design for a comfortable and smooth ride. The

two new business jets also provide an up to 13-per-cent fuel burn advantage in certain operating conditions,

contributing to highly favourable operating costs versus smaller competing aircraft with less range.

The Learjet 75 Liberty aircraft program(2)

Bombardier debuted the Learjet 75 Liberty mock-up on October 22, 2019 at National Business Aviation

Association Convention and Exhibition (NBAA-BACE) in Las Vegas following the launch of the business jet on

July 2, 2019. On January 20, 2020, Bombardier announced FAA certification of the Garmin G5000 avionics

upgrade, a standard feature on the Learjet 75 Liberty aircraft.

Building on the industry’s best light jet platform, the new Learjet 75 Liberty offers the largest cabin in its segment

with a new Executive six-seat configuration. Standard features not found on other light jets in this segment include

a flat floor and pocket door between the cockpit and Executive Suite for a quiet flight experience. With a lower

price point than previous Learjet aircraft, the Learjet 75 Liberty offers better performance at the same operating

costs as competitor aircraft.(3) First deliveries of the Learjet 75 Liberty aircraft are expected in 2020.

(1) Figures are restated as a result of the formation of Bombardier Aviation, our new reportable segment. Refer to the Segment reporting section

in Overview for further details.

(2) Currently under development. See the Global 8000 and Learjet 75 Liberty aircraft disclaimer at the end of this MD&A.

(3) Under certain operating conditions, when compared to aircraft currently in service.

BOMBARDIER INC. / 2019 FINANCIAL REPORT / AVIATION 67

Aircraft deliveries and order backlog

Aircraft deliveries

Fourth quarters Fiscal years

ended December 31 ended December 31

(in units) 2019 2018 2019 2018

Business aircraft

Light 3 3 12 12

Medium 28 25 76 83

Large 21 13 54 42

52 41 142 137

Commercial aircraft(1)

Regional jets(2) 6 6 26 20

Turboprops(3) — 6 7 15

6 12 33 35

58 53 175 172

(1) Excluding 13 CS300 aircraft deliveries for the first six months of the fiscal year ended December 31, 2018. Subsequent to the C Series

Partnership closing on July 1, 2018, Airbus rebranded CS100 and CS300 as A220-100 and A220-300, respectively.

(2) The Corporation entered into a definitive agreement announced on June 25, 2019 whereby Mitsubishi Heavy Industries, Ltd (MHI) will

acquire the Corporation’s regional jet program. See section - Reshaping portfolio for more details in respect of the transaction.

(3) On May 31, 2019, the Corporation completed the previously announced sale of the Q Series aircraft program assets, including aftermarket

operations and assets, to De Havilland Aircraft of Canada Limited (formerly Longview Aircraft Company of Canada Limited). Hence, the 7

Q Series aircraft deliveries for the fiscal year ended December 31, 2019 are for the first five months only.

Order backlog

As at

(in billions of dollars) December 31, 2019 December 31, 2018

Business aircraft $ 14.4 $ 14.3

Other aviation(1) 1.9 4.3

$ 16.3 $ 18.6

(1) Including 20 firm orders for CRJ900 as of December 31, 2019 and 45 firm orders for CRJ900 as of December 31, 2018.

For the three-year period ended December 31, 2019, we captured 26% of the market share based on business

aircraft units delivered. During this period, we were the market leader in terms of business aircraft units delivered.

This compares with a market share of 28% based on units delivered for the three-year period ended

December 31, 2018 during which we were also the market leader.(1)

(1) Based on our estimates, competitors’ public disclosure, the General Aviation Manufacturers Association (GAMA) shipment reports and

Ascend (by Cirium).

68 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

Workforce

Total number of employees(1)

As at

December 31, 2019 December 31, 2018

Permanent(2) 22,150 24,900

Contractual(3) 2,200 2,050

24,350 26,950

Percentage of permanent employees covered by collective agreements 52% 48%

(1) Figures are restated as a result of the formation of Bombardier Aviation, our new reportable segment. Refer to the Segment reporting

section in Overview for further details.

(2) Including 750 inactive employees as at December 31, 2019 (800 inactive employees as at December 31, 2018).

(3) Including non-employees and sub-contractors personnel.

The workforce as at December 31, 2019 decreased by 2,600 employees, or 10%, when compared to the previous

year. This decrease is mainly related to previously-announced restructuring actions, consolidation of all three

aerospace segments into a single Aviation segment, the sale of the Q Series aircraft program assets and the sale

of Business Aircraft’s flight and technical training activities, partially offset by the acquisition of the Global 7500

aircraft wing program operations from Triumph Group Inc.

Our incentive-based compensation plan for non-unionized employees across our sites rewards the collective

efforts of our employees in achieving our objectives using performance indicator targets. A total of approximately

11,900 employees worldwide, or 54% of permanent employees, participate in the program. In 2019, as part of this

program, incentive-based compensation is linked to the achievement of targeted results, based on adjusted EBIT

and free cash flow.(1)

(1) Non-GAAP financial measures. Refer to the Non-GAAP financial measures section in Overview for definitions of these metrics.

BOMBARDIER INC. / 2019 FINANCIAL REPORT / AVIATION 69

RESHAPING THE PORTFOLIO

Acquisition of the Global 7500 aircraft wing program from Triumph Group

Inc.

On February 6, 2019, the Corporation acquired the Global 7500 aircraft wing program operations and assets from

Triumph Group Inc., for a nominal cash consideration. This transaction enabled the company to leverage its

extensive technical expertise to support the ramp-up of the Global 7500 aircraft and secure its long-term success.

Bombardier continues to operate the production line and integrated the employees currently supporting the

program at Triumph’s Red Oak, Texas facility.

The Corporation acquired net assets valued at approximatively $100 million, consisting primarily of work in

progress inventory and PP&E, and settled certain preexisting relationships. No gain or goodwill was recorded on

the transaction. The assets acquired and liabilities assumed by the Corporation were measured at their estimated

fair value.

For more details, refer to Note 32 - Acquisition of a business, to our consolidated financial statements.

Conclusion of the sale of Business Aircraft’s flight and technical training

activities with CAE

On March 14, 2019, we concluded the sale of previously announced Business Aircraft’s flight and technical

training activities to CAE Inc. (CAE) for an enterprise value of $645 million, with net proceeds of $532 million after

the assumption of certain liabilities, fees, and closing adjustments. A gain of $516 million ($383 million after

deferred tax impact) was recognized in Special items.

Concurrently with the sale agreement, Bombardier and CAE also agreed to extend their Authorized Training

Provider (ATP) relationship whereby CAE agreed to prepay all royalties thereunder. This prepayment amounted to

$155 million and was received by Bombardier in the fourth quarter of 2018.

For more details, refer to Note 31 - Disposal of businesses, to our consolidated financial statements.

Conclusion of the sale of the Q Series aircraft program with De Havilland

Aircraft of Canada Limited

On May 31, 2019, we completed the previously announced sale of the Q Series aircraft program assets, including

aftermarket operations and assets, to De Havilland Aircraft of Canada Limited (formerly Longview Aircraft

Company of Canada Limited), an affiliate of Longview Aviation Capital Corp, for net proceeds of $285 million. The

sale includes all assets and intellectual property and Type Certificates associated with the Dash 8 Series 100, 200

and 300 as well as the Q400 program operations at the Downsview manufacturing facility in Ontario, Canada. A

gain of $210 million ($184 million after deferred tax impact) was recognized in Special items.

For more details, refer to Note 31 - Disposal of businesses, to our consolidated financial statements.

70 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

Definitive agreement to sell our regional jet program to Mitsubishi Heavy

Industries, Ltd.

On June 25, 2019, the Corporation and Mitsubishi Heavy Industries, Ltd. (MHI), announced they have entered

into a definitive agreement, whereby MHI will acquire the Corporation’s regional jet program for a cash

consideration of $550 million, payable to the Corporation upon closing, and the assumption by MHI of liabilities

related to credit and residual value guarantees and lease subsidies amounting to approximately $200 million.

Under the agreement, the Corporation’s net beneficial interest in the Regional Aircraft Securitization Program

(RASPRO), which was valued at approximately $200 million will be transferred to MHI.

Pursuant to the agreement, MHI will acquire the maintenance, support, refurbishment, marketing, and sales

activities for the CRJ Series aircraft, including the related services and support network located in Montréal,

Québec, and Toronto, Ontario, and its service centres located in Bridgeport, West Virginia, and Tucson, Arizona,

as well as the type certificates.

The CRJ production facility in Mirabel, Québec will remain with Bombardier. Bombardier will continue to supply

components and spare parts and will assemble the current CRJ backlog on behalf of MHI. CRJ production is

expected to conclude in the second half of 2020, following the delivery of the current backlog of aircraft.

Bombardier will also retain certain liabilities representing a portion of the credit and residual value guarantees

totalling $378 million. Aside from the accrual of interest, this amount is fixed and not subject to future changes in

aircraft value, and is mainly payable by Bombardier over the next four years. The amount is included in other

financial liabilities. The agreement contemplates a reverse break fee payable by MHI under certain

circumstances.

The transaction is now expected to close by mid-year 2020 and remains subject to necessary approvals and

customary closing conditions.(1) The Corporation has received most of the regulatory approvals required.

For more details, refer to Note 30 - Assets held for sale, to our consolidated financial statements.

(1) See the forward-looking statements disclaimer.

Sale of Belfast and Casablanca aerostructures businesses and Dallas MRO

to Spirit AeroSystems Holding, Inc. (Spirit)

On October 31, 2019, the Corporation and Spirit AeroSystems Holding, Inc. (Spirit) announced that they have

entered into a definitive agreement, whereby Spirit will acquire Bombardier’s aerostructures activities and

aftermarket services operations in Belfast, U.K., and Casablanca, Morocco, and its aerostructures maintenance,

repair and overhaul (MRO) facility in Dallas, U.S., for a cash consideration of $500 million and the assumption of

liabilities, including government refundable advances and pension obligations. Following the transaction, Spirit will

continue to supply structural aircraft components and spare parts to support the production and in-service fleet of

Bombardier Aviation’s Learjet, Challenger and Global families of aircraft.

The transaction follows the formation of Bombardier Aviation earlier this year and streamlines its aerostructures

footprint to focus on its core capabilities in Montreal, Mexico and its Global 7500 wing operations in Texas. The

transaction is expected to close by mid-year 2020 and remains subject to regulatory approvals and customary

closing conditions.(1)

For more details, refer to Note 30 - Assets held for sale, to our consolidated financial statements.

(1) See the forward-looking statements disclaimer.

BOMBARDIER INC. / 2019 FINANCIAL REPORT / AVIATION 71

TRANSPORTATION

Table of Contents

KEY HIGHLIGHTS GUIDANCE AND PROFILE INDUSTRY AND ANALYSIS OF

PERFORMANCE FORWARD- ECONOMIC RESULTS

MEASURES AND LOOKING ENVIRONMENT

METRICS STATEMENTS

72 73 75 76 80 85

KEY PERFORMANCE MEASURES AND METRICS

The table below summarizes our most relevant key performance measures and associated metrics.

KEY PERFORMANCE MEASURES AND ASSOCIATED METRICS

• Order backlog, as a measure of future revenues.

GROWTH AND • Book-to-bill ratio(1), as an indicator of future revenues.

COMPETITIVE • Revenues by product segments and the geographic diversification of revenues, as measures of

POSITIONING growth and sustainability of competitive positioning.

• Market position, as a measure of our competitive positioning.

PROFITABILITY • EBIT, EBIT margin, adjusted EBIT(2) and adjusted EBIT margin(2), as measures of performance.

LIQUIDITY • Free cash flow(2), as a measure of liquidity generation.

CUSTOMER • Various customer satisfaction metrics, focusing on the four main dimensions: sales and prices,

SATISFACTION customer orientation, project execution and product offering.

EXECUTION • Achievement of product development and delivery milestones, as a measure of flawless execution.

(1) Defined as new orders over revenues.

(2) Non-GAAP financial measures. Refer to the Non-GAAP financial measures section in Overview for definitions of these metrics and the

Analysis of results section for reconciliations to the most comparable IFRS measures.

72 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

HIGHLIGHTS

Improving the backlog while working through challenging legacy projects

RESULTS

For the fiscal years ended December 31 2019 (1) 2018 Variance

Revenues $ 8,269 $ 8,915 (7)%

Order intake (in billions of dollars) $ 10.0 $ 9.9 1%

Book-to-bill ratio(2) 1.2 1.1 0.1

Adjusted EBITDA(3)(4) $ 212 $ 851 (75)%

Adjusted EBITDA margin(3)(4) 2.6% 9.5% (690) bps

Adjusted EBIT(3)(4) $ 70 $ 750 (91)%

Adjusted EBIT margin(3)(4) 0.8% 8.4% (760) bps

EBIT(3) $ 22 $ 774 (97)%

EBIT margin(3) 0.3% 8.7% (840) bps

Net additions to PP&E and intangible assets $ 157 $ 108 45%

As at December 31 2019 2018 Variance

Order backlog (in billions of dollars) $ 35.8 $ 34.5 4%

(1) Refer to Note 3 - Changes in accounting policies in our Consolidated financial statements, for the impact of the adoption of IFRS 16,

Leases. Under the modified retrospective approach adopted by the Corporation, 2018 figures are not restated.

(2) Ratio of new orders over revenues.

(3) Including share of income from joint ventures and associates amounting to $94 million for the fiscal year ended December 31, 2019

($111 million for the fiscal year ended December 31, 2018).

(4) Non-GAAP financial measures. Refer to the Non-GAAP financial measures section in Overview for definitions of these metrics and the

Analysis of results section for reconciliations to the most comparable IFRS measures.

KEY HIGHLIGHTS AND EVENTS

Full-year financial results reflect actions and initiatives undertaken to move forward and complete

challenging projects

• During the past year, Transportation continued to progress through its turnaround, by re-synchronizing

production and resetting certain project delivery schedules, while also investing to support in-service reliability

improvements and funding additional manufacturing and engineering capacity. The higher than anticipated

cost to implement these initiatives and to address late-stage legacy projects, mainly concentrated in the U.K.,

Switzerland and Germany, led to lower earnings and free cash flow(1) for the segment.

Over $500 million in contract estimate changes embedded in 2019 earnings

• Completed delivery of several large legacy projects, including Metropolitan Transportation Authority (MTA) in

New York City, Crossrail in the U.K. and Toronto Transit Commission (TTC) in Toronto.

• As Transportation exited the year, progress was also made in achieving key milestones on other major

projects, including significant in-service reliability improvement on Swiss Federal Railways (SBB) in

Switzerland and the homologation of the multi-unit software for LoTrain in the U.K., paving the way for the

delivery of trains on this project and subsequent AVENTRA contracts in the U.K.

Backlog Improvement Positions for Stronger Financial Results

• Transportation continued to grow and improve the quality of its backlog with $10.0 billion in new orders, and a

book-to-bill ratio(2) of 1.2 for the year. Backlog reached $35.8 billion at year end.

• Approximately 70% of 2019 orders coming from service contracts, signalling projects and options on rolling

stock projects, carrying lower execution risk. Backlog share of services and signalling contracts increased to

48% (42% a year ago).

(1) Non-GAAP financial measure. Refer to the Non-GAAP financial measures section in Overview for a definition of this metric and the Analysis

of results section for reconciliations to the most comparable IFRS measure.

(2) Ratio of new orders over revenues.

BOMBARDIER INC. / 2019 FINANCIAL REPORT / TRANSPORTATION 73

Focused on Stronger Project Execution to Drive Sustainable Financial Performance

• Appointment of Danny Di Perna as President, Bombardier Transportation, in February 2019 strengthened

focus on customer relationships and disciplined project execution.

Strengthened Transportation’s leadership team with appointments of new Head of Engineering and

new Regional Presidents to better deliver on customer commitments.

• Clear management priorities - focus on significant production ramp-up in the U.K. and France, reliability in

Germany, settlement of claims and acceptance of trains on the SBB project in Switzerland, and continuing to

drive efficiency across the organization.

CDPQ Investments in Transportation

• Transportation’s results for 2019 did not reach the performance targets underlying CDPQ’s investment in

BT Holdco. Accordingly, for the 12-month period starting on February 12, 2020, Bombardier’s percentage of

ownership on conversion of CDPQ’s shares will decrease by 2.5%, to 67.5%; and the preference return

entitlement rate on liquidation of its shares will increase from 9.5% to 12.0% for this period. 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 upon conversion, being 67.5% for Bombardier and 32.5% for CDPQ. These

adjustments will become effective once the audited consolidated financial statements of BT Holdco are duly

approved by its board of directors.

74 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

GUIDANCE

2019 guidance provided in our Updated 2019

2019 results

2018 Financial Report(1) guidance(2)

Revenues ~ $9.5 billion ~ $8.75 billion $8.3 billion

EBIT margin N/A N/A 0.3%

Adjusted EBIT margin(3) ~ 9.0% ~ 5.0% 0.8%

2019 guidance

Revenue guidance was lowered to approximately $8.75 billion driven by slower production ramp-up and

unfavourable currency impact. 2019 revenues of $8.3 billion were lower as a result of revised estimates on certain

rail contracts in the fourth quarter.

On the earnings front, adjusted EBIT margin(3) guidance for the full year was revised from approximately 9.0% to

approximately 5.0%, mainly as we made additional investments and incurred additional costs to both complete

the legacy projects and to protect the delivery schedule for other projects. For 2019, adjusted EBIT margin(3) was

0.8% as a result of additional charges related to certain contracts in the U.K., Switzerland, and Germany. This

resulted in approximately 30% of 2019 revenues recorded with neutral or negative margins.

(1) Refer to our 2018 Financial Report for further details.

(2) Refer to our First Quarterly Report for the period ended March 31, 2019 and to our Second Quarterly Report for the period ended

June 30, 2019 for further details.

(3) Profitability guidance is based on adjusted EBIT margin. Refer to the Non-GAAP financial measures section in Overview for a definition of

this metric and to the Analysis of results section for a reconciliation to the most comparable IFRS measures.

BOMBARDIER INC. / 2019 FINANCIAL REPORT / TRANSPORTATION 75

PROFILE

World-class products and services portfolio positioned for growth

Transportation offers a wide-ranging portfolio of innovative and efficient solutions in the rail industry. We cover the

full spectrum of rail solutions, ranging from global mobility solutions to a variety of trains and sub-systems,

services, system integration and signalling to meet the market’s needs and expectations. We have won orders

across all product segments and major geographies, underlining the competitiveness of our products and services

worldwide.

We have production, engineering and service centres around the world. The global headquarters is located in

Berlin, Germany.

MARKET SEGMENT: ROLLING STOCK AND SYSTEMS

HIGH-SPEED AND VERY HIGH-SPEED TRAINS

Application: Equipment for medium and long-distance

operations.

Major products: ZEFIRO family

Key features: Solutions offering very high operating

flexibility, high comfort and safety standards for

passengers in combination with high efficiency. Portfolio

covers the full spectrum of speed requirements: high-

speed (200-250 km/h) and very high-speed

(250-380 km/h).

COMMUTER, REGIONAL AND INTERCITY ZEFIRO very high-speed train

TRAINS

Application: Suburban and regional rail transit for urban

centres and surrounding regions and medium speed

connections between cities.

Major products: AVENTRA, TALENT, OMNEO,

TWINDEXX Vario, BiLevel and MultiLevel families

Key features: Broad product line featuring electric, diesel,

dual mode and battery-powered multiple units, along with

locomotive-hauled coaches in both single and double-deck

configurations. Our modular train platforms offer very high

flexibility to transit authorities and operators, as well as

high levels of comfort and capacity. The train operates

emission-free, thereby making a significant contribution

towards environmentally-friendly mobility.

AVENTRA single deck train

76 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

LIGHT RAIL VEHICLES

Application: Efficient surface transit in urban centres and

surrounding suburban areas.

Major products: FLEXITY family

Key features: Our broad portfolio of FLEXITY vehicles

feature innovative capabilities and performance while

offering low lifecycle costs. Based on adaptable modular

platforms, our vehicle range offers a full spectrum of smart

light rail solutions to enhance the connectivity and identity

of cities worldwide. Equipped with our award-winning

Obstacle Detection Assistance System, our trams and light

rail vehicles increase the safety of the driver, passengers

and all other traffic participants.

FLEXITY tram for Toronto Transit Commission (TTC)

METROS

Application: Broad range of high capacity mobility

solutions for every urban environment

Major products: MOVIA and INNOVIA platforms (metros,

monorails and people movers)

Key features: Wide variety of urban mobility solutions

developed from proven and innovative technology.

Maximum system value for every capacity, in any type of

environment. Safety, lifecycle cost, passenger comfort and

smart city integration, to name a few, all drive the designs

and innovations of our portfolio, covering a wide range of

system needs. This includes quick-to-build and minimally

intrusive technology such as the INNOVIA Monorail 300.

Bombardier products have a long history of automation

and are serving numerous cities around the world with

driverless systems.

MOVIA C30 metro car in Stockholm, Sweden

LOCOMOTIVES

Application: Electric and diesel locomotives for intercity,

regional and freight rail service.

Major products: TRAXX platform, ALP electric and dual-

power locomotives

Key features: Versatile product platform offering electric,

diesel-electric, dual-power and multi-system propulsion,

last-mile diesel or battery drive features. Innovative

solutions increase power and reliability in combination with

high energy efficiency and low lifecycle costs.

Homologated in several countries in Europe, enabling

cross-border service. The TRAXX MS3 locomotive is the

most advanced multi-systems locomotive on the market

with the Last Mile function, letting it easily bridge non-

electrified track sections often found in ports or freight

terminals. TRAXX MS3 locomotive in Kassel, Germany

BOMBARDIER INC. / 2019 FINANCIAL REPORT / TRANSPORTATION 77

PROPULSION AND CONTROLS

Application: Complete propulsion and control product

portfolio for all Bombardier and third-party rail vehicles and

e-mobility applications, delivering electric power with

strong reliability, power efficiency and high safety.

Major products: The MITRAC platform, which includes

traction and auxiliary converters for underframe, rooftop

and machine room mounting; drives (motors and gears),

train control management systems (TCMS), high voltage

equipment and complete system solutions. Innovative train

to wayside communication solutions round off the portfolio.

Key features: A leader in reliability, modular design,

energy safety (SIL 2 compliance), energy efficiency,

integration of new technologies and ease of maintenance,

which keep initial investments and lifecycle costs low. MITRAC converter

BOGIES

Application: Complete spectrum of bogies, which match

the entire range of Bombardier vehicles.

Major products: FLEXX bogies portfolio including latest

technologies: FLEXX Eco, FLEXX Urban, FLEXX Speed,

FLEXX Power and the award-winning WAKO Technology

Key features: Advanced product technology and

complete aftermarket services covering the full spectrum

of rolling stock applications. Our track-friendly bogies are

designed to ensure safe and smooth operation and reduce

wheel and rail wear, minimizing operational costs and

noise.

FLEXX bogie built in Siegen, Germany

MASS TRANSIT AND AIRPORT SYSTEMS

Application: Fully Automated People Mover (APM),

metro, monorail and light rail systems.

Major products: INNOVIA APM 300 system, INNOVIA

monorail 300 system, MOVIA metro system, FLEXITY

tram system

Key features: Broad rolling stock portfolio for urban and

airport applications that can be customized to provide a

complete turnkey system solution. Strong track record for

reliability and availability across 60 complete systems

around the world.

INNOVIA APM system developed for LAX airport

MAINLINE SYSTEMS

Application: System solutions for intercity and high-speed applications covering medium- to long-distance operations.

Key features: Turnkey system approach to provide reliable rail systems for mainline applications featuring very high

passenger comfort and safety standards. Highly experienced in systems integration and engineering.

78 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

MARKET SEGMENT: SIGNALLING

MASS TRANSIT SIGNALLING

Application: Rail control and signalling solutions for mass

transit systems such as metros, light rail or APMs.

Major products: CITYFLO solution

Key features: Complete portfolio of solutions ranging from

manual applications (GoA 0) to fully automated

Communication-Based Train Control (GoA 4), which helps

to increase infrastructure capacity and can be installed

without interruption to service.

MAINLINE SIGNALLING

Application: Rail control and signalling solutions for

mainline railways ranging from freight traffic to regional

and commuter, intercity and high speed lines. CITYFLO 650 solution in Kuala Lumpur

Major products: INTERFLO and EBI Cab Automatic Train

Control onboard equipment

Key features: Complete portfolio of conventional signalling systems, which uses the European Rail Traffic Management

System technology and is already functioning in several countries inside and outside of Europe.

INDUSTRIAL SIGNALLING

Application: Rail control and signalling solutions for the industrial sector, major application in the surface and sub-surface

mining and industrial freight industries.

Major products: INTERFLO 150 solution

Key features: Innovative signalling system technologies used to increase transport capacity in a secure and cost effective

manner. Our technology covers the whole process, enhancing not only the underground operation, but also the transfer of ore

from the excavation site to the transportation hub.

OPTIFLO - SERVICE SOLUTIONS FOR SIGNALLING

Application: Comprehensive portfolio of services for mass transit, mainline and industrial sector rail infrastructure and

signalling solutions.

Key features: Infrastructure management, technical support, cyber security assessment and other service solutions tailored

to ensure the highest levels of availability and reliability as well as cost effective maintenance of rail control signalling

solutions.

MARKET SEGMENT: SERVICES

MATERIAL SOLUTIONS

Application: Supply chain, spare parts inventory management, obsolescence management and technical support services for

rail operators.

Key features: Advanced material supply solutions together with global engineering and purchasing power through global

network of parts and components suppliers. Logistics capability to source and deliver what is needed, when needed, where

needed.

FLEET MANAGEMENT

Application: Comprehensive portfolio of fleet and operations management services.

Key features: Robust and effective ‘back office’ solutions support rail operators in delivering their ‘front line’ service every day.

Engineering expertise, whole life maintenance techniques and tools (ORBITA, AVIS, EMS, etc.) optimize availability, reliability,

punctuality, safety and cost over the whole life cycle of the fleet. Broad experience in operations and maintenance of

commuter and regional trains.

BOMBARDIER INC. / 2019 FINANCIAL REPORT / TRANSPORTATION 79

ASSET LIFE MANAGEMENT, COMPONENT RE-ENGINEERING AND OVERHAUL

Application: Upgrade, life extension and overhaul of rail vehicles and components.

Key features: Broad portfolio of system and component upgrades executed at our specialized facilities and customer sites.

We leverage our engineering and supply chain strength to bring operational performance and whole life cost advantages.

OPERATIONS AND MAINTENANCE OF SYSTEMS

Application: Complete operations and maintenance (O&M) services for fully automated transit and mass transit systems.

Key features: Strong O&M experience in automated, driverless technologies, including APM, metro and monorail systems as

well as fleet management solutions for urban and intercity transportation systems.

INDUSTRY AND ECONOMIC ENVIRONMENT

Robust and positive growth outlook for the railway industry globally

The rail market remains strong with resilient growth opportunities and positive outlook mainly driven by long-term

favourable megatrends in the rail industry. Population growth, urbanization, digitalization and environmental

awareness are expected to lead to growing demand for sustainable public transportation, which requires long-term

public spending in infrastructures and mobility solutions.

The following key indicators are used to monitor the health of the rail market:

INDICATOR CURRENT SITUATION STATUS

The worldwide population is expected to grow from approximately 7.7 billion in 2019 to

POPULATION 8.5 billion by 2030 (10% increase compared to 2019) and further to 9.7 billion in 2050 (26%

GROWTH AND increase compared to 2019), together with the share of people living in urban areas growing

MASS from 55% in 2018 to 68% by 2050.(1) Population growth and urbanization create an

URBANIZATION increasing demand for high capacity public transport solutions especially in congested cities

and areas.

Governments increasingly commit to long-term climate and energy goals. Measures to reach

these goals include investments in green mobility solutions. Rail transport is among the most

ENVIRONMENTAL

energy efficient and eco-friendly modes of transport for freight and passengers with rail

AWARENESS

operations accounting for only 2% of the transport sector energy use and is responsible for

only 0.3% of direct CO emissions.(2)

2

Most of the rolling stock business is conducted with rail operators backed by the public

sector. Rail infrastructure investments are expected to grow, as governments and multilateral

PUBLIC FUNDING institutions continue to fund projects in the rail industry to support and foster economic

development. However public indebtedness and austerity measures may impede public

tender processes for some new rail projects.

Liberalization attracts more private operators to enter the market and invest in new rail

LIBERALIZATION equipment and services. The European Commission supports the liberalization of domestic

passenger rail services within the European Union.

The rail industry is expecting positive change in the upcoming years due to the digital

industry revolution especially in signalling and maintenance services. Using disruptive

technologies such as Internet of things, automated trains and big data analytics, new

DIGITALIZATION

business models are expected to revolve especially towards more service-oriented

approach. To ensure that, original equipment manufacturers should monitor closely the

‘ecosystems’ they serve to meet their future’s needs.

Identifies a favourable, neutral or negative status, respectively, in the market categories in which we compete, based on the current

environment.

(1) According to the United Nations: “World Population Prospects: The 2019 Revision” and “World Urbanization Prospects: The 2018 Revision”.

(2) According to the International Energy Agency IEA (2019), "Tracking Transport".

80 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

In September 2018, The Association of the European Rail Industry (UNIFE) confirmed its positive outlook for the

global rail industry based on expected orders in its World Rail Market Study published every two years. The study

expects the overall accessible rail market(1) to continue to grow with a CAGR of 2.6%.(2) Transportation’s relevant

and accessible market(1) is expected to grow even faster with a CAGR of 2.7%.(2)

Overall, the robust prospect of the rail industry is mainly driven by macroeconomics factors such as liberalization,

which opens markets to private operators and reduces government involvement leading to positive effects such as

cost reduction, increased traffic volumes and growth of rail supply.

Similarly, other initiatives of the European Union Commission such as the Fourth Railway Package in 2016 and

other regulations for technical standards have laid foundation for further improvement of the rail industry signalling

solutions. Other initiatives of the European Commission such as Shift2Rail are set to drive research and

development in all segments especially to enhance passenger experience, safety and interoperability of rail

transportation.

In December 2019, the European Commission introduced the European Green Deal; a growth strategy to achieve

climate neutrality by 2050 and reduce transport gas emissions by 90% through fostering the modal shift to

sustainable transport modes; mainly rail and increasing the efficiency of the transport system with connected

multimodal mobility.

The positive future market outlook is driven by large order volumes for rolling stock, which remains the largest

segment. In particular, consistent future investments in mature rail markets such as Western Europe and North

America are foreseen for modernization and replacement, as well as the expansion of existing rolling stock fleets.

In the signalling segment, the study expects further investments in Western Europe to upgrade and modernize

signalling systems through the European Train Control System (ETCS) national implementation plans across

different countries, which will positively contribute to the growth in this segment and the overall rail market.

Accessible rail control market is also expected to pursue high growth in Africa and Middle East as well as Latin

America, driven by a heavy investment in urban and interurban rail control solutions in response to rapid

urbanization and congestion issues.

The services market is expected to further grow driven by gradual liberalization through private rail operators,

particularly in mature markets. Unlike incumbents, who often perform maintenance and servicing in-house, private

rail operators tend to outsource their maintenance and services needs.

(1) The overall accessible rail market is the world rail market, excluding the share of markets associated with contracts that are awarded to local

players without open-bid competition. Transportation’s relevant and accessible market also excludes the infrastructure, freight wagon and

shunter segments.

(2) Based on data from UNIFE World Rail Market Study “Forecast 2018 to 2023” published in September 2018, based on 60 countries

representing more than 95% of the world rail market. As large rail projects may significantly impact yearly volume, single year market

volumes can be subject to a high degree of volatility. UNIFE therefore focuses on three-year average annual market volumes in order to

facilitate comparison between different periods. UNIFE data is updated every two years and is published in euro. An exchange rate of

1€ = $1.1435, the average cumulative exchange rate over the 2017-19 period, was used to convert all figures. Figures for 2017-19 were

extrapolated based on UNIFE data for 2015-17 and 2018-20.

BOMBARDIER INC. / 2019 FINANCIAL REPORT / TRANSPORTATION 81

Source: UNIFE World Rail Market Study “Forecast 2018 to 2023” and extrapolated figures.

*Transportation’s relevant and accessible rail market is the world rail market, excluding the share of markets associated with contracts that are

awarded to local players without open-bid competition, and excluding the infrastructure, freight wagon and shunter segments.

82 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

Source: UNIFE World Rail Market Study “Forecast 2018 to 2023” and extrapolated figures.

*Transportation’s relevant and accessible rail market is the world rail market, excluding the share of markets associated with contracts that are

awarded to local players without open-bid competition, and excluding the infrastructure, freight wagon and shunter segment.

In line with common industry practice, and the methodology used by UNIFE for the global rail market, our relevant

and accessible market is stated as the average of a three-year period. In certain years, large orders can be

awarded particularly in rolling stock based on the availability of public funding.

Year-over-year comparison by geographical area

Europe

The order volume in Europe during 2019 decreased compared to 2018, mainly due to large contracts awarded last

year for very high-speed trains in France and for signalling in Norway. During 2019, order volume was driven by

several contracts awarded across Western Europe for commuter, regional and intercity trains, primarily in

Germany, France, the U.K. and Italy. In addition, significant orders were awarded for metro trains in France. In

Eastern Europe, orders were mainly driven by investments in mainline mobility solutions, with major contracts for

regional and intercity trains in Poland, Czech Republic and Hungary. Furthermore, sizeable contracts were

awarded for light rail vehicles (LRVs) and metro trains in Poland. Many signalling and services contracts were

awarded across the region with the most significant in Italy and Poland for mainline signalling, and in Germany and

the U.K. primarily for asset life management and fleet management services.

A strong, positive outlook is expected for Europe with significant tenders foreseen for high-speed trains, as well as

commuter and regional trains, in Germany, Spain, the U.K. and France. Multiple large and medium-sized projects

are also foreseen for urban transit mobility solutions across the region, with the most sizeable opportunities

expected in Germany and Turkey for metro cars and France for LRVs. In addition, the services segment is

anticipated to grow with several opportunities for passenger fleet management and asset life management in

Germany, Spain and the U.K. In the signalling segment, mainline signalling is anticipated to be the driver for order

volume, specifically in Germany and Italy. In Eastern Europe, many opportunities are expected across all segments

driven by further investments in freight, urban and mainline infrastructure, particularly in Poland and Turkey.

North America

The North American order volume decreased in 2019 compared to 2018, mainly due to large contracts awarded last

year in the U.S. and Canada for metro trains. In 2019, rolling stock order volume in this region was primarily driven

by tenders awarded for regional and metro trains in the U.S. Several medium-sized signalling and services contracts

were awarded across the region with the most significant orders placed for passenger fleet management for automated

people mover (APM) trains in U.S. airports, as well as for urban signalling solutions for LRVs in Canada.

BOMBARDIER INC. / 2019 FINANCIAL REPORT / TRANSPORTATION 83

Strong growth is forecast in the coming years for North America, fuelled by increasing needs for both urban and

mainline mobility solutions, especially in the U.S. In Canada, significant opportunities for commuter and regional

trains are expected, along with long-term services contracts. In Mexico, urban transit will remain the main driver of

order volume, with large investments expected for metro trains along with long-term services agreements.

Additionally, in Mexico, a sizeable tender is foreseen for very high-speed trains. In the U.S., orders are expected

across all solutions, especially in urban transit for APM trains, monorail and metro trains. Furthermore, large

contracts are anticipated for very-high speed trains, as well for regional and commuter trains. In the signalling and

services segments, several large and medium-sized projects are expected across the region.

Asia-Pacific

In Asia-Pacific, overall order volume in 2019 remained stable compared to 2018. In 2019, the major investments

driving the order volume were mainly rolling stock contracts for metro trains in China, Korea and Singapore, as well

as commuter and regional trains in Australia and Taiwan. Furthermore, many sizeable contracts were awarded for

intercity and very high-speed trains in China and significant signalling contracts were awarded in India and Australia.

In the services segment, Australia was the main driver for orders with many large and medium-sized agreements

awarded, particularly for passenger fleet management.

In the upcoming years, the level of activity in the region is forecast to be strong, with several tenders expected across

all segments, particularly for urban mobility solutions driven by increasing urbanization in the region. The most

significant orders are anticipated for metro trains in India, as well as for commuter and regional trains and LRVs in

Australia. Moreover, many opportunities are expected for metro trains in China, Malaysia and Singapore, as well as

for LRVs in Taiwan and Thailand. A noteworthy project is foreseen for commuter and regional trains in Indonesia.

Significant orders are anticipated to be placed in the signalling and services segments across the region, with the

most sizeable opportunities in Australia, India and Thailand.

Rest of World(1)

In 2019, overall order volume in the Rest of World region increased significantly compared to the 2018 level. The

higher order activity was mainly driven by large contracts for regional and commuter trains awarded in Russia and

for LRVs in Israel. Additionally, a noteworthy large turnkey project was secured in Egypt for monorail trains along with

signalling and long-term services agreements. Significant signalling contracts were also awarded, mainly in Panama

for urban solutions and United Arab Emirates for mainline solutions. In the services segment, the most significant

agreements were awarded for intercity trains and fleet management in Russia and Kazakhstan.

The overall investment outlook in the Rest of Word region is expected to retain its positive trend with multiple

opportunities anticipated in the upcoming years for both mainline and urban mobility solutions to address growing

mobility needs. Large tenders are anticipated for metro trains in Egypt, Panama and Saudi Arabia. In addition, sizeable

contracts are expected to be tendered for LRVs in Israel and Russia. Noteworthy large contracts for commuter trains

are also foreseen to be issued in Colombia and Kenya. In the signalling segment large orders are forecast across the

region particularly in Brazil, Zambia and Egypt. Several services agreements are also expected to be signed with the

largest orders to be placed in Israel, Egypt and Peru.

(1) The Rest of World region includes South America, Central America, Africa, the Middle East and the CIS.

84 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

ANALYSIS OF RESULTS

Results of operations

Fourth quarters Fiscal years

ended December 31 ended December 31

2019 (1) 2018 2019 (1) 2018

Revenues

Rolling stock and systems(2) $ 890 $ 1,316 $ 5,192 $ 5,844

Services(3) 587 562 2,140 2,096

Signalling(4) 316 283 937 975

Total revenues $ 1,793 $ 2,161 $ 8,269 $ 8,915

Adjusted EBITDA(5)(6) $ (196) $ 193 $ 212 $ 851

Amortization 38 26 139 101

Impairment charge on PP&E and intangible assets — — 3 —

Adjusted EBIT(5)(6) (234) 167 70 750

Special items 2 (69) 48 (24)

EBIT(5) $ (236) $ 236 $ 22 $ 774

Adjusted EBITDA margin(5)(6) (10.9)% 8.9% 2.6% 9.5%

Adjusted EBIT margin(5)(6) (13.1)% 7.7% 0.8% 8.4%

EBIT margin (13.2)% 10.9% 0.3% 8.7%

(1) Refer to Note 3 - Changes in accounting policies in our Consolidated financial statements, for the impact of the adoption of IFRS 16,

Leases. Under the modified retrospective approach adopted by the Corporation, 2018 figures are not restated.

(2) Comprised of revenues from light rail vehicles, metros, commuter and regional trains, intercity trains, high-speed and very high-speed

trains, locomotives, propulsion and controls, bogies, mass transit and airport systems, and mainline systems.

(3) Comprised of revenues from fleet management, asset life management, component re-engineering and overhaul, material solutions, and

operations and maintenance of systems.

(4) Comprised of signalling revenues from mass transit, mainline, industrial and OPTIFLO service solutions.

(5) Including share of income from joint ventures and associates amounting to $25 million and $94 million, respectively, for the fourth quarter

and fiscal year ended December 31, 2019 ($36 million and $111 million for the fourth quarter and fiscal year ended December 31, 2018).

(6) Non-GAAP financial measures. Refer to the Non-GAAP financial measures section in Overview for definitions of these metrics and the

Analysis of results section for reconciliations to the most comparable IFRS measures.

Revenues by geographic region

Fourth quarters ended December 31 Fiscal years ended December 31

2019 2018 2019 2018

Europe(1) $ 957 53% $ 1,377 64% $ 4,929 59% $ 5,522 62%

North America 426 24% 330 15% 1,955 24% 1,757 20%

Asia-Pacific(1) 294 16% 363 17% 986 12% 1,137 13%

Rest of World(1)(2) 116 7% 91 4% 399 5% 499 5%

$ 1,793 100% $ 2,161 100% $ 8,269 100% $ 8,915 100%

(1) The decreases in Europe in the fourth quarter and fiscal year ended December 31, 2019 reflect negative currency impacts of $27 million

and $289 million, respectively. The decreases in Asia-Pacific and in the Rest of World region in the fiscal year reflect negative currency

impacts of $43 million and $13 million, respectively.

(2) The Rest of World region includes South America, Central America, Africa, the Middle East and the CIS.

Revenues

Total revenues for the fourth quarter and fiscal year ended December 31, 2019 have decreased by $368 million

and $646 million, respectively, compared to the same periods last fiscal year. Excluding a negative currency

impacts of $31 million for the fourth quarter and $345 million for the fiscal year, revenues for the fourth quarter

have decreased by $337 million, or 16%, while revenues for the fiscal year have decreased by $301 million, or

3%, compared to the same periods last fiscal year.

The $337-million decrease excluding currency impact for the fourth quarter is mainly explained by:

• revised estimates on certain contracts in the U.K., Switzerland and Germany that negatively affect

revenues of rolling stock in Europe in the current year; and

• lower activities in rolling stock and systems mostly due to some contracts nearing completion. The

affected contracts mainly relate to commuter and regional trains in Europe and Asia-Pacific, and light rail

BOMBARDIER INC. / 2019 FINANCIAL REPORT / TRANSPORTATION 85

vehicles (LRVs), very high-speed trains, automated people movers (APMs), intercity trains and high-

speed trains in Europe.

Partially offset by:

• higher activities in rolling stock and systems in North America, mostly due to ramp-up in production

related to some metro contracts, partially offset by some commuter and regional train contracts nearing

completion;

• higher activities in signalling in Asia-Pacific and North America; and

• higher activities in services in Europe and North America.

The $301-million decrease excluding currency impact for the fiscal year is mainly explained by:

• revised estimates on certain contracts in the U.K., Switzerland and Germany that negatively affect

revenues of rolling stock in Europe in the current year; and

• lower activities in rolling stock and systems mostly due to some contracts nearing completion. The

affected contracts mainly relate to commuter and regional trains in Europe and Asia-Pacific, mass transit

systems in the Rest of World region and Asia-Pacific, and intercity trains, very high-speed trains, LRVs

and APMs in Europe. The lower activities in Europe and Asia-Pacific are partially offset by ramp-up in

production related to some metro contracts.

Partially offset by:

• higher activities in services in Europe, North America and Asia-Pacific; and

• higher activities in rolling stock and systems in North America, mostly due to ramp-up in production

related to some LRV and metro contracts, partially offset by some APM contracts nearing completion.

Special items

Special items comprise items which do not reflect our core performance or where their separate presentation will

assist users in understanding our results for the period. Such items include, among others, the impact of

restructuring charges and significant impairment charges and reversals.

The special items recorded as losses (gains) in EBIT were as follows:

Fourth quarters Fiscal years

ended December 31 ended December 31

Ref 2019 2018 2019 2018

Restructuring charges 1 $ 2 $ (6) $ 48 $ 10

Impairment of non-core operations 2 — — — 17

Purchase of pension annuities 3 — — — 12

Pension equalization 4 — 3 — 3

Gains on disposal of PP&E under sale and

leaseback transactions 5 — (66) — (66)

$ 2 $ (69) $ 48 $ (24)

EBIT margin impact (0.1)% 3.2% (0.5)% 0.3%

1. Represents severance charges related to previously-announced restructuring actions of $61 million for the

fiscal year ended December 31, 2019, partially offset by curtailment gains of $5 million and reversals of

previously-recorded asset write-downs of $8 million recognized in previous quarters.

For the fiscal year ended December 31, 2018, represents severance charges of $6 million and asset write-

downs of $8 million, partially offset by curtailment gains of $4 million, all related to previously-announced

restructuring actions.

2. Represents an impairment charge related to non-core operations with respect to the sale of legal entities as

part of our transformation plan.

3. Represents the non-cash loss on the settlement of defined benefit pension plans resulting from the purchase

of annuities with insurance companies. As part of its ongoing de-risking strategies, the Corporation has an

initiative for the buy-out of annuities payable to pensioners or deferred pensioners for certain plans to the

extent they are fully funded on a buy-out basis, subject to compliance with certain conditions including

applicable pension legislations.

86 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

4. On October 26, 2018, the High Court in the United Kingdom ruled that pension schemes must equalize for the

effect of unequal Guaranteed Minimum Pensions between male and female for benefits earned during

specified periods (“GMP equalization”). The Corporation estimated the impact of the ruling on its pension

plans and recognized an additional obligation of $3 million for the fourth quarter and the fiscal year ended

December 31, 2018. The one-time P&L impact was recognized in the fourth quarter of 2018 as a past service

cost under IAS 19 - Employee Benefits.

5. Represents the impact from sale and leaseback of two facilities in line with our transformation plan.

EBIT margin

The adjusted EBIT margin(1) for the fourth quarter decreased by 20.8 percentage points, mainly as a result of:

• lower margin in rolling stock and systems, mainly due to revised estimates on certain contracts in the

U.K., Switzerland and Germany; and

• higher R&D expenses.

Partially offset by:

• higher margin in services, mainly due to a positive impact from revised estimates on certain

contracts; and

• higher margin in signalling, mainly due to a favourable contract mix.

Including the impact of special items (see explanation of special items above), the EBIT margin for the fourth

quarter decreased by 24.1 percentage points, compared to the same period last year.

The adjusted EBIT margin(1) for the fiscal year decreased by 7.6 percentage points, mainly as a result of:

• lower margin in rolling stock and systems, mainly due to revised estimates on certain contracts in the

U.K., Switzerland and Germany in the fourth quarter;

• lower margin in signalling, mainly due to revised estimates on certain contracts; and

• higher R&D expenses.

Partially offset by:

• a positive impact of a pension amendment related to past service recorded in the first quarter

of 2019; and

• higher margin in services, mainly due to a positive impact from revised estimates on certain contracts.

Including the impact of special items (see explanation of special items above), the EBIT margin for the fiscal year

decreased by 8.4 percentage points, compared to the same period last year.

(1) Non-GAAP financial measure. Refer to the Non-GAAP financial measures section in Overview for a definition of this metric.

Significant orders in 2019 for all segments resulting in book-to-bill of 1.2

Order backlog

Fourth quarters Fiscal years

ended December 31 ended December 31

(in billions of dollars) 2019 2018 2019 2018

Balance at the beginning of period $ 35.1 $ 33.9 $ 34.5 $ 35.1 (1)

Order intake 1.8 3.3 10.0 $ 9.9

Revenues (1.8) (2.2) (8.3) $ (8.9)

Foreign currency impact and other adjustments 0.7 (0.5) (0.4) $ (1.6)

Balance at the end of period $ 35.8 $ 34.5 $ 35.8 $ 34.5

Book-to-bill ratio(2) 1.0 1.5 1.2 1.1

(1) Backlog as at December 31, 2017 was restated due to the adoption of IFRS 15, Revenue from contracts with customers.

(2) Ratio of new orders over revenues.

BOMBARDIER INC. / 2019 FINANCIAL REPORT / TRANSPORTATION 87

ORDER INTAKE BY SEGMENT ORDER BACKLOG BY SEGMENT

(for fiscal years; in billions of dollars) (for fiscal years; in billions of dollars)

* Backlog as at December 31, 2017 was restated due to the adoption

of IFRS 15, Revenue from contracts with customers.

ORDER INTAKE BY REGION ORDER INTAKE AND BOOK-TO-BILL RATIO

(for fiscal years; in billions of dollars) (for fiscal years)

* 2017 revenue was restated during fiscal year ended

31 December 2018 due to the adoption of IFRS 15, Revenue from

contracts with customers.

We have obtained several significant orders during the year which resulted in a book-to-bill ratio(1) of 1.2. The

contribution of services and signalling to our order intake has increased over the past three years from 32% in

fiscal year ended December 31, 2017, to 61% in fiscal year ended December 31, 2019, improving the quality of

our backlog. We maintained a leading position(2) in our relevant and accessible rail market(3) with a cumulative

order intake of $30.1 billion over the past three years, including a higher share of orders in the Rest of World

region, mostly driven by the contract signed with National Authority of Tunnels (NAT) in Cairo, Egypt, in the third

quarter of 2019.

(1) Ratio of new orders over revenues.

(2) Based on a rolling 36-month order intake with latest data published by companies publishing order intake for at least 36 months.

(3) Our relevant and accessible rail market is the world rail market, excluding the share of markets associated with contracts that are awarded

to local players without open-bid competition, and excluding the infrastructure, freight wagon and shunter segments.

88 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

The significant orders obtained during the fiscal year ended December 31, 2019 were as follows:

Customer Country Product or service Number Market Value (1)

of cars segment

Fourth quarter

Port Authority of New York and Extension of operations and

U.S. N/A Services $ 309

New Jersey (PANYNJ) maintenance (O&M) services

Régie Autonome des Transports

Parisiens (RATP), on behalf of Île- France Metro cars 105 Rolling stock $ 280 (2)

and systems

de-France Mobilités

Extension of Train Services

Transport for London (TfL) U.K. N/A Services $ 240

Agreement

FirstGroup and Trenitalia U.K. Train Services Agreement N/A Services $ 154

Third quarter

INNOVIA 300 Monorail system

Rolling stock

and trains, CITYFLO 650

National Authority for Tunnels Egypt signalling and automatic train 280 and systems, $2,640 (3)

(NAT) Signalling,

control technology and O&M

and Services

services

Rolling stock

Undisclosed Asia-Pacific Undisclosed N/A $ 247

and systems

North

Undisclosed Undisclosed N/A Services $ 247

America

FLEXITY trams, FlexCare Rolling stock

Dresdner Verkehrsbetriebe (DVB) Germany maintenance management 30 and systems, $ 219

system and Obstacle Detection and Services

Abellio UK and

U.K. Train Services Agreement N/A Services $ 161

Eversholt Rail Ltd.

Undisclosed Europe Undisclosed N/A Services $ 106

North Rolling stock

Undisclosed Undisclosed N/A $ 104

America and systems

Second quarter

Frecciarossa 1000 very high-

Rolling stock

Trenitalia Italy speed trains (derived from 112 and systems, $ 261 (4)

V300ZEFIRO platform) and

and Services

related maintenance services

O&M services for INNOVIA

City and County of San Francisco U.S. Automated People Mover N/A Services $ 220

(APM) 100 system

Exercise of a call-off for

Rolling stock

Israel Railways (ISR) Israel TWINDEXX Vario double-deck 74 $ 166

and systems

coaches

Rolling stock

Undisclosed Asia-Pacific Undisclosed N/A $ 101

and systems

First quarter

New Jersey Transit Corporation Rolling stock

U.S. Multilevel III commuter rail cars 113 $ 669

(NJ TRANSIT) and systems

Modifications and redesign of

Rolling stock

the New Generation

Queensland Government Australia N/A and systems, $ 255

Rollingstock (NGR) trains and

and Services

related maintenance services

Refurbishment services of nine

Eurotunnel France N/A Services $ 171

passenger shuttle trains

(1) Contract values exclude price escalation.

(2) Contract signed as part of a consortium with Alstom. The total contract is valued at $593 million, and only our share of the contract is stated

above.

(3) Contract signed as part of a consortium with Orascom Construction PLC and Arab Contractors. The total contract is valued at $4.16 billion,

and only our share of the contract is stated above.

(4) Contract signed in partnership with Hitachi Rail SpA. The total contract is valued at $643 million, and only our share of the contract is stated

above.

BOMBARDIER INC. / 2019 FINANCIAL REPORT / TRANSPORTATION 89

During the fourth quarter and fiscal year ended December 31, 2019, the following significant order was awarded

to our joint venture, which is not included in our backlog since it is a joint venture:

• Our Chinese joint venture Bombardier Sifang (Qingdao) Transportation Ltd. (BST), in which we own 50%

of the shares and which is consolidated by our partner CRRC Sifang Rolling Stock Co. Ltd., was awarded

a contract for the supply of 160 CR400AF new Chinese standard high-speed train cars from China State

Railway Group Co. Ltd., China, valued at $427 million.

Subsequent to the end of the fiscal year, our Chinese joint venture BST, in which we own 50% of the shares and

which is consolidated by our partner CRRC Sifang Rolling Stock Co. Ltd., was awarded a contract to provide

maintenance services for 656 high-speed train cars from China State Railway Group Co. Ltd., China, valued at

$357 million. This order is not included in our backlog since it is a joint venture.

Workforce

Total number of employees

As at

December 31, 2019 December 31, 2018

Permanent(1) 31,750 35,050

Contractual 4,300 5,600

36,050 40,650

Percentage of permanent employees covered by collective agreements 66% 62%

(1) Including 950 inactive employees as at December 31, 2019 (900 inactive employees as at December 31, 2018).

We continue to proceed with the deployment of our

WORKFORCE BY GEOGRAPHIC REGION

transformation initiatives with the goal of delivering

(as at)

increased value to customers and shareholders.

These initiatives aim at improving productivity,

setting up and exploring new partnerships and

optimising our production and engineering worldwide

footprint, while streamlining our administrative and

non-production functions across the organization.

In 2019, the overall number of employees has

decreased by 11%, or 4,600 employees, worldwide,

as a result of these initiatives.

Both our permanent and our contractual workforce

has decreased in all regions. While workforce in

Europe decreased mostly as a result of optimisation

and restructuring actions in line with our

transformation plan, the decrease in our workforce in

North America and Asia-Pacific also reflects the

impact from ramp-down of production following the

completion of some large contracts.

Our global incentive-based employee compensation rewards the collective and personal efforts of our employees

in achieving our objectives, using performance indicator targets. At the end of 2019, a total of 2,100 employees

worldwide, or 6.6% of permanent employees, were eligible to participate in the program. In 2019, as part of this

program, incentive-based compensation was linked to the achievement of targeted results, based on adjusted

EBIT and free cash flow.(1)

(1) Non-GAAP financial measures. Refer to the Non-GAAP financial measures section in Overview for definitions of these metrics.

90 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

OTHER

Table of Contents

OFF-BALANCE RISKS AND ACCOUNTING FINANCIAL RELATED CRITICAL

SHEET UNCERTAINTIES AND REPORTING INSTRUMENTS PARTY JUDGMENTS

ARRANGEMENTS DEVELOPMENTS TRANSACTIONS AND

ACCOUNTING

ESTIMATES

91 93 114 116 117 118

CONTROLS AND FOREIGN SHAREHOLDER SELECTED QUARTERLY HISTORICAL

PROCEDURES EXCHANGE INFORMATION FINANCIAL DATA FINANCIAL

RATES INFORMATION (UNAUDITED) SUMMARY

124 125 126 127 128 129

OFF-BALANCE SHEET ARRANGEMENTS

Working capital financing initiatives

The Corporation engages in certain working capital financing initiatives which impact cash flows from operating

activities such as the sale of receivables (refer to Note 16 - Trade and other receivables, to the consolidated

financial statements, for more details), arrangements for advances from third parties (refer to Note 17 - Contract

balances, to the consolidated financial statements, for more details), and the negotiation of extended payment

terms with certain suppliers (refer to Note 25 - Trade and other payables, to the consolidated financial statements,

for more details).

Credit and residual value guarantees

In connection with the sale of certain of our products, mainly commercial aircraft, we have provided financing

support in the form of credit and residual value guarantees to enhance the ability of certain customers to arrange

third-party financing for their acquisitions.

Credit guarantees provide support through contractually limited payments to the guaranteed party to mitigate

default-related losses. Credit guarantees are triggered if customers do not perform during the term of the

financing under the relevant financing arrangements. The remaining terms of these financing arrangements range

from 1 to 6 years. In the event of default, we usually act as an agent for the guaranteed parties for the

repossession, refurbishment and re-marketing of the underlying assets. We typically receive a fee for these

services.

BOMBARDIER INC. / 2019 FINANCIAL REPORT / OTHER 91

Residual value guarantees provide protection to the guaranteed parties in cases where the market value of the

underlying asset falls below the guaranteed value at an agreed-upon date. In most cases, these guarantees are

provided as part of a customer financing arrangement (these arrangements have remaining terms ranging from

1 to 8 years). The value of the underlying asset may be adversely affected by a number of factors. To mitigate the

exposure, the financing arrangements generally require the aircraft used as collateral to meet certain contractual

return conditions in order to exercise the guarantee. If a residual value guarantee is exercised, it provides for a

contractually limited payment to the guaranteed parties, which is typically a specified maximum amount of the first

losses incurred by the guaranteed party. A claim under the guarantee may typically be made only at the end of the

financing arrangement, upon the sale of the underlying asset to a third party.

When credit and residual value guarantees are provided in connection with a financing arrangement for the same

underlying asset, residual value guarantees can only be exercised if the credit guarantee expires without having

been exercised and, as such, the guarantees are mutually exclusive.

For more details, refer to Note 43 – Commitments and contingencies, to the consolidated financial statements.

Financing structures related to the sale of commercial aircraft

In connection with the sale of commercial aircraft, we have provided credit and/or residual value guarantees and

subordinated debt to, and retained residual interests in, certain entities created solely to provide financing related

to the sale of commercial aircraft. Aviation also provides administrative services to certain of these entities in

return for a market fee.

Typically, these entities are financed by third-party long-term debt and equity. The aircraft serve as collateral for

the entities’ long-term debt.

For more details, refer to Note 42 – Unconsolidated structured entities, to the consolidated financial statements.

92 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

RISKS AND UNCERTAINTIES

We operate in industry segments which present a variety of risk factors and uncertainties. The risks and

uncertainties described below are those that we currently believe could materially affect our business activities,

financial condition, cash flows, results of operations and reputation, but are not necessarily the only risks and

uncertainties that we face. If any of these risks, or any additional risks and uncertainties presently unknown to us

or that we currently consider as being not material, actually occur or become material risks, our business

activities, financial condition, cash flows, results of operations and reputation could be materially adversely

affected.

Operational risk is the risk of potential loss due to the nature of our operations. Sources of operational

risk include development of new products and services, development of new business and awarding of

new contracts, book-to-bill ratio and order backlog, and the complexity of obtaining certification and

homologation of products and services. In addition, the large and complex projects that are

characteristic of our businesses are often structured as fixed-price contracts and thus exposed to

production and project execution risks. Furthermore, our cash flows are subject to pressures based on

project-cycle fluctuations and seasonality and our businesses are capital intensive, which require that

we regularly incur significant capital expenditures and investment over multi-year periods prior to

OPERATIONAL realizing cash flows under a project. Other sources of operational risk include our ability to successfully

RISK implement our strategy and transformation plan, productivity enhancements, operational efficiencies

and restructuring initiatives, and actions of business partners, our ability to move forward and complete

challenging Transportation projects and release working capital therefrom within the timeframe

anticipated, product performance warranty and casualty claim losses, the use of estimates and

judgments in accounting, regulatory and legal conditions, environmental, health and safety issues, as

well as dependence on customers and contracts, suppliers (including supply chain management) and

human resources. We are also subject to risks related to reliance on information systems, reliance on

and protection of intellectual property rights, reputation risks, risks of impairments and asset write-

downs, risk management, tax matters and adequacy of insurance coverage.

Financing risk is the risk of potential loss due to the liquidity of our financial assets including

FINANCING RISK counterparty credit risk, access to capital markets, restrictive debt covenants, financing support

provided for the benefit of certain customers and government support.

General economic risk is the risk of potential loss due to unfavourable economic conditions. These

factors include, but are not limited to, government budget compression, reduced levels of public and

GENERAL

private capital expenditures, declining business confidence, political and economic pressures,

ECONOMIC RISK

including those arising from increasing government deficits and sovereign debt overruns, and crises in

the credit markets.

Business environment risk is the risk of potential loss due to external risk factors. These factors may

include the financial condition of the airline industry (including scope clauses in pilot union agreements

restricting the operation of smaller jetliners by major airlines or by their regional affiliates) and business

BUSINESS aircraft customers, the financial condition of the rail industry, trade policy, as well as increased

ENVIRONMENT competition from other businesses including new entrants in market segments in which we compete. In

RISK addition, political instability and force majeure events such as acts of terrorism, global climate change,

global health risks, or the outbreak of war or continued hostilities in certain regions of the world could

result in lower orders or the rescheduling or cancellation of part of the existing order backlog for some

of our products.

Market risk is the risk of potential loss due to adverse movements in market factors including foreign

MARKET RISK currency fluctuations, changing interest rates, decreases in residual values of assets, increases in

commodity prices and inflation rate fluctuations.

Operational risk

Delays in achieving technical milestones and execution of production ramp-up on certain Transportation projects

resulted in charges in the fourth quarter of 2019; while the Corporation has undertaken actions and initiatives to

move forward and complete such projects (including having entered into commercial negotiations with customers

to reset schedules, resolve late delivery penalties, and address related provisions and costs), there can be no

assurances that it will be successful in these negotiations, or that the outcome of any such actions, initiatives or

negotiations will have the intended effect, within the anticipated timeframe or at all. The timing of cash inflows

from milestone payments on large Transportation projects and the later-than-anticipated closing of certain orders

and call-offs resulted in lower-than-anticipated free cash flow for the fourth quarter of 2019; there can be no

assurance that the free cash flow shortfall will be recovered, in part or at all, in 2020 or later, or that free cash flow

shortfalls will not be incurred again in the future; moreover, any recovery will be offset by the cash flow impact of

BOMBARDIER INC. / 2019 FINANCIAL REPORT / OTHER 93

the incremental costs recognized in the fourth quarter adjustments at Transportation. Transportation’s ability to

move forward and complete such challenging projects within the anticipated timeframe is key to return to stronger

financial performance. Any subsequent failure by Transportation to meet delivery or other contractual schedules

or performance requirements or to execute projects efficiently may increase the volatility and unpredictability of

revenue and profitability.

The Pending Transactions may be delayed or may not be completed

Completion of each of the Pending Transactions is subject to the receipt of required regulatory approvals. There is

no certainty, nor can the Corporation provide any assurance, that these conditions will be satisfied or, if satisfied,

when they will be satisfied.

A substantial delay in obtaining regulatory or other approvals or the imposition of unfavourable terms or conditions

in the approvals could have a material adverse effect on the Corporation’s ability to complete the relevant Pending

Transactions. If closing of any of the Pending Transactions does not take place as contemplated, the Corporation

could suffer adverse consequences on its business, financial condition or results of operations, including the loss of

investor confidence in connection with the Corporation’s ability to execute its strategic plan. In addition, failure to

complete any of the Pending Transactions for any reason could materially negatively impact the market price of the

Corporation’s securities.

If one or more Pending Transactions are not completed, we may undertake various other financing initiatives intended

to solidify our liquidity position, and we plan to continue to explore various initiatives such as certain business activities’

potential participation in industry consolidation to strengthen our balance sheet and enhance shareholder value.

Developing new products and services

Changes resulting from global trends such as climate change, volatile fuel prices, the growth of developing

markets, urbanization, population growth and demographic factors influence customer demands in our main

aerospace and rail transportation markets. To remain competitive and meet customers’ needs, we are required to

anticipate these changes and must continuously develop and design new products, improve existing products and

services and invest in and develop new technologies. Introducing new products or technologies requires a

significant commitment to R&D investment, including maintaining a significant level of highly skilled employees.

Furthermore, our investments in new products or technologies may or may not be successful. Our results may be

impacted if we invest in products that are not accepted in the marketplace, if customer demand or preferences

change, if new products are not approved by regulatory authorities (or if we fail to design or obtain homologation

or accreditation for new products or technologies), are not brought to market in a timely manner, in particular, as

compared to our competitors, or if our products become obsolete. We may incur cost overruns in developing new

products and there is the risk that our products will not meet performance specifications to which we have

committed to customers.

Our results could also be negatively impacted if we fail to design or obtain accreditation for new technologies and

platforms on budget and in a timely manner. Further, our long-term growth, competitiveness and continued

profitability are dependent on our ability to anticipate and adapt to changes in markets and to reduce the costs of

producing high-quality, new and existing products, to continue to develop our product mix and to align our global

presence with worldwide market opportunities.

In a highly competitive environment, we are and will remain exposed to the risk that more innovative or more

competitive products, services or technologies are developed by competitors or introduced on the market more

quickly or that the products we develop are not accepted by the market.

94 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

Business development and awarding of new contracts

Our businesses are dependent on obtaining new orders and customers, thus continuously replenishing our order

backlog. Our results may also be negatively impacted if we are unable to effectively execute strategies to gain

access to new markets, capture growth or successfully establish roots in new markets. Although we have

developed and continue to develop our presence in many geographic markets, access to certain markets can

prove to be difficult to secure, particularly if there is a local competitor benefiting from a stronghold in its home

market. These types of situations could put us in an unfavourable position relative to some of our competitors and

present challenges to our strategy and competitive strength in those zones.

In addition, fluctuating demand cycles are common in the industries in which we operate and can have a

significant impact on the degree of competition for available projects and the awarding of new contracts. As such,

fluctuations in demand or the ability of the private and/or public sector to fund projects in a depressed economic

climate could adversely affect the awarding of new contracts and margin and thus our financial results.

A substantial portion of our revenue and profitability is generated from large-scale project awards. The timing of

when project awards will be made is unpredictable and outside of our control. We operate in highly competitive

markets where it is difficult to predict whether and when we will receive awards since these awards and projects

often involve complex and lengthy negotiations and bidding processes. These processes can be impacted by a

wide variety of factors including governmental approvals, financing contingencies, commodity prices,

environmental conditions and overall market and economic conditions. In addition, we may not win contracts that

we have bid upon due to price, a customer's perception of our reputation, ability to perform and/or perceived

technology or other advantages held by competitors. Our competitors may be more inclined to take greater or

unusual risks or accept terms and conditions in a contract that we might not otherwise deem market or

acceptable. Furthermore, we may incur significant costs in order to bid on certain projects that may not be

awarded to us, thus resulting in expenses that did not generate any profit for us.

Our estimates of future performance depend on, among other matters, whether and when we receive certain new

contracts, including the extent to which we utilize our workforce. The rate at which we utilize our workforce is

impacted by a variety of factors including: our ability to manage attrition; our ability to forecast our need for

services which in turn allows us to maintain an appropriately sized workforce; our ability to transition employees

from completed projects to new projects or between internal business groups; and our need to devote resources

to activities such as training or business development. While our estimates are based upon our good faith

judgment, these estimates can be unreliable and may frequently change based on newly available information. In

the case of large-scale projects where timing is often uncertain, it is particularly difficult to predict whether and

when we will receive a contract award. The uncertainty of contract award timing can present difficulties in

matching our workforce size with our contract needs. If an expected contract award is delayed or not received, or

if an ongoing contract is cancelled, we could incur costs resulting from reductions in staff or redundancy of

facilities that would have the effect of reducing our operational efficiency, margins and profits.

Our order book-to-bill ratio and our order backlog may not be indicative of future revenues

Our book-to-bill ratio, which we define as new orders over revenues or units delivered, is an indicator that we use

to track potential future revenues. Backlog represents management’s estimate of the aggregate amount of the

revenues expected to be realized in the future from partially or fully unsatisfied performance obligations as at

December 31, 2019 as we perform under contracts at delivery or over time. Such orders may be subject to future

modifications that might impact the amount and/or timing of revenue recognition. Backlog does not include

constrained variable consideration, unexercised options or letters of intent. However, the realization of revenues

from new orders is based on certain assumptions, including the assumption that our relevant contracts will be

performed in full in accordance with their terms and applicable construction and technical standards. The

termination, modification, delay, suspension or reduction in scope of any one or more major contracts may have a

material and adverse effect on future revenues and profitability. We cannot guarantee that the revenues initially

anticipated in our new orders will be realized in full, in a timely manner, or at all, or that, even if realized, such

revenues will result in profits or cash generation as expected, and any shortfall may be significant. The

materialisation of any of the risks described above could have a material adverse effect on our business, financial

condition, cash flows and results of operations.

BOMBARDIER INC. / 2019 FINANCIAL REPORT / OTHER 95

In addition, many of our contracts contain “termination for convenience” provisions, which permit the customer

terminate or cancel the contract at its convenience upon providing us with notice a specified period of time before

the termination date and/or paying us equitable compensation, depending on the specific contract terms. In the

event a significant number of customers were to avail themselves of such “termination for convenience”

provisions, or if one or more significant contracts were terminated for convenience, our reported backlog would be

adversely affected with a corresponding adverse impact on expected future revenues and profitability.

Certification and homologation process

We are subject to stringent certification and approval requirements, as well as to the ability of regulatory bodies to

perform these assessments on a timely basis, which vary by country and can delay the certification of our

products. Non-compliance with current or future regulatory requirements imposed by Transport Canada (TC), the

U.S. Federal Aviation Administration (FAA), the European Aviation Safety Agency (EASA), the Transport Safety

Institute in the U.S. or other regulatory authorities could result in service interruption of our products, fewer sales

or slower deliveries, an unplanned build-up of inventories, reduction in inventory values or impairment of assets.

The marketing and EIS of our rail products require compliance with rail transportation security standards that differ

widely at the global level and are governed by various relevant regulatory authorities. This creates a complex

process for securing the homologation of trains. The process for securing the homologation of trains is highly

involved and may take longer and be more costly than initially anticipated due to the extent of testing and other

supporting technical elements required by the relevant authorities, which elements may change over time. Our

contracts increasingly include language that requires us to bear the risks and obligations associated with the

homologation process, including risks relating to changes in law or regulation or the interpretation or application of

regulations in respect of homologation.

Delays caused by the homologation process, or increased engineering or production costs relating to

homologation, may lead to delays in our ability to deliver our products and complete our contracts, as well as

contract cost overruns relative to our estimates and models and the payment of significant penalties or damages,

service interruptions affecting the products, or even the risk of cancellation of all or a portion of the contract in

extreme cases of prolonged delays. There can be no assurance regarding the time frame required for obtaining

certification or homologation.

Fixed-price and fixed-term commitments and production and project execution

We have historically offered, and expect to continue to offer, a significant portion of our products through

pre-agreed fixed-price contracts with a stipulated delivery schedule, rather than contracts under which payment is

determined solely on a time-and-material basis. The revenue, cash flow and profitability of large, complex, long-

term projects vary significantly in accordance with the progress of the project and depend on a variety of factors,

some of which are beyond our control. Generally, we cannot terminate contracts unilaterally.

We are exposed to risks associated with these fixed-price contracts, including specification modifications and

change orders demanded by customers, increasing regulatory requirements in relation to certification or

homologation, unexpected technological problems, difficulties with partners, subcontractors and suppliers,

logistical difficulties and other execution issues that could lead to cost and time overruns, late delivery penalties

and liquidated damages payments, postponement or delays in contract execution or delays in receiving milestone

payments. In the context of large, complex, long-term contracts, such overruns and issues can be material in

terms of cost and time, may lead to restructuring of milestones and milestone payments, withholding of payment

by customers or risk of cancellation of all or a portion of contract by the customer, and may have a material

adverse impact on our business, results, cash flows, financial position and reputation. In addition, many of our

contracts contain requirements to comply with mandatory performance levels for the equipment we deliver or a

fixed delivery schedule. If we are unable to comply with these obligations, our clients could request the payment

of contractual penalties, or terminate the contract in question, or even claim compensation. The profit margins

generated by some of these contracts can, as a result, prove to be lower than those initially projected, or even be

zero-margin or loss-making contracts.

96 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

Operational challenges impacting the production system for one or more of our programs could result in

production delays and/or failure to meet customer demands, which would adversely affect our revenues and

margins. Our production systems are extremely complex. Operational issues, including delays or defects in

supplier components, failure to meet internal performance plans, or delays or failures to achieve required

regulatory certifications or homologations, could result in significant out-of-sequence work and increased

production costs, as well as delayed deliveries to customers, impacts to product performance and/or increased

warranty or support costs. We may also incur late delivery penalties if we are unable to increase production rates

sufficiently quickly to meet our commitments.

Moreover, due to the nature of the bidding process, long-term contract revenues are based, in part, on significant

judgments and cost estimates. Our estimates of the costs for completing a project are subject to a number of

assumptions, including future economic conditions, cost and availability of labour and raw materials, labour

productivity, employment levels and salaries, facility utilization rates, inflation rates, foreign exchange rates and

construction and technical standards to be applied to the project, and are influenced by the nature and complexity

of the work to be performed. Due to the complexity and the length of many of the projects in which we participate,

the actual investment, costs and productivity may differ materially from what we had initially modelled or

anticipated. Because of the significance of our judgments and estimates described above, materially different

revenues and profit margins could be recorded if we used different assumptions or if the underlying circumstances

were to change. Changes in underlying assumptions, circumstances or estimates may adversely affect our future

period financial performance.

In connection with certain long-term contracts, Transportation enters into arrangements whereby amounts are

received from third-party advance providers in exchange for the rights to customer payments. There is no

recourse to Transportation if the customer defaults on its payment obligations assigned to the third-party advance

provider. However, the third-party advance providers could request repayment of these amounts if Transportation

fails to perform its contractual obligations, such as delivery by a specified date. In such a case, there can be no

assurance that Transportation will be successful in negotiating an extension with third-party advance providers.

These repayment obligations are secured by external guarantees.

In addition, many of our long-term contracts are signed with customers that are governmental or quasi-public

entities. These types of customers require that we comply with project bidding and open market specifications,

which may limit our ability to negotiate certain contractual terms and conditions and can force us to accept less

favourable conditions. For example, customers may require manufacturers to bear an increasing proportion of the

homologation regulatory risk, may insist on payment schedules that reduce or eliminate advance payments or that

lead to negative cash-flow during the execution of a project, and may require mandatory technical performance

levels and requirements associated with the issuance of parent company guarantees and bonds. For the most

part, our rail transportation business is subject to public procurement protocols, which often take the form of

adherence contracts that cannot be amended in any meaningful sense, causing bidders to risk disqualification if

they attempt to reflect contingencies or special considerations in their offers. Moreover, public procurement

protocols often feature specifications that are subject to numerous change orders, which may result in disputes

regarding allocation of costs in respect of such change orders or specification modifications. These particularities

could potentially expose our business to significant additional risks or costs that could adversely affect the

profitability of our projects.

Additionally, for certain projects, contracts in our rail transportation business impose manufacturing or purchasing

requirements in the countries in which the project is being executed. Such contracts may require us to build local

production capacities, partner with local entities, and/or secure third-party purchases from local suppliers. Such

terms and conditions can lead to pressures on costs, target volumes and execution.

Cash flows and capital expenditures

Our businesses are cyclical and highly capital intensive due to their nature. In the ordinary course of our business,

the structure and duration of many of our complex, long-term projects and product development programs require

us to invest significantly in engineering, development and production for many years before deliveries are made

and the product begins to generate cash flow. In addition, we are regularly required to incur capital expenditures

in order to, among other matters, maintain equipment, increase operating efficiency, develop and design new

products, improve existing products and services, invest in and develop new technologies and maintain a

BOMBARDIER INC. / 2019 FINANCIAL REPORT / OTHER 97

significant level of highly skilled employees. Our ability to negotiate and collect customer advances and progress

payments is therefore an important element of our cash flow and working capital management. However, intense

competition in the markets in which we operate and demands by customers in the current economic environment

have resulted in fewer and lower advance payments, which could place significant financial pressures on our

operations. Discrepancies between our disbursements and amounts received on orders placed, or even any

reduction in the overall volume of orders placed or a deterioration of the payment terms on these orders has an

automatic adverse impact on the evolution in working capital requirements and results of operations.

Seasonality and cyclicality of financial results

Our cash flows are, to a certain degree, subject to periodic fluctuations and we expect a disproportionate amount

of our cash flows from operations to be received or paid by us during our third and fourth quarter, and frequently

in the last weeks of a given quarter. We expect this trend to continue. While the payment terms with certain of our

vendors extend beyond the amount of time necessary to collect proceeds from our customers, no assurance can

be given that we will be able to maintain such terms. As a result of fourth quarter cash receipts, at December 31

of each year, our cash and cash equivalents balances typically reach their highest level (other than as a result of

cash flows provided by or used in investing and financing activities). Our interim and annual results can be

affected by these periodic fluctuations, including as a result of timing variations that could push cash flows from

one quarter to another.

Because a significant portion of our revenue is generated from large, complex, long-term projects with sculpted

milestone payments, our results of operations can fluctuate significantly from quarter to quarter and year to year

depending on whether and when project awards occur and the commencement and progress of work under

awarded contracts. In addition, our customers may demand specification modifications, or change orders,

milestones, milestone payments or delivery schedules. Given the cyclical nature of the industries in which we

operate, our financial results, like others in such industries, may be impacted in any given period by a wide variety

of factors beyond our control, and as a result there may, from time to time, be significant and unpredictable

variations in our quarterly and annual financial results such that any historical results should not be considered

indicative of the results to be expected for any future period.

Deployment and execution of strategic initiatives related to cost reductions and working capital

improvement

In 2015, the Corporation launched its five-year turnaround plan focusing on three priorities: improve cash

generation, reduce costs and drive performance. As with any large, company-wide transformation there are

inherent risks in the timing of the deployment and in the planned value to be achieved. In early 2020, consistent

with this plan, and following a comprehensive review of strategic alternatives, the Corporation indicated it was

actively pursuing options to strengthen its balance sheet and enhance shareholder value. The timing and

magnitude of the specific initiatives and associated benefits, if any, could be affected by a multitude of external

and internal factors including, but not limited to: the evolution of the demands and requirements of our

businesses, variations in planned production volumes and schedules, the outcome of negotiations with suppliers

and unions, changing legislation, changes in socio-economic conditions in the countries in which we operate,

evolutions in the labour market for key talent, and changes in the priorities of the business. There can be no

assurance that these initiatives, or other initiatives, will enable us to reach our objectives, or that any such

measures will be implemented successfully or within the set time frame. A failure to successfully implement our

strategy and transformation initiatives, or if such measures prove insufficient, could have a material adverse

impact on our business activities, financial condition, profitability and outlook.

We may not be able to successfully execute our manufacturing strategy and productivity

enhancement initiatives

One of the priorities of the strategic plan and transformation initiatives established by management consists of

sustained efforts in the areas of cost reduction and productivity enhancement / operational efficiencies. This

priority aims in part at leveraging the strength of our engineering and manufacturing centres of excellence. In

addition, our cost reduction and operational efficiencies / productivity enhancement efforts also focus on further

implementing and leveraging our standardized product and service platforms. We believe that flexible

98 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

manufacturing is the key element to enable improvements in our ability to respond to customers in a cost-effective

manner. Our success in implementing this priority of our strategic plan is dependent on the involvement of

management, production employees and suppliers. Any failure to achieve cost reduction and operational

efficiencies / productivity enhancement priorities (including the anticipated levels of productivity and operational

efficiencies) in our manufacturing facilities, could have a material adverse impact on our business activities,

financial condition, profitability and outlook.

Business partners

In some of the projects carried out through consortia or other partnership vehicles in which we participate,

partners are jointly and severally liable to the customer. The success of these partnerships is dependent on

satisfactory performance by us and our business partners. Failure of the business partners to fulfill their

contractual obligations could result in additional financial and performance obligations, which could result in

increased costs, unforeseen delays or impairment of assets. In addition, a partner withdrawing from a consortium

during the bid phase may result in the loss of a potential order.

In order to penetrate new markets and strengthen our partnerships, we have implemented a number of joint

ventures and partnerships in various countries and regions, such as Africa, the Middle East and Asia (in particular,

China). These operations involve certain risks, in particular in relation to potential political or economic instability

depending on the countries, in the difficulties that may arise in evaluating assets and liabilities relating to these

operations, in integrating people, activities, technologies and products, as well as in implementing governance

and compliance systems and procedures.

The failure by a business partner to comply with applicable laws, rules or regulations, or contract requirements,

could negatively impact our business and, in the case of government contracts, could result in fines, penalties,

suspension or even debarment being imposed on us, which could have a material adverse impact on our

reputation, business, financial condition and results of operations.

Product performance warranty and casualty claim losses

The products that we manufacture are highly complex and sophisticated and may contain defects that are difficult

to detect or correct. These products are subject to detailed specifications, which are listed in the individual

contracts with customers, as well as to stringent certification or approval requirements. Defects may be found in

products before and after they are delivered to the customer. When discovered, we may incur significant

additional costs to modify and/or retrofit our products and we may not be able to correct defects in a timely

manner or at all. The occurrence of defects and failures in our products could give rise to non-conformity costs,

including warranty and damage claims, negatively affect our reputation and profitability and result in the loss of

customers. Correcting such defects, if possible, could require significant investment.

In addition, due to the nature of our business, liability claims may arise from accidents, incidents or disasters

involving products and services that we have provided, including claims for serious personal injuries or death.

These accidents may be caused by climatic factors or human error. If any of our products is proven to have

quality issues, fails to meet the national or industrial standards or has potential risks to the safety of human and

properties, we may have to recall such products, be subject to penalties, have our operating licences or permits

revoked, suspend production and sale of our products, or be ordered to take corrective measures. A product recall

may also affect our reputation and brand name, result in a decreased demand for our products and lead to stricter

scrutiny by regulatory agencies over our operations.

We cannot be certain that current insurance coverage will be sufficient to cover one or more substantial claims.

Furthermore, there can be no assurance that we will be able to obtain insurance coverage at acceptable levels

and costs in the future.

BOMBARDIER INC. / 2019 FINANCIAL REPORT / OTHER 99

Regulatory and legal risks

We are subject to numerous risks relating to current and future regulations, as well as legal proceedings, both

present or that may arise in the future. For example, the harmonization of the European railway market through

the new European standards will require investment to upgrade our existing products to comply with regulatory

requirements, without which regulatory authorities and thus our customer may not accept our products.

Unavailability of compliant products may lead to a loss of market share.

Given our size, investigations, claims and lawsuits seeking damages and other relief are regularly threatened or

pending against us. We are, and may become, party to lawsuits in the ordinary course of business, including

those involving allegations of late deliveries of goods or services, product liability, product defects, quality

problems and intellectual property infringement. These matters may divert financial and management resources

that would otherwise be used to benefit our operations, and the cost to defend litigation may be significant.

Material losses may be incurred related to litigation beyond the limits or outside the coverage of current insurance

and existing provisions for litigation-related losses may not be sufficient to cover the ultimate loss or expenditure.

Moreover, legal proceedings resulting in judgments or findings against us may harm our reputation and place us

at a disadvantage for future orders or contract awards. There also may be adverse publicity associated with

litigation, including without limitation litigation related to product safety, which could negatively affect the public

perception of our business or reputation, regardless of whether the allegations are valid or whether we are

ultimately found liable. As a result, litigation could materially adversely affect our business and financial results.

In addition, as part of the regulatory and legal environments in which we operate, we are subject to anti-bribery

laws that prohibit improper payments directly or indirectly to government officials, authorities or persons defined in

those anti-bribery laws in order to obtain business or other improper advantages in the conduct of business.

Notably, sales to foreign customers are subject to such laws. Pursuant to such laws, a company may be found

liable for violations resulting not only from actions of certain of its employees, but also in certain circumstances

from actions of its contractors and third party agents.

Our Code of Ethics and other corporate policies mandate compliance with these laws and regulations and we

have implemented training programs, internal monitoring and controls, and reviews and audits to ensure

compliance with such laws. However, there can be no assurance that our internal control policies and procedures

will protect us from recklessness, fraudulent behaviour, dishonesty or other inappropriate behaviour on the part of

our employees, contractors, suppliers, affiliates, consultants, agents, and/or partners. Misconduct or failure by our

employees, contractors, suppliers, affiliates, consultants, agents, and/or partners to comply with anti-bribery laws

and other applicable laws and regulations could impact Bombardier in various ways that include, but are not

limited to, criminal, civil and administrative legal sanctions, debarment from bidding for or performing government

contracts, and negative publicity, and could have a negative effect on our business, reputation, results of

operations, profitability, share price and financial condition. In recent years, there has been a general increase in

both the frequency of enforcement and the severity of penalties under such laws, resulting in greater scrutiny of

and punishment to companies convicted of violating anti-corruption and anti-bribery laws. See also “Supply chain

risks” below.

Also refer to Note 43 – Commitments and contingencies to our consolidated financial statements.

Environmental, health and safety risks

Our products, as well as our manufacturing and service activities, are subject to environmental laws and

regulations in each of the jurisdictions in which we operate, governing, among other things, product performance

or materials content, energy use and greenhouse gas emissions, air, water and noise pollution, the use, storage,

labelling, transportation and disposal or release of hazardous substances, human health and safety risks arising

from the exposure to hazardous or toxic materials or defective products and the remediation of soil and

groundwater contamination on or under our properties (whether or not caused by us), or on or under other

properties and caused by our current or past operations, including our disposal of hazardous wastes at third party

sites. These laws and regulations may cause us to incur costs, including fines, damages, criminal or civil

sanctions and remediation costs, or experience interruptions in our operations, and may negatively impact the

market for our products.

100 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

Environmental, health and safety regulatory requirements, or enforcement thereof, may become more stringent in

the future and we may incur additional costs to be compliant with such future requirements or enforcement. In

addition, we may have contractual or other liabilities for environmental matters relating to businesses, products or

properties that we have in the past closed, sold or otherwise disposed of, or will close, sell or dispose of in the

future.

Dependence on limited number of contracts and customers

In any given period, a limited number of contracts or customers may account for a significant portion of our

revenues and cash flows for some of our products. Although we constantly seek to expand our customer base, we

believe that revenues and results for any given period may continue to be significantly affected by a limited

number of contracts or customers due to the nature of some of our products. Consequently, the loss of such a

customer or changes to their orders, milestones, milestone payments, cancellation of all or a portion of their

contract, or significant operational risk materializing in one or several large contracts could result in fewer sales

and/or a lower market share, and may have a material adverse impact on our business, results, cash flows and

financial position. Since the majority of our rail transportation customers are governments or public-sector

companies or operate under public contracts, our order intake is also dependent to a significant degree on public-

sector budgets and spending policies.

Supply chain risks

Our manufacturing operations are dependent on a limited number of suppliers for the delivery of raw materials

(mainly aluminum, advanced aluminum alloy and titanium) and major systems (such as engines, wings, nacelles,

landing gear, avionics, flight controls and fuselages) for our aerospace products, and raw materials (mainly steel

and aluminum), services (mainly engineering, civil and electrical subcontracts) and major systems (such as

brakes, doors, heating, ventilation and air conditioning) for our rail transportation products.

Disruptions in our supply chain can impact our ability to deliver on schedule. Moreover, failure by one or more

suppliers to meet performance specifications, quality standards or delivery schedules could adversely affect our

ability to meet our commitments to customers, in particular if we are unable to purchase the key components and

parts from those suppliers upon agreed terms or in a cost-effective manner and if we cannot find alternative

suppliers on commercially acceptable terms in a timely manner. We may not be able to recover any costs or

liability we incur (including liability to our customers) as a result of any such failure from the applicable supplier,

which could have a material adverse effect on our financial condition and results of our operations.

Some of our suppliers participate in the development of products such as aircraft or rolling stock platforms. The

advancement of many of our new product development programs also relies on the performance of these key

suppliers and, therefore, supplier delays which go unmitigated could result in delays to a program as a whole.

These suppliers subsequently deliver major components and own some of the intellectual property related to key

components they have developed. Our contracts with these suppliers are therefore on a long-term basis. The

replacement of such suppliers, if possible, could be costly and take a significant amount of time.

Our dependence on foreign suppliers and subcontractors and our global operations subject us to a variety of risks

and uncertainties. All of our direct suppliers must comply with our Supplier Code of Conduct, which formalizes our

expectations with respect to suppliers’ business standards, and is designed to ensure that each of our suppliers’

operations are conducted in a legal, ethical, and responsible manner. However, we do not control our independent

suppliers or those indirect suppliers and companies with whom they do business and cannot guarantee their

compliance with our Supplier Code of Conduct and with applicable laws and regulations or that violations will be

reported to us in a timely manner. Any violation of applicable laws and regulations or failure to use ethical

business practices by one or more third-party subcontractors or suppliers, including laws and regulations related

to, among other things, labour practices, health and safety, and environmental protection, could also materially

adversely affect our business and reputation and, in the case of government contracts, could result in fines,

penalties, suspension or even debarment being imposed on us.

BOMBARDIER INC. / 2019 FINANCIAL REPORT / OTHER 101

Human resources (including collective agreements)

Our senior executives have extensive experience in the industries in which we operate and with our business,

suppliers, products and customers. The loss of management knowledge, expertise and technical proficiency as a

result of the loss of one or more members of our core management team could result in a diversion of

management resources or a temporary executive gap, and negatively affect our ability to develop and pursue

other business strategies, which could materially adversely affect our business and financial results.

Employment market competition is fierce when it comes to hiring the highly qualified managers and specialists

needed to complete the work we require, particularly in certain emerging countries. In many of our business areas

we intend to expand our business activities, for which we will need highly skilled employees. The success of our

development plans depends, in part, on our ability to develop skills, to retain employees, and to recruit and

integrate additional managers and skilled employees. Human resource risk includes the risk of delays in the

recruitment of or inability to retain and motivate highly skilled employees, including those involved in R&D and

manufacturing activities that are essential to our success. There is no guarantee that we will be successful in

recruiting, integrating and retaining such employees as needed to accompany our business development, in

particular in emerging countries. Conversely, the measures to adapt headcount to evolution in demand may result

in pressures from our workforce and social risks, which may have an adverse impact on our expected costs

reductions and production capacities.

In addition, we are party to several collective agreements that are due to expire at various times in the future. An

inability to renew these collective agreements on mutually agreeable terms, as they become subject to

renegotiation from time to time, could result in work stoppages or other labour disturbances such as strikes,

walkouts or lock-outs, and/or increased costs of labour, which could adversely affect our ability to deliver products

and services in a timely manner and on budget and could adversely affect our financial condition and results.

Additionally, as a result of our continuing review of our businesses and processes to reduce cost, improve our

manufacturing platform, and better position ourselves in the marketplace, it may be necessary to curtail

production or permanently shut down facilities, leading to the transfer of employees to new production facilities

and processes or to the reduction of our workforce. This could materially adversely impact our relationship with

our employees, as well as result in asset write-downs at affected facilities.

Reliance on information systems

Like those of other large multinational companies, our technology systems may be vulnerable to a variety of

sources of failure, interruption or misuse, including by reason of natural disasters, cyberattacks and cybersecurity

threats, network communication failures, computer viruses and other security threats to the confidentiality,

availability and integrity of our systems. Information security risks have increased in recent years due to the

proliferation of new technologies and the increased sophistication of perpetrators of cyberattacks.

Information contained in our systems include proprietary or sensitive information on our customers, suppliers,

partners, employees, business information, research and development activities and our intellectual property.

Unauthorized third parties may be able to penetrate our network security and misappropriate or compromise our

confidential information, deploy viruses, worms and other malware or phishing that would exploit any security

vulnerabilities in our management information systems, create system disruptions or cause machinery or plant

shutdowns. Such attacks could potentially lead to the publication, manipulation or leakage of information,

improper use of our systems, defective products, production downtimes, and supply shortages. Our partners and

suppliers also face risks of unauthorized access to their information systems which may contain our confidential

information. The Cyber Security, Risk and Compliance team, under the direction of the Global CIO, and reporting

to the Finance and Risk Management Committee of the Board of Bombardier, supervises and maintains technical

and process controls, enforcement and comprehensive monitoring of systems and networks designed to prevent,

detect and respond to unauthorized activity in our systems. Considering the complexity and evolving nature of the

threats, as well as the unpredictability of the timing, nature and scope of disruptions from such threats, we cannot

ensure that the measures taken will be sufficient to counter any such unauthorized access to information systems,

nor that our assessment and mitigation measures are sufficient to avoid, or mitigate the impact of, a system

failure.

102 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

The integrity, reliability and security of information in all forms are critical to our success. Inaccurate, incomplete or

unavailable information and/or inappropriate access to information could lead to incorrect financial and/or

operational reporting, poor decisions, delayed reaction times to the resolution of problems, privacy breaches and/

or inappropriate disclosure or leaking of sensitive information. Any system failure, cyberattack or a breach of

systems could result in disruption of activities and operational delays, information losses, significant remediation

costs, increased cyber security costs, lost revenues due to a disruption of activities, diminished competitive

advantage and/or litigation and reputational harm affecting customer and investor confidence, which could

materially adversely affect our business, financial condition, and results of our operations. Material losses may be

incurred related to the foregoing beyond the limits or outside the coverage of current insurance and existing

provisions for such losses may not be sufficient to cover the ultimate loss or expenditure. Furthermore, media or

other reports of perceived security vulnerabilities of our systems, even if no breach has been attempted or had

occurred, could adversely impact our brand and reputation and materially impact our business and financial

results.

Reliance on and protection of intellectual property

We regularly apply for new patents and actively manage our intellectual property portfolio to secure our

technological position. However, our patents and other intellectual property may not prevent competitors from

independently developing, or obtaining through licensing, alternative technologies that are substantially equivalent

or superior to ours, and we cannot provide assurance that the measures we have taken will be sufficient to

prevent any misappropriation of our intellectual property. Furthermore, we cannot assure that all our registration

applications will be successful, or our registered intellectual property rights will not be subject to any objection. If

the steps we have taken and the protection afforded by law do not adequately safeguard our intellectual property

rights, or we are not able to register or defend our intellectual property rights, and our competitors exploit our

intellectual property in the manufacture and sale of competing products in the markets we operate, such events

could materially and adversely affect our business.

We could also face claims by others that we are improperly using intellectual property owned by them or

otherwise infringing their rights in intellectual property. Irrespective of the validity or the successful assertion of

such claims, we could incur costs in either defending or settling any intellectual property disputes alleging

infringement. Adverse rulings in any litigation or proceeding could result in the loss of our proprietary rights and

subject us to significant liabilities or even business disruption. Any potential intellectual property litigation against

us could also force us to, among other things, cease selling the challenged products, develop non-infringing

alternatives or obtain licences from the owner of the infringed intellectual property. We may not be successful in

developing such alternatives or in obtaining such licences on reasonable terms or at all, which could damage our

reputation and affect our financial condition and profitability.

Reputation risks

Reputational risk may arise under many situations including, among others, quality or performance issues on our

projects, product safety issues, a poor health and safety record, failure to maintain ethically and socially

responsible operations, or alleged or proven non-compliance with laws or regulations by our employees, agents,

subcontractors, suppliers and/or partners. Any negative publicity about, or significant damage to, our image and

reputation could have an adverse impact on customer perception and confidence and may cause the cancellation

of current projects and influence our ability to obtain future projects, which could materially adversely affect our

business, results of operations and financial condition. Also, the pervasiveness and viral nature of social media

could exacerbate any negative publicity with respect to our business practices and products.

Furthermore, any unethical conduct by a supplier or subcontractor or any allegations, whether or not founded, of

unfair or illegal business practices by a supplier or subcontractor, including production methods, labour practices,

health and safety and environmental protection, could also materially adversely affect our image and reputation,

which could in turn materially adversely affect our business and financial results.

BOMBARDIER INC. / 2019 FINANCIAL REPORT / OTHER 103

Adequacy of insurance coverage for our business, products and properties

We maintain insurance policies in accordance with the needs of our business. However, we cannot guarantee that

our insurance policies will provide adequate coverage should we face extraordinary occurrences that result in

losses. We may not obtain certain insurance coverage or may experience difficulties in obtaining the insurance

coverage we need at acceptable levels and costs in the future, which could materially and adversely affect our

business, financial condition and results of operations.

Accidents or natural disasters may also result in significant property damage, disruption of our operations and

personal injuries or fatalities, and our insurance coverage may be inadequate to cover such losses. In the event of

an uninsured loss or a loss in excess of our insured limits, we could suffer damage to our reputation and/or lose

all or a portion of our production capacity as well as future revenues expected to be generated by the relevant

facilities. Any material loss not covered by our insurance could adversely affect our business, financial condition

and results of operations.

Risk management policies, procedures and strategies

We have devoted significant resources to develop our risk management policies, procedures and strategies and

expect to continue to do so in the future. Nonetheless, our policies, procedures and strategies may not be

comprehensive. Many of our methods for identifying, analyzing and managing risk and exposures are based upon

risk management processes that are embedded in governance and activities of each reportable segment,

focusing on all stages of the product development process. Risk management methods depend upon the

evaluation and/or reporting of information regarding product development, product management, industry

outlooks, markets, customers, project execution, catastrophe occurrence or other matters publicly available or

otherwise accessible to us. This information may not always be accurate, complete, up-to-date or properly

evaluated or reported.

Tax matters and changes in tax laws

As a multinational company conducting operations through subsidiaries in multiple jurisdictions, we are subject to

income and other taxes, tax laws and fiscal policies in numerous jurisdictions. Our effective income tax rate in the

future could be adversely affected as a result of a number of factors, including changes in the mix of earnings in

countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, changes

in tax laws, treaties or regulations or their interpretation, and the outcome of income tax audits in various

jurisdictions around the world.

We regularly assess all of these matters to determine the adequacy of our tax liabilities. In determining our

provisions for income taxes and our accounting for tax-related matters in general, we are required to exercise

judgment. We regularly make estimates where the ultimate tax determination is uncertain. There can be no

assurance that the final determination of any tax audit, appeal of the decision of a taxing authority, tax litigation or

similar proceedings will not be materially different from that reflected in our historical financial statements. The

assessment of additional taxes, interest and penalties could be materially adverse to our current and future

results of operations and financial condition.

Our Canadian and foreign entities undertake certain operations with other currently existing or new subsidiaries in

different jurisdictions around the world. The tax laws of these jurisdictions, including Canada, have detailed

transfer pricing rules that require that all transactions with non-resident related parties be priced using arm’s

length pricing principles. The taxation authorities in the jurisdictions where we carry on business could challenge

our arm’s length related party transfer pricing policies. International transfer pricing is a subjective area of taxation

and generally involves a significant degree of judgment. If any of these taxation authorities were to successfully

challenge our transfer pricing policies, our income tax expense may be adversely affected and we could also be

subjected to interest and penalties. Any such increase in our income tax expense and related interest and

penalties could have a material adverse effect on our business, results of operations or financial condition.

104 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

Financing risk

Liquidity and access to capital markets

Our businesses are cyclical and highly capital intensive. In the ordinary course of our business, we rely on cash

and cash equivalents, cash flows generated by operations, capital market resources such as debt and equity and

other financing arrangements such as revolving credit facilities, and certain working capital financing initiatives

such as the sale of receivables, arrangements for advances from third parties and the negotiation of extended

payment terms with certain suppliers to satisfy our financing needs. There can be no assurance that such working

capital cash sources will be available to us in the future on acceptable terms or at all.

Our ability to achieve our business and cash generation plans is based on a number of assumptions which

involve significant judgments and estimates of future performance, borrowing capacity and credit availability,

which cannot at all times be assured.

The Corporation also routinely reviews its debt profile with a view to managing or extending maturities and/or

negotiating more favourable terms and conditions with respect to its bank facilities. The Corporation also routinely

reviews the terms and conditions of its bank facilities and seeks annual extensions of the availability periods

thereunder.

From time to time, we undertake various financing initiatives to solidify our liquidity position. We plan to continue

to explore various initiatives such as certain business activities’ potential participation in industry consolidation.

There are no assurances that we will be able to implement these or any other strategic options on favourable

terms and timing or at all, and, if implemented, that such actions would have the planned results.

There can be no assurance that our expected cash flows from operating activities, combined with available short-

term capital resources will enable the development of new products to enhance competitiveness and support

growth and will enable us to meet all other expected financial requirements in the foreseeable future.

If our cash flows and other capital resources are insufficient to fund the required work on our ongoing contracts,

programs and projects, as well as our capital expenditures and debt service obligations, we could be forced to

reduce or delay deliveries, investments and capital expenditures or to seek additional debt or equity capital. We

may not be able to obtain alternative capital resources, if necessary, on favourable terms or at all.

A decline in credit ratings, a significant reduction in the surety or financing market global capacity, widening credit

spreads, changes in our outlook or guidance, significant changes in market interest rates or general economic

conditions or an adverse perception by banks and capital markets of our financial condition or prospects could all

significantly increase our cost of financing or impede our ability to access financial markets. Our credit ratings

may be impacted by many factors, including factors outside of our control relating to the industries or countries

and regions in which we operate, and, accordingly, no assurance can be given that our credit ratings may not be

downgraded in the future. Actual or anticipated changes or downgrades in our credit ratings, including any

announcement that our ratings are under further review for a downgrade, may increase our cost of financing.

Our right to convert into cash certain deposits or investments, held in financing structures to guarantee our

obligations, may be subject to restrictions. Additionally, in some countries, cash generated by operations may be

subject to restrictions on the right to convert and/or repatriate money and may thus not be available for immediate

use.

BOMBARDIER INC. / 2019 FINANCIAL REPORT / OTHER 105

Retirement benefit plan risk

We are required to make contributions to a number of pension plans, some of which are presently in a deficit

position. Pension funding requirements are dependent on regulatory requirements and on the valuations of plan

assets and liabilities, which are subject to a number of factors, including expected returns on plan assets, long-

term interest rates, as well as applicable actuarial practices and various other assumptions. The potential

requirement to make additional contributions as a result of changes to regulations, actuarial assumptions or other

factors may reduce the amount of funds available for operating purposes, thus limiting our financial flexibility and

weakening our financial condition.

There is no assurance that retirement benefit plan assets will earn the expected rates of return. The ability of our

retirement benefit plan assets to earn these expected rates of return depends in large part on the performance of

capital markets. Market conditions also affect the discount rates used to calculate our net retirement benefit

liabilities and could also impact our retirement benefit costs, cash funding requirements and liquidity position.

The net retirement benefit liability is highly sensitive to variations to the underlying discount rate, which represents

the market rate for high-quality corporate fixed-income investments at the end of each reporting period consistent

with the currency and estimated term of the benefit obligations. As a result, the discount rates change is based on

market conditions.

Despite all of these risks, as a result of the risk mitigation measures we have implemented over the years, the

employer contributions to our pension plans have been very stable from one year to another (within $320 million -

$375 million range) since 2015. Refer to the Retirement benefits section in Overview of the MD&A for more

details.

Credit risk

We are exposed to credit risk through our derivative financial instruments and other investing activities carried out

as part of our normal treasury activities, as well as through our trade receivables arising from normal commercial

activities and through financing activities provided to our aerospace customers primarily in the form of aircraft

loans and lease receivables. Reduced liquidity may result if our customers or other counterparties are unable to

make payment of amounts owed to us, or delay these payments, and we may incur impairment losses on these

assets. Furthermore, if our customers experience deteriorating credit quality, we may need to provide additional

direct or indirect financing support to maintain sales, increasing our exposure to credit risk, or reduce our

customers’ credit limits, which could negatively affect our revenues.

We also have exposure to banks in the form of periodically placed deposits and credit commitments. In the event

the banks with which we transact are unable to withstand regulatory or liquidity pressures, credit facilities,

including letter of credit facilities, may become unavailable or we may not be able to extend such facilities upon

their maturity.

Substantial debt and significant interest payment requirements

We currently have, and expect to continue to have, a substantial amount of debt, and significant interest payment

requirements. Our level of indebtedness could have significant consequences, including the following:

• it may be more difficult to satisfy our obligations with respect to our indebtedness;

• our vulnerability to general adverse economic and industry conditions may be increased;

• we may be required to dedicate a substantial portion of our cash flows from operations to interest and

principal repayments on our indebtedness, reducing the availability of cash flows to fund capital expenditures,

working capital, acquisitions, new business initiatives and other general corporate purposes;

• our flexibility in planning for, or reacting to, changes in our businesses and the industries in which we operate

may be limited;

• we may be placed at a disadvantage compared to our competitors that have less debt or greater financial

resources;

• it may limit, along with the financial and other restrictive covenants to which we are subject, among other

things, our ability to borrow additional funds on commercially reasonable terms, or at all;

106 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

• we may be required to monetize assets on terms that are unfavourable to us; and

• we may be required to offer debt or equity securities on terms that are not favourable to us or our

shareholders.

We have various debt maturities ranging between 2021 and 2034, and we cannot provide assurance that this

indebtedness will be refinanced on favourable terms or at all.

For more information regarding our long-term debt, see Note 29 - Long-term debt, to our consolidated financial

statements.

Restrictive debt covenants

The indentures governing certain of our indebtedness, revolving credit facility and letter of credit facility contain

covenants that, among other things, restrict our ability, and in some cases the ability of our subsidiaries, to:

• incur additional debt and provide guarantees;

• repay subordinated debt;

• create or permit certain liens;

• use the proceeds from the sale of assets and capital stock of subsidiaries;

• pay dividends and make certain other disbursements;

• allow our subsidiaries to pay dividends or make other payments;

• engage in certain transactions with affiliates; and

• enter into certain consolidations, mergers or transfers of all or certain assets.

These restrictions could impair our ability to finance future operations or capital needs, or engage in other

business activities that may be beneficial.

The Corporation is subject to various financial covenants under the Transportation letter of credit facility and the

Transportation revolving credit facility, which must be met on a quarterly basis. Those facilities include financial

covenants requiring minimum equity as well as a maximum debt to EBITDA ratio, all calculated based on

Transportation stand-alone financial data. These terms and ratios are defined in the respective agreements and

do not correspond to the Corporation’s global metrics as described in Note 37 – Capital management or to the

specific terms used in the MD&A. In addition, the Corporation must maintain a minimum Transportation liquidity of

€750 million ($843 million). Minimum liquidity required is not defined as comprising only cash and cash

equivalents as presented in the consolidated statement of financial position.

Our ability to comply with these covenants may also be affected by events beyond our control. A breach of any of

these agreements or our inability to comply with these covenants could result in a default under these facilities,

which would permit our banks to request immediate defeasance or cash cover of all outstanding letters of credit,

and our bond holders and other lenders to declare amounts owed to them to be immediately payable. If any of

these facilities is accelerated, or we are subject to significant cash cover calls, we may not have access to

sufficient liquidity or credit to refinance such facilities on terms acceptable to us or at all. Furthermore, if we incur

additional debt in the future, we may be subject to additional covenants, which may be more restrictive than those

to which we are subject now. In addition, failure to comply with the obligations contained in our existing or future

indentures or loan agreements could require us to immediately cash cover, or repay debt under other agreements

that may contain cross-acceleration or cross-default provisions. There can be no assurance that we would be able

to obtain waivers or amendments of any such defaults, or be able to cash cover or refinance such facilities, on

terms acceptable to us or at all.

BOMBARDIER INC. / 2019 FINANCIAL REPORT / OTHER 107

Financing support provided for the benefit of certain customers

From time to time, we provide aircraft financing support to customers. We may provide, directly or indirectly, credit

and residual value guarantees or guarantee of a maximum credit spread, to support financing for certain

customers such as airlines or to support financing by certain special purpose entities created solely i) to purchase

our commercial aircraft and to lease those aircraft to airline companies or ii) to purchase financial assets such as

loans and lease receivables related to the sale of our commercial aircraft. Under these arrangements, we are

obligated to make payments to a guaranteed party in the event that the original debtor or lessee does not make

the loan or lease payments, or if the market or resale value of the aircraft is below the guaranteed residual value

amount at an agreed-upon date. A substantial portion of these guarantees has been extended to support original

debtors or lessees with less than investment grade credit ratings.

Government support

From time to time, we receive various types of government financial support. Some of these financial support

programs require the repayment of amounts to the government at the time of product delivery. The level of

government support reflects government policy and depends on fiscal spending levels and other political and

economic factors. We cannot predict if future government-sponsored support will be available. The loss of or any

substantial reduction in the availability of government support could negatively impact our liquidity assumptions

related to the development of aircraft or rail products and services. In addition, any future government support

received by our competitors could have a negative impact on our competitiveness, sales and market share.

General economic risk

The markets in which we operate may from time to time be affected by a number of local, regional and global

factors. Since our sales and operations are undertaken around the world, including through manufacturing and

production capacity in Europe and in North America, and partnerships and joint ventures in regions such as Asia

and Africa, we may be directly or indirectly affected by an unfavourable political or economic slowdown occurring

within these geographic zones and our business may be exposed to a number of related risks, such as

fluctuations in exchange rates and restrictions on the transfer of capital.

Should the current uncertain global economic situation persist over time or deteriorate, should the economic

headwinds in certain countries, regions or key markets intensify or spread to other countries, or should the global

economic environment deteriorate, this could, in particular, result in potential buyers postponing the purchase of

our products or services, lower order intake, order cancellations or deferral of deliveries, lower availability of

customer financing, an increase in our involvement in customer financing, downward pressure on selling prices,

increased inventory levels, decreased level of customer advances, slower collection of receivables, reduction in

production activities, paused or discontinued production of certain products, termination of employees or adverse

impacts on suppliers.

Brexit

On June 23, 2016, a referendum took place whereby British citizens voted to exit the European Union, commonly

known as “Brexit”. On January 31, 2020, the U.K. formally left the European Union and has entered into a

transition or implementation period lasting until December 31, 2020.

Bombardier could be impacted by Brexit in both our aerospace and rail businesses. In 2019, 42% of our

revenues were generated in Europe, of which 22% was generated in the U.K. Brexit could result in increased

geopolitical and economic risks and could cause disruptions to and create uncertainty surrounding our

businesses, including affecting our relationships with existing and future customers, suppliers and employees,

which could in turn have an adverse effect on our financial results and operations. There could also be greater

restrictions on imports and exports between the U.K. and European Union countries and could also result in

increased regulatory complexities.

108 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

The announcement of Brexit caused significant currency exchange fluctuations. The U.S. dollar strengthened

against other currencies, particularly the pound sterling and the euro. Our revenues are denominated mainly in

U.S. dollars for aircraft sales and mainly in euro and other currencies for our rail business. The strengthening of

the U.S. dollar relative to these other currencies could adversely affect our results of operations, particularly in the

rail business, where a potential devaluation of the local currency or of the euro relative to the U.S. dollar coupled

with potential increased inflation risk, may expose us to losses and could impair our customers’ purchasing power.

Business environment risk

Financial condition of business aircraft customers and of the airline industry

The purchase of aerospace products and services may represent a significant investment for a corporation, an

individual or a government. When economic or business conditions are unfavourable, potential buyers may delay

the purchase of our aerospace products and services. The availability of financing is also an important factor and

credit scarcity can cause customers to either defer deliveries or cancel orders.

The airline industry’s financial condition and viability, including airlines’ ability to secure financing, can influence

the demand for our commercial aircraft. The nature of the airline industry makes it difficult to predict when

economic downturns or recoveries will impact the industry, and economic cycles may be longer than expected.

Continued cost pressures and efforts to achieve acceptable profitability in the airline industry may constrain the

selling price of our aerospace products. Scope clauses in pilot union agreements in the U.S. restrict the operation

of smaller jetliners by major airlines or by their regional affiliates and, therefore, may restrict demand in the

regional aircraft market.

An increased supply of used aircraft as companies restructure, downsize or discontinue operations could also add

downward pressure on the selling price of new and used business and commercial aircraft. We could then be

faced with the challenge of finding ways to further reduce costs and improve productivity to sustain a favourable

market position at acceptable profit margins. The loss of any major fractional ownership or charter operator or

commercial airline as a customer or the termination of a contract could significantly impact our financial results.

Financial condition of the rail industry

The rail industry has historically been resilient during economic downturns. Challenging economic and financial

conditions in specific areas, however, may have a negative impact on some rail operators. As customers deal with

budget pressures and discipline and even austerity measures, it may result in projects being reduced in size,

postponed or even cancelled. Such actions by public or private rail operators may negatively impact our order

intake and revenues and put significant pressure on our cost structure and prices. These conditions may be

exacerbated in times of declining investment activity.

A significant proportion of our rail business in any given period relies on government agencies and other public

institutions, which have historically represented the vast majority of the value of the orders that we book annually.

The amount public institutions are able to invest and spend depends on complex political and economic factors

and could vary from one fiscal year to the next. Economic slowdown and public budgetary restrictions can cause

a decrease in infrastructure investments, delays in placing orders and delays in executing contracts or payments,

as well as a decrease in fiscal and other incentive-based measures to promote research and development. In

periods of over-indebtedness (or of a sovereign debt crisis), the implementation of austerity or public spending

reduction programs can lead to a negative impact on the volume of orders placed for transportation infrastructure

projects.

BOMBARDIER INC. / 2019 FINANCIAL REPORT / OTHER 109

In addition, intense competition in the rail industry and demands by customers in the current economic

environment have resulted in certain adverse impacts, including the lower level and later receipt of advance

payments. This evolution of contract terms may adversely impact our cash flows and may require us to obtain and

deploy increased amounts of capital from other sources, including factoring facilities, which may adversely affect

our return on equity, financial condition and results of operations. In addition, there can be no assurance that if

such customer payment and advances terms continue to evolve in a manner adverse to the manufacturers we will

be able to access sufficient replacement working capital to finance the execution of projects on acceptable terms

or at all.

Trade policy

As a globally operating organization, our businesses are subject to government policies related to import and

export restrictions and business acquisitions, support for export sales, and world trade policies including specific

regional trade practices. As a result, we are exposed to risks associated with changing priorities by government

and supranational agencies.

In addition, protectionist trade policies and changes in the political and regulatory environment in the markets in

which we operate, such as foreign exchange import and export controls, tariffs and other trade barriers, price or

exchange controls as well as potential changes to free trade arrangements could affect our business in several

national markets, impact our sales and profitability and make the repatriation of profits difficult, and may expose

us to penalties, sanctions and reputational damage.

Increased competition from other businesses including new entrants in market segments in

which we compete

We face intense competition in the markets and geographies in which we operate. We face competition from

strong competitors, some of which are larger and may have greater resources in a given business or region, as

well as competitors from emerging markets and new entrants, which may have a better cost structure. In the

aerospace market segments in which we compete, competitors are developing numerous aircraft programs, with

entries-into-service expected throughout the next decade. We face the risk that market share may be eroded if

potential customers opt for competitors’ products. We may also be negatively impacted if we are not able to meet

product support expectations or provide an international presence for our diverse customer base.

Some rail transportation market segments in which we operate, and some of the significant market participants in

our businesses, are undergoing consolidation. Such consolidation may increase pressure on prices and profit

margins, as well as on payment terms and conditions, manufacturing timeframes and the technologies proposed

and services provided to clients, which could weaken our position in certain markets. Furthermore, certain

competitors might be more effective and faster in capturing available market opportunities, which in turn may

negatively impact our results, revenues and market share.

Political instability

Political instability, which may result from various factors, including social or economic factors, in certain regions

of the world may be prolonged and unpredictable. Any prolonged political instability in markets in which we

participate could lead to delays or cancellation of orders, deliveries or projects in which we have invested

significant resources, particularly when the customers are state-owned or state-controlled entities.

Geopolitical and economic risks, international sanctions and the price of oil affecting many energy-exporting

nations have raised new concerns in international economies. Beyond any immediate impact, these

developments may also negatively affect the evolution of the global economy.

In addition, geopolitical events in the geographic areas in which we operate can increase difficulties relative to the

conditions under which the contracts we have signed are executed, extend execution periods or trigger

unexpected legislative or regulatory changes that could significantly increase the costs of execution initially

projected for these contracts, all of which could have a material adverse effect on our business, financial

condition, cash flows and results of operations.

110 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

Force majeure

Force majeure events are unpredictable and may have significant adverse results such as: personal injury or

fatality; damage to or destruction of ongoing projects, facilities or equipment; environmental damage; delays or

cancellations of orders and deliveries; delays in the receipt of materials from our suppliers; delays in projects; or

legal liability.

Global climate change

Global climate change could exacerbate certain of the threats facing our business, including the frequency and

severity of weather-related events, which can disrupt our operations, damage our infrastructure or properties,

create financial risk to our business or otherwise have a material adverse effect on our results of operations,

financial position or liquidity. These may result in substantial costs to respond during the event, to recover from

the event and possibly to modify existing or future infrastructure requirements to prevent recurrence. Climate

changes could also disrupt our operations by impacting the availability and cost of materials needed for

manufacturing and could increase insurance and other operating costs.

The potential physical impacts of climate change on our operations are highly uncertain, and could be particular to

the geographic circumstances in areas in which we operate and may include changes in rainfall and storm

patterns and intensities, water shortages, rising water levels and changing temperatures. These factors may

impact our decisions to construct new facilities or maintain existing facilities in areas most prone to physical

climate risks. We could also face indirect financial risks passed through the supply chain and process disruptions

due to physical climate changes could result in price modifications for our products and the resources needed to

produce them. These impacts may adversely impact the cost, production, and financial performance of our

operations. In addition, concerns about the environmental impacts of air travel and tendencies towards “green”

travel initiatives have contributed to higher levels of scrutiny with respect to emissions which could have the effect

of reducing demand for air travel and could materially adversely impact our Aviation business and reputation.

Global climate change also results in regulatory risks which vary according to the national and local requirements

implemented by each jurisdiction where we are present. Our products as well as our manufacturing and services

activities are subject to environmental regulations by federal, provincial and local authorities in Canada as well as

local regulatory authorities with jurisdiction over our operations outside of Canada. There continues to be a lack of

consistent climate legislation, which creates economic and regulatory uncertainty. Most countries where we carry

out manufacturing activities are at various stages of developing binding emission allocations and trading

schemes. During 2019, our regulatory risks associated with climate change mainly fell under our obligations to the

European Union Emission Trading Scheme, the United Kingdom Climate Change Agreement, the United

Kingdom's Carbon Reduction Commitment energy efficiency scheme (launched in April 2010), the Energy

Savings Opportunity Scheme and the Québec carbon market trading scheme. Increased public awareness and

concern regarding global climate change may result in more legislative and/or regulatory requirements to reduce

or mitigate the effects of greenhouse gas emissions. The impact to us and our industry from legislation and

increased regulation regarding climate change is likely to be adverse and could be significant, particularly if

regulators were to conclude that emissions from aircraft cause significant harm to the upper atmosphere or have

a greater impact on climate change than other industries. We may be directly exposed to such measures, which

could result in significant costs on us, on our customers and on our suppliers, including costs related to increased

energy requirements, capital equipment, environmental monitoring and reporting, and other costs necessary to

comply with such regulations that could adversely affect our business, financial condition, operating performance,

and ability to compete. In addition, such regulatory changes could necessitate us to develop new technologies,

requiring significant investments of capital and resources.

BOMBARDIER INC. / 2019 FINANCIAL REPORT / OTHER 111

Market risk

Foreign exchange risk

Our financial results are reported in U.S. dollars and a significant portion of our sales and operating costs are

transacted in currencies other than U.S. dollars, most often euros, Canadian dollars, pounds sterling, Swiss

francs, Swedish krona and Mexican pesos. The Aviation segment has adopted a progressive hedging strategy

while Transportation aims to hedge all of its identified foreign currency exposures to limit the effect of currency

movements on their results. Such contracts hedge foreign-currency denominated transactions and any change in

the fair value of the contracts could be offset by changes in the underlying value of the transactions being hedged.

The use of forward foreign exchange contracts also contains an inherent credit risk related to default on

obligations by the counterparties to such contracts. Although we aim to have foreign-exchange hedging contracts

with respect to all currencies in which we do business, there may be situations where we do not have hedging

contracts or are not fully hedged for various reasons including regulation and market availability and accessibility.

As a result, there can be no assurance that our approach to managing our exposure to foreign-exchange rate

fluctuations will be effective in the future or that we will be able to enter into foreign-exchange hedging contracts

as deemed necessary on satisfactory terms. In situations where we are not fully hedged, our results of operations

are affected by movements in these currencies against the U.S. dollar. Significant fluctuations in relative currency

values against the U.S. dollar could thus have a significant impact on our future profitability. Additionally, the

settlement timing of foreign currency derivatives could significantly impact our liquidity. Fluctuations in foreign

currency exchange rates could also have a material adverse effect on the relative competitive position of our

products in markets where they face competition from competitors who are less affected by such fluctuations in

exchange rates.

Interest rate risk

Changes in interest rates may result in fluctuations in our future cash flows related to variable-rate financial assets

and liabilities, including long-term fixed-rate debt synthetically converted to variable interest rates. Changes in

interest rates may also affect our future cash flows related to commitments to provide financing support to

facilitate customers’ access to capital. For these items, cash flows could be impacted by changes in benchmark

rates such as Libor, Euribor or Bankers’ Acceptance. In addition, we are exposed to gains and losses arising from

changes in interest rates, which includes marketability risks, through our financial instruments carried at fair value.

These financial instruments include certain aircraft loans and lease receivables, investments in securities,

investments in financing structures, lease subsidies and certain derivative financial instruments.

Residual value risk

We are exposed to residual value risks through RVGs provided in support of commercial aircraft sales. These

RVGs may be provided either directly to an airline, a lessor or to a financing party that participates in a long-term

financing associated with the sale of commercial aircraft. RVGs are offered as a strip of the value of an aircraft

with a ceiling and a floor. If the underlying aircraft is sold at the end of the financing period (or during this period in

limited circumstances), the resale value is compared to the RVG strip. We are required to make payments under

these RVGs when the resale value of the aircraft falls below the ceiling of the strip covered by the guarantee, but

our payment is capped at the floor of the strip if the resale value of the aircraft is below that level.

Commodity price risk

We are exposed to commodity price risk relating principally to fluctuations in the cost of materials used in our

supply chain, such as aluminum, advanced aluminum alloy, titanium, steel and other materials that we use to

manufacture our products, and which represent a significant portion of our cost of sales. We do not maintain

significant inventories of raw materials and components and parts. The prices and availabilities of raw materials

and components and parts may vary significantly from period to period due to factors such as consumer demand,

supply, market conditions and costs of raw materials. In particular, raw materials required for our operations, may

be subject to pricing cyclicality and periodic shortages from time to time. We cannot guarantee that corresponding

variations in cost will be fully reflected in contract prices, and we may be unable to recoup these raw material

price increases, which could affect the profitability of such contracts.

112 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

Inflation risk

Our aerospace businesses are exposed to inflation risk relating to fluctuations in costs and revenue for aircraft

orders received but for which the delivery of the aircraft will take place several years in the future. Revenues for

these orders are adjusted for price escalation clauses linked to inflation. At Transportation, contract cost estimates

are subject to inflation rate assumptions. Estimated revenues at completion are adjusted for price escalation

clauses, several of which are linked to inflation. Fluctuations in inflation rates could nevertheless have a

significant impact on our future profitability if the inflation rate assumption used varies from the actual inflation

rate, and this is a particularly acute risk in respect of large long-term contracts which may have an impact on our

results for several years.

BOMBARDIER INC. / 2019 FINANCIAL REPORT / OTHER 113

ACCOUNTING AND REPORTING DEVELOPMENTS

Changes in accounting policies

Leases

In January 2016, the IASB released IFRS 16, Leases, to replace the previous leases Standard, IAS 17, Leases,

and related Interpretations. IFRS 16 sets out the principles for the recognition, measurement, presentation and

disclosure of leases for both parties to a contract, the customer (lessee) and the supplier (lessor). IFRS 16

eliminates the classification of leases as either operating leases or finance leases and introduces a single lessee

accounting model. IFRS 16 also substantially carries forward the lessor accounting requirements. Accordingly, a

lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of

leases differently.

IFRS 16 was adopted effective January 1, 2019, and the Corporation elected to use the modified retrospective

approach whereby comparative periods were not restated. Under this method, the standard is applied

retrospectively with the cumulative effect of initially applying the standard recognized at the date of initial

application.

The Corporation applied the standard to contracts that were previously identified as leases applying IAS 17 and

IFRIC 4 at the date of initial application and did not reassess contracts that were not previously identified as

containing a lease applying IAS 17 and IFRIC 4. In addition, the Corporation elected to apply recognition

exemptions available in the standard for lease contracts where the lease term ends within 12 months of the date

of initial application or lease commencement date and that do not contain a purchase option, and lease contracts

for which the underlying asset is of low value.

On initial application, the Corporation also applied the practical expedients to use a single discount rate to a

portfolio of leases with reasonably similar characteristics, to rely on its assessment of whether leases are onerous

immediately before the date of initial application instead of performing an impairment review and to exclude initial

direct costs from the measurement of the right-of-use asset.

Where the Corporation is a lessee, IFRS 16 resulted in on-balance sheet recognition of most of its leases that

were considered operating leases under IAS 17. This resulted in the gross-up of the balance sheet through the

recognition of a right-of-use asset, adjusted for lease incentives received and onerous contract provisions

previously recognized, and a lease liability for the present value of the remaining future lease payments,

discounted using the incremental borrowing rate at the date of initial application. Depreciation expense on the

right-of-use asset and interest expense on the lease liability replaced the previously recognized operating lease

expense. The impact of adopting this standard on the cash flow statement is neutral, however the principal

repayment of the lease liabilities will be presented in financing activities under IFRS 16, whereas previously it was

presented in operating activities.

Refer to Note 3 - Changes in accounting policies, to our annual consolidated financial statements, for further

details on the impact of adopting IFRS 16.

Income taxes

In June 2017, the IASB released IFRIC 23, Uncertainty over income tax treatments. IFRIC 23 clarifies the

application of recognition and measurement requirements in IAS 12, Income Taxes, when there is uncertainty

over income tax treatments. It specifically addresses whether an entity considers each tax treatment

independently or collectively, the assumptions an entity makes about the examination of tax treatments by

taxation authorities, how an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax

credits and tax rates and how an entity considers changes in facts and circumstances. IFRIC 23 was adopted

effective January 1, 2019 and resulted in no significant adjustments.

114 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

Retirement and other long-term employee benefits

In February 2018, the IASB released an amendment to IAS 19, Employee Benefits, effective on January 1, 2019.

The amendment relates to accounting for plan amendments, curtailments and settlements on defined benefit

plans. The amendment requires the use of updated actuarial assumptions to determine current service cost and

net interest for the period after a plan amendment, curtailment or settlement. This amendment was adopted

effective January 1, 2019, with no earlier application and resulted in no adjustments as of January 1, 2019. This

amendment will apply to plan amendments, curtailments or settlements occurring after January 1, 2019.

BOMBARDIER INC. / 2019 FINANCIAL REPORT / OTHER 115

FINANCIAL INSTRUMENTS

An important portion of the consolidated balance sheets is composed of financial instruments. Our financial

assets include cash and cash equivalents, trade and other receivables, aircraft loans and lease receivables,

investments in securities, ACLP non-voting units, receivables from related party, investments in financing

structures, long-term contract receivables, restricted cash and derivative financial instruments with a positive fair

value. Our financial liabilities include trade and other payables, long-term debt, short-term borrowings, lease

subsidies, government refundable advances, vendor non-recurring costs and derivative financial instruments with

a negative fair value. Derivative financial instruments are mainly used to manage exposure to foreign exchange

and interest rate risks. They consist mostly of forward foreign exchange contracts and interest rate swap

agreements.

The use of financial instruments exposes us primarily to credit, liquidity and market risks, including foreign

exchange and interest rate risks. A description on how we manage these risks is included in the Risk

management section of Overview and in Note 38 – Financial risk management, to the consolidated financial

statements.

Fair value of financial instruments

Financial instruments are recognized in the consolidated statement of financial position when the Corporation

becomes a party to the contractual obligations of the instrument. On initial recognition, financial instruments are

recognized at their fair value plus, in the case of financial instruments not at FVTP&L, transaction costs that are

directly attributable to the acquisition or issue of financial instruments. Subsequent to initial recognition, financial

instruments are measured according to the category to which they are classified, which are: a) financial

instruments classified as FVTP&L, b) financial instruments designated as FVTP&L, c) FVOCI financial assets, or

d) amortised cost. Financial instruments are subsequently measured at amortized cost, unless they are classified

as FVOCI or FVTP&L or designated as FVTP&L, in which case they are subsequently measured at fair value. The

classification of financial instruments as well as the revenues, expenses, gains and losses associated with these

instruments are provided in Note 2 - Summary of significant accounting policies and in Note 14 – Financial

instruments, to the consolidated financial statements.

Note 39 - Fair value of financial instruments, to the consolidated financial statements, provides a detailed

description of the methods and assumptions used to determine the fair values of financial instruments. These

values are point-in-time estimates that may change in subsequent reporting periods due to market conditions or

other factors. Fair value is determined by reference to quoted prices in the principal market for that instrument to

which we have immediate access. However, there is no active market for most of our financial instruments. In the

absence of an active market, we determine fair value based on internal or external valuation models, such as

stochastic models, option-pricing models and discounted cash flow models. Fair value determined using valuation

models requires the use of assumptions concerning the amount and timing of estimated future cash flows,

discount rates, the creditworthiness of the borrower, the aircraft’s expected future value, default probability,

generic industrial bond spreads and marketability risk. In determining these assumptions, we use primarily

external, readily observable market inputs, including factors such as interest rates, credit ratings, credit spreads,

default probabilities, currency rates, and price and rate volatilities, as applicable. Assumptions or inputs that are

not based on observable market data are used when external data are unavailable. These calculations represent

management’s best estimates. Since they are based on estimates, the fair values may not be realized in an actual

sale or immediate settlement of the instruments.

Note 39 – Fair value of financial instruments, to the consolidated financial statements, also provides a three-level

fair value hierarchy, categorizing financial instruments by the inputs used to measure their fair value. The fair

value hierarchy gives the highest priority to unadjusted quoted prices in active markets (Level 1) and the lowest

priority to unobservable inputs (Level 3). In cases where the inputs used to measure fair value are categorized

within different levels of hierarchy, the fair value measurement is reported at the lowest level of the input that is

significant to the entire measurement. Assessing the significance of a particular input to the fair value

measurement in its entirety requires judgment, taking into account factors specific to the asset or liability. The fair

value hierarchy is not meant to provide insight on the liquidity characteristics of a particular asset or on the degree

of sensitivity of an asset or liability to other market inputs or factors.

116 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

We consider gains and losses arising from certain changes in fair value of financial instruments incidental to our

core performance, such as those arising from changes in market yields, as our intention is to continue to hold

these instruments for the foreseeable future. These gains and losses are excluded from adjusted net income and

adjusted EPS to provide users of the financial statements a better understanding of the core results of our

business and enable better comparability of results from one period to another and with peers.

In connection with the sale of commercial aircraft, we hold financial assets and have incurred financial liabilities,

measured at fair value, some of which are reported as Level 3 financial instruments, including certain aircraft

loans and lease receivables, certain investments in financing structures and lease subsidies. In addition, we have

other level 3 financial instruments, including the conversion option, the funding commitments and ACLP non-

voting units. The fair values of these financial instruments are determined using various assumptions, with the

assumption on marketability risk being the most likely to change the fair value significantly from period to period.

These assumptions, not derived from an observable market, are established by management using estimates and

judgments that can have a significant effect on revenues, expenses, assets and liabilities. Refer to Note 39 - Fair

value of Financial instruments for detailed sensitivity analysis on those financial instruments.

Sensitivity analysis

Our main exposures to changes in fair value of financial instruments are related to changes in foreign exchange,

interest rates, aircraft residual value curves, credit ratings and marketability adjustments. Note 38 – Financial risk

management and Note 39 – Fair value of financial instruments, to the consolidated financial statements, present

sensitivity analyses assuming variations in foreign exchange and interest rates.

RELATED PARTY TRANSACTIONS

Related parties, as defined by IFRS, are our joint ventures, associates and key management personnel. A

description of our transactions with these related parties is included in Note 41 – Transactions with related parties,

to the consolidated financial statements.

BOMBARDIER INC. / 2019 FINANCIAL REPORT / OTHER 117

CRITICAL JUDGMENTS AND ACCOUNTING ESTIMATES

Our significant accounting policies and use of estimates and judgment are described in Note 2 – Summary of

significant accounting policies and Note 4 – Use of estimates and judgment, to the consolidated financial

statements. The preparation of financial statements in conformity with IFRS requires the use of estimates and

judgment. Critical accounting estimates, which are evaluated on a regular ongoing basis and can change from

period to period, are described in this section. An accounting estimate is considered critical if:

• the estimate requires us to make assumptions about matters that are highly uncertain at the time the

estimate is made; and

• we could have reasonably used different estimates in the current period, or changes in the estimate are

reasonably likely to occur from period to period that would have a material impact on our financial

condition, our changes in financial condition or our results of operations.

Our best estimates regarding the future are based on the facts and circumstances available at the time estimates

are made. We use historical experience, general economic conditions and trends, as well as assumptions

regarding probable future outcomes as the basis for determining estimates. Estimates and their underlying

assumptions are reviewed periodically and the effects of any changes are recognized immediately. Actual results

will differ from the estimates used, and such differences could be material.

Our budget and strategic plan cover a five-year period and are fundamental information used as a basis for many

estimates necessary to prepare financial information. We prepare a budget and a strategic plan covering a five-

year period, on an annual basis, using a process whereby a detailed one-year budget and four-year strategic plan

are prepared by each reportable segment and then consolidated. Cash flows and profitability included in the

budget and strategic plan are based on existing and future contracts and orders, general market conditions,

current cost structures, anticipated cost variations and in-force collective agreements. The budget and strategic

plan are subject to approval at various levels, including senior management and the Board of Directors. We use

the budget and strategic plan, as well as additional projections or assumptions, to derive the expected results for

periods thereafter. We then track performance as compared to the budget and strategic plan at various levels

within the Corporation. Significant variances in actual performance are a key trigger to assess whether certain

estimates used in the preparation of financial information must be revised.

The following areas require management’s most critical estimates and judgments. The sensitivity analyses below

should be used with caution as the changes are hypothetical and the impact of changes in each key assumption

may not be linear.

Long-term contracts

Transportation conducts most of its business under long-term manufacturing and service contracts and Aviation

has some long-term maintenance service contracts, as well as design and development contracts for third parties.

Revenues and margins from long-term contracts relating to the designing, engineering or manufacturing of

specially designed products (including rail vehicles, vehicle overhaul and signalling contracts) and service

contracts are recognized over time. The long-term nature of these contracts requires estimates of total contract

costs and the transaction price. The measure of progress toward complete satisfaction of the performance

obligation is generally determined by comparing the actual costs incurred to the total costs anticipated for the

entire contract, excluding costs that are not representative of the measure of performance.

The contract transaction price includes adjustments for change orders, claims, performance incentives, price

escalation clauses and other contract terms that provide for the adjustment of prices to the extent they represent

enforceable rights for the Corporation. Variable consideration such as assumptions for price escalation clauses,

performance incentives and claims is only included in the transaction price to the extent it is highly probable that a

significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty

associated with the variable consideration is subsequently resolved.

118 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

Contract costs include material, direct labour, manufacturing overhead and other costs, such as warranty and

freight. Estimated contract costs at completion incorporate forecasts for material usage and costs, including

escalation clauses, labour hours and costs, foreign exchange rates (including the effect of hedges) and labour

productivity. These costs are influenced by the nature and complexity of the work to be performed, as well as the

impact of change orders and potential delays in delivery. Cost estimates are based mainly on historical

performance trends, economic trends, collective agreements and contracts signed with suppliers. Management

applies judgment to determine the probability that the Corporation will incur additional costs from delays or other

penalties, and such costs, if probable, are included in estimated costs at completion, unless there is an

adjustment to the transaction price in which case it is recorded as a reduction of estimated revenues at

completion.

Recognized revenues and margins are subject to revisions as contracts progress towards completion.

Management conducts quarterly reviews of estimated costs and revenues to completion on a contract-by-contract

basis, including a review of escalation assumptions. In addition, a detailed annual review is performed on a

contract-by-contract basis as part of the budget and strategic plan process. The effect of any revision may be

significant and is recorded by way of a cumulative catch-up adjustment in the period in which the estimates are

revised.

Sensitivity analysis

A 1% increase in the estimated future costs to complete all ongoing long-term contracts would have decreased

Transportation’s gross margin for fiscal year 2019 by approximately $110 million.

Aerospace program tooling

Aerospace program tooling amortization and the calculation of recoverable amounts used in impairment testing

require estimates of the expected number of aircraft to be delivered over the life of each program. The expected

number of aircraft is based on management’s aircraft market forecasts and the Corporation’s expected share of

each market. Such estimates are reviewed in detail as part of the budget and strategic plan process. For

purposes of impairment testing, management exercises judgment to identify independent cash inflows to identify

CGUs by family of aircraft. Other key estimates used to determine the recoverable amount include the applicable

discount rate, the expected future cash flows over the remaining life of each program, which include costs to

complete the development activities, if any, as well as potential upgrades, and derivatives expected over the life of

the program. The estimated cost of potential upgrades and derivatives is based on past experience with previous

programs. The expected future cash flows also include cash flows from aftermarket activities, as well as expected

cost savings due to synergies from the perspective of a market participant. The inputs used in the discounted

cash flow model are Level 3 inputs (inputs that are not based on observable market data).

The recoverable amounts of aerospace assets or CGUs are based on fair value less costs of disposal. The

recoverable amounts were established during the fourth quarter of 2019. The fair value measurements are

categorized within Level 3 of the fair value hierarchy. The estimate of the fair value less costs of disposal was

determined using forecast future cash flows. The estimated future cash flows for the first five years are based on

the budget and strategic plan. After the initial five years, long-range forecasts prepared by management are used.

Forecast future cash flows are based on management’s best estimate of future sales under existing firm orders,

expected future orders, timing of payments based on expected delivery schedules, revenues from related

services, procurement costs based on existing contracts with suppliers, future labour costs, general market

conditions, foreign exchange rates and applicable long-range forecast income tax rates and a post-tax discount

rate of 9% based on a weighted average cost of capital calculated using market-based inputs, available directly

from financial markets or based on a benchmark sampling of representative publicly-traded companies in the

aerospace sector.

An impairment test was prepared for the Global 7500 since it only entered into service in December 2018, and

following this assessment the Corporation concluded there was no impairment.

BOMBARDIER INC. / 2019 FINANCIAL REPORT / OTHER 119

Sensitivity analysis

The following analyses are presented in isolation from one another, i.e. all other estimates left unchanged:

A 10% decrease, evenly distributed over future periods, in the expected future net cash inflows for the

Global 7500 aircraft program would not have resulted in an impairment charge in fiscal year 2019.

An increase of 100-basis points in the discount rate used to perform the impairment tests would not have resulted

in an impairment charge in fiscal year 2019 for the Global 7500 aircraft program.

Goodwill

Goodwill is related to the DaimlerChrysler Rail Systems GmbH (Adtranz) acquisition in May 2001. Goodwill is

monitored by management at the Transportation operating segment level. An impairment assessment is

performed at least annually, and whenever circumstances such as significant declines in expected sales, earnings

or cash flows indicate that it is more likely than not that goodwill might be impaired. We selected the fourth quarter

to perform an annual impairment assessment of goodwill.

The recoverable amount of the Transportation operating segment, the group of CGUs at which level goodwill is

monitored by management, is based on fair value less costs of disposal using a discounted cash flow model.

During the fourth quarter of 2019, the Corporation completed its annual goodwill impairment test for the

Transportation segment and did not identify any impairment. The fair value measurement is categorized within

Level 3 of the fair value hierarchy.

Estimated future cash flows were based on the budget and strategic plan for the first 5 years and a growth rate of

1% was applied to derive a terminal value beyond the initial 5-year period. The post-tax discount rate is also a key

estimate in the discounted cash flow model and was based on a representative weighted average cost of capital.

The post-tax discount rate used to calculate the recoverable amount in fiscal year 2019 was 8.5%.

Sensitivity analysis

A 100-basis point change in the post-tax discount rate would not have resulted in an impairment charge in 2019.

Valuation of deferred income tax assets

To determine the extent to which deferred income tax assets can be recognized, we estimate the amount of

probable future taxable profits that will be available against which deductible temporary differences and unused

tax losses can be utilized. Such estimates are made as part of the budget and strategic plan by tax jurisdiction on

an undiscounted basis and are reviewed on a quarterly basis. We exercise judgment to determine the extent to

which realization of future taxable benefits is probable, considering factors such as the number of years to include

in the forecast period, the history of taxable profits and availability of prudent tax planning strategies. See

Note 12 - Income taxes for more details.

Tax contingencies

Uncertainties exist with respect to the interpretation of complex tax regulations, changes in tax laws, and the

amount and timing of future taxable income. Given the wide range of our international business relationships and

the long-term nature and complexity of existing contractual agreements, differences arising between our actual

results and the assumptions made, or future changes to such assumptions, could necessitate future adjustments

to tax expense or recovery already recorded. We establish tax provisions for possible consequences of audits by

the tax authorities of each country in which we operate. The amount of such provisions is based on various

factors, such as experience from previous tax audits and differing interpretations of tax regulations by the taxable

entity and the relevant tax authority. Such differences in interpretation may arise for a wide variety of issues

depending on the conditions prevailing in the domicile of each legal entity.

120 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

Credit and residual value guarantees

The Corporation uses an internal valuation model based on stochastic simulations. The amounts expected to be

paid under the guarantees may depend on whether credit defaults occur during the term of the original financing.

When a credit default occurs, the credit guarantee may be called upon. In the absence of a credit default the

residual value guarantee may be triggered. In both cases, the guarantees can only be called upon if there is a

loss upon the sale of the aircraft. Therefore, the value of the guarantee is in large part impacted by the future

value of the underlying aircraft, as well as on the likelihood that credit or residual value guarantees will be called

upon at the expiry of the financing arrangements. Aircraft residual value curves, prepared by management based

on information from external appraisals and adjusted to reflect specific factors of the current aircraft market and a

balanced market in the medium and long term, are used to estimate the underlying aircraft future value. The

amount of the liability is also significantly impacted by the current market assumption for interest rates since

payments under these guarantees are mostly expected to be made in the medium to long term. Other key

estimates in calculating the value of the guarantees include default probabilities, estimated based on published

credit ratings when available or, when not available, on internal assumptions regarding the credit risk of

customers. The estimates are reviewed on a quarterly basis.

Sensitivity analysis

The following analyses are presented in isolation from one another, i.e. all other estimates left unchanged:

Assuming a decrease of 10% in the residual value curves of all commercial aircraft as at December 31, 2019,

Aviation’s EBIT for 2019 would have been negatively impacted by $7 million.

Assuming an increase of 10% in the likelihood that residual value guarantees will be called upon at the expiry of

the financing arrangements as at December 31, 2019, Aviation’s EBIT for 2019 would have been negatively

impacted by $7 million.

Assuming a 100-basis point decrease in interest rates as at December 31, 2019, Aviation’s EBT for 2019 would

have been negatively impacted by $2 million. Assuming a 100-basis point increase in interest rates as at

December 31, 2019, Aviation’s EBT for 2019 would have been positively impacted by $2 million.

Retirement and other long-term employee benefits

The actuarial valuation process used to measure pension and other post-employment benefit costs, assets and

obligations is dependent on assumptions regarding discount rates, compensation and pre-retirement benefit

increases, inflation rates, health-care cost trends, as well as demographic factors such as employee turnover,

retirement and mortality rates. The impacts from changes in discount rates and, when significant, from key events

and other circumstances, are recorded quarterly.

Discount rates are used to determine the present value of the expected future benefit payments and represent the

market rates for high-quality corporate fixed-income investments consistent with the currency and the estimated

term of the retirement benefit liabilities.

As the Canadian high-quality corporate bond market, as defined under IFRS, includes relatively few medium- and

long- term maturity bonds, the discount rate for the Corporation’s Canadian pension and other post-employment

plans is established by constructing a yield curve using three maturity ranges. The first maturity range of the curve

is based on observed market rates for AA-rated corporate bonds with maturities of less than six years. In the

longer maturity ranges, due to the smaller number of high-quality bonds available, the curve is derived using

market observations and extrapolated data. The extrapolated data points were created by adding a term-based

yield spread over long-term provincial bond yields. This term-based spread is extrapolated between a base

spread and a long spread. The base spread is based on the observed spreads between AA-rated corporate

bonds and AA-rated provincial bonds for the 5 to 10 years to maturity range. The long spread is determined as the

spread required at the point of average maturity of AA-rated provincial bonds in the 11 to 30 years to maturity

range such that the average AA-rated corporate bond spread above AA-rated provincial bonds is equal to the

extrapolated spread derived by applying the ratio of the observed spreads between A-rated corporate bonds and

AA-rated provincial bonds for the 11 to 30 years to maturity range over the 5 to 10 years to maturity range, to the

BOMBARDIER INC. / 2019 FINANCIAL REPORT / OTHER 121

base spread. For maturities longer than the average maturity of AA-rated provincial bonds in the 11 to 30 years to

maturity range, the spread is assumed to remain constant at the level of the long spread.

As the U.K. high-quality corporate bond market, as defined under IFRS, includes relatively few long-term maturity

bonds, the discount rate for our U.K. pension and other post-employment plans is established by constructing a

yield curve. The yield curve is developed from corporate bond yield information for corporate bonds rated AA or

equivalent quality and excluding bonds which have a “corporate” BICS assignment but which have actual or

implied government backing. Target yields are developed from bonds across a range of maturity points, and a

curve is fitted to those targets. Spot rates (zero coupon bond yields) are developed from the yield curve and used

to discount benefit payment amounts associated with each future year. Since corporate bonds are generally not

available for very long maturities, an assumption is made that spot rates remain level beyond the term of the

longest data target point. The term of the longest data target point as at December 31, 2019 was 23 years.

Expected rates of compensation increases are determined considering the current salary structure, as well as

historical and anticipated wage increases, in the context of current economic conditions.

See Note 24 – Retirement benefits, to the consolidated financial statements, for further details regarding

assumptions used and sensitivity analysis to changes in critical actuarial assumptions.

Consolidation

We consolidate entities when, based on an evaluation of the substance of our relationship, we establish that we

control the investee. We control an investee when we are exposed to, or have rights to, variable returns from our

involvement with the investee and the ability to use power over the investee to affect the amount of our returns.

This evaluation includes the use of judgment to determine whether rights held by NCI, such as the CDPQ’s rights

in respect of Transportation, are protective in nature as opposed to substantive. We reassess the initial

determination of control if facts or circumstances indicate that there may be changes to one or more elements of

control.

From time to time, we participate in structured entities where voting rights are not the dominant factor in

determining control. In these situations, we may use a variety of complex estimation processes involving both

qualitative and quantitative factors to determine whether we are exposed to, or have rights to, significant variable

returns. The quantitative analyses involve estimating the future cash flows and performance of the investee and

analyzing the variability in those cash flows. The qualitative analyses involve consideration of factors such as the

purpose and design of the investee and whether we are acting as an agent or principal. There is a significant

amount of judgment exercised in evaluating the results of these analyses as well as in determining if we have

power to affect the investee’s returns, including an assessment of the impact of potential voting rights, contractual

agreements and de facto control.

Onerous contract provision

An onerous contract provision is recorded if it is more likely than not that the unavoidable costs of meeting the

obligations under a firm contract exceed the economic benefits expected to be received under it. In most cases

the economic benefits expected to be received under the contract consist of contract revenue. The calculation of

the unavoidable costs requires estimates of expected future costs, including anticipated future cost reductions

related to performance improvements and transformation initiatives, anticipated cost overruns, expected costs

associated with late delivery penalties and technological problems, as well as allocations of costs that relate

directly to the contract. The measurement of the provision is impacted by anticipated delivery schedules since for

new aircraft programs early production units require higher cost than units produced later in the process, and for

long term train manufacturing contracts delays result in penalties.

Sensitivity analysis

A 1% increase in the expected costs over the life of the contract would have decreased EBIT for fiscal year 2019

by approximately $184 million.

122 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

CDPQ investment equity and derivative liability components

The convertible shares issued to the CDPQ contain no obligation for the Corporation to deliver cash or other

financial assets to the CDPQ. Judgment was used to conclude that the CDPQ’s convertible share investment in

BT Holdco is considered a compound instrument comprised of an equity component, representing the

discretionary dividends and liquidation preference, and a liability component that reflects a derivative to settle the

instrument by delivering a variable number of common shares of BT Holdco, as opposed to the entire instrument

being characterized as a liability. The Corporation presents convertible shares in its equity (NCI) and derivative

component as a liability.

The fair value of the convertible shares at issuance was assigned to its respective equity and derivative liability

components so that no gain or loss arose from recognizing each component separately, the fair value of the

derivative liability being established first and the residual amount allocated to the equity component. The liability

component is remeasured quarterly using the Corporation’s best estimate of the present value of the settlement

amount, other than a scenario where the Corporation initiates a purchase of CDPQ’s interest. The Corporation

uses an internal valuation model to estimate the fair value of the conversion option embedded in the BT Holdco

convertible shares. The fair value of the embedded conversion option is based on the difference in the present

value between: the convertible shares’ accrued liquidation preference based on the minimum return entitlement;

and the fair value of the common shares on an as converted basis. This value is dependent on Transportation

meeting the performance incentives agreed upon with the CDPQ, the timing of exercise of the conversion rights

and the applicable conversion rate. Fair value of the shares on an as-converted basis is calculated using an EBIT

multiple, which is based on market data, to determine the enterprise value. The discount rate used is also

determined using market data. The Corporation uses internal assumptions to determine the term of the instrument

and the future performance of Transportation, derived from the budget and strategic plan.

See Note 39 - Fair value of financial instruments for a sensitivity analysis on the variability in the fair value of the

conversion option as a result of a reasonably likely change in the expected future performance of Transportation.

Investments in ACLP

On July 1, 2018 the Corporation recognized its equity investment in ACLP at $1,761 million which represented the

Corporation’s 33.55% interest in the July 1, 2018 estimated fair value of ACLP. The estimated fair value of ACLP

was determined using a discounted cash flow analysis following independent external professional advice and

consultations with the controlling partner. This valuation incorporated assumptions regarding potential synergies

from the procurement, sales and marketing and customer support expertise Airbus will bring to the program,

which involves a significant amount of judgment regarding the future operating performance of the program.

The Corporation performed an impairment test in the fourth quarter of 2019 on its investments in ACLP since

there were indicators of impairment. The Corporation determined that the carrying amount of its investment in

ACLP exceeded its recoverable amount, and accordingly recorded an impairment charge of $1,578 million. See

Note 40 - Investments in Joint ventures and Associates for more details.

See Note 39 - Fair value of financing instruments for information regarding the estimates used in determining the

fair value of the Corporation’s funding commitments toward ACLP and the fair value of the Corporation’s

investment in ACLP non-voting units.

BOMBARDIER INC. / 2019 FINANCIAL REPORT / OTHER 123

CONTROLS AND PROCEDURES

In compliance with the Canadian Securities Administrators’ Regulation 52 109, we have filed certificates signed

by the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”) that, among other things, report on

the design and effectiveness of disclosure controls and procedures and the design and effectiveness of internal

controls over financial reporting.

Disclosure controls and procedures

The CEO and the CFO have designed disclosure controls and procedures, or have caused them to be designed

under their supervision, in order to provide reasonable assurance that:

• material information relating to the Corporation has been made known to them; and

• information required to be disclosed in the Corporation’s filings is recorded, processed, summarized and

reported within the time periods specified in securities legislation.

An evaluation was carried out, under the supervision of the CEO and the CFO, of the design and effectiveness of

our disclosure controls and procedures. Based on this evaluation, the CEO and the CFO concluded that the

disclosure controls and procedures are effective.

Internal controls over financial reporting

The CEO and the CFO have also designed internal controls over financial reporting, or have caused them to be

designed under their supervision, in order to provide reasonable assurance regarding the reliability of financial

reporting and the preparation of financial statements for external purposes in accordance with IFRS.

An evaluation was carried out, under the supervision of the CEO and the CFO, of the design and effectiveness of

our internal controls over financial reporting. Based on this evaluation, the CEO and the CFO concluded that the

internal controls over financial reporting are effective, using the criteria set forth by the Committee of Sponsoring

Organizations of the Treadway Commission (COSO) on Internal Control – Integrated Framework (2013

Framework).

Changes in internal controls over financial reporting

No changes were made to our internal controls over financial reporting that occurred during the quarter and fiscal

year ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect, our

internal controls over financial reporting.

Statement on Third-Party Review of Bombardier’s Compliance Policies

On August 1, 2019, Bombardier announced that it would, in partnership with Export Development Canada (EDC),

undergo a comprehensive third-party review of its ethics compliance policies and procedures. This review, which

was supported by an independent assessment by a leading Canadian law firm, has been completed. The review

noted that Bombardier’s leadership team has prioritized making compliance and ethics central to the company’s

culture and recognized the significant investments the company has made over the past few years to strengthen

its compliance and ethics program. A number of improvements and recommendations, primarily related to

strengthening the oversight role of its internal compliance function, were also identified during the review.

Consistent with its commitment to having a world-class risk management system, Bombardier has accepted these

recommendations and has begun to implement them. Bombardier has agreed to provide EDC with regular

updates on the implementation of these improvements, ensuring the most robust and comprehensive processes

are applied to future projects. The company thanks EDC for its continuing export financing support and for its

partnership in this review process.

124 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

FOREIGN EXCHANGE RATES

We are subject to currency fluctuations from the translation of revenues, expenses, assets and liabilities of foreign

operations with non-U.S. dollar functional currencies, mainly the euro, pound sterling and other European

currencies, and from transactions denominated in foreign currencies, mainly the Canadian dollar and pound

sterling.

The foreign exchange rates used to translate assets and liabilities into U.S. dollars were as follows, as at:

December 31, 2019 December 31, 2018 Increase (Decrease)

Euro 1.1234 1.1450 (2%)

Canadian dollar 0.7696 0.7337 5%

Pound sterling 1.3204 1.2800 3%

The average foreign exchange rates used to translate revenues and expenses into U.S. dollars were as follows,

for the fourth quarters ended:

December 31, 2019 December 31, 2018 Decrease

Euro 1.1069 1.1422 (3%)

Canadian dollar 0.7574 0.7582 0%

Pound sterling 1.2849 1.2878 0%

The average foreign exchange rates used to translate revenues and expenses into U.S. dollars were as follows,

for the fiscal years ended:

December 31, 2019 December 31, 2018 Decrease

Euro 1.1200 1.1822 (5%)

Canadian dollar 0.7537 0.7729 (2%)

Pound sterling 1.2763 1.3367 (5%)

BOMBARDIER INC. / 2019 FINANCIAL REPORT / OTHER 125

SHAREHOLDER INFORMATION

Authorized, issued and outstanding share data, as at February 11, 2020

Issued and

Authorized

outstanding

Class A Shares (multiple voting)(1) 3,592,000,000 308,736,929

Class B Shares (subordinate voting)(2) 3,592,000,000 2,088,866,720 (3)

Series 2 Cumulative Redeemable Preferred Shares 12,000,000 5,811,736

Series 3 Cumulative Redeemable Preferred Shares 12,000,000 6,188,264

Series 4 Cumulative Redeemable Preferred Shares 9,400,000 9,400,000

(1) Ten votes each, convertible at the option of the holder into one Class B Subordinate Voting Share.

(2) Convertible at the option of the holder into one Class A Share under certain conditions.

(3) Net of 39,160,485 Class B Subordinate Voting Shares purchased and held in trust in connection with the PSU and RSU plans.

Warrant, share option, PSU and DSU data as at December 31, 2019

Warrants issued and outstanding 305,851,872

Options issued and outstanding under the share option plans 131,006,338

PSUs and DSUs issued and outstanding under the PSU and DSU plans 96,309,753

Class B Subordinate Voting Shares held in trust to satisfy PSU obligations 39,160,485

Information

Bombardier Inc.

Investor Relations

800 René-Lévesque Blvd. West

Montréal, Québec, Canada H3B 1Y8

Telephone: +1 514 861 9481, extension 13273

Fax: +1 514 861 2420

Email: [email protected]

Additional information relating to the Corporation, including the annual information form, are available on SEDAR

at sedar.com or on Bombardier’s dedicated investor relations website at ir.bombardier.com.

The Global 8000 and Learjet 75 Liberty aircraft are currently in development, and as such are subject to changes in family strategy, branding,

capacity, performance, design and/or systems. All specifications and data are approximate, may change without notice and are subject to

certain operating rules, assumptions and other conditions. This document does not constitute an offer, commitment, representation, guarantee

or warranty of any kind.

ALP, AVENTRA, BiLevel, Bombardier, Challenger, Challenger 300, Challenger 350, Challenger 600, Challenger 650, CITYFLO, CRJ, CRJ550,

CRJ700, CRJ900, CRJ1000, CRJ Series, EBI, FLEXITY, FLEXX, FlexCare, Global, Global 5000, Global 5500, Global 6000, Global 6500,

Global 7500, Global 8000, INNOVIA, INTERFLO, Learjet, Learjet 70, Learjet 75, Learjet 75 Liberty, Learjet 85, MITRAC, MOVIA, OMNEO,

OPTIFLO, Primove, Smart Services, TALENT, TRAXX, TWINDEXX, WAKO and ZEFIRO are trademarks of Bombardier Inc. or its subsidiaries.

The printed version of this financial report uses Rolland Opaque paper, containing 30% post-consumer fibres, certified Eco-Logo, processed

chlorine free. Using this paper, instead of virgin paper, saves the equivalent of 11 mature trees, 499 kg of waste, 2,009 kg of CO2 emissions

(equivalent to 8,006 kilometres driven) and 10,000 litres of water.

Bombardier Inc., 800 René-Lévesque Blvd. West, Montréal, Québec, Canada H3B 1Y8

Telephone: +1 514 861 9481; fax: +1 514 861 2420; website: bombardier.com

Un exemplaire en français est disponible sur demande adressée auprès du service des Relations avec les investisseurs ou sur le site Internet

de la Société dédié aux relations avec les investisseurs, à l’adresse ri.bombardier.com.

126 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

SELECTED FINANCIAL INFORMATION

The following selected financial information has been derived from, and should be read in conjunction with, the

consolidated financial statements for fiscal years ended December 31, 2019, 2018 and 2017.

The following table provides selected financial information for the last three fiscal years.

Fiscal years ended December 31 2019 (1) 2018 2017

restated(2)

Revenues $ 15,757 $ 16,236 $ 16,199

Net income (loss) attributable to equity holders of Bombardier Inc. $ (1,797) $ 232 $ (494)

EPS (in dollars)

Basic $ (0.76) $ 0.10 $ (0.24)

Diluted $ (0.76) $ 0.09 $ (0.24)

Cash dividends declared per share (in Canadian dollars)

Class A Shares (multiple voting) $ — $ — $ —

Class B Shares (subordinate voting) $ — $ — $ —

Series 2 Preferred Shares $ 0.99 $ 0.90 $ 0.72

Series 3 Preferred Shares $ 1.00 $ 1.00 $ 0.89

Series 4 Preferred Shares $ 1.56 $ 1.56 $ 1.56

As at December 31 2019 (1) 2018 2017

restated(2)

Total assets $ 24,972 $ 24,958 $ 24,916

Non-current financial liabilities $ 10,550 $ 10,619 $ 10,165

(1) Refer to Note 3 - Changes in accounting policies, to our Consolidated financial statements, for the impact of the adoption of IFRS 16,

Leases. Under the modified retrospective approach adopted by the Corporation, 2018 figures are not restated.

(2) Restated due to the adoption of IFRS 15, Revenue from contracts with customers.

The quarterly data table is shown hereafter.

February 12, 2020

BOMBARDIER INC. / 2019 FINANCIAL REPORT / OTHER 127

BOMBARDIER INC.

QUARTERLY DATA (UNAUDITED)

(the quarterly data has been prepared in accordance with IAS 34, Interim financial reporting, except market price ranges)

(in millions of U.S. dollars, except per share amounts)

(1)

Fiscal years 2019 2018

Fourth Third Second First Fourth Third Second First

Total quarter quarter quarter quarter Total quarter quarter quarter quarter

Revenues(2)

Aviation $ 7,501 $ 2,413 $ 1,558 $ 2,120 $ 1,410 $ 7,324 $ 2,142 $ 1,504 $ 2,003 $ 1,675

Transportation 8,269 1,793 2,175 2,194 2,107 8,915 2,161 2,140 2,259 2,355

Corporate and Others (13) (1) (11) — (1) (3) — (1) — (2)

$ 15,757 $ 4,205 $ 3,722 $ 4,314 $ 3,516 $ 16,236 $ 4,303 $ 3,643 $ 4,262 $ 4,028

EBIT(2)

Aviation $ 1,194 $ 94 $ 96 $ 340 $ 664 $ 424 $ 171 $ 132 $ 69 $ 52

Transportation 22 (236) 88 87 83 774 236 184 163 191

Corporate and Others (1,714) (1,554) (41) (56) (63) (197) (65) (49) (41) (42)

(498) (1,696) 143 371 684 1,001 342 267 191 201

Financing expense(3) 1,072 257 261 269 311 712 261 147 163 162

Financing income(3) (230) (106) (28) (22) (100) (106) (33) (25) (31) (38)

EBT (1,340) (1,847) (90) 124 473 395 114 145 59 77

Income taxes 267 (128) 1 160 234 77 59 (4) (11) 33

Net income (loss) $ (1,607) $ (1,719) $ (91) $ (36) $ 239 $ 318 $ 55 $ 149 $ 70 $ 44

Attributable to

Equity holders of Bombardier Inc. $ (1,797) $ (1,770) $ (139) $ (83) $ 195 $ 232 $ 15 $ 111 $ 68 $ 38

NCI 190 51 48 47 44 86 40 38 2 6

$ (1,607) $ (1,719) $ (91) $ (36) $ 239 $ 318 $ 55 $ 149 $ 70 $ 44

EPS (in dollars)

Basic $ (0.76) $ (0.74) $ (0.06) $ (0.04) $ 0.08 $ 0.10 $ 0.02 $ 0.04 $ 0.03 $ 0.01

Diluted $ (0.76) $ (0.74) $ (0.06) $ (0.04) $ 0.08 $ 0.09 $ 0.02 $ 0.04 $ 0.02 $ 0.01

Market price range of Class B Subordinate Voting Shares (in Canadian dollars)

High $ 3.03 $ 2.15 $ 2.34 $ 2.92 $ 3.03 $ 5.58 $ 4.71 $ 5.58 $ 5.36 $ 4.16

Low $ 1.53 $ 1.53 $ 1.53 $ 1.96 $ 1.85 $ 1.59 $ 1.59 $ 4.10 $ 3.55 $ 2.80

(1) Refer to Note 3 - Changes in accounting policies, to our Consolidated financial statements, for the impact of the adoption of IFRS 16, Leases. Under the modified retrospective approach

adopted by the Corporation, 2018 figures are not restated.

(2) Figures are restated as a result of the formation of Bombardier Aviation, our new reportable segment, and the reclassification of the Corporation’s interest in ACLP as a corporately held

investment and therefore is included in Corporate and Others. Refer to the Segment reporting section in Overview for further details.

(3) The amounts presented on a yearly basis may not correspond to the sum of the four quarters as certain reclassifications to quarterly figures to or from financing income and financing expense

may be required on a cumulative basis.

128 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

BOMBARDIER INC.

HISTORICAL FINANCIAL SUMMARY

(in millions of U.S. dollars, except per share amounts and number of common shares)

For the fiscal years ended December 31 2019 (1) 2018 2017 2016 2015

restated(2)

Revenues $ 15,757 $ 16,236 $ 16,199 $ 16,339 $ 18,172

Adjusted EBIT(3) $ 470 $ 1,029 $ 725 $ 427 $ 554

Special items 968 28 426 485 5,392

EBIT (498) 1,001 299 (58) (4,838)

Financing expense 1,072 712 801 819 418

Financing income (230) (106) (56) (70) (70)

EBT (1,340) 395 (446) (807) (5,186)

Income taxes 267 77 79 174 154

Net income (loss) $ (1,607) $ 318 $ (525) $ (981) $ (5,340)

Attributable to

Equity holders of Bombardier Inc. $ (1,797) $ 232 $ (494) $ (1,022) $ (5,347)

NCI $ 190 $ 86 $ 31 $ 41 $ 7

Adjusted net income (loss)(3) $ (396) $ 438 $ 91 $ (268) $ 326

EPS (in dollars)

Basic $ (0.76) $ 0.10 $ (0.24) $ (0.48) $ (2.58)

Diluted $ (0.76) $ 0.09 $ (0.24) $ (0.48) $ (2.58)

Adjusted(3) $ (0.25) $ 0.14 $ 0.04 $ (0.15) $ 0.14

General information

Export revenues from Canada $ 5,187 $ 5,803 $ 6,498 $ 6,383 $ 7,335

Net additions to PP&E and intangible assets $ 523 $ 415 $ 1,317 $ 1,201 $ 1,862

Amortization $ 422 $ 272 $ 314 $ 371 $ 438

Impairment charges (reversals) on PP&E

and intangible assets $ (4) $ 11 $ 51 $ 10 $ 4,300

Dividend per common share (in Canadian dollars)

Class A $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00

Class B Subordinate Voting $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00

Dividend per preferred share (in Canadian dollars)

Series 2 $ 0.99 $ 0.90 $ 0.72 $ 0.68 $ 0.70

Series 3 $ 1.00 $ 1.00 $ 0.89 $ 0.78 $ 0.78

Series 4 $ 1.56 $ 1.56 $ 1.56 $ 1.56 $ 1.56

Market price ranges (in Canadian dollars)

Class A Shares

High $ 3.08 $ 5.60 $ 3.25 $ 3.35 $ 4.24

Low $ 1.57 $ 1.70 $ 1.87 $ 0.89 $ 1.18

Close $ 1.94 $ 2.08 $ 3.05 $ 2.33 $ 1.49

Class B Subordinate Voting Shares

High $ 3.03 $ 5.58 $ 3.24 $ 2.28 $ 4.24

Low $ 1.53 $ 1.59 $ 1.96 $ 0.72 $ 1.03

Close $ 1.93 $ 2.03 $ 3.03 $ 2.16 $ 1.34

As at December 31 restated(2) restated(2)

Number of common shares (in millions) 2,398 2,373 2,194 2,193 2,220

Book value per common share (in dollars) $ (3.49) $ (2.63) $ (3.20) $ (2.95) $ (1.99)

(1) Refer to Note 3 - Changes in accounting policies, to our Consolidated financial statements, for the impact of the adoption of IFRS 16,

Leases. Under the modified retrospective approach adopted by the Corporation, 2018 figures are not restated.

(2) Restated due to the adoption of IFRS 15, Revenue from contracts with customers.

(3) Non-GAAP financial measures. Refer to the Non-GAAP financial measures for definitions of these metrics and reconciliations to the most

comparable IFRS measures in 2019 and 2018.

BOMBARDIER INC. / 2019 FINANCIAL REPORT / OTHER 129

BOMBARDIER INC.

HISTORICAL FINANCIAL SUMMARY (CONTINUED)

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

As at December 31 2019 (1) 2018 2017 2016 2015

restated(2) restated(2)

Assets

Cash and cash equivalents $ 2,578 $ 3,187 $ 2,988 $ 3,384 $ 2,720

Trade and other receivables 1,844 1,575 1,174 1,220 1,473

Contract assets 2,485 2,617 2,460 1,631 —

Inventories 4,599 4,402 3,429 4,286 6,978

Other financial assets 195 210 415 336 450

Other assets 473 357 427 427 484

Assets held for sale 1,309 — 4,150 — —

Current assets 13,483 12,348 15,043 11,284 12,105

PP&E 1,781 1,557 1,696 1,949 2,061

Aerospace program tooling 4,616 4,519 3,581 5,174 3,975

Goodwill 1,936 1,948 2,042 1,855 1,978

Deferred income taxes 546 746 595 698 761

Investments in joint ventures and

associates 1,059 2,211 491 332 356

Other financial assets 989 1,030 825 915 870

Other assets 562 599 643 588 797

Non-current assets 11,489 12,610 9,873 11,511 10,798

$ 24,972 $ 24,958 $ 24,916 $ 22,795 $ 22,903

Liabilities

Trade and other payables $ 4,682 $ 4,634 $ 3,964 $ 3,045 $ 4,040

Provisions 1,060 1,390 1,630 1,542 1,108

Contract liabilities 5,739 4,262 3,820 3,840 —

Advances and progress billings in excess of

long-term contract inventories — — — — 1,408

Advances on aerospace programs — — — — 2,002

Other financial liabilities 518 607 342 608 991

Other liabilities 1,548 1,499 1,723 1,634 2,274

Liabilities directly associated with assets

held for sale 1,768 — 2,686 — —

Current liabilities 15,315 12,392 14,165 10,669 11,823

Provisions 311 1,110 781 1,561 918

Contract liabilities 1,417 1,933 1,272 1,673 —

Advances on aerospace programs — — — — 1,534

Long-term debt 9,325 9,093 9,200 8,738 8,908

Retirement benefits 2,445 2,381 2,633 2,647 2,159

Other financial liabilities 1,225 1,526 965 999 619

Other liabilities 845 537 595 891 996

Non-current liabilities 15,568 16,580 15,446 16,509 15,134

30,883 28,972 29,611 27,178 26,957

Equity (deficit)

Attributable to equity holders

of Bombardier Inc. (7,667) (5,563) (6,608) (6,054) (4,067)

Attributable to NCI 1,756 1,549 1,913 1,671 13

(5,911) (4,014) (4,695) (4,383) (4,054)

$ 24,972 $ 24,958 $ 24,916 $ 22,795 $ 22,903

(1) Refer to Note 3 - Changes in accounting policies, to our Consolidated financial statements, for the impact of the adoption of IFRS 16,

Leases. Under the modified retrospective approach adopted by the Corporation, 2018 figures are not restated.

(2) Restated due to the adoption of IFRS 15, Revenue from contracts with customers.

130 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

BOMBARDIER INC.

CONSOLIDATED FINANCIAL STATEMENTS

For the fiscal years ended

December 31, 2019 and 2018

BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019 - FINANCIAL STATEMENTS 131

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING

The consolidated financial statements and MD&A of Bombardier Inc. and all other information in the financial

report are the responsibility of management and have been reviewed and approved by the Board of Directors.

The consolidated financial statements have been prepared by management in accordance with IFRS as issued by

the International Accounting Standards Board. The MD&A has been prepared in accordance with the

requirements of Canadian Securities Administrators. The financial statements and MD&A include items that are

based on best estimates and judgments of the expected effects of current events and transactions. Management

has determined such items on a reasonable basis in order to ensure that the financial statements and MD&A are

presented fairly in all material respects. Financial information presented in the MD&A is consistent with that in the

consolidated financial statements.

Bombardier Inc.’s Chief Executive Officer (CEO) and Chief Financial Officer (CFO) have designed disclosure

controls and procedures and internal controls over financial reporting, or have caused them to be designed under

their supervision, to provide reasonable assurance that material information relating to Bombardier Inc. has been

made known to them; and information required to be disclosed in Bombardier Inc.’s filings is recorded, processed,

summarized and reported within the time periods specified in Canadian securities legislation.

Bombardier Inc.’s CEO and CFO have also evaluated the effectiveness of Bombardier Inc.’s disclosure controls

and procedures and internal controls over financial reporting as of the end of the fiscal year 2019. Based on this

evaluation, the CEO and the CFO concluded that the disclosure controls and procedures and internal controls

over financial reporting were effective as of that date, using the criteria set forth by the Committee of Sponsoring

Organizations of the Treadway Commission (COSO) on Internal Control – Integrated Framework (2013

framework). In addition, based on this assessment, they determined that there were no material weaknesses in

internal control over financial reporting as of the end of the fiscal year 2019. In compliance with the Canadian

Securities Administrators’ National Instrument 52-109, Bombardier Inc.’s CEO and CFO have provided a

certification related to Bombardier Inc.’s annual disclosure to the Canadian Securities Administrators, including the

consolidated financial statements and MD&A.

The Board of Directors is responsible for ensuring that management fulfills its responsibilities for financial

reporting and is ultimately responsible for reviewing and approving the consolidated financial statements and

MD&A. The Board of Directors carries out this responsibility principally through its Audit Committee.

The Audit Committee is appointed by the Board of Directors and is comprised entirely of independent and

financially literate directors. The Audit Committee meets periodically with management, as well as with the internal

and independent auditors, to review the consolidated financial statements, independent auditors’ report, MD&A,

auditing matters and financial reporting issues, to discuss internal controls over the financial reporting process,

and to satisfy itself that each party is properly discharging its responsibilities. In addition, the Audit Committee has

the duty to review the appropriateness of the accounting policies and significant estimates and judgments

underlying the consolidated financial statements as presented by management, and to review and make

recommendations to the Board of Directors with respect to the independence and the fees of the independent

auditors. The Audit Committee reports its findings to the Board of Directors for its consideration when it approves

the consolidated financial statements and MD&A for issuance to shareholders.

The consolidated financial statements have been audited by Ernst & Young LLP, the independent auditors, in

accordance with Canadian generally accepted auditing standards on behalf of the shareholders. The independent

auditors have full and free access to the Audit Committee to discuss their audit and related matters.

Alain Bellemare John Di Bert, CPA, CA

President and Chief Executive Officer Senior Vice President and Chief Financial Officer

February 12, 2020

132 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

INDEPENDENT AUDITOR’S REPORT

TO THE SHAREHOLDERS OF BOMBARDIER INC.

Opinion

We have audited the consolidated financial statements of Bombardier Inc. and its subsidiaries (the Group), which

comprise the consolidated statements of financial position as at December 31, 2019, 2018 and January 1, 2018,

and the consolidated statements of income, consolidated statements of comprehensive income, consolidated

statements of changes in equity and consolidated statements of cash flows for the years ended December 31,

2019 and 2018, and notes to the consolidated financial statements, including a summary of significant accounting

policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the

consolidated financial position of the Group as at December 31, 2019, 2018 and January 1, 2018, and its

consolidated financial performance and its consolidated cash flows for the years ended December 31, 2019 and

2018 in accordance with International Financial Reporting Standards (IFRSs).

Basis for Opinion

We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities

under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated

Financial Statements section of our report. We are independent of the Group in accordance with the ethical

requirements that are relevant to our audit of the consolidated financial statements in Canada, and we have

fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit

evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Other Information

Management is responsible for the other information. The other information comprises:

• Management’s Discussion and Analysis

• The information, other than the consolidated financial statements and our auditor’s report thereon, in the

Financial Report

Our opinion on the consolidated financial statements does not cover the other information and we do not express

any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other

information, and in doing so, consider whether the other information is materially inconsistent with the

consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially

misstated.

We obtained Management’s Discussion & Analysis and the Financial Report prior to the date of this auditor’s

report. If, based on the work we have performed, we conclude that there is a material misstatement of this other

information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial

Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in

accordance with IFRSs, and for such internal control as management determines is necessary to enable the

preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or

error.

In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to

continue as a going concern, disclosing, as applicable, matters related to going concern and using the going

concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or

has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Group’s financial reporting process.

BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019 - AUDITORS’ REPORT 133

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a

whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that

includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit

conducted in accordance with Canadian generally accepted auditing standards will always detect a material

misstatement when it exists. Misstatements can arise from fraud or error and are considered material if,

individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users

taken on the basis of these consolidated financial statements.

As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional

judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the consolidated financial statements, whether

due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit

evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a

material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve

collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that

are appropriate in the circumstances, but not for the purpose of expressing an opinion on the

effectiveness of the Group’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting

estimates and related disclosures made by management.

• Conclude on the appropriateness of management’s use of the going concern basis of accounting and,

based on the audit evidence obtained, whether a material uncertainty exists related to events or

conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we

conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the

related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to

modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our

auditor’s report. However, future events or conditions may cause the Group to cease to continue as a

going concern.

• Evaluate the overall presentation, structure and content of the consolidated financial statements,

including the disclosures, and whether the consolidated financial statements represent the underlying

transactions and events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business

activities within the Group to express an opinion on the consolidated financial statements. We are

responsible for the direction, supervision and performance of the group audit. We remain solely

responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and

timing of the audit and significant audit findings, including any significant deficiencies in internal control that we

identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical

requirements regarding independence, and to communicate with them all relationships and other matters that

may reasonably be thought to bear on our independence, and where applicable, related safeguards.

The engagement partner on the audit resulting in this independent auditor’s report is Zahid Fazal.

(1)

Ernst & Young LLP

Montréal, Canada

February 12, 2020

(1) CPA auditor, CA, public accountancy permit no. A122227

134 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

CONSOLIDATED FINANCIAL STATEMENTS

For fiscal years 2019 and 2018

(Tabular figures are in millions of U.S. dollars, unless otherwise indicated)

Consolidated financial statements 137

Notes to the consolidated financial statements 142

1 BASIS OF PREPARATION 142

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 142

3 CHANGES IN ACCOUNTING POLICIES 155

4 USE OF ESTIMATES AND JUDGMENT 157

5 SEGMENT DISCLOSURE 162

6 RESEARCH AND DEVELOPMENT 166

7 OTHER INCOME 166

8 SPECIAL ITEMS 167

9 FINANCING EXPENSE AND FINANCING INCOME 169

10 NON-CONTROLLING INTEREST 170

11 EMPLOYEE BENEFITS COSTS 172

12 INCOME TAXES 172

13 EARNINGS PER SHARE 175

14 FINANCIAL INSTRUMENTS 175

15 CASH AND CASH EQUIVALENTS 178

16 TRADE AND OTHER RECEIVABLES 178

17 CONTRACT BALANCES 180

18 INVENTORIES 181

19 BACKLOG 181

20 OTHER FINANCIAL ASSETS 182

21 OTHER ASSETS 182

22 PROPERTY, PLANT AND EQUIPMENT 183

23 INTANGIBLE ASSETS 185

24 RETIREMENT BENEFITS 186

25 TRADE AND OTHER PAYABLES 196

26 PROVISIONS 197

27 OTHER FINANCIAL LIABILITIES 198

28 OTHER LIABILITIES 198

29 LONG-TERM DEBT 199

30 ASSETS HELD FOR SALE 200

31 DISPOSAL OF BUSINESSES 202

32 ACQUISITION OF A BUSINESS 203

33 SHARE CAPITAL 203

34 SHARE-BASED PLANS 206

35 NET CHANGE IN NON-CASH BALANCES 208

36 CREDIT FACILITIES 209

37 CAPITAL MANAGEMENT 210

38 FINANCIAL RISK MANAGEMENT 211

39 FAIR VALUE OF FINANCIAL INSTRUMENTS 216

40 INVESTMENTS IN JOINT VENTURES AND ASSOCIATES 220

41 TRANSACTIONS WITH RELATED PARTIES 221

42 UNCONSOLIDATED STRUCTURED ENTITIES 222

43 COMMITMENTS AND CONTINGENCIES 223

44 EVENT AFTER THE REPORTING DATE 229

BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019 - FINANCIAL STATEMENTS 135

The following table shows the abbreviations used in the consolidated financial statements.

Term Description Term Description

ACLP Airbus Canada Limited Partnership (formerly EPS Earnings (loss) per share attributable to equity

CSALP) holders of Bombardier Inc.

AFS Available for sale FVOCI Fair value through other comprehensive income

BICS Bloomberg Industry Classification System (loss)

bps Basis points FVTP&L Fair value through profit and loss

BT Holdco Bombardier Transportation (Investment) UK HFT Held for trading

Limited IAS International Accounting Standard(s)

CCTD Cumulative currency translation difference IASB International Accounting Standards Board

CDPQ Caisse de dépôt et placement du Québec IFRIC International Financial Reporting Interpretation

CGU Cash generating unit Committee

CSALP C Series Aircraft Limited Partnership IFRS International Financial Reporting Standard(s)

DB Defined benefit MD&A Management’s discussion and analysis

DC Defined contribution NCI Non-controlling interests

DDHR Derivative designated in a hedge relationship OCI Other comprehensive income (loss)

DSU Deferred share unit PP&E Property, plant and equipment

EBIT Earnings (loss) before financing expense, financing PSU Performance share unit

income and income taxes R&D Research and development

EBITDA Earnings (loss) before financing expense, financing RSU Restricted share unit

income, income taxes, amortization and impairment SG&A Selling, general and administrative

charges on PP&E and intangible assets

U.K. United Kingdom

EBT Earnings (loss) before income taxes U.S. United States of America

136 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

BOMBARDIER INC.

CONSOLIDATED STATEMENTS OF INCOME

For the fiscal years ended December 31

(in millions of U.S. dollars, except per share amounts)

(1)

Notes 2019 2018

Revenues $ 15,757 $ 16,236

Cost of sales 18 14,157 13,958

Gross margin 1,600 2,278

SG&A 1,013 1,156

R&D 6 292 217

Share of income of joint ventures and associates 40 (128) (66)

Other income 7 (47) (58)

Special items 8 968 28

EBIT (498) 1,001

Financing expense 9 1,072 712

Financing income 9 (230) (106)

EBT (1,340) 395

Income taxes 12 267 77

Net income (loss) $ (1,607) $ 318

Attributable to

Equity holders of Bombardier Inc. $ (1,797) $ 232

NCI 190 86

$ (1,607) $ 318

EPS (in dollars) 13

Basic $ (0.76) $ 0.10

Diluted $ (0.76) $ 0.09

(1) Refer to Note 3 - Changes in accounting policies for the impact of the adoption of IFRS 16, Leases.

The notes are an integral part of these consolidated financial statements.

BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019 - FINANCIAL STATEMENTS 137

BOMBARDIER INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the fiscal years ended December 31

(in millions of U.S. dollars)

Notes 2019 2018

Net income (loss) $ (1,607) $ 318

OCI

Items that may be reclassified to net income

Net change in cash flow hedges(1)

Foreign exchange re-evaluation (4) (3)

Net loss on derivative financial instruments (1) (263)

Reclassification to income or to the related non-financial asset(2)(3) 39 10

Income taxes 12 (17) 55

17 (201)

FVOCI financial assets

Net unrealized gain 5 1

CCTD

Net investments in foreign operations 95 33

Items that are never reclassified to net income

FVOCI equity instruments

Net unrealized gain (loss) 5 (6)

Retirement benefits(1)

Remeasurement of defined benefit plans 24 (520) 278

Income taxes 12 50 (6)

(465) 266

Total OCI (348) 99

Total comprehensive income (loss) $ (1,955) $ 417

Attributable to

Equity holders of Bombardier Inc. $ (2,117) $ 413

NCI 162 4

$ (1,955) $ 417

(1) Includes $2 million of gain related to cash flow hedges and $2 million of loss related to retirement benefits related to our share of income of

joint ventures and associates for fiscal year 2019 (losses of $1 million and $7 million respectively for fiscal year 2018).

(2) Includes $56 million of loss reclassified to the related non-financial asset for fiscal year 2019 ($15 million of gain for fiscal year 2018).

(3) $1 million of net deferred gain is expected to be reclassified from OCI to the carrying amount of the related non-financial asset or to income

during fiscal year 2020.

The notes are an integral part of these consolidated financial statements.

138 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

BOMBARDIER INC.

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

As at

(in millions of U.S. dollars)

December 31 December 31 January 1

(1)

Notes 2019 2018 2018

Assets

Cash and cash equivalents 15 $ 2,578 $ 3,187 $ 2,988

Trade and other receivables 16 1,844 1,575 1,174

Contract assets 17 2,485 2,617 2,460

Inventories 18 4,599 4,402 3,429

Other financial assets 20 195 210 415

Other assets 21 473 357 427

Assets held for sale 30 1,309 — 4,150

Current assets 13,483 12,348 15,043

PP&E 22 1,781 1,557 1,696

Aerospace program tooling 23 4,616 4,519 3,581

Goodwill 23 1,936 1,948 2,042

Deferred income taxes 12 546 746 595

Investments in joint ventures and associates 40 1,059 2,211 491

Other financial assets 20 989 1,030 825

Other assets 21 562 599 643

Non-current assets 11,489 12,610 9,873

$ 24,972 $ 24,958 $ 24,916

Liabilities

Trade and other payables 25 $ 4,682 $ 4,634 $ 3,964

Provisions 26 1,060 1,390 1,630

Contract liabilities 17 5,739 4,262 3,820

Other financial liabilities 27 518 607 342

Other liabilities 28 1,548 1,499 1,723

Liabilities directly associated with assets held for sale 30 1,768 — 2,686

Current liabilities 15,315 12,392 14,165

Provisions 26 311 1,110 781

Contract liabilities 17 1,417 1,933 1,272

Long-term debt 29 9,325 9,093 9,200

Retirement benefits 24 2,445 2,381 2,633

Other financial liabilities 27 1,225 1,526 965

Other liabilities 28 845 537 595

Non-current liabilities 15,568 16,580 15,446

30,883 28,972 29,611

Equity (deficit)

Attributable to equity holders of Bombardier Inc. (7,667) (5,563) (6,608)

Attributable to NCI 10 1,756 1,549 1,913

(5,911) (4,014) (4,695)

$ 24,972 $ 24,958 $ 24,916

Commitments and contingencies 43

(1) Refer to Note 3 - Changes in accounting policies for the impact of the adoption of IFRS 16, Leases.

The notes are an integral part of these consolidated financial statements.

On behalf of the Board of Directors

Pierre Beaudoin Diane Giard

Director Director

BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019 - FINANCIAL STATEMENTS 139

BOMBARDIER INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the fiscal years ended

(in millions of U.S. dollars)

Attributable to equity holders of Bombardier Inc.

Retained earnings

Share capital (deficit) Accumulated OCI

Other

retained Remea- Cash Total

Preferred Common earnings surement Contributed flow equity

shares shares Warrants (deficit) losses surplus FVOCI hedges CCTD Total NCI (deficit)

As at January 1, 2018 $ 347 $ 2,154 $ 73 $ (6,414) $ (2,577) $ 171 $ 4 $ 127 $ (493) $ (6,608) $ 1,913 $ (4,695)

Total comprehensive income

Net income — — — 232 — — — — — 232 86 318

OCI — — — — 272 — (5) (195) 109 181 (82) 99

— — — 232 272 — (5) (195) 109 413 4 417

Issuance of warrants(1) — — 270 — — — — — — 270 — 270

Issuance of share capital — 475 — — — — — — — 475 — 475

Options exercised — 42 — — — (11) — — — 31 — 31

Dividends - preferred shares, net of

taxes — — — 4 — — — — — 4 — 4

Dividends to NCI — — — — — — — — — — (93) (93)

Shares purchased - PSU plans — (97) — — — — — — — (97) — (97)

Shares distributed - PSU plans — 49 — — — (49) — — — — — —

Change in NCI(2) — — — (116) — — — — — (116) (275) (391)

Share-based expense — — — — — 65 — — — 65 — 65

As at December 31, 2018 $ 347 $ 2,623 $ 343 $ (6,294) $ (2,305) $ 176 $ (1) $ (68) $ (384) $ (5,563) $ 1,549 $ (4,014)

Total comprehensive income

Net income (loss) — — — (1,797) — — — — — (1,797) 190 (1,607)

OCI — — — — (470) — 10 17 123 (320) (28) (348)

— — — (1,797) (470) — 10 17 123 (2,117) 162 (1,955)

Options exercised — 5 — — — (1) — — — 4 — 4

Issuance of NCI(3) — — — — — — — — — — 49 49

Dividends - preferred shares, net of

taxes — — — (21) — — — — — (21) — (21)

Dividends to NCI — — — — — — — — — — (4) (4)

Share-based expense — — — — — 30 — — — 30 — 30

As at December 31, 2019 $ 347 $ 2,628 $ 343 $ (8,112) $ (2,775) $ 205 $ 9 $ (51) $ (261) $ (7,667) $ 1,756 $ (5,911)

(1) Related to the convertible shares issued to Airbus on July 1, 2018 in relation to the sale of a majority stake in ACLP.

(2) Includes $391 million for the derecognition of the non-controlling interest related to the disposal of ACLP.

(3) Refer to Note 10 - Non-controlling interest for more information.

The notes are an integral part of these consolidated financial statements.

140 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

BOMBARDIER INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the fiscal years ended December 31

(in millions of U.S. dollars)

(1)

Notes 2019 2018

Operating activities

Net income (loss) $ (1,607) $ 318

Non-cash items

Amortization(2) 22, 23 422 272

Impairment charges on ACLP investments 8 1,578 —

Impairment charges (reversals) on PP&E and intangible assets 7, 8, 22, 23 (4) 11

Deferred income taxes 12 113 (74)

Gains on disposals of PP&E and intangible assets 7, 8 (10) (636)

Losses (gains) on disposals of businesses 7, 8, 31 (730) 616

Share of income of joint ventures and associates 40 (128) (66)

Share-based expense 34 30 65

Loss on repurchase of long-term debt 8, 9 84 —

Loss on sale of long-term contract receivables 8 — 31

Dividends received from joint ventures and associates 49 72

Net change in non-cash balances 35 (477) (12)

Cash flows from operating activities (680) 597

Investing activities

Additions to PP&E and intangible assets (552) (1,164)

Proceeds from disposals of PP&E and intangible assets 29 749

Deconsolidation of cash and cash equivalents of ACLP — (151)

Outflows related to a disposal of business — (36)

Investments in non-voting units of ACLP 40 (350) (225)

Net proceeds from disposal of businesses 31 826 —

Capital injection in ACLP 40 (64) —

Sale of investments in securities — 133

Other (7) (7)

Cash flows from investing activities (118) (701)

Financing activities

Net proceeds from issuance of long-term debt 29 1,956 —

Repayments of long-term debt 29 (1,762) (15)

Payment of lease liabilities(3) (112) —

Purchase of Class B shares held in trust under the PSU plans — (97)

Dividends paid - preferred shares 33 (20) (20)

Issuance of Class B shares — 506

Issuance of NCI 10 49 —

Dividends to NCI (4) (93)

Other 3 (60)

Cash flows from financing activities 110 221

Effect of exchange rates on cash and cash equivalents 130 13

Net increase (decrease) in cash and cash equivalents (558) 130

Cash and cash equivalents at beginning of year(4) 15 3,187 3,057

Cash and cash equivalents at end of year(4) 15 $ 2,629 $ 3,187

Supplemental information(5)(6)

Cash paid for

Interest $ 732 $ 674

Income taxes $ 172 $ 147

Cash received for

Interest $ 25 $ 32

Income taxes $ 7 $ 5

(1) Refer to Note 3 - Changes in accounting policies for the impact of the adoption of IFRS 16, Leases.

(2) Includes $109 million representing amortization charge related to right-of-use of assets for fiscal year 2019.

(3) Lease payments related to the interest portion, short term leases, low value assets and variable lease payments not included in lease liabilities are classified as

cash outflows from operating activities. The total cash outflows for fiscal year 2019 amounted to $168 million.

(4) For the purpose of the statement of cash flows, cash and cash equivalents comprise the cash reclassified as asset held for sale. Refer to Note 30 - Assets held

for sale for more information.

(5) Amounts paid or received for interest are reflected as cash flows from operating activities, except if they were capitalized in PP&E or intangible assets, in which

case they are reflected as cash flows from investing activities. Amounts paid or received for income taxes are reflected as cash flows from operating activities.

(6) Interest paid comprises interest on long-term debt after the effect of hedges, if any, excluding up-front costs paid related to the negotiation of debts or credit

facilities, interest paid on lease liabilities and interest paid on extended payment terms for trade payables. Interest received comprises interest received related

to cash and cash equivalents, investments in securities, loans and lease receivables after the effect of hedges and the interest portion related to the settlement

of an interest-rate swap, if any.

The notes are an integral part of these consolidated financial statements.

BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019 - FINANCIAL STATEMENTS 141

NOTES TO THE CONSOLIDATED FINANCIAL

STATEMENTS

For the fiscal years ended December 31, 2019 and 2018

(Tabular figures are in millions of U.S. dollars, unless otherwise indicated)

1. BASIS OF PREPARATION

Bombardier Inc. (“the Corporation” or “our” or “we”) is incorporated under the laws of Canada. The Corporation is

a manufacturer of transportation equipment, including business and commercial aircraft, as well as major aircraft

structural components, and rail transportation equipment and systems, and is a provider of related services. The

Corporation carries out its operations in two distinct segments since July 1, 2019: Aviation and Transportation.

Previously, the Corporation was carrying out its operations in four distinct segments: Business Aircraft,

Commercial Aircraft, Aerostructures and Engineering Services and Transportation. See Note 5 - Segment

disclosure for restated figures.

The Corporation’s consolidated financial statements for fiscal years 2019 and 2018 were authorized for issuance

by the Board of Directors on February 12, 2020.

Statement of compliance

The Corporation’s consolidated financial statements are expressed in U.S. dollars and have been prepared in

accordance with IFRS, as issued by the IASB.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting policies set out below have been applied consistently to all periods presented in these

consolidated financial statements, unless otherwise stated.

Basis of consolidation

Subsidiaries – Subsidiaries are fully consolidated from the date of acquisition and continue to be consolidated

until the date control over the subsidiaries ceases.

The Corporation consolidates investees, including structured entities when, based on the evaluation of the

substance of the relationship with the Corporation, it concludes that it controls the investees. The Corporation

controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee

and has the ability to affect those returns through its power over the investee.

The Corporation’s principal subsidiaries, whose revenues or assets represent more than 10% of total revenues or

more than 10% of total assets of Aviation or Transportation segments, are as follows:

Subsidiary Location

Bombardier Transportation GmbH Germany

Bombardier Transportation (Holdings) UK Ltd U.K.

Bombardier Transportation Canada Inc. Canada

Bombardier Transportation France S.A.S. France

Learjet Inc. U.S.

Revenues and assets of these subsidiaries combined with those of Bombardier Inc. totalled 72% of consolidated

revenues and 78% of consolidated assets for fiscal year 2019 (71% and 79% for fiscal year 2018).

142 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

Joint ventures – Joint ventures are those entities over which the Corporation exercises joint control, requiring

unanimous consent of the parties sharing control of relevant activities such as, strategic financial and operating

decision making and where the parties have rights to the net assets of the arrangement. The Corporation

recognizes its interest in joint ventures using the equity method of accounting.

Associates – Associates are entities in which the Corporation has the ability to exercise significant influence over

the financial and operating policies. Investments in associates are accounted for using the equity method of

accounting.

Foreign currency translation

The consolidated financial statements are expressed in U.S. dollars, the functional currency of Bombardier Inc.

The functional currency is the currency of the primary economic environment in which an entity operates. The

functional currency of most foreign subsidiaries is their local currency, mainly the euro, Pound sterling, various

other European currencies and the U.S. dollar in Transportation, and mainly the U.S. dollar in Aviation.

Foreign currency transactions – Transactions denominated in foreign currencies are initially recorded in the

functional currency of the related entity using the exchange rates in effect at the date of the transaction. Monetary

assets and liabilities denominated in foreign currencies are translated using the closing exchange rates. Any

resulting exchange difference is recognized in income except for exchange differences related to retirement

benefits asset and liability, as well as financial liabilities designated as hedges of the Corporation’s net

investments in foreign operations, which are recognized in OCI. Non-monetary assets and liabilities denominated

in foreign currencies and measured at historical cost are translated using historical exchange rates, and those

measured at fair value are translated using the exchange rate in effect at the date the fair value is determined.

Revenues and expenses are translated using the average exchange rates for the period or the exchange rate at

the date of the transaction for significant items.

Foreign operations – Assets and liabilities of foreign operations whose functional currency is other than the U.S.

dollar are translated into U.S. dollars using closing exchange rates. Revenues and expenses, as well as cash

flows, are translated using the average exchange rates for the period. Translation gains or losses are recognized

in OCI and are reclassified in income on disposal or partial disposal of the investment in the related foreign

operation.

The exchange rates for the major currencies used in the preparation of the consolidated financial statements were

as follows:

Exchange rates Average exchange rates

as at for fiscal years

December 31 December 31 January 1

2019 2018 2018 2019 2018

Euro 1.1234 1.1450 1.1993 1.1200 1.1822

Canadian dollar 0.7696 0.7337 0.7975 0.7537 0.7729

Pound sterling 1.3204 1.2800 1.3517 1.2763 1.3367

Revenue recognition

Long-term contracts – Revenues from long-term contracts related to designing, engineering or manufacturing

specifically designed products (including rail vehicles, vehicles overhaul and signalling contracts) and service

contracts are generally recognized over time. The measure of progress toward complete satisfaction of the

performance obligation is generally determined by comparing the actual costs incurred to the total costs

anticipated for the entire contract, excluding costs that are not representative of the measure of performance. The

contract transaction price is adjusted for change orders, claims, performance incentives and other contract terms

that provide for the adjustment of prices to the extent they represent enforceable rights for the Corporation.

Variable considerations such as assumptions for price escalation clauses, performance incentives and claims are

only included in the transaction price to the extent that it is highly probable that a significant reversal in the

amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable

consideration is subsequently resolved. Customer options are only included in the transaction price of the contract

when they become legally enforceable as a result of the customer exercising its right to purchase the additional

goods or services. If a contract review indicates the expected costs to fulfill the contract exceed the expected

BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019 143

economic benefits expected to be received under it, the entire expected loss on the contract is recognized as an

onerous contract provision with the corresponding expense recorded in cost of sales. The expected benefits to be

received are generally limited to the revenues from the associated contract.

Options or variation orders for additional assets are treated as contract modifications when exercised.

Modifications of the Corporation’s long term contracts in Transportation are generally accounted as part of the

existing contract to the extent the remaining goods and services are considered to form part of a single

performance obligation that is partially satisfied at the date of contract modification. The effect that the contract

modification has on the transaction price and the existing progress toward satisfaction of the single performance

obligation is recognized as an adjustment to revenue at the date of the contract modification on a cumulative

catch-up basis.

Aerospace programs – Revenues from the sale of new aircraft are considered a single performance obligation

and are recognized at delivery, which is the point in time when the customer has obtained control of the aircraft

and the Corporation has satisfied its performance obligation. All costs incurred or to be incurred in connection with

the sale, including warranty costs and sales incentives, are charged to cost of sales or as a deduction from

revenues at the time revenue is recognized.

For the bill-and-hold arrangements in respect of new aircraft, revenue is recognized when the customer has

obtained control of the aircraft and the customer has requested the arrangement, the aircraft is separately

identified as belonging to the customer, the aircraft is ready for physical transfer to the customer and the

Corporation does not have the ability to use the product or direct it to another customer.

Other – Revenues from the sale of pre-owned aircraft and spare parts are recognized at the point in time when

the customer has obtained control of the promised asset and the Corporation has satisfied the performance

obligation. Aftermarket services are generally recorded over time.

Revenues earned by the Aviation market segment on its contract with ACLP for the A220 program are recognized

at delivery.

The Corporation accounts for a significant financing component on orders where timing of cash receipts and

revenue recognition differ substantially. Most of the Corporation’s contracts do not have a significant financing

component. However, there are certain orders in the Aviation market segment where advances were received well

before expected delivery and therefore a financing component has been accounted for separately. The result is

that interest expense is accrued during the advance period and the transaction price will be increased by a

corresponding amount.

Contract balances

Contract related balances comprise of contract assets and contract liabilities presented separately in the

consolidated statements of financial position.

Contract assets – Are recognized when goods or services are transferred to customers before consideration is

received or before the Corporation has an unconditional right to payment for performance completed to date.

Contract assets are subsequently transferred to receivables when the right of payment becomes unconditional.

Contract assets comprise cost incurred and recorded margins in excess of advances and progress billings on

long-term production and service contracts.

Contract liabilities – Are recognized when amounts are received from customers in advance of transfer of

goods or services. Contract liabilities are subsequently recognized in revenue as or when the Corporation

performs under contracts. Contract liabilities comprise advances on aerospace programs, advances and progress

billings in excess of long-term contract cost incurred and recorded margin, and other deferred revenues related to

operation and maintenance of systems.

A net position of contract asset or contract liability is determined for each contract. The cash flows in respect of

advances and progress billings, including amounts received from third party advance providers, are classified as

cash flows from operating activities.

144 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

Government assistance and refundable advances

Government assistance, including investment tax credits, is recognized when there is a reasonable assurance

that the assistance will be received and that the Corporation will comply with all relevant conditions. Government

assistance related to the acquisition of inventories, PP&E and intangible assets is recorded as a reduction of the

cost of the related asset. Government assistance related to current expenses is recorded as a reduction of the

related expenses.

Government refundable advances are recorded as a financial liability if there is reasonable assurance that the

amount will be repaid. Government refundable advances are adjusted if there is a change in the number of

aircraft to be delivered and the timing of delivery of aircraft. Government refundable advances provided to the

Corporation to finance research and development activities on a risk-sharing basis are considered part of the

Corporation’s operating activities and are therefore presented as cash flows from operating activities in the

statement of cash flows.

Special items

Special items comprise items which do not reflect the Corporation’s core performance or where their separate

presentation will assist users of the consolidated financial statements in understanding the Corporation’s results

for the period. Such items include, among others, the impact of restructuring charges and significant impairment

charges and reversals.

Income taxes

The Corporation applies the liability method of accounting for income taxes. Deferred income tax assets and

liabilities are recognized for the future income tax consequences of temporary differences between the carrying

amounts of assets and liabilities and their respective tax bases, and for tax losses carried forward. Deferred

income tax assets and liabilities are measured using the substantively enacted tax rates that will be in effect for

the year in which the differences are expected to reverse.

Deferred income tax assets are recognized to the extent that it is probable that future taxable income will be

available against which the deductible temporary differences and unused tax losses can be utilized.

Deferred income tax assets and liabilities are recognized directly in income, OCI or equity based on the

classification of the item to which they relate.

Earnings per share

Basic EPS is computed based on net income attributable to equity holders of Bombardier Inc. less dividends on

preferred shares, including taxes, divided by the weighted-average number of Class A Shares (multiple voting)

and Class B Shares (subordinate voting) outstanding during the fiscal year.

Diluted EPS are computed using the treasury stock method, giving effect to the exercise of all dilutive elements.

CDPQ’s convertible share investment in BT Holdco is factored into diluted EPS by adjusting net income

attributable to equity holders of Bombardier Inc. to reflect their share of Transportation’s earnings on an as

converted basis. See Note 10 – Non-controlling interest for more details.

Financial instruments

A financial instrument is any contract that gives rise to a financial asset of one party and a financial liability or

equity instrument of another party. Financial assets of the Corporation include cash and cash equivalents, trade

and other receivables, aircraft loans and lease receivables, investments in securities, ACLP non-voting units,

receivables from related party, investments in financing structures, long-term contract receivables, restricted cash

and derivative financial instruments with a positive fair value. Financial liabilities of the Corporation include trade

and other payables, long-term debt, short-term borrowings, lease subsidies, government refundable advances,

vendor non-recurring costs and derivative financial instruments with a negative fair value.

Financial instruments are recognized in the consolidated statement of financial position when the Corporation

becomes a party to the contractual obligations of the instrument. On initial recognition, financial instruments are

recognized at their fair value plus, in the case of financial instruments not at FVTP&L, transaction costs that are

directly attributable to the acquisition or issue of financial instruments. Subsequent to initial recognition, financial

BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019 145

instruments are measured according to the category to which they are classified, which are: a) financial

instruments classified as FVTP&L, b) financial instruments designated as FVTP&L, c) FVOCI financial assets, or

d) amortised cost. Financial instruments are subsequently measured at amortized cost, unless they are classified

as FVOCI or FVTP&L or designated as FVTP&L, in which case they are subsequently measured at fair value.

A financial asset is derecognized when the rights to receive cash flows from the asset have expired, or the

Corporation has transferred its rights to receive cash flows from the asset and either (a) the Corporation has

transferred substantially all the risks and rewards of the asset, or (b) the Corporation has neither transferred nor

retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

For transactions where it is not obvious whether the Corporation has transferred or retained substantially all the

risks and rewards of ownership, the Corporation performs a quantitative analysis to compare its exposure to the

variability in asset cash flows before and after the transfer. Judgment is applied in determining a number of

reasonably possible scenarios that reflect the expected variability in the amount and timing of net cash flows, and

then in assigning each scenario a probability with greater weighting being given to those outcomes which are

considered more likely to occur.

When the transfer of a customer receivable results in the derecognition of the asset, the corresponding cash

proceeds are classified as cash flows from operating activities.

A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires.

When an existing liability is replaced by another from the same creditor on substantially different terms, or the

terms of the liability are substantially modified, such an exchange or modification is treated as the derecognition of

the original liability and the recognition of a new liability. The difference in the respective carrying amounts is

recognized in the statement of income.

a) Financial instruments classified at amortized cost

Cash and cash equivalents – Cash and cash equivalents consist of cash and highly liquid investments

held with investment-grade financial institutions and money market funds, with maturities of three months

or less from the date of acquisition.

Other Financial instruments – Trade and other receivables, restricted cash, certain aircraft loans and

lease receivables, and certain other financial assets are all financial assets measured at amortized cost

using the effective interest rate method less any impairment losses. Trade and other payables, short-term

borrowings, long-term debt, certain government refundable advances, vendor non-recurring costs and

certain other financial liabilities are measured at amortized cost using the effective interest rate method.

Trade receivables as well as other financial assets are subject to impairment review. Trade receivables,

contract assets and lease receivables are reviewed for impairment based on the simplified approach

which measures the loss allowance at an amount equal to the lifetime expected credit losses. For other

financial assets for which the credit risk has not increased significantly since initial recognition, the loss

allowance is measured at an amount equal to 12-month expected credit losses. For other financial assets

for which the credit risk has increased significantly since initial recognition, the loss allowance is

measured at an amount equal to the lifetime expected credit losses.

b) Financial instruments designated as FVTP&L

Financial instruments may be designated on initial recognition as FVTP&L if either of the following criteria

are met: (i) the designation eliminates or significantly reduces a measurement or recognition

inconsistency that would otherwise arise from measuring the financial asset or liability or recognizing the

gains and losses on them on a different basis; or (ii) a group of financial liabilities or financial assets and

financial liabilities is managed and its performance is evaluated on a fair value basis, in accordance with a

documented risk management or investment strategy. The Corporation has designated as FVTP&L,

trade-in commitments, lease subsidies and certain Government refundable advances.

146 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

Subsequent changes in fair value of such financial instruments are recorded in other expense (income),

except for the fair value changes arising from a change in interest rates which are recorded in financing

expense or financing income.

c) Financial instruments classified as FVTP&L

Receivables from related party, investments in financing structures, long-term contract receivables, ACLP

non-voting units, and certain aircraft loans and leases receivables are all required to be classified as

FVTP&L.

Subsequent changes in fair value of such financial instruments are recorded in other expense (income),

except for the fair value changes arising from a change in interest rates or when the instrument is held for

investing purposes which are recorded in financing expense or financing income.

Derivative financial instruments – Derivative financial instruments are mainly used to manage the

Corporation’s exposure to foreign exchange and interest-rate market risks, generally through forward

foreign exchange contracts and interest rate swap agreements. Derivative financial instruments include

derivatives that are embedded in financial or non-financial contracts that are not closely related to the

host contracts.

Derivative financial instruments are classified as FVTP&L, unless they are designated as hedging

instruments for which hedge accounting is applied (see below). Changes in the fair value of derivative

financial instruments not designated in a hedging relationship, excluding embedded derivatives, are

recognized in cost of sales or financing expense or financing income, based on the nature of the

exposure.

Embedded derivatives of the Corporation include call options on long-term debt, CDPQ’s conversion

option as well as foreign exchange and other derivative instruments not closely related to sale or

purchase agreements. Call options on long-term debt that are not closely related to the host contract are

measured at fair value, with the initial value recognized as an increase of the related long-term debt and

amortized to net income using the effective interest method. Upon initial recognition, the fair value of the

foreign exchange instruments not designated in a hedge relationship is recognized in cost of sales.

Subsequent changes in fair value of embedded derivatives are recorded in cost of sales, other expense

(income) or financing expense or financing income, based on the nature of the exposure.

d) FVOCI financial assets

Investments in securities are classified as FVOCI. Investments in securities, excluding equity instruments,

are accounted for at fair value with unrealized gains and losses included in OCI, except for impairment

gains or losses and foreign exchange gains and losses on monetary investments, such as fixed income

investments, which are recognized in income. Equity instruments, included in investments in securities,

were designated, on initial recognition, at FVOCI, where the subsequent changes in the fair value are

recognized in OCI with no recycling to net income. Dividend income is recognized in financing income.

Hedge accounting

Designation as a hedge is only allowed if, both at the inception of the hedge and throughout the hedge period, the

changes in the fair value of the derivative and non-derivative hedging financial instruments are expected to

substantially offset the changes in the fair value of the hedged item attributable to the underlying risk exposure.

The Corporation formally documents all relationships between the hedging instruments and hedged items, as well

as its risk management objectives and strategy for undertaking various hedge transactions. This process includes

linking all derivatives to forecasted cash flows or to a specific asset or liability. The Corporation also formally

documents and assesses, both at the hedge’s inception and on an ongoing basis, whether the hedging

instruments are effective in offsetting the changes in the fair value or cash flows of the hedged items. There are

three permitted hedging strategies.

BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019 147

Fair value hedges – The Corporation generally applies fair value hedge accounting to certain interest-rate

derivatives and forward foreign exchange contracts hedging the exposures to changes in the fair value of

recognised financial assets and financial liabilities. In a fair value hedge relationship, gains or losses from the

measurement of derivative hedging instruments at fair value are recorded in net income, while gains or losses

on hedged items attributable to the hedged risks are accounted for as an adjustment to the carrying amount

of hedged items and are recorded in net income.

Cash flow hedges – The Corporation generally applies cash flow hedge accounting to forward foreign

exchange contracts and interest-rate derivatives entered into to hedge foreign exchange risks on forecasted

transactions and recognized assets and liabilities. In a cash flow hedge relationship, the portion of gains or

losses on the hedging item that is determined to be an effective hedge is recognized in OCI, while the

ineffective portion is recorded in net income. The amounts recognized in OCI are reclassified in net income as

a reclassification adjustment when the hedged item affects net income. However, when an anticipated

transaction is subsequently recorded as a non-financial asset, the amounts recognized in OCI are reclassified

in the initial carrying amount of the related asset.

Hedge of net investments in foreign operations – The Corporation generally designates certain long-term

debt as hedges of its net investments in foreign operations. The portion of gains or losses on the hedging

instrument that is determined to be an effective hedge is recognized in OCI, while the ineffective portion is

recorded in net income. The amounts recognized in OCI are reclassified in net income when corresponding

exchange gains or losses arising from the translation of the foreign operations are recorded in net income.

Aviation hedges its foreign currency exposure using foreign exchange contracts. There is an economic

relationship between the hedged items and the hedging instruments as the terms of the foreign exchange

contracts match the terms of the expected highly probable forecast transaction (i.e. notional amount and expected

payment date). For Transportation, foreign currency exposure, arising from its long-term contracts, spreads over

many years. Such exposures are generally entirely hedged at the time of order intake, contract-by-contract, for a

period that is often shorter than the maturity of the cash flow exposure. Upon maturity of the hedges,

Transportation enters into new hedges in a rollover strategy for periods up to the maturity of the cash flow

exposure. There is an economic relationship between the hedged items and the hedging instruments as the

critical terms, under a spot designation, are closely aligned. The critical terms are the nominal amount and the

currency.

To test the hedge effectiveness, the Corporation uses the hypothetical derivative method and compares the

changes in the fair value of the hedging instruments against the changes in the fair value of the hedged items

attributable to the hedged risks. The hedge ineffectiveness can arise due to the time value of money, under a spot

designation, as the expected timing between the forecasted transaction and the forward contract are not aligned,

due to different indexes, and changes to the forecasted amount of cash flow of hedged items and hedging

instruments. The Corporation has established a hedge ratio of 1:1.

The portion of gains or losses on the hedging instrument that is determined to be an effective hedge is recorded

as an adjustment of the cost or revenue of the related hedged item. Gains and losses on derivatives not

designated in a hedge relationship and gains and losses on the ineffective portion of effective hedges are

recorded in cost of sales or financing expense or financing income for the interest component of the derivatives or

when the derivatives were entered into for interest rate management purposes.

Hedge accounting is discontinued prospectively when it is determined that the hedging instrument is no longer

effective as a hedge, the hedging instrument is terminated or sold, or upon the sale or early termination of the

hedged item.

Leases accounting policies applicable starting January 1, 2019 following adoption of IFRS 16 -

Leases. See Note 3 - Changes in accounting policies for more details.

When the Corporation is the lessee - Leases are recognized as a right-of-use asset in PP&E and a

corresponding lease liability in Other liabilities at the date at which the leased asset is available for use by the

Corporation. The cost of right-of-use assets includes the amount of lease liabilities recognized, initial direct costs

incurred, and lease payments made at or before the commencement date less any lease incentives received. The

148 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

right-of-use asset is depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis.

Right-of-use assets are subject to impairment.

The lease liability is measured at the present value of lease payments to be made over the lease term, discounted

using the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not

readily available. Lease payments include fixed payments less any lease incentives receivable, variable lease

payments that depend on an index or a rate and amounts expected to be paid under residual value guarantees. The

lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the

Corporation and payment of penalties for termination of a lease when the lease term reflects the lessee exercising a

termination option. Each lease payment is allocated between the repayment of the principal portion of lease liability

and the interest portion. The interest expense is charged to profit or loss over the lease period so as to produce a

constant periodic rate of interest on the remaining balance of the liability for each period and is recorded in financing

expense. Payments associated with short-term leases and leases of low-value assets are recognized on a straight-

line basis as an expense in the consolidated statement of income.

The Corporation periodically enters into sale and leaseback transactions, typically for aircraft, whereby the

Corporation sells an asset to a lessor and immediately leases it back. In a sale and leaseback transaction the

transfer of an asset is recognized as a sale when the customer has obtained control of the aircraft, which is

aligned with the Corporation’s revenue recognition policy, otherwise the Corporation continues to recognize the

transferred asset on the balance sheet and records a financial liability equal to the proceeds transferred. When

the transfer of an asset satisfies the Corporation’s revenue recognition policy to be accounted for as a sale, a

partial recognition of the profit from the sale is recorded in revenue immediately after the sale, which is equivalent

to the proportion of the asset not retained by the Corporation through the lease. The proportion of the asset

retained by the Corporation through the lease is recognized as a right-of-use asset and the lease liability is

generally measured as the present value of future lease payments. The portion of the proceeds related to the

retained interest is classified as cash flow related to financing activities whereas the remainder is treated either as

cash flow from operating activities or cash flow from investing activities depending on the nature of the asset sold.

When the Corporation is the lessor – Assets subject to finance leases, mainly commercial aircraft, are initially

recognized at an amount equal to the net investment in the lease and are included in aircraft lease receivables.

Interest income is recognized over the term of the applicable leases based on the effective interest rate method.

Assets under operating leases, mostly pre-owned regional and business aircraft, are included in PP&E. Lease

income from operating leases is recognized on a straight-line basis over the term of the lease and is included in

revenues.

Leases accounting policies applicable prior to January 1, 2019, when the Corporation was

following IAS 17 and IFRIC 4.

The determination of whether an arrangement is or contains a lease is based on the substance of the

arrangement and requires an assessment of whether the arrangement conveys a right to use the asset. When

substantially all risks and rewards of ownership are transferred from the lessor to the lessee, lease transactions

are accounted for as finance leases. All other leases are accounted for as operating leases.

The Corporation periodically enters into sale and leaseback transactions, typically for aircraft, flight simulators and

properties, whereby the Corporation sells an asset to a lessor and immediately leases it back. These leases are

generally accounted for as operating leases based on the above accounting policy for lease classification. In the

case of aircraft, the sale is recorded in revenues and the cash proceeds are classified as cash flows from

operating activities. In the case of flight simulators and properties, the sale is treated as a disposal of PP&E with

recognition of a corresponding gain or loss on sale, and the cash proceeds are classified as disposals of PP&E

within cash flows from investing activities.

When the Corporation is the lessee – Leases of assets classified as finance leases are presented in the

consolidated statements of financial position according to their nature. The interest element of the lease payment

is recognized over the term of the lease based on the effective interest rate method and is included in financing

expense. Payments made under operating leases are recognized in income on a straight-line basis over the term

of the lease.

BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019 149

When the Corporation is the lessor – Assets subject to finance leases, mainly commercial aircraft, are initially

recognized at an amount equal to the net investment in the lease and are included in aircraft lease receivables.

Interest income is recognized over the term of the applicable leases based on the effective interest rate method.

Assets under operating leases, mostly pre-owned regional and business aircraft, are included in PP&E. Lease

income from operating leases is recognized on a straight-line basis over the term of the lease and is included in

revenues.

Inventory valuation

Aerospace program and finished products – Aerospace program work in progress, raw materials, and finished

product inventories are valued at the lower of cost or net realizable value. Cost is generally determined using the

unit cost method, except for the cost of spare part inventory that is determined using the moving average method.

The cost of manufactured inventories comprises all costs that are directly attributable to the manufacturing

process, such as materials, direct labour, manufacturing overhead, and other costs incurred in bringing the

inventories to their present location and condition. Net realizable value is the estimated selling price in the

ordinary course of business less the estimated costs of completion and the estimated selling costs, except for raw

materials for which it is determined using replacement cost. The Corporation estimates the net realizable value

using both external and internal aircraft valuations, including information developed from the sale of similar aircraft

in the secondary market.

Impairment of inventories – Inventories are written down to net realizable value when the cost of inventories is

determined not to be recoverable. When the circumstances that previously caused inventories to be written down

no longer exist or when there is clear evidence of an increase in net realizable value because of changed

economic circumstances, the amount of the write-down is reversed.

Retirement and other long-term employee benefits

Retirement benefit plans are classified as either defined benefit plans or defined contribution plans.

Defined benefit plans

Retirement benefit liability or asset recognised on the consolidated statement of financial position is measured at

the difference between the present value of the defined benefit obligation and the fair value of plan asset at the

reporting date. When the Corporation has a surplus in a defined benefit plan, the value of any plan asset

recognized is restricted to the asset ceiling - i.e. the present value of economic benefits available in the form of

refunds from the plan or reductions in future contributions to the plan (“asset ceiling test”). A minimum liability is

recorded when legal minimum funding requirements for past services exceed economic benefits available in the

form of refunds from the plan or reductions in future contributions to the plan. A constructive obligation is recorded

as a defined benefit obligation when there is no realistic alternative but to pay employee benefits. Retirement

benefit liability or asset includes the effect of any asset ceiling, minimum liability and constructive obligation.

The cost of pension and other benefits earned by employees is actuarially determined for each plan using the

projected unit credit method, and management’s best estimate of salary escalation, retirement ages, life

expectancy, inflation, discount rates and health care costs. Plan assets are assets that are held by a long-term

employee benefit fund or qualifying insurance policies. These assets are measured at fair value at the end of the

reporting period, which is based on published market mid-price information in the case of quoted securities. The

discount rates are determined at each reporting date by reference to market yields at the end of the reporting

period on high quality corporate fixed-income investments consistent with the currency and the estimated terms of

the related retirement benefit liability. Past service costs are recognized in income at the earlier of i) the date of

the plan amendment or curtailment or ii) the date that the Corporation recognized the restructuring costs. Effective

January 1, 2019, when plan amendments, curtailments and settlements occur, the Corporation uses updated

actuarial assumptions to determine current service cost and net interest for the period after the plan amendment,

curtailment or settlement.

The remeasurement gains and losses (including the foreign exchange impact) arising on the plan assets and

defined benefit obligation and the effect of any asset ceiling and minimum liability are recognized directly in OCI in

the period in which they occur and are never reclassified to net income. Past service costs (credits) are

recognized directly in income in the period in which they occur.

150 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

The accretion on net retirement benefit obligations is included in financing income or financing expense. The

remaining components of the benefit cost are either capitalized as part of labour costs and included in inventories

and in certain PP&E and intangible assets during their construction, or are recognized directly in income. The

benefit cost recorded in net income is allocated to labour costs based on the function of the employee accruing

the benefits.

Defined contribution plans

Contributions to defined contribution plans are recognized in net income as incurred or are either capitalized as

part of labour costs and included in inventories and in certain PP&E and intangible assets during their

construction. The benefit cost recorded in net income is allocated to labour costs based on the function of the

employee accruing the benefits.

Other long-term employee benefits – The accounting method is similar to the method used for defined benefit

plans, except that all actuarial gains and losses are recognized immediately in income. Other long-term employee

benefits are included in other liabilities.

Property, plant and equipment

PP&E are carried at cost less accumulated amortization and impairment losses. The cost of an item of PP&E

includes its purchase price or manufacturing cost, borrowing costs as well as other costs incurred in bringing the

asset to its present location and condition. If the cost of certain components of an item of PP&E is significant in

relation to the total cost of the item, the total cost is allocated between the various components, which are then

separately depreciated over the estimated useful lives of each respective component. The amortization of PP&E

is computed on a straight-line basis over the following useful lives:

Buildings 5 to 75 years

Equipment 2 to 15 years

Other 3 to 20 years

The amortization method and useful lives are reviewed on a regular basis, at least annually, and changes are

accounted for prospectively. The amortization expense and impairments are recorded in cost of sales, SG&A or

R&D expenses based on the function of the underlying asset or in special items. Amortization of assets under

construction begins when the asset is ready for its intended use.

When a significant part is replaced or a major inspection or overhaul is performed, its cost is recognized in the

carrying amount of the PP&E if the recognition criteria are satisfied, and the carrying amount of the replaced part

or previous inspection or overhaul is derecognized. All other repair and maintenance costs are charged to income

when incurred.

Intangible assets

Internally generated intangible assets include development costs (such as aircraft prototype design and testing

costs for Aviation, and platform development costs for Transportation) and internally developed or modified

application software. These costs are capitalized when certain criteria such as proven technical feasibility are met.

The costs of internally generated intangible assets include the cost of materials, direct labour, manufacturing

overheads and borrowing costs and exclude costs which were not necessary to create the asset, such as

identified inefficiencies.

Acquired intangible assets include the cost of development activities carried out by vendors for which the

Corporation controls the underlying output from the usage of the technology, as well as the cost related to

externally acquired licences, patents and trademarks.

Intangible assets are recorded at cost less accumulated amortization and impairment losses and include goodwill,

aerospace program tooling, as well as other intangible assets such as licenses, patents and trademarks. Other

intangible assets are included in other assets.

BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019 151

Amortization of aerospace program tooling begins at the date of completion of the first aircraft of the program.

Amortization of other intangibles begins when the asset is ready for its intended use. Amortization expense is

recognized as follows:

Method Estimated useful life

Aerospace program tooling Unit of production Expected number of aircraft to be produced(1)

Other intangible assets

Licenses, patents and trademarks Straight-line 3 to 20 years

Other Straight-line 3 to 8 years

(1) As at December 31, 2019, the remaining number of units to fully amortize the aerospace program tooling is expected to be produced over

the next 13 years.

The amortization methods and estimated useful lives are reviewed on a regular basis, at least annually, and

changes are accounted for prospectively. The amortization expense for aerospace program tooling and

Transportation platform development costs is recorded in R&D expense and for other intangible assets is

recorded in cost of sales, SG&A or R&D expense based on the function of the underlying asset.

The Corporation does not have indefinite-life intangible assets, other than goodwill. Goodwill represents the

excess of the purchase price over the fair value of the identifiable net assets acquired in a business acquisition.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses.

Borrowing costs

Borrowing costs consist of interest on long-term debt and other costs that the Corporation incurs in connection

with the borrowing of funds. Borrowing costs directly attributable to the acquisition, construction or production of a

qualifying asset are capitalised as part of the cost of that asset and are deducted from the financing expense to

which they relate. The Corporation suspends the capitalisation of borrowing costs during extended periods in

which it suspends active development of a qualifying asset. All other borrowing costs are expensed in the period

they occur.

Impairment of PP&E and intangible assets

The Corporation assesses at each reporting date whether there is an indication that an item of PP&E or intangible

asset may be impaired. If any indication exists, the Corporation estimates the recoverable amount of the

individual asset, when possible.

When the asset does not generate cash inflows that are largely independent of those from other assets or group

of assets, the asset is tested at the CGU level. Most of the Corporation’s non-financial assets are tested for

impairment at the CGU level. The recoverable amount of an asset or CGU is the higher of its fair value less costs

to sell and its value in use.

• The fair value less costs to sell reflects the amount the Corporation could obtain from the asset’s disposal

in an arm’s length transaction between knowledgeable, willing parties, after deducting the costs of

disposal. If there is no binding sales agreement or active market for the asset, the fair value is assessed

by using appropriate valuation models dependent on the nature of the asset or CGU, such as discounted

cash flow models.

• The value in use is calculated using estimated net cash flows, with detailed projections generally over a

five-year period and subsequent years being extrapolated using a growth assumption. The estimated net

cash flows are discounted to their present value using a discount rate before income taxes that reflects

current market assessments of the time value of money and the risk specific to the asset or CGU.

When the recoverable amount is less than the carrying value of the related asset or CGU, the related assets are

written down to their recoverable amount and an impairment loss is recognized in net income.

For PP&E and intangible assets other than goodwill, an assessment is made at each reporting date as to whether

there is any indication that previously recognized impairment losses may no longer exist or may have decreased.

If such indication exists, the Corporation estimates the recoverable amount of the asset or CGU. A previously

recognized impairment loss is reversed only if there has been a change in the estimates used to determine the

recoverable amount since the last impairment loss was recognized. A reversal of an impairment loss reflects an

increase in the estimated service potential of an asset. The reversal of impairment losses is limited to the amount

152 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

that would bring the carrying value of the asset or CGU to the amount that would have been recorded, net of

amortization, had no impairment loss been recognized for the asset or CGU in prior years. Such reversal is

recognized to income in the same line item where the original impairment was recognized.

Intangible assets not yet available for use and goodwill are reviewed for impairment at least annually or more

frequently if circumstances such as significant declines in expected sales, earnings or cash flows indicate that it is

more likely than not that the asset or CGU might be impaired. Impairment losses relating to goodwill are not

reversed in future periods.

Impairment of investments in joint ventures and associates

The Corporation’s investments in its joint ventures and associates are accounted for using the equity method

subsequent to initial recognition. The carrying amount of the investment is adjusted to recognize changes in the

Corporation’s share of net assets of the associate or joint venture since the acquisition date. Goodwill relating to

the associate or joint venture is included in the carrying amount of the investment and is not tested for impairment

separately.

The Corporation’s share of net income of joint ventures and associates is included in the consolidated statement

of income.

After application of the equity method, the Corporation determines whether it is necessary to recognize an

impairment loss on its investment in its associate or joint venture. At each reporting date, the Corporation

determines whether there is objective evidence that the investment in joint venture or associate is impaired. If

there is such evidence, the Corporation calculates the amount of impairment as the difference between the

recoverable amount of the joint venture or associate and its carrying value, and then recognizes the loss in

income.

Provisions

Provisions are recognised when the Corporation has a present legal or constructive obligation as a result of a

past event, it is probable that an outflow of resources will be required to settle the obligation and the cost can be

reliably estimated. These liabilities are presented as provisions when they are of uncertain timing or amount.

Provisions are measured at their present value.

Product warranties – A provision for assurance type warranties is recorded in cost of sales when the revenue for

the related product is recognized. The interest component associated with product warranties, when applicable, is

recorded in financing expense. The cost is estimated based on a number of factors, including the historical

warranty claims and cost experience, the type and duration of warranty coverage, the nature of products sold and

in service and counter-warranty coverage available from the Corporation’s suppliers. Claims for reimbursement

from third parties are recorded if their realization is virtually certain. Product warranties typically range from one to

five years, except for aircraft structural and bogie warranties that extend up to 20 years.

Credit and residual value guarantees – Credit and residual value guarantees related to the sale of aircraft are

recorded at the amount the Corporation expects to pay under these guarantees when the revenue for the related

product is recognized. Subsequent to initial recognition, changes in the value of these guarantees are recorded in

other expense (income), except for the changes in value arising from a change in interest rates, which are

recorded in financing expense or financing income.

Credit guarantees provide support through contractually limited payments to the guaranteed party to mitigate

default-related losses. Credit guarantees are triggered if customers do not perform during the term of the

financing.

Residual value guarantees provide protection, through contractually limited payments, to the guaranteed parties

in cases where the market value of the underlying asset falls below the guaranteed value. In most cases, these

guarantees are provided as part of a financing arrangement.

Restructuring provisions – Restructuring provisions are recognised only when the Corporation has an actual or

a constructive obligation. The Corporation has a constructive obligation when a detailed formal plan identifies the

business or part of the business concerned, the location and number of employees affected, a detailed estimate

BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019 153

of the associated costs and an appropriate timeline. Furthermore, the affected employees or worker councils must

have been notified of the plan’s main features.

Onerous contracts – If it is more likely than not that the unavoidable costs of meeting the obligations under a

firm contract exceed the economic benefits expected to be received under it, a provision for onerous contracts is

recorded in cost of sales, except for the interest component, which is recorded in financing expense. Unavoidable

costs include the costs that relate directly to the contract such as anticipated cost overruns, expected costs

associated with late delivery penalties and technological problems, as well as allocations of costs that relate

directly to the contract. Provisions for onerous contracts are measured at the lower of the expected cost of

fulfilling the contract and the expected cost of terminating the contract.

Termination benefits – Termination benefits are usually paid when employment is terminated before the normal

retirement date or when an employee accepts voluntary redundancy in exchange for these benefits. The

Corporation recognizes termination benefits when it is demonstrably committed, through a detailed formal plan

without possibility of withdrawal, to terminate the employment of current employees.

Environmental costs – A provision for environmental costs is recorded when environmental claims or remedial

efforts are probable and the costs can be reasonably estimated. Legal asset retirement obligations and

environmental costs of a capital nature that extend the life, increase the capacity or improve the safety of an asset

or that mitigate, or prevent environmental contamination that has yet to occur, are included in PP&E and are

generally amortized over the remaining useful life of the underlying asset. Costs that relate to an existing

condition caused by past operations and that do not contribute to future revenue generation are expensed and

included in cost of sales.

Litigation – A provision for litigation is recorded in case of legal actions, governmental investigations or

proceedings when it is probable that an outflow of resources will be required to settle the obligation and the cost

can be reliably estimated.

Share-based payments

Equity-settled share-based payment plans – Equity-settled share-based payments are measured at fair value

at the grant date. For the PSUs, DSUs and RSUs, the value of the compensation is measured based on the

closing price of a Class B Share (subordinate voting) of the Corporation on the Toronto Stock Exchange adjusted

to take into account the terms and conditions upon which the shares were granted, if any, and is based on the

PSUs, DSUs and RSUs that are expected to vest. For share option plans, the value of the compensation is

measured using a Black-Scholes option pricing model. The effect of any change in the number of options, PSUs,

DSUs and RSUs that are expected to vest is accounted for in the period in which the estimate is revised.

Compensation expense is recognized on a straight-line basis over the vesting period, with a corresponding

increase in contributed surplus. Any consideration paid by plan participants on the exercise of stock options is

credited to share capital.

Cash-settled share-based payments – Cash-settled share-based payments are measured at fair value at the

grant date with a corresponding liability. Until the liability is settled, the fair value of the liability is remeasured at

the end of each reporting period and at the date of settlement, with any changes in fair value recognised in

income. Limited PSUs, DSUs and RSUs are cash-settled share-based payments, for which the value of the

compensation is measured based on the closing price of a Class B Share (subordinate voting) of the Corporation

on the Toronto Stock Exchange adjusted to take into account the terms and conditions upon which the shares

were granted, if any, and is based on the PSUs, DSUs and RSUs that are expected to vest.

Employee share purchase plan – The Corporation’s contributions to the employee share purchase plan are

measured at cost and accounted for in the same manner as the related employee payroll costs. Compensation

expense is recorded at the time of the employee contribution.

154 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

3. CHANGES IN ACCOUNTING POLICIES

Leases

In January 2016, the IASB released IFRS 16, Leases, to replace the previous leases Standard, IAS 17, Leases, and

related Interpretations. IFRS 16 sets out the principles for the recognition, measurement, presentation and

disclosure of leases for both parties to a contract, the customer (lessee) and the supplier (lessor). IFRS 16

eliminates the classification of leases as either operating leases or finance leases and introduces a single lessee

accounting model. IFRS 16 also substantially carries forward the lessor accounting requirements. Accordingly, a

lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of

leases differently.

IFRS 16 was adopted effective January 1, 2019, and the Corporation elected to use the modified retrospective

approach whereby comparative periods were not restated. Under this method, the standard is applied

retrospectively with the cumulative effect of initially applying the standard recognized at the date of initial

application.

The Corporation applied the standard to contracts that were previously identified as leases applying IAS 17 and

IFRIC 4 at the date of initial application and did not reassess contracts that were not previously identified as

containing a lease applying IAS 17 and IFRIC 4. In addition, the Corporation elected to apply recognition

exemptions available in the standard for lease contracts where the lease term ends within 12 months of the date

of initial application or lease commencement date and that do not contain a purchase option, and lease contracts

for which the underlying asset is of low value.

On initial application, the Corporation also applied the practical expedients to use a single discount rate to a

portfolio of leases with reasonably similar characteristics, to rely on its assessment of whether leases are onerous

immediately before the date of initial application instead of performing an impairment review and to exclude initial

direct costs from the measurement of the right-of-use asset.

Where the Corporation is a lessee, IFRS 16 resulted in on-balance sheet recognition of most of its leases that were

considered operating leases under IAS 17. This resulted in the gross-up of the balance sheet through the

recognition of a right-of-use asset, adjusted for lease incentives received and onerous contract provisions

previously recognized, and a lease liability for the present value of the remaining future lease payments,

discounted using the incremental borrowing rate at the date of initial application. Depreciation expense on the

right-of-use asset and interest expense on the lease liability replaced the previously recognized operating lease

expense. The impact of adopting this standard on the cash flow statement is neutral, however the principal

repayment of the lease liabilities will be presented in financing activities under IFRS 16, whereas previously it was

presented in operating activities.

This change in policy resulted in the recognition of right-of-use assets, in PP&E, and lease liabilities, in Other

liabilities, amounting to $554 million and $568 million, respectively as of January 1, 2019. See Note 22 - PP&E and

Note 28 - Other liabilities for more details. In addition, the Corporation had existing capital leases amounting to

$41 million that were recorded in long-term debt and that were reclassified to lease liabilities on January 1, 2019

with the corresponding cost of assets and accumulated amortization of $121 million and $61 million, respectively,

being reclassified to right-of-use assets. The weighted average incremental borrowing rate applied to lease

liabilities recognised at the date of initial application was 6.03%.

The undiscounted operating lease commitments of the Corporation as of December 31, 2018 amounted to

$875 million, as presented in the audited consolidated financial statements and notes thereto included in the

Corporation’s Financial Report for the fiscal year ended December 31, 2018. The undiscounted value of lease

liabilities as at January 1, 2019 (excluding the $41 million of reclassified capital leases) was $844 million

(discounted to $568 million as at January 1, 2019). The difference between the previously disclosed $875 million

undiscounted operating lease commitments and the $844 million undiscounted value of lease liabilities as at

January 1, 2019 is due to short term leases and low value leases which are excluded from lease liability, but were

part of the operating lease commitments.

BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019 155

Income taxes

In June 2017, the IASB released IFRIC 23, Uncertainty over income tax treatments. IFRIC 23 clarifies the

application of recognition and measurement requirements in IAS 12, Income Taxes, when there is uncertainty over

income tax treatments. It specifically addresses whether an entity considers each tax treatment independently or

collectively, the assumptions an entity makes about the examination of tax treatments by taxation authorities, how

an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates and

how an entity considers changes in facts and circumstances. IFRIC 23 was adopted effective January 1, 2019 and

resulted in no significant adjustments.

Retirement and other long-term employee benefits

In February 2018, the IASB released an amendment to IAS 19, Employee Benefits, effective on January 1, 2019.

The amendment relates to accounting for plan amendments, curtailments and settlements on defined benefit plans.

The amendment requires the use of updated actuarial assumptions to determine current service cost and net

interest for the period after a plan amendment, curtailment or settlement. This amendment was adopted effective

January 1, 2019, with no earlier application and resulted in no adjustments as of January 1, 2019. This amendment

will apply to plan amendments, curtailments or settlements occurring after January 1, 2019.

156 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

4. USE OF ESTIMATES AND JUDGMENT

The application of the Corporation’s accounting policies requires management to use estimates and judgments

that can have a significant effect on the revenues, expenses, comprehensive income, assets and liabilities

recognized and disclosures made in the consolidated financial statements. Estimates and judgments are

significant when:

• the outcome is highly uncertain at the time the estimates and judgments are made; and

• if different estimates or judgments could reasonably have been used that would have had a material

impact on the consolidated financial statements.

Management’s best estimates regarding the future are based on the facts and circumstances available at the time

estimates are made. Management uses historical experience, general economic conditions and trends, as well as

assumptions regarding probable future outcomes as the basis for determining estimates. Estimates and their

underlying assumptions are reviewed periodically and the effects of any changes are recognized immediately.

Actual results will differ from the estimates used, and such differences could be material.

Management’s budget and strategic plan cover a five-year period and are fundamental information used as a

basis for many estimates necessary to prepare financial information. Management prepares a budget and a

strategic plan covering a five-year period, on an annual basis, using a process whereby a detailed one-year

budget and four-year strategic plan are prepared by each reportable segment and then consolidated. Cash flows

and profitability included in the budget and strategic plan are based on existing and future contracts and orders,

general market conditions, current cost structures, anticipated cost variations and in-force collective agreements.

The budget and strategic plan are subject to approval at various levels, including senior management and the

Board of Directors. Management uses the budget and strategic plan, as well as additional projections or

assumptions, to derive the expected results for periods thereafter. Management then tracks performance as

compared to the budget and strategic plan at various levels within the Corporation. Significant variances in actual

performance are a key trigger to assess whether certain estimates used in the preparation of financial information

must be revised.

The following areas require management’s most critical estimates and judgments. The sensitivity analyses below

should be used with caution as the changes are hypothetical and the impact of changes in each key assumption

may not be linear.

Long-term contracts – Transportation conducts most of its business under long-term manufacturing and service

contracts and Aviation has some long-term maintenance service contracts, as well as design and development

contracts for third parties. Revenues and margins from long-term contracts relating to the designing, engineering

or manufacturing of specially designed products (including rail vehicles, vehicle overhaul and signalling contracts)

and service contracts are recognized over time. The long-term nature of these contracts requires estimates of

total contract costs and the transaction price. The measure of progress toward complete satisfaction of the

performance obligation is generally determined by comparing the actual costs incurred to the total costs

anticipated for the entire contract, excluding costs that are not representative of the measure of performance.

The contract transaction price includes adjustments for change orders, claims, performance incentives, price

escalation clauses and other contract terms that provide for the adjustment of prices to the extent they represent

enforceable rights for the Corporation. Variable consideration such as assumptions for price escalation clauses,

performance incentives and claims is only included in the transaction price to the extent it is highly probable that a

significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty

associated with the variable consideration is subsequently resolved.

Contract costs include material, direct labour, manufacturing overhead and other costs, such as warranty and

freight. Estimated contract costs at completion incorporate forecasts for material usage and costs, including

escalation clauses, labour hours and costs, foreign exchange rates (including the effect of hedges) and labour

productivity. These costs are influenced by the nature and complexity of the work to be performed, as well as the

impact of change orders and potential delays in delivery. Cost estimates are based mainly on historical

performance trends, economic trends, collective agreements and contracts signed with suppliers. Management

applies judgment to determine the probability that the Corporation will incur additional costs from delays or other

BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019 157

penalties, and such costs, if probable, are included in estimated costs at completion, unless there is an

adjustment to the transaction price in which case it is recorded as a reduction of estimated revenues at

completion.

Recognized revenues and margins are subject to revisions as contracts progress towards completion.

Management conducts quarterly reviews of estimated costs and revenues to completion on a contract-by-contract

basis, including a review of escalation assumptions. In addition, a detailed annual review is performed on a

contract-by-contract basis as part of the budget and strategic plan process. The effect of any revision may be

significant and is recorded by way of a cumulative catch-up adjustment in the period in which the estimates are

revised.

Sensitivity analysis

A 1% increase in the estimated future costs to complete all ongoing long-term contracts would have decreased

Transportation’s gross margin for fiscal year 2019 by approximately $110 million.

Aerospace program tooling – Aerospace program tooling amortization and the calculation of recoverable

amounts used in impairment testing require estimates of the expected number of aircraft to be delivered over the

life of each program. The expected number of aircraft is based on management’s aircraft market forecasts and the

Corporation’s expected share of each market. Such estimates are reviewed in detail as part of the budget and

strategic plan process. For purposes of impairment testing, management exercises judgment to identify

independent cash inflows to identify CGUs by family of aircraft. Other key estimates used to determine the

recoverable amount include the applicable discount rate, the expected future cash flows over the remaining life of

each program, which include costs to complete the development activities, if any, as well as potential upgrades,

and derivatives expected over the life of the program. The estimated cost of potential upgrades and derivatives is

based on past experience with previous programs. The expected future cash flows also include cash flows from

aftermarket activities, as well as expected cost savings due to synergies from the perspective of a market

participant. The inputs used in the discounted cash flow model are Level 3 inputs (inputs that are not based on

observable market data).

The recoverable amounts of aerospace assets or CGUs are based on fair value less costs of disposal. The

recoverable amounts were established during the fourth quarter of 2019. The fair value measurements are

categorized within Level 3 of the fair value hierarchy. The estimate of the fair value less costs of disposal was

determined using forecast future cash flows. The estimated future cash flows for the first five years are based on

the budget and strategic plan. After the initial five years, long-range forecasts prepared by management are used.

Forecast future cash flows are based on management’s best estimate of future sales under existing firm orders,

expected future orders, timing of payments based on expected delivery schedules, revenues from related

services, procurement costs based on existing contracts with suppliers, future labour costs, general market

conditions, foreign exchange rates and applicable long-range forecast income tax rates and a post-tax discount

rate of 9% based on a weighted average cost of capital calculated using market-based inputs, available directly

from financial markets or based on a benchmark sampling of representative publicly-traded companies in the

aerospace sector.

An impairment test was prepared for the Global 7500 since it only entered into service in December 2018, and

following this assessment the Corporation concluded there was no impairment.

Sensitivity analysis

The following analyses are presented in isolation from one another, i.e. all other estimates left unchanged:

A 10% decrease, evenly distributed over future periods, in the expected future net cash inflows for the

Global 7500 aircraft program would not have resulted in an impairment charge in fiscal year 2019.

An increase of 100-basis points in the discount rate used to perform the impairment tests would not have resulted

in an impairment charge in fiscal year 2019 for the Global 7500 aircraft program.

Goodwill – The recoverable amount of the Transportation operating segment, the group of CGUs at which level

goodwill is monitored by management, is based on fair value less costs of disposal using a discounted cash flow

model. During the fourth quarter of 2019, the Corporation completed its annual goodwill impairment test for the

158 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

Transportation segment and did not identify any impairment. The fair value measurement is categorized within

Level 3 of the fair value hierarchy.

Estimated future cash flows were based on the budget and strategic plan for the first 5 years and a growth rate of

1% was applied to derive a terminal value beyond the initial 5-year period. The post-tax discount rate is also a key

estimate in the discounted cash flow model and was based on a representative weighted average cost of capital.

The post-tax discount rate used to calculate the recoverable amount in fiscal year 2019 was 8.5%. A 100-basis

point change in the post-tax discount rate would not have resulted in an impairment charge in 2019.

Valuation of deferred income tax assets – To determine the extent to which deferred income tax assets can be

recognized, management estimates the amount of probable future taxable profits that will be available against

which deductible temporary differences and unused tax losses can be utilized. Such estimates are made as part

of the budget and strategic plan by tax jurisdiction on an undiscounted basis and are reviewed on a quarterly

basis. Management exercises judgment to determine the extent to which realization of future taxable benefits is

probable, considering factors such as the number of years to include in the forecast period, the history of taxable

profits and availability of prudent tax planning strategies. See Note 12 - Income taxes for more details.

Tax contingencies – Uncertainties exist with respect to the interpretation of complex tax regulations, changes in

tax laws, and the amount and timing of future taxable income. Given the wide range of international business

relationships and the long-term nature and complexity of existing contractual agreements, differences arising

between the actual results and the assumptions made, or future changes to such assumptions, could necessitate

future adjustments to tax expense or recovery already recorded. The Corporation establishes tax provisions for

possible consequences of audits by the tax authorities of each country in which it operates. The amount of such

provisions is based on various factors, such as experience from previous tax audits and differing interpretations of

tax regulations by the taxable entity and the relevant tax authority. Such differences in interpretation may arise for

a wide variety of issues depending on the conditions prevailing in the domicile of each legal entity.

Credit and residual value guarantees – The Corporation uses an internal valuation model based on stochastic

simulations. The amounts expected to be paid under the guarantees may depend on whether credit defaults

occur during the term of the original financing. When a credit default occurs, the credit guarantee may be called

upon. In the absence of a credit default the residual value guarantee may be triggered. In both cases, the

guarantees can only be called upon if there is a loss upon the sale of the aircraft. Therefore, the value of the

guarantee is in large part impacted by the future value of the underlying aircraft, as well as on the likelihood that

credit or residual value guarantees will be called upon at the expiry of the financing arrangements. Aircraft

residual value curves, prepared by management based on information from external appraisals and adjusted to

reflect specific factors of the current aircraft market and a balanced market in the medium and long term, are used

to estimate the underlying aircraft future value. The amount of the liability is also significantly impacted by the

current market assumption for interest rates since payments under these guarantees are mostly expected to be

made in the medium to long term. Other key estimates in calculating the value of the guarantees include default

probabilities, estimated based on published credit ratings when available or, when not available, on internal

assumptions regarding the credit risk of customers. The estimates are reviewed on a quarterly basis.

Sensitivity analysis

The following analyses are presented in isolation from one another, i.e. all other estimates left unchanged:

Assuming a decrease of 10% in the residual value curves of all commercial aircraft as at December 31, 2019,

Aviation’s EBIT for 2019 would have been negatively impacted by $7 million.

Assuming an increase of 10% in the likelihood that residual value guarantees will be called upon at the expiry of

the financing arrangements as at December 31, 2019, Aviation’s EBIT for 2019 would have been

negatively impacted by $7 million.

Assuming a 100-basis point decrease in interest rates as at December 31, 2019, Aviation’s EBT for 2019 would

have been negatively impacted by $2 million. Assuming a 100-basis point increase in interest rates as at

December 31, 2019, Aviation’s EBT for 2019 would have been positively impacted by $2 million.

BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019 159

Retirement and other long-term employee benefits – The actuarial valuation process used to measure pension

and other post-employment benefit costs, assets and obligations is dependent on assumptions regarding discount

rates, compensation and pre-retirement benefit increases, inflation rates, health-care cost trends, as well as

demographic factors such as employee turnover, retirement and mortality rates. The impacts from changes in

discount rates and, when significant, from key events and other circumstances, are recorded quarterly.

Discount rates are used to determine the present value of the expected future benefit payments and represent the

market rates for high-quality corporate fixed-income investments consistent with the currency and the estimated

term of the retirement benefit liabilities. As the Canadian high-quality corporate bond market, as defined under

IFRS, includes relatively few medium- and long- term maturity bonds, the discount rate for the Corporation’s

Canadian pension and other post-employment plans is established by constructing a yield curve using three

maturity ranges. The first maturity range of the curve is based on observed market rates for AA-rated corporate

bonds with maturities of less than six years. In the longer maturity ranges, due to the smaller number of high-

quality bonds available, the curve is derived using market observations and extrapolated data. The extrapolated

data points were created by adding a term-based yield spread over long-term provincial bond yields. This term-

based spread is extrapolated between a base spread and a long spread. The base spread is based on the

observed spreads between AA-rated corporate bonds and AA-rated provincial bonds for the 5 to 10 years to

maturity range. The long spread is determined as the spread required at the point of average maturity of AA-rated

provincial bonds in the 11 to 30 years to maturity range such that the average AA-rated corporate bond spread

above AA-rated provincial bonds is equal to the extrapolated spread derived by applying the ratio of the observed

spreads between A-rated corporate bonds and AA-rated provincial bonds for the 11 to 30 years to maturity range

over the 5 to 10 years to maturity range, to the base spread. For maturities longer than the average maturity of

AA-rated provincial bonds in the 11 to 30 years to maturity range, the spread is assumed to remain constant at the

level of the long spread.

As the U.K. high-quality corporate bond market, as defined under IFRS, includes relatively few long-term maturity

bonds, the discount rate for the Corporation’s U.K. pension and other post-employment plans is established by

constructing a yield curve. The yield curve is developed from corporate bond yield information for corporate bonds

rated AA or equivalent quality and excluding bonds which have a “corporate” BICS assignment but which have

actual or implied government backing. Target yields are developed from bonds across a range of maturity points,

and a curve is fitted to those targets. Spot rates (zero coupon bond yields) are developed from the yield curve and

used to discount benefit payment amounts associated with each future year. Since corporate bonds are generally

not available for very long maturities, an assumption is made that spot rates remain level beyond the term of the

longest data target point. The term of the longest data target point as at December 31, 2019 was 23 years.

Expected rates of compensation increases are determined considering the current salary structure, as well as

historical and anticipated wage increases, in the context of current economic conditions.

See Note 24 - Retirement benefits for further details regarding assumptions used and sensitivity analysis to

changes in critical actuarial assumptions.

Onerous contract provision – An onerous contract provision is recorded if it is more likely than not that the

unavoidable costs of meeting the obligations under a firm contract exceed the economic benefits expected to be

received under it. In most cases the economic benefits expected to be received under the contract consist of

contract revenue. The calculation of the unavoidable costs requires estimates of expected future costs, including

anticipated future cost reductions related to performance improvements and transformation initiatives, anticipated

cost overruns, expected costs associated with late delivery penalties and technological problems, as well as

allocations of costs that relate directly to the contract. The measurement of the provision is impacted by

anticipated delivery schedules since for new aircraft programs early production units require higher cost than units

produced later in the process, and for long term train manufacturing contracts delays result in penalties.

Sensitivity analysis

A 1% increase in the expected costs over the life of the contract would have decreased EBIT for fiscal year 2019

by approximately $184 million.

160 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

CDPQ investments equity and derivative liability components – The convertible shares issued to the CDPQ

contain no obligation for the Corporation to deliver cash or other financial assets to the CDPQ. Judgment was

used to conclude that the CDPQ’s convertible share investment in BT Holdco is considered a compound

instrument comprised of an equity component, representing the discretionary dividends and liquidation

preference, and a liability component that reflects a derivative to settle the instrument by delivering a variable

number of common shares of BT Holdco, as opposed to the entire instrument being characterized as a liability.

The Corporation presents convertible shares in its equity (NCI) and derivative component as a liability.

The fair value of the convertible shares at issuance was assigned to its respective equity and derivative liability

components so that no gain or loss arose from recognizing each component separately, the fair value of the

derivative liability being established first and the residual amount allocated to the equity component. The liability

component is remeasured quarterly using the Corporation’s best estimate of the present value of the settlement

amount, other than a scenario where the Corporation initiates a purchase of CDPQ’s interest. The Corporation

uses an internal valuation model to estimate the fair value of the conversion option embedded in the BT Holdco

convertible shares. The fair value of the embedded conversion option is based on the difference in the present

value between: the convertible shares’ accrued liquidation preference based on the minimum return entitlement;

and the fair value of the common shares on an as converted basis. This value is dependent on Transportation

meeting the performance incentives agreed upon with the CDPQ, the timing of exercise of the conversion rights

and the applicable conversion rate. Fair value of the shares on an as-converted basis is calculated using an EBIT

multiple, which is based on market data, to determine the enterprise value. The discount rate used is also

determined using market data. The Corporation uses internal assumptions to determine the term of the instrument

and the future performance of Transportation, derived from the budget and strategic plan.

See Note 39 - Fair value of financial instruments for a sensitivity analysis on the variability in the fair value of the

conversion option as a result of a reasonably likely change in the expected future performance of Transportation.

Consolidation – From time to time, the Corporation participates in structured entities where voting rights are not

the dominant factor in determining control. In these situations, management may use a variety of complex

estimation processes involving both qualitative and quantitative factors to determine whether the Corporation is

exposed to, or has rights to, significant variable returns. The quantitative analyses involve estimating the future

cash flows and performance of the investee and analyzing the variability in those cash flows. The qualitative

analyses involve consideration of factors such as the purpose and design of the investee and whether the

Corporation is acting as an agent or principal. There is a significant amount of judgment exercised in evaluating

the results of these analyses as well as in determining if the Corporation has power to affect the investee’s

returns, including an assessment of the impact of potential voting rights, contractual agreements and de facto

control.

Also, the Corporation uses judgment to determine whether rights held by NCI, such as the CDPQ’s rights in

respect of Transportation, are protective in nature as opposed to substantive. The Corporation reassesses the

initial determination of control if facts or circumstances indicate that there may be changes to one or more

elements of control.

Investments in ACLP – On July 1, 2018 the Corporation recognized its equity investment in ACLP at $1,761

million which represented the Corporation’s 33.55% interest in the July 1, 2018 estimated fair value of ACLP. The

estimated fair value of ACLP was determined using a discounted cash flow analysis following independent

external professional advice and consultations with the controlling partner. This valuation incorporated

assumptions regarding potential synergies from the procurement, sales and marketing and customer support

expertise Airbus will bring to the program, which involves a significant amount of judgment regarding the future

operating performance of the program.

The Corporation performed an impairment test in the fourth quarter of 2019 on its investments in ACLP since

there were indicators of impairment. The Corporation determined that the carrying amount of its investment in

ACLP exceeded its recoverable amount, and accordingly recorded an impairment charge of $1,578 million. See

Note 40 - Investments in Joint ventures and Associates for more details.

BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019 161

See Note 39 - Fair value of financing instruments for information regarding the estimates used in determining the

fair value of the Corporation’s funding commitments toward ACLP and the fair value of the Corporation’s

investment in ACLP non-voting units.

The assets are reported in Bombardier Corporate and Others segment.

5. SEGMENT DISCLOSURE

The Corporation has two reportable segments: Aviation and Transportation. Each reportable segment offers

different products and services and mostly requires different technology and marketing strategies.

Aviation

Aviation designs, manufactures, markets and provides aftermarket support for three families of business jets

(Learjet, Challenger and Global), spanning from the light to large categories; designs, manufactures and provides

aftermarket support for a broad portfolio of commercial aircraft in the 50- to 100-seat categories, including the

CRJ550, CRJ700, CRJ900 and CRJ1000 regional jets and the Q400 turboprop until disposal of the business; and

designs, develops and manufactures major aircraft structural components (such as engine nacelles, fuselages

and wings) and provides aftermarket component repair and overhaul as well as other engineering services for

both internal and external clients. Refer to Note 30 - Assets held for sale and Note 31 - Disposal of business for

additional information.

Transportation

Transportation offers a wide-ranging portfolio of innovative and efficient solutions in the rail industry and cover the

full spectrum of rail solutions, ranging from global mobility solutions to a variety of trains and sub-systems,

services, system integration and signalling to meet the market’s needs and expectations.

Corporate and Others

Corporate and Others comprise corporate charges that are not allocated to segments, elimination of profit on

intercompany transactions between the segments, participation in a partnership with Airbus on the A220 Family

aircraft and other adjustments.

The segmented information is prepared using the accounting policies described in Note 2 – Summary of

significant accounting policies.

162 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

Management assesses segment performance based on EBIT and EBIT before special items. The segmented

results of operations and other information are as follows, for fiscal years:

2019

Corporate and

Transportation Aviation Others Total

Results of operations

External revenues $ 8,266 $ 7,491 $ — $ 15,757

Intersegment revenues 3 10 (13) —

Total revenues 8,269 7,501 (13) 15,757

EBIT before special items 70 531 (131) 470

Special items(1) 48 (663) 1,583 968

EBIT $ 22 $ 1,194 $ (1,714) (498)

Financing expense 1,072

Financing income (230)

EBT (1,340)

Income taxes 267

Net loss $ (1,607)

Other information

R&D(2) $ 136 $ 156 $ — $ 292

Share of loss (income) of

joint ventures and associates(6) $ (94) $ 3 $ (37) $ (128)

Net additions (proceeds) to

PP&E and intangible assets(3) $ 157 $ 373 $ (7) $ 523

Amortization $ 139 $ 282 $ 1 $ 422

Impairment charges on ACLP

investments(1) $ — $ — $ 1,578 $ 1,578

Impairment charges (reversals)

on PP&E(4) $ (8) $ (1) $ 2 $ (7)

Impairment charges (reversals)

on intangible assets(5) $ 3 $ — $ — $ 3

2018

Corporate and

Transportation Aviation Others Total

Results of operations

External revenues $ 8,910 $ 7,323 $ 3 $ 16,236

Intersegment revenues 5 1 (6) —

Total revenues 8,915 7,324 (3) 16,236

EBIT before special items 750 472 (193) 1,029

Special items(1) (24) 48 4 28

EBIT $ 774 $ 424 $ (197) 1,001

Financing expense 712

Financing income (106)

EBT 395

Income taxes 77

Net income $ 318

Other information

R&D(2) $ 122 $ 95 $ — $ 217

Share of loss (income) of

joint ventures and associates(6) $ (111) $ 5 $ 40 $ (66)

Net additions (proceeds) to

PP&E and intangible assets(3) $ 108 $ 303 $ 4 $ 415

Amortization $ 101 $ 171 $ — $ 272

Impairment charges (reversals)

on PP&E(4) $ 8 $ — $ 3 $ 11

(1) See Note 8 – Special items for more details.

(2) Includes tooling amortization. See Note 6 – Research and development for more details.

(3) As per the consolidated statements of cash flows.

(4) See Note 22 – Property, plant and equipment for more details.

(5) See Note 23 – Intangibles assets for more details.

(6) See Note 40 - Investments in joint ventures and associates.

BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019 163

The reconciliation of total assets and total liabilities to segmented assets and liabilities is as follows, as at:

December 31, 2019 December 31, 2018 January 1, 2018

Assets

Total assets $ 24,972 $ 24,958 $ 24,916

Assets not allocated to segments

Cash and cash equivalents(1) 2,629 3,187 3,057

Income tax receivable(2) 90 49 60

Deferred income taxes(6) 677 746 595

Segmented assets 21,576 20,976 21,204

Liabilities

Total liabilities 30,883 28,972 29,611

Liabilities not allocated to segments

Interest payable(3) 150 138 139

Income taxes payable(4) 202 173 187

Long-term debt(5) 9,333 9,102 9,218

Segmented liabilities $ 21,198 $ 19,559 $ 20,067

Net segmented assets

Transportation $ (385) $ (412) $ (1,106)

Aviation $ 577 $ 848 $ 2,681

Corporate and Others $ 186 $ 981 $ (438)

(1) Refer to Note 15 – Cash and cash equivalents.

(2) Included in other assets.

(3) Included in trade and other payables.

(4) Included in other liabilities.

(5) The current portion of long-term debt is included in other financial liabilities.

(6) Refer to Note 12 - Income taxes for more details.

The Corporation’s revenues by market segment were as follows:

2019 2018

Aviation

Business Aircraft

Manufacturing and Other(1) $ 4,163 $ 3,794

Services(2) 1,254 1,200

Commercial Aircraft(3) 1,227 1,756

Aerostructures and Engineering Services 857 574

7,501 7,324

Transportation

Rolling stock and systems(4) 5,192 5,844

Services(5) 2,140 2,096

Signalling(6) 937 975

8,269 8,915

Corporate and Others (13) (3)

$ 15,757 $ 16,236

(1) Includes revenues from sale of new aircraft, specialized aircraft solutions and pre-owned aircraft.

(2) Includes revenues from aftermarket services including parts, Smarts Services, service centres, training and technical publication.

(3) Includes manufacturing, services and other.

(4) Comprised of revenues from light rail vehicles, metros, commuter and regional trains, intercity trains, high speed and very high speed trains,

locomotives, propulsion and controls, bogies, mass transit and airport systems, and mainline systems.

(5) Comprised of revenues from fleet management, asset life management, component re-engineering and overhaul, material solutions, and

operations and maintenance of systems.

(6) Comprised of signalling revenues from mass transit, mainline, industrial and OPTIFLO service solutions.

164 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

The Corporation’s revenues and PP&E and intangible assets are, allocated to countries, as follows:

Revenues for fiscal years(1) PP&E and intangible assets as at(2)

December 31 December 31 January 1

2019 2018 2019 2018 2018 (3)

North America

United States $ 4,566 $ 3,989 $ 229 $ 239 $ 258

Canada 1,831 1,553 5,137 5,057 4,077

Mexico 35 141 33 40 38

6,432 5,683 5,399 5,336 4,373

Europe

Germany 1,650 1,795 1,058 1,045 1,048

United Kingdom 1,449 1,598 428 658 807

France 943 1,137 34 32 35

Switzerland 422 797 392 381 379

Other 2,105 2,098 725 708 717

6,569 7,425 2,637 2,824 2,986

Asia-Pacific

Australia 533 719 11 11 23

China 170 375 — 2 3

India 289 165 20 21 23

Other 620 873 3 1 3

1,612 2,132 34 35 52

Other 1,144 996 6 24 28

1,144 996 6 24 28

$ 15,757 $ 16,236 $ 8,076 $ 8,219 $ 7,439

(1) Allocated to countries based on the location of the customer.

(2) PP&E and intangible assets, excluding goodwill, are attributed to countries based on the location of the assets. Goodwill is attributed to

countries based on the Corporation’s allocation of the related purchase price. PP&E is excluding right-of-use assets.

(3) Comprises the assets held for sale reclassification related to the disposal of ACLP.

BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019 165

6. RESEARCH AND DEVELOPMENT

R&D expense, net of government assistance, was as follows, for fiscal years:

2019 2018

R&D expenditures $ 435 $ 1,136

Less: development expenditures capitalized to aerospace program tooling (275) (989)

160 147

Add: amortization of aerospace program tooling 132 70

$ 292 $ 217

7. OTHER INCOME

Other income was as follows, for fiscal years:

2019 2018

Changes in estimates and fair value(1) $ (40) $ (55)

Gains on disposals of intangible assets and PP&E(2) (10) (9)

Impairment of PP&E and intangible assets(2) 4 3

Gain on sale of a business(2) (4) —

Severance and other involuntary termination costs (including changes in estimates)(2) 1 3

Other 2 —

$ (47) $ (58)

(1) Includes net loss (gain) on certain financial instruments measured at fair value and changes in estimates related to certain provisions or

certain financial instruments, excluding losses (gains) arising from changes in interest rates.

(2) Excludes those presented in special items.

166 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

8. SPECIAL ITEMS

Special items comprise items which do not reflect the Corporation’s core performance or where their separate

presentation will assist users of the consolidated financial statements in understanding the Corporation’s results

for the period. Such items include, among others, the impact of restructuring charges and significant impairment

charges and reversals.

Special items were as follows, for fiscal years:

2019 2018

Impairment on ACLP investments(1) $ 1,578 $ —

Gain on disposal of a business - Training business(2) (516) —

Gain on disposal of a business - Q Series business(3) (210) —

Restructuring charges(4) 99 41

Loss on repurchase of long-term debt(5) 84 —

Pension adjustments(6) 26 28

Reversal of Learjet 85 aircraft program cancellation provisions(7) (18) (29)

Primove impairment and other costs(8) 5 4

Purchase of pension annuities(9) 4 32

C Series transaction with Airbus(10) — 616

Gain on disposal of PP&E(11) — (561)

Gains on disposal of PP&E under sale and leaseback transactions(12) — (66)

Tax litigation(13) — (35)

Changes in credit and residual value guarantees(14) — (34)

Loss on sale of long-term contract receivables(15) — 31

Impairment of non-core operations(16) — 17

Income taxes 217 (23)

$ 1,269 $ 21

Of which is presented in

Special items in EBIT $ 968 $ 28

Financing expense - loss on repurchase of long-term debt(5) 84 —

Financing expense - loss on sale of long-term contract receivables(15) — 31

Financing income - interest related to tax litigation(13) — (15)

Income taxes 217 (23)

$ 1,269 $ 21

1. The Corporation performed an impairment test in the fourth quarter of 2019 on its investments in ACLP since

there were indicators of impairment. The Corporation determined that the carrying amount of its investment in

ACLP exceeded its recoverable amount, and accordingly recorded an impairment charge of $1,578 million.

See Note 40 - Investments in Joint ventures and Associates for more details.

2. The sale of Business Aircraft’s flight and technical training activities for a total net consideration of

$532 million resulted in a pre-tax accounting gain of $516 million ($383 million after deferred tax impact of

$133 million). See Note 31 - Disposal of businesses.

3. The sale of the Q Series Aircraft program assets for net proceeds of $285 million resulted in a pre-tax

accounting gain of $210 million ($184 million after tax impact). See Note 31 - Disposal of businesses.

4. For fiscal year 2019, represents severance charges of $86 million partially offset by curtailment gains of $7

million and by the reversal of previously-recorded impairment charges of $8 million, related to previously-

announced restructuring actions. For fiscal year 2018, represents severance charges of $43 million partially

offset by curtailment gains of $10 million, and impairment charges of PP&E of $8 million, all related to

previously-announced restructuring actions.

Following the announcement that the CRJ production is expected to conclude in the second half of 2020,

following the delivery of the current backlog of aircraft, the Corporation has recorded severance charges of

$7 million partially offset by curtailment gains of $3 million, and has recorded $24 million of other related

charges for fiscal year 2019. In addition, the Corporation has recorded a write down of deferred tax assets of

$87 million to reflect the expected impact of the conclusion of the CRJ announcement.

BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019 167

5. Represents the loss related to the redemption of the $850-million Senior Notes due 2020, and the partial

redemption of the €780-million Senior Notes due 2021 and $1,400-million Senior Notes due 2021. See

Note 29 - Long-term debt.

6. On October 26, 2018, the High Court in the United Kingdom ruled that pension schemes must equalize for the

effect of unequal Guaranteed Minimum Pensions between male and female for benefits earned during

specified periods (“GMP equalization”). The Corporation estimated the impact of the ruling on its pension

plans and recognized an additional obligation of $28 million as at December 31, 2018. The one-time P&L

impact was recognized in fiscal year 2018 as a past service cost under IAS 19 - Employee Benefits. In fiscal

year 2019, the Corporation adjusted the pension obligation related to equalization for an Aviation plan in the

U.K. The adjustments of $26 million was recorded as a past service cost under IAS 19 - Employee Benefits.

7. Based on the ongoing activities with respect to the cancellation of the Learjet 85 aircraft program, the

Corporation reduced the related provisions by $18 million for fiscal year 2019 ($29 million for fiscal year

2018). The reduction in provisions is treated as a special item since the original provisions were also recorded

as special items in 2014 and 2015.

8. Following a reassessment of the value of the Primove e-mobility technology and the status of existing

contractual obligations, the Corporation recorded in fiscal year 2019 an additional contract provision of $5

million ($4 million for fiscal year 2018).

9. Represents the non-cash loss on the settlement of defined benefit pension plans resulting from the purchase

of annuities with insurance companies. As part of its ongoing de-risking strategies, the Corporation has an

initiative for the buy-out of annuities payable to pensioners or deferred pensioners for certain plans to the

extent they are fully funded on a buy-out basis, subject to compliance with certain conditions including

applicable pension legislations.

10. The acquisition by Airbus of 50.01% of ACLP, the entity that manufactures and sells the C Series aircraft

(rebranded A220) resulted in a pre-tax accounting charge of $616 million ($552 million after tax). The pre-tax

accounting charge reflects all elements of the transaction, including: (i) the $270 million fair value of warrants

issued by Bombardier to Airbus on July 1, 2018, (ii) a $310 million derivative liability which is associated with

the expected off-market return on units to be issued to Bombardier by ACLP under Bombardier’s funding

commitments, and iii) other Bombardier obligations towards ACLP, which mainly comprise supply chain

obligations for Aerostructures and Engineering Services.

11. Related to the sale of the Downsview property to the Public Sector Pension Investment Board (PSP

Investments).

12. The Corporation sold and leased back two facilities in Transportation in line with our transformation plan.

13. Represents a change in the estimates used to determine the provision related to tax litigation.

14. The provisions for credit and residual value guarantees were reduced following a change in credit risk

assumption for an airline. The reduction of the provisions was treated as a special item since the original

provisions were recorded as special items in 2015.

15. For fiscal year 2018, the Corporation sold long-term contract receivables in Transportation, which resulted in a

loss of $31 million recorded in financing expense.

16. An impairment charge related to non-core operations of $17 million recorded in the fiscal year 2018 with

respect to the expected sale of legal entities, as part of the Transportation transformation plan.

168 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

9. FINANCING EXPENSE AND FINANCING INCOME

Financing expense and financing income were as follows, for fiscal years:

2019 2018

Financing expense

Loss on repurchase of long-term debt(1) $ 84 $ —

Accretion on net retirement benefit obligations 73 65

Accretion on other financial liabilities 56 58

Accretion on advances(2) 37 18

Changes in discount rates of provisions 19 —

Interest expense on lease liabilities(3) 32 —

Amortization of letter of credit facility costs 25 16

Accretion on provisions 14 27

Net loss on certain financial instruments(4) — 53

Loss on sale of long-term contract receivables(5) — 31

Other 95 91

435 359

Interest on long-term debt, after effect of hedges 637 353

$ 1,072 (6) $ 712 (6)

Financing income

Net gain on certain financial instruments(4) $ (149) $ —

Changes in discount rates of provisions — (17)

Tax litigation(7) — (15)

Other (34) (37)

(183) (69)

Interest on cash and cash equivalents (35) (25)

Income from investment in securities (9) (8)

Interest on loans and lease receivables, after effect of hedges (3) (4)

(47) (37)

$ (230) (8) $ (106) (8)

(1) Represents the loss related to the redemption of the $850-million Senior Notes due 2020, and the partial redemption of the €780-million

Senior Notes due 2021 and $1,400-million Senior Notes due 2021, which was recorded as a special item. See Note 8 – Special items and

see Note 29 – Long-term debt for more details.

(2) Represents adjustments to transaction prices for certain orders with a significant financing component due to a significant delay between

timing of cash receipt and revenue recognition.

(3) Following the adoption of IFRS 16 - Leases, effective January 1, 2019, the Corporation presented the interest expense on lease liabilities as

part of financing expense. See Note 3 - Changes in accounting policies for more details.

(4) Net losses (gains) on certain financial instruments classified as FVTP&L, including losses (gains) arising from changes in interest rates.

(5) Represents the loss related to the sale of long-term contract receivables in Transportation. See Note 8 – Special items for more details.

(6) Of which $713 million representing the interest expense calculated using the effective interest rate method for financial liabilities classified

as amortized cost, respectively for fiscal year 2019 ($431 million for fiscal year 2018).

(7) Represents a change in the estimates used to determine the provision related to tax litigation.

(8) Of which $35 million representing the interest income calculated using the effective interest rate method for financial assets classified as

amortized cost and FVOCI, for fiscal year 2019 ($32 million for fiscal year 2018).

Borrowing costs capitalized to PP&E and intangible assets totalled $13 million for fiscal year 2019, using an

average capitalization rate of 6.76% ($247 million and 6.65% for fiscal year 2018). Capitalized borrowing costs

are deducted from the related interest expense (i.e. interest on long-term debt or accretion on other financial

liabilities, if any).

BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019 169

10. NON-CONTROLLING INTEREST

The summarized statement of financial position for BT Holdco, which has significant NCI, was as follows, as at:

December 31, 2019 December 31, 2018

Current assets(1) $ 4,794 $ 4,929

Non-current assets 4,295 3,916

Total assets $ 9,089 $ 8,845

Current liabilities $ 7,403 $ 7,246

Non-current liabilities 1,700 1,448

Total liabilities $ 9,103 $ 8,694

Net assets $ (14) $ 151

(1) Includes cash and cash equivalents amounting to €481 million ($540 million) and €662 million ($758 million) as at December 31, 2019 and

2018.

The selected income and cash flow information for BT Holdco, which has significant NCI, was as follows, for fiscal

years:

2019 2018

Revenues $ 8,269 $ 8,915

Net income (loss) $ (142) $ 325

Comprehensive income (loss) $ (183) $ 79

Cash flows from operating activities $ (428) $ (6)

Cash flows from investing activities $ (128) $ (107)

Cash flows from financing activities(1) $ 222 $ (328)

(1) Includes nil of dividend paid, $164 million (€150 million) of capital injection made by the Corporation and CDPQ, and $1 12 million (€100

million) of subordinated loan made by the Corporation to BT Holdco for fiscal year 2019 ($326 million (€270 million), nil and nil, respectively

for fiscal year 2018).

The changes to the accumulated NCI for BT Holdco, which has significant NCI, were as follows:

BT Holdco

Balance as at January 1, 2018 $ 1,548

Minimum return entitlement 155

OCI (75)

Dividends (90)

Balance as at December 31, 2018 1,538

Minimum return entitlement 183

OCI (27)

Issuance of NCI 49

Balance as at December 31, 2019 $ 1,743

CDPQ investment in BT Holdco

On February 11, 2016, Bombardier closed the sale to the CDPQ of a $1.5-billion convertible share investment in

Bombardier Transportation’s newly-created holding company, Bombardier Transportation (Investment) UK Limited

(BT Holdco). Under the terms of the investment, Bombardier Inc. sold voting shares convertible into a 30%

common equity stake of BT Holdco to the CDPQ, subject to annual adjustments related to performance.

BT Holdco owns essentially all of the assets and liabilities of Bombardier’s Transportation business segment, its

operational headquarters remains in Germany and continues to be consolidated in Bombardier’s financial results.

170 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

Key terms of the investment

The CDPQ is entitled to its pro-rata portion (on an as-converted basis, initially equal to 30% of BT Holdco

common shares) of any dividends declared, once the Corporation and CDPQ approved the declaration of

dividends, as required.

Dividends are payable in cash or, subject to certain conditions, in additional convertible shares at the option of BT

Holdco (any such issuance to increase the CDPQ’s participation).

Performance incentives

The terms of the transaction provide strong performance incentives for Transportation. For each of the first five

years following the closing date, the CDPQ’s ownership (on conversion) and return may be subject to upward or

downward annual adjustments, based on performance targets jointly agreed to as part of Transportation’s

business plan.

If Transportation outperforms its business plan, the CDPQ’s percentage of ownership on conversion of its shares

decreases by 2.5% annually, down to a minimum threshold of 25%. In this circumstance, the convertible shares’

minimum return also decreases from 9.5% to a floor of 7.5%.

Conversely, should Transportation underperform relative to its plan, the CDPQ’s percentage of ownership on

conversion of its shares will increase by 2.5% annually, up to a maximum of 42.5% over a five-year period. In this

case, the convertible shares’ minimum return also increases from 9.5% up to 12%.

In 2019, Transportation did not meet the performance targets underlying CDPQ’s investment in BT Holdco.

Accordingly, for the 12-month period starting on February 12, 2020, CDPQ’s percentage of ownership on

conversion of its shares will increase by 2.5%, up from 30% to 32.5%, and the preference return entitlement rate

on liquidation of its shares will increase from 9.5% to 12% for this period. 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 67.5% for Bombardier and 32.5% 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.

Shareholders rights and exit

Under the terms of the investment, the CDPQ has standard minority protection rights, including: pre-emptive

rights, a right of first offer, and tag-along rights, and Bombardier has a right of first offer and customary drag-along

rights, in each case subject to certain conditions.

Bombardier has the ability to buy back the CDPQ’s investment upon specified terms at any time on or after the

third anniversary of the closing of the investment, at the higher of the fair market value (on an as-converted basis)

or a minimum of 15% compounded annual return to the CDPQ.

At any time on or after February 11, 2021, and provided that Bombardier has not exercised its right to buy back

the CDPQ’s investment before then, the CDPQ will have the right to cause BT Holdco to proceed with a

secondary initial public offering (IPO) or a sale of 100% of its shares.

In the case of an IPO, the conversion ratio of the CDPQ’s shares will be adjusted so that, immediately prior to the

IPO, the CDPQ receives shares having a value equal to the higher of: (i) the value of its shares, on an as-

converted basis, based on the implied value of the IPO; or (ii) the minimum return adjusted for any distributions, in

both cases taking into account changes, if any, resulting from the effect of the performance incentives. The

CDPQ’s shares would be sold in priority to Bombardier’s shares as part of the secondary IPO.

In the case of a sale of 100% of the BT Holdco shares, the CDPQ will have the right to receive an amount equal

to the higher of: (i) the value of its shares, on an as-converted basis, based on the implied value of the sale to a

third party; or (ii) the minimum return adjusted for any distributions, in both cases taking into account changes, if

any, resulting from the effect of the performance incentives.

Upon a change of control of Bombardier Inc. or, in certain circumstances, of BT Holdco, the CDPQ will have the

right to require an IPO or a sale of 100% of the BT Holdco shares and to receive the higher of: (i) the value of the

common shares held by the CDPQ on an as-converted basis, based on the implied value of the IPO or sale to a

BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019 171

third party, as discussed above; or (ii) a minimum three-year 15% compounded annual return (or at any time after

three years, a 15% compounded annual return).

Other details of the transaction

The parties have agreed to a consolidated Bombardier cash position, as defined in the agreement, at the end of

each quarter of at least $1.25 billion. This condition was met on a quarterly basis and as at December 31, 2019

and 2018. In the event Bombardier’s cash position falls below that level, the Board of directors of Bombardier will

create a Special Initiatives Committee composed of three independent directors acceptable to the CDPQ, who

would be responsible to develop an action plan to improve cash. The implementation of the plan, once agreed

with the CDPQ, would be overseen by the Special Initiatives Committee.

Capital injection

On September 26, 2019, the Corporation and CDPQ (through its affiliates) made a capital injection of €105 million

($115 million) and €45 million ($49 million) in BT Holdco. The cash infusion supports Transportation’s production

ramp up and associated working capital investment. The Corporation and CDPQ participated at their current pro

rata share in the capital injection and under the same terms as their original investments. As such, the equity

ownership percentage of the Corporation and of CDPQ in Transportation remain the same.

11. EMPLOYEE BENEFIT COSTS

Employee benefit costs(1) were as follows, for fiscal years:

Notes 2019 2018

Wages, salaries and other employee benefits $ 4,520 $ 4,919

Retirement benefits(2) 24 343 464

Share-based expense 34 30 74

Restructuring, severance and other involuntary termination costs 7, 8 94 46

$ 4,987 $ 5,503

(1) Employee benefit costs include costs capitalized as part of the cost of inventories and other self-constructed assets.

(2) Includes defined benefit and defined contribution plans.

12. INCOME TAXES

Analysis of income tax expense

Details of income tax expense were as follows, for fiscal years:

2019 2018

Current income taxes $ 154 $ 151

Deferred income taxes 113 (74)

$ 267 $ 77

172 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

The reconciliation of income taxes, computed at the Canadian statutory rates, to income tax expense was as

follows, for fiscal years:

2019 2018

EBT $(1,340) $ 395

Canadian statutory tax rate 26.6% 26.7%

Income tax expense at statutory rate (356) 105

Increase (decrease) resulting from

Non-recognition of tax benefits related to tax losses and temporary differences 538 166

Write-down of deferred income tax assets 121 132

Income tax rates differential of foreign subsidiaries and other investees 21

Recognition of previously unrecognized tax losses or temporary differences (96) (171)

Permanent differences 90 (135)

Effect of substantively enacted income tax rate changes 5 2

Other (35) (43)

Income tax expense $ 267 $ 77

Effective tax rate (19.9)% 19.5%

The Corporation’s applicable Canadian statutory tax rate is the Federal and Provincial combined tax rate

applicable in the jurisdiction in which the Corporation operates.

Details of deferred income tax expense (recovery) were as follows, for fiscal years:

2019 2018

Non-recognition of tax benefits related to tax losses and temporary differences $ 538 $ 166

Origination and reversal of temporary differences (455) (203)

Write-down of deferred income tax assets 121 132

Recognition of previously unrecognized tax losses or temporary differences (96) (171)

Effect of substantively enacted income tax rate changes 5 2

$ 113 $ (74)

Deferred income taxes

The significant components of the Corporation’s deferred income tax asset and liability were as follows, as at:

December 31, 2019 December 31 2018 January 1, 2018

Asset Liability Asset Liability Asset Liability

Operating tax losses carried forward $ 2,712 $ — $ 2,247 $ — $ 2,433 $ —

Retirement benefits 591 — 547 — 501 —

Contract liabilities 416 — 179 — 87 —

Inventories 394 — 705 — 673 —

Provisions 609 — 754 — 1,106 —

Other financial assets and other assets 244 — 264 — 118 —

Investment in affiliate equity 53 — (131) — — —

PP&E (4) — 6 — (3) —

Other financial liabilities and other

liabilities 1 — 6 — (3) —

Intangible assets 1 — 16 — (161) —

Contract assets 79 157 (161)

Other 19 — 39 — 36 —

5,115 — 4,789 — 4,626 —

Unrecognized deferred tax assets (4,438) — (4,043) — (4,031) —

$ 677 $ — $ 746 $ — $ 595 $ —

Reclassified as assets

held for sale(1) $ (131) $ — $ — $ — $ — $ —

$ 546 $ — $ 746 $ — $ 595 $ —

(1) Includes deferred income tax asset of $131 million related to retirement benefits amounting to $64 million, operating tax losses carried

forward amounting to $61 million and other amounting to $6 million, which is presented under assets held for sale as at December 31, 2019.

See Note 30 - Assets held for sale for more details.

BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019 173

The changes in the net deferred income tax asset were as follows for the fiscal years:

2019 2018

Balance at beginning of year, net $ 746 $ 595

In net (loss) income (113) 74

In OCI

Retirement benefits 50 (6)

Cash flow hedges (17) 55

Reclassified as assets held for sale (131) —

Other(1) 11 28

Balance at end of year, net $ 546 $ 746

(1) Includes deferred income tax impact recorded in equity amounting to $7 million and foreign exchange rate effects as at December 31, 2019

($31 million and foreign exchange rate effects as at December 31, 2018).

The net operating losses carried forward and deductible temporary differences for which deferred tax assets have

not been recognized amounted to $17,264 million as at December 31, 2019, of which $1,538 million relates to

retirement benefits that will reverse through OCI ($15,315 million as at December 31, 2018 of which $1,297

million relates to retirement benefits that will reverse through OCI and $16,677 million as at January 1, 2018 of

which $1,482 million relates to retirement benefits that will reverse through OCI). Of these amounts, approximately

$10,477 million as at December 31, 2019 has no expiration date ($10,015 million as at December 31, 2018 and

$11,326 million as at January 1, 2018) and approximately $3,295 million relates to the Corporation’s operations in

Germany where a minimum income tax is payable on 40% of taxable income ($3,087 million as at December 31,

2018 and $2,917 million as at January 1, 2018) and $553 million relate to the Corporation’s operations in France

where a minimum income tax is payable on 50% of taxable income ($437 million as at December 31, 2018 and

$522 million as at January 1, 2018).

In addition, the Corporation has $1,621 million of unused investment tax credits, most of which can be carried

forward for 20 years and $47 million of net capital losses carried forward for which deferred tax assets have not

been recognized ($1,614 million and $43 million as at December 31, 2018 and $1,620 million and $117 million as

at January 1, 2018). Net capital losses can be carried forward indefinitely and can only be used against future

taxable capital gains.

Net deferred tax assets of $161 million were recognized as at December 31, 2019 ($321 million as at

December 31, 2018 and $492 million as at January 1, 2018) in jurisdictions that incurred losses this fiscal year or

the preceding fiscal year. Based upon the level of historical taxable income, projections for future taxable income

and prudent tax planning strategies, management believes it is probable the Corporation will realize the benefits of

these deductible differences and operating tax losses carried forward. See Note 4 – Use of estimates and

judgment for more information on how the Corporation determines the extent to which deferred income tax assets

are recognized.

No deferred tax liabilities have been recognized on undistributed earnings of the Corporation’s foreign subsidiaries,

joint ventures and associates when they are considered to be indefinitely reinvested, as the Corporation has

control or joint control over the dividend policy, unless it is probable that these temporary differences will reverse.

Upon distribution of these earnings in the form of dividends or otherwise, the Corporation may be subject to

corporation and/or withholding taxes. Taxable temporary differences for which a deferred tax liability was not

recognized amount to approximately $664 million as at December 31, 2019 ($682 million as at December 31, 2018

and $588 million as at January 1, 2018).

174 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

13. EARNINGS PER SHARE

Basic and diluted EPS were computed as follows, for fiscal years:

2019 2018

(Number of shares, stock options, PSUs, DSUs, RSUs and warrants in thousands)

Net income (loss) attributable to equity holders of Bombardier Inc. $ (1,797) $ 232

Preferred share dividends, including taxes (21) 4

Net income (loss) attributable to common equity holders of Bombardier Inc. $ (1,818) $ 236

Weighted-average number of common shares outstanding 2,383,987 2,316,824

Net effect of stock options, PSUs, DSUs, RSUs, warrants and conversion option — 184,223

Weighted-average diluted number of common shares 2,383,987 2,501,047

EPS (in dollars)

Basic $ (0.76) $ 0.10

Diluted $ (0.76) $ 0.09

The effect of the exercise of stock options, PSUs, DSUs, RSUs and warrants was included in the calculation of

diluted EPS in the above table, except for 524,442,736 for fiscal year 2019 (53,477,802 for fiscal year 2018) since

the average market value of the underlying shares was lower than the exercise price, or because the

predetermined target market price thresholds of the Corporation’s Class B Shares (subordinate voting) or

predetermined financial performance targets had not been met or the effect of the exercise would be antidilutive.

The calculation of diluted EPS did not include the impact of the CDPQ conversion option for fiscal year 2019 as

this was antidilutive. This is because CDPQ’s minimum return entitlement was greater than their share of the BT

Holdco net income on an as converted basis assuming the maximum CDPQ ownership on conversion if

Transportation does not achieve its performance targets.

14. FINANCIAL INSTRUMENTS

Net gains (losses) on financial instruments recognized in income were as follows, for fiscal years:

2019 2018

Financial instruments measured at amortized cost

Financial assets - expected credit loss allowance (impairment charges) $ (19) $ (30)

Interest on cash and cash equivalents $ 35 $ 25

Financial instruments measured at fair value

FVTP&L - changes in fair value

Designated as FVTP&L

Financial liabilities $ (2) $ 1

Required to be classified as FVTP&L

Financial assets(1) $ (389) $ (45)

Derivatives not designated in hedging relationships(2) $ 91 $ (39)

Other $ 116 $ 25

(1) Includes loss recorded on ACLP non-voting units related to the impairment charges of ACLP investments for fiscal year 2019 and includes

loss on sale of long-term contract receivable for fiscal year 2018, see Note 8 – Special items for more details.

(2) Includes a gain recorded on funding commitments related to the impairment charges of ACLP investments for fiscal year 2019, see Note 8

– Special items for more details.

BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019 175

Carrying amounts and fair value of financial instruments

The classification of financial instruments and their carrying amounts and fair value of financial instruments were

as follows as at:

FVTP&L

Total

Amortized carrying

FVTP&L Designated FVOCI(1) cost DDHR value Fair value

December 31, 2019

Financial assets

Cash and cash equivalents $ — $ — $ — $ 2,578 $ — $ 2,578 $ 2,578

Trade and other receivables — — — 1,844 — 1,844 1,844

Other financial assets 723 — 250 101 110 1,184 1,184

$ 723 $ — $ 250 $ 4,523 $ 110 $ 5,606 $ 5,606

Financial liabilities

Trade and other payables $ — $ — n/a $ 4,682 $ — $ 4,682 $ 4,682

Long-term debt(2) — — n/a 9,333 — 9,333 9,660

Other financial liabilities 378 468 n/a 732 157 1,735 1,752

$ 378 $ 468 n/a $14,747 $ 157 $15,750 $16,094

December 31, 2018

Financial assets

Cash and cash equivalents $ — $ — $ — $ 3,187 $ — $ 3,187 $ 3,187

Trade and other receivables — — — 1,575 — 1,575 1,575

Other financial assets 846 — 230 35 129 1,240 1,237

$ 846 $ — $ 230 $ 4,797 $ 129 $ 6,002 $ 5,999

Financial liabilities

Trade and other payables $ — $ — n/a $ 4,634 $ — $ 4,634 $ 4,634

Long-term debt(2) — — n/a 9,102 — 9,102 8,750

Other financial liabilities 597 438 n/a 801 288 2,124 2,412

$ 597 $ 438 n/a $14,537 $ 288 $15,860 $15,796

FVTP&L

Total

Amortized carrying

HFT Designated AFS cost DDHR value Fair value

January 1, 2018

Financial assets

Cash and cash equivalents $ 2,988 $ — $ — $ — $ — $ 2,988 $ 2,988

Trade and other receivables — — — 1,174 — 1,174 1,174

Other financial assets 79 216 361 331 253 1,240 1,278

$ 3,067 $ 216 $ 361 $ 1,505 $ 253 $ 5,402 $ 5,440

Financial liabilities

Trade and other payables $ — $ 6 n/a $ 3,958 $ — $ 3,964 $ 3,964

Long-term debt(2) — — n/a 9,218 — 9,218 9,354

Other financial liabilities 354 74 n/a 677 184 1,289 1,329

$ 354 $ 80 n/a $13,853 $ 184 $14,471 $14,647

(1) Includes investments in equity instruments designated at FVOCI.

(2) Includes the current portion of long-term debt.

n/a: Not applicable

176 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

Offsetting financial assets and financial liabilities

The Corporation is subject to enforceable master netting agreements related mainly to its derivative financial

instruments and cash and cash equivalents which contain a right of set-off in case of default, insolvency or

bankruptcy. The amounts that are subject to the enforceable master netting agreements, but which do not meet

some or all of the offsetting criteria, are as follows as at:

Amount recognized Amounts subject Net amount not

Description of recognized financial assets in the financial to master netting subject to master

and liabilities statements agreements netting agreements

December 31, 2019

Derivative financial instruments - assets $ 287 $ (97) $ 190

Derivative financial instruments - liabilities $ (535) $ 117 $ (418)

Cash and cash equivalents $ 2,629 $ (19) $ 2,610

December 31, 2018

Derivative financial instruments - assets $ 168 $ (104) $ 64

Derivative financial instruments - liabilities $ (885) $ 232 $ (653)

Cash and cash equivalents $ 3,187 $ (127) $ 3,060

January 1, 2018

Derivative financial instruments - assets $ 332 $ (135) $ 197

Derivative financial instruments - liabilities $ (538) $ 176 $ (362)

Cash and cash equivalents $ 3,057 $ (41) $ 3,016

Derivatives and hedging activities

The carrying amounts of all derivative and non-derivative financial instruments in a hedge relationship were as

follows, as at:

December 31, 2019 December 31, 2018 January 1, 2018

Assets Liabilities Assets Liabilities Assets Liabilities

Derivative financial instruments

designated as fair value hedges

Interest-rate swaps $ 7 $ — $ — $ 1 $ 5 $ —

Derivative financial instruments

designated as cash flow hedges(1)

Forward foreign exchange contracts 103 157 129 287 248 184

Derivative financial instruments

classified as FVTP&L(2)

Forward foreign exchange contracts 18 50 33 48 57 50

Funding commitments — — — 235 — —

Embedded derivative financial instruments

Conversion option — 325 — 314 — 304

Call options on long-term debt 158 — 4 — 21 —

Other 1 3 2 — 1 —

177 378 39 597 79 354

Total derivative financial

instruments $ 287 $ 535 $ 168 $ 885 $ 332 $ 538

Non-derivative financial instruments

designated as hedges of net investment

Long-term debt $ — $ 355 $ — $ 526 $ — $ 28

(1) The maximum length of time of derivative financial instruments hedging the Corporation’s exposure to the variability in future cash flows for

anticipated transactions is 18 months as at December 31, 2019.

(2) Held as economic hedges, except for embedded derivative financial instruments and funding commitments.

The net losses on hedging instruments designated in fair value hedge relationships and net gains on the related

hedged items attributable to the hedged risk recognized in financing expense, amounted to $7 million and $7 million

respectively for fiscal year 2019 (net losses of $4 million and net gains of $4 million respectively for fiscal year 2018).

The ineffectiveness recognized in net income that relates to cash flow hedges, amounted to net losses of $1 million

for fiscal year 2019 (net losses of $4 million for fiscal year 2018). The methods and assumptions used to measure

the fair value of financial instruments are described in Note 39 – Fair value of financial instruments.

BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019 177

15. CASH AND CASH EQUIVALENTS

Cash and cash equivalents were as follows, as at:

December 31, 2019 December 31, 2018 January 1, 2018

Cash $ 1,306 $ 1,296 $ 1,382

Cash equivalents

Term deposits 547 892 449

Money market funds 776 999 1,226

Cash and cash equivalents(1) $ 2,629 $ 3,187 $ 3,057

Reclassified as assets held for sale 51 — 69

Cash and cash equivalents $ 2,578 $ 3,187 $ 2,988

(1) For purpose of the statement of cash flows, cash and cash equivalents comprise the cash reclassified as asset held for sale. See Note 30 -

Assets held for sale for more details.

See Note 36 – Credit facilities for details on covenants related to cash and cash equivalents.

See Note 10 – Non-controlling interest for details on the agreement with CDPQ related to a consolidated

Bombardier cash position of at least $1.25 billion at the end of each quarter.

16. TRADE AND OTHER RECEIVABLES

Trade and other receivables were as follows, as at:

Past due but not impaired (3)

Not past less than more than

Total due 90 days 90 days Impaired (4)

December 31, 2019(1)(2)

Trade receivables, gross $ 1,773 $ 1,176 $ 146 $ 231 $ 220

Allowance for doubtful accounts (49) — — — (49)

1,724 $ 1,176 $ 146 $ 231 $ 171

Other 120

Total $ 1,844

December 31, 2018(1)(2)

Trade receivables, gross $ 1,508 $ 764 $ 339 $ 245 $ 160

Allowance for doubtful accounts (42) — — — (42)

1,466 $ 764 $ 339 $ 245 $ 118

Other 109

Total $ 1,575

January 1, 2018(1)(2)

Trade receivables, gross $ 1,149 $ 669 $ 195 $ 171 $ 114

Allowance for doubtful accounts (70) — — — (70)

1,079 $ 669 $ 195 $ 171 $ 44

Other 95

Total $ 1,174

(1) Of which $506 million and $574 million are denominated in euros and other foreign currencies, respectively, as at December 31, 2019

($334 million and $564 million, respectively, as at December 31, 2018 and $254 million and $443 million, respectively, as at

January 1, 2018).

(2) Of which $485 million represents customer retentions relating to long-term contracts as at December 31, 2019 based on normal terms and

conditions ($400 million as at December 31, 2018 and $287 million as at January 1, 2018).

(3) Of which $186 million of trade receivables relates to Transportation long-term contracts as at December 31, 2019, of which $179 million

were more than 90 days past due ($464 million as at December 31, 2018, of which $229 million were more than 90 days past due and

$225 million as at January 1, 2018, of which $144 million were more than 90 days past due). Transportation assesses whether these

receivables are collectible as part of its risk management practices applicable to long-term contracts as a whole.

(4) Of which a gross amount of $52 million of trade receivables are individually impaired as at December 31, 2019 ($40 million as at

December 31, 2018 and $73 million as at January 1, 2018).

178 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

The factors that the Corporation considers to classify trade receivables as impaired are as follows: the customer

is in bankruptcy or under administration, payments are in dispute, or payments are in arrears. Further information

on financial risk is provided in Note 38 – Financial risk management.

Allowance for doubtful accounts – Changes in the allowance for doubtful accounts were as follows, for fiscal

years:

2019 2018

Balance at beginning of year $ (42) $ (70)

Provision for doubtful accounts (19) (30)

Amounts written-off 7 56

Reclassified as assets held for sale(1) 7 —

Effect of foreign currency exchange rate changes (2) 2

Balance at end of year $ (49) $ (42)

(1) See Note 30 – Assets held for sale for more details.

Off-balance sheet sale of receivables

In the normal course of its business, Transportation has facilities, to which it can sell, without credit recourse,

qualifying receivables. Receivables of € 809 million ($909 million) were outstanding under such facilities as at

December 31, 2019 (€ 799 million ($914 million) as at December 31, 2018 and € 907 million ($1,088 million) as at

January 1, 2018). Receivables of € 1,691 million ($1,894 million) were sold to these facilities during fiscal year

2019 (€ 1,590 million ($1,880 million) during fiscal year 2018).

In addition, in fiscal year 2018, the Corporation sold a long-term contract receivable, previously recorded in other

financial assets, for proceeds of $133 million, refer to Note 8 - Special items and Note 20 - Other financial assets

for more details.

BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019 179

17. CONTRACT BALANCES

Contract assets were as follows, as at:

December 31, 2019 December 31, 2018 January 1, 2018

Long-term contracts

Production contracts

Cost incurred and recorded margins $ 9,930 $ 8,882 $ 8,306

Less: advances and progress billings (7,983) (6,707) (6,171)

1,947 2,175 2,135

Service contracts

Cost incurred and recorded margins 674 506 367

Less: advances and progress billings (136) (64) (42)

538 442 325

$ 2,485 $ 2,617 $ 2,460

Contract liabilities were as follows, as at:

December 31, 2019 December 31, 2018 January 1, 2018

Advances on aerospace programs $ 4,018 $ 3,075 $ 2,120

Advances and progress billings in excess of long-

term contract cost incurred and recorded margin 2,286 2,124 1,981

Other deferred revenues 852 996 991

$ 7,156 $ 6,195 $ 5,092

Of which current $ 5,739 $ 4,262 $ 3,820

Of which non-current 1,417 1,933 1,272

$ 7,156 $ 6,195 $ 5,092

Under certain contracts, title to contract balances is vested to the customer as the work is performed, in

accordance with contractual arrangements and industry practice. In addition, in the normal course of business,

the Corporation provides performance bonds, bank guarantees and other forms of guarantees to customers,

mainly in Transportation, as security for advances received from customers pending performance under certain

contracts. In accordance with industry practice, the Corporation remains liable to the purchasers for the usual

contractor’s obligations relating to contract completion in accordance with predetermined specifications, timely

delivery and product performance.

Advances and progress billings received on long-term contracts in progress were $10,405 million as at

December 31, 2019 ($8,895 million as at December 31, 2018 and $8,194 million as at January 1, 2018).

Revenues include revenues from Transportation long-term contracts, which amounted to $6,766 million for fiscal

year 2019 ($7,388 million for fiscal year 2018).

In connection with certain long-term contracts, Transportation enters into arrangements whereby amounts are

received from third-party advance providers in exchange for the rights to customer payments. There is no

recourse to Transportation if the customer defaults on its payment obligations assigned to the third-party advance

provider. Amounts received under these arrangements are included as advances and progress billings in

reduction of long-term contracts (production contracts) in contract assets and amounted to € 503 million

($565 million) as at December 31, 2019 (€ 624 million ($714 million) as at December 31, 2018 and € 434 million

($520 million) as at January 1, 2018). The third-party advance providers could request repayment of these

amounts if Transportation fails to perform its contractual obligations such as delivery by a specified date.

180 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

Revenues recognized were as follows for fiscal years:

2019 2018

Revenue recognized from:

Contract liability balance at the beginning of the period

Long term production contracts and service contracts $ 1,345 $ 1,796

Advances on aerospace programs 822 729

Performance obligations satisfied (partially satisfied) in previous periods(1)

Long term production contracts (104) 174

Long term service contracts (4) (23)

$ 2,059 $ 2,676

(1) Includes changes in transaction price such as penalties and escalation.

Impairment losses recognized were as follows for fiscal years:

2019 2018

Impairment losses recognized on:

Receivables arising from:

Production contracts $ (15) $ (22)

Service contracts — (1)

$ (15) $ (23)

18. INVENTORIES

Inventories were as follows, as at:

December 31, 2019 December 31, 2018 January 1, 2018

Aerospace programs $ 3,990 $ 3,546 $ 2,472

Finished products(1) 468 733 749

Other 141 123 208

$ 4,599 $ 4,402 $ 3,429

(1) Finished products include $58 million of new aircraft not associated with a firm order and pre-owned aircraft as at December 31, 2019 ($53

million as at December 31, 2018 and $93 million as at January 1, 2018).

The amount of inventories recognized as cost of sales totalled $5,632 million for fiscal year 2019

($5,422 million for fiscal year 2018). These amounts include $180 million of write-downs for fiscal year 2019

($249 million for fiscal year 2018). Reversal of write-down of $7 million is recognized for fiscal year 2019

($19 million for fiscal year 2018).

19. BACKLOG

The following table presents the aggregate amount of the revenues expected to be realized in the future from

partially or fully unsatisfied performance obligations as we perform under contracts at delivery or recognized over

time. The amounts disclosed below represent the value of firm orders only. Such orders may be subject to future

modifications that might impact the amount and/or timing of revenue recognition. The amounts disclosed below do

not include constrained variable consideration, unexercised options or letters of intent.

Revenues expected to be recognized in:

(In billions of $) December 31, 2019 December 31, 2018

Less than 24 months $ 28.2 $ 26.8

Thereafter 23.9 26.3

Total $ 52.1 $ 53.1

BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019 181

20. OTHER FINANCIAL ASSETS

Other financial assets were as follows, as at:

December 31, 2019 December 31, 2018 January 1, 2018

Receivables from related party(1) $ 468 $ 385 $ —

ACLP non-voting units(2) — 150 —

Derivative financial instruments(3) 287 168 332

Investments in securities(4)(7) 250 230 361

Long-term contract receivables(5)(8) 99 75 253

Restricted cash 62 21 12

Aircraft loans and lease receivables(6) 2 26 49

Investments in financing structures — 173 219

Other 16 12 14

$ 1,184 $ 1,240 $ 1,240

Of which current $ 195 $ 210 $ 415

Of which non-current 989 1,030 825

$ 1,184 $ 1,240 $ 1,240

(1) This receivable from ACLP represents a back-to-back agreement that the Corporation has with ACLP related to certain government

refundable advances. See Note 27 - Other financial liabilities for more information.

(2) See Note 8 - Special items for more details on the impairment charges on ACLP investments.

(3) See Note 14 - Financial instruments.

(4) Includes nil million of securities to secure contingent capital contributions to be made in relation to guarantees issued in connection with the

sale of aircraft as at December 31, 2019 ($16 million as at December 31, 2018 and $51 million as at January 1, 2018).

(5) See Note 38 - Financial risk management.

(6) Aircraft loans and lease receivables are generally collateralized by the related assets. The value of the collateral is closely related to

commercial airline industry performance and aircraft-specific factors (age, type-variant and seating capacity), as well as other factors.

(7) Includes $35 million of equity instruments designated as FVOCI as at December 31, 2019 ($28 million as at December 31, 2018).

(8) See Note 8 - Special items for more details on the sale of long-term contract receivables.

21. OTHER ASSETS

Other assets were as follows, as at:

December 31, 2019 December 31, 2018 January 1, 2018

Sales tax and other taxes $ 249 $ 212 $ 262

Intangible assets other than aerospace program

tooling and goodwill(1) 217 195 120

Retirement benefits(2) 193 200 290

Prepaid expenses 141 107 107

Prepaid sales concessions and deferred contract

costs 105 131 174

Income taxes receivable 90 49 60

Deferred financing charges 27 38 40

Other 13 24 17

$ 1,035 $ 956 $ 1,070

Of which current $ 473 $ 357 $ 427

Of which non-current 562 599 643

$ 1,035 $ 956 $ 1,070

(1) See Note 23 – Intangible assets.

(2) See Note 24 – Retirement benefits.

182 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

22. PROPERTY, PLANT AND EQUIPMENT

PP&E were as follows, as at:

Right-of-

Construction use

Land Buildings Equipment in progress Other Total assets Total

Cost

Balance as at

December 31, 2018 $ 79 $ 2,140 $ 1,330 $ 184 $ 359 $ 4,092 n/a $ 4,092

Change in accounting

policy(1) — (73) (48) — — (121) 675 554

Additions 2 24 75 137 — 238 103 341

Disposals (8) (20) (165) (1) (12) (206) (95) (301)

Transfers — 44 62 (105) 4 5 (5) —

Reclassified as assets

held for sale(2) (8) (329) (374) (47) (16) (774) (69) (843)

Effect of foreign currency

exchange rate changes — (13) (1) — — (14) (3) (17)

Balance as at

December 31, 2019 $ 65 $ 1,773 $ 879 $ 168 $ 335 $ 3,220 $ 606 $ 3,826

Accumulated amortization and impairment

Balance as at

December 31, 2018 $ (18) $ (1,238) $ (989) $ (11) $ (279) $(2,535) n/a $(2,535)

Change in accounting

policy(1) — 39 22 — — 61 (61) —

Amortization — (56) (99) — (6) (161) (109) (270)

Reversals (impairments) 1 2 5 (2) 1 7 — 7

Disposals — 21 155 — 3 179 12 191

Transfers — (2) (3) — — (5) 5 —

Reclassified as assets

held for sale(2) — 162 362 — 9 533 21 554

Effect of foreign currency

exchange rate changes — 11 (2) — (1) 8 — 8

Balance as at

December 31, 2019 $ (17) $ (1,061) $ (549) $ (13) $ (273) $(1,913) $ (132) $(2,045)

Net carrying value $ 48 $ 712 $ 330 $ 155 $ 62 $ 1,307 $ 474 $ 1,781

Construction

Land Buildings Equipment in progress Other Total

Cost

Balance as at January 1, 2018(3) $ 83 $ 2,538 $ 1,442 $ 173 $ 415 $ 4,651

Additions — 13 47 128 3 191

Disposals (1) (155) (130) — (8) (294)

Transfers — 95 54 (100) (49) —

Disposal of ACLP business — (304) (64) (13) — (381)

Effect of foreign currency

exchange rate changes (3) (47) (19) (4) (2) (75)

Balance as at December 31, 2018 $ 79 $ 2,140 $ 1,330 $ 184 $ 359 $ 4,092

Accumulated amortization and impairment

Balance as at January 1, 2018(3) $ (18) $ (1,377) $ (993) $ (7) $ (291) $ (2,686)

Amortization — (65) (103) — (13) (181)

Impairment — (1) (6) (4) — (11)

Disposals — 100 100 — 2 202

Transfers — — (18) — 18 —

Disposal of ACLP business — 74 23 — — 97

Effect of foreign currency

exchange rate changes — 31 8 — 5 44

Balance as at December 31, 2018 $ (18) $ (1,238) $ (989) $ (11) $ (279) $ (2,535)

Net carrying value $ 61 $ 902 $ 341 $ 173 $ 80 $ 1,557

(1) Represents the initial recognition of right-of-use assets as at January 1, 2019 following the adoption of IFRS 16, Leases. Refer to Note 3 -

Changes in accounting policies for more details.

(2) See Note 30 – Assets held for sale for more details.

(3) Opening balances are before the assets held for sale reclassification related to the disposal of ACLP.

BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019 183

The carrying value of right-of-use assets was as follows, as at:

December 31, 2019 January 1, 2019

Buildings $ 332 $ 405

Equipment 85 156

Land 50 42

Others 7 11

$ 474 $ 614

Depreciation expense of right-of-use assets was as follows, for fiscal year 2019:

Land Buildings Equipment Other Total

Depreciation expense of right-of-use assets $ (2) $ (58) $ (39) $ (10) $ (109)

The expense related to short term leases and low value leases amounted to $27 million for fiscal year 2019.

184 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

23. INTANGIBLE ASSETS

Intangible assets were as follows, as at:

Aerospace program tooling Goodwill Other (1)(2) Total

Internally

Acquired generated Total (3)

Cost

Balance as at December 31, 2018 $ 1,930 $ 8,999 $10,929 $ 1,948 $ 891 $ 13,768

Additions 112 163 275 — 83 358

Disposals (13) (8) (21) — (50) (71)

Reclassified as assets held for sale(4) (287) (1,352) (1,639) — (66) (1,705)

Effect of foreign currency

exchange rate changes — — — (12) (8) (20)

Balance as at December 31, 2019 $ 1,742 $ 7,802 $ 9,544 $ 1,936 $ 850 $ 12,330

Accumulated amortization and impairment

Balance as at December 31, 2018 $ (981) $ (5,429) $ (6,410) $ — $ (696) $ (7,106)

Amortization (18) (114) (132) — (20) (152)

Impairment — — — — (3) (3)

Disposals 15 15 — 43 58

Reclassified as assets held for sale(4) 281 1,318 1,599 — 38 1,637

Effect of foreign currency

exchange rate changes — — — — 5 5

Balance as at December 31, 2019 $ (718) $ (4,210) $ (4,928) $ — $ (633) $ (5,561)

Net carrying value $ 1,024 $ 3,592 $ 4,616 $ 1,936 $ 217 (5) $ 6,769

Aerospace program tooling Goodwill Other (1)(2) Total

Internally

Acquired generated Total (3)

Cost

Balance as at January 1, 2018(6) $ 2,743 $ 12,868 $15,611 $ 2,042 $ 837 $ 18,490

Additions 362 627 989 — 85 1,074

Disposals — (13) (13) — (15) (28)

Disposals of ACLP business (1,175) (4,483) (5,658) — (3) (5,661)

Effect of foreign currency

exchange rate changes — — — (94) (13) (107)

Balance as at December 31, 2018 $ 1,930 $ 8,999 $10,929 $ 1,948 $ 891 $ 13,768

Accumulated amortization and impairment

Balance as at January 1, 2018(6) $ (1,460) $ (7,987) $ (9,447) $ — $ (701) $ (10,148)

Amortization (1) (69) (70) — (21) (91)

Impairment — — — — — —

Disposals — — — — 7 7

Disposals of ACLP business 480 2,627 3,107 — 3 3,110

Effect of foreign currency

exchange rate changes — — — — 16 16

Balance as at December 31, 2018 $ (981) $ (5,429) $ (6,410) $ — $ (696) $ (7,106)

Net carrying value $ 949 $ 3,570 $ 4,519 $ 1,948 $ 195 (5) $ 6,662

(1) Presented in Note 21 – Other assets.

(2) Includes internally generated intangible assets with a cost and accumulated amortization of $552 million and $306 million, respectively, as

at December 31, 2019 ($511 million and $324 million, respectively, as at December 31, 2018 and $429 million and $324 million,

respectively, as at January 1, 2018).

(3) Includes intangible assets under development with a cost of nil million as at December 31, 2019 (nil as at December 31, 2018 and $3,390

million as at January 1, 2018).

(4) See Note 30 – Assets held for sale for more details.

(5) Includes Transportation platform development costs amounting to $103 million as at December 31, 2019 ($109 million as at

December 31, 2018).

(6) Opening balances are before the assets held for sale reclassification related to the disposal of ACLP.

BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019 185

Goodwill

Goodwill is related primarily to the DaimlerChrysler Rail Systems GmbH (Adtranz) acquisition in May 2001.

Goodwill is monitored by management at the Transportation operating segment level. During the fourth quarter of

fiscal year 2019, the Corporation completed an impairment test. The Corporation did not identify any impairment.

See Note 4 – Use of estimates and judgment for more details.

24. RETIREMENT BENEFITS

The Corporation sponsors several funded and unfunded defined benefit pension plans as well as defined

contribution pension plans in Canada and abroad, covering a majority of its employees. The Corporation also

provides other unfunded defined benefit plans, covering certain groups of employees mainly in Canada and the

U.S.

Pension plans are categorized as defined benefit (“DB”) or defined contribution (“DC”). DB plans specify the

amount of benefits an employee is to receive at retirement, while DC plans specify how contributions are

determined. As a result, there is no deficit or surplus for DC plans. Hybrid plans are a combination of DB and DC

plans.

Funded plans are plans for which segregated plan assets are invested in a trust. Unfunded plans are plans for

which there are no segregated plan assets, as the establishment of segregated plan assets is generally not

permitted or not in line with local practice.

FUNDED DB PLANS

The Corporation’s major DB plans reside in Canada, the U.K. and the U.S., therefore very significant portions of

the DB pension plan assets and benefit obligation are located in those countries. The following text focuses mainly

on plans registered in these three countries.

Governance

Under applicable pension legislations, the administrator of each plan is either the Corporation, in the case of U.S.

plans and Canadian plans registered outside of Québec, or a pension committee, board of trustees or corporate

trustee in the case of plans registered in Québec and the U.K.

Plan administrators are responsible for the management of plan assets and the establishment of investment

policies, which define, for each plan, investment objectives, target asset allocation, risk mitigation strategies, and

other elements required by pension legislation.

Plan assets are pooled in three common investment funds (CIFs) for Canadian, U.K. and U.S. plans, respectively,

in order to achieve economies of scale and greater efficiency, diversification and liquidity. The CIFs are broken

down by sub-funds or asset classes in order to allow each plan to have its own asset allocation given its

associated pension obligation liability profile.

The management of the CIFs has been delegated to three (Canadian, U.K. and U.S.) investment committees

(ICs). The ICs are responsible for allocating assets among various sub-funds and asset classes in accordance with

each plan’s investment policy. They are also responsible for hiring, monitoring and terminating investment

managers and have established a multi-manager structure for each sub-fund and asset class. They are supported

by Bombardier Inc.’s Pension Asset Management Services, who oversee the management of the plans’ assets and

of the CIFs on a daily basis. Daily administration of the plans is delegated to either Bombardier Inc. or to external

pension administration service providers. The administrators, the ICs and Bombardier Inc. also rely on the

expertise of external legal advisors, actuaries, auditors and investment consultants.

186 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

Benefit Policy

DB plan benefits are usually based on salary and years of service. In Canada and the U.S., since September 1,

2013, all new non-unionized employees join DC plans (i.e. they no longer have the option of joining DB or hybrid

plans). Employees who are members of a DB or hybrid plan closed to new members continue to accrue service in

their original plan.

In the U.K., all DB plans are closed to new members. New employees join DC plans. Pension entitlements are

indexed to inflation according to pension legislation and plan rules.

Funding requirements

Actuarial valuations are conducted by independent firms hired by the Corporation or the administrators, as required

by pension legislation. The purpose of the valuations is to determine the plans’ financial position and the annual

contributions to be made by the Corporation to fund both benefits accruing in the year (normal cost) and deficits

accumulated over prior years. Minimum funding requirements are set out by applicable pension legislations.

Pension plans in Canada are notably governed under the Supplemental Pension Plans Act in Québec, the Pension

Benefits Act in Ontario and the Income Tax Act. Actuarial valuations are required at least every three years.

Depending on the jurisdiction and the funded status of the plan, actuarial valuations may be required annually.

Contributions are determined by the appointed actuary and cover future service costs and deficits, as prescribed

by laws and actuarial practices.

For Quebec pension plans, minimum contributions are required to amortize the going-concern deficits (established

under the assumption that the plan will continue to be in force) over a period up to fifteen years (which is gradually

decreasing to 10 years as of December 31, 2020). Funding is based on an “enhanced” going-concern valuation,

including a stabilization provision. This provision is funded by special amortization and current service

contributions, and by actuarial gains.

For Ontario pension plans, minimum contributions are required to amortize the going-concern deficits (established

under the assumption that the plan will continue to be in force) over a period up to ten years. Solvency deficiencies

up to 85% of solvency liabilities are required to be funded over a period of 5 years. An explicit margin called a

provision for adverse deviations (PFAD) is added to both the going concern liabilities and future service cost when

determining minimum contributions.

Pension plans in the U.S. are mainly governed under the Employee Retirement Income Security Act, the Internal

Revenue Code and the Pension Protection Act of 2006. Actuarial valuations are required annually. Contributions

are determined by appointed actuaries and cover future service costs and deficits, as prescribed by law. Funding

deficits are generally amortized over a period of seven years.

Pension plans in the U.K. are notably governed under the Pensions Act of 2004. Actuarial valuations are required

at least every three years. The funding deficit amortization period is determined jointly by the administrators and

the Corporation.

Investment Policy and de-risking strategies

The investment policies are established to achieve a long-term investment return so that, in conjunction with

contributions, the plans have sufficient assets to pay for the promised benefits while maintaining a level of risk that

is acceptable given the tolerance of plan stakeholders. See below for more information about risk management

initiatives.

The target asset allocation is determined based on expected economic and market conditions, the maturity profile

of the plans’ liabilities, the funded status of the respective plans and the plan stakeholders’ tolerance to risk.

The plans’ investment strategy is to invest broadly in fixed income and equity securities and to have a smaller

portion of the funds’ assets invested in real return asset securities (global infrastructure and real estate listed

securities).

BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019 187

As at December 31, 2019, the average target asset allocation was as follows:

- 54%, 60% and 50% in fixed income securities, for Canadian, U.K. and U.S. plans, respectively;

- 38%, 31% and 50% in equity securities, for Canadian, U.K. and U.S. plans, respectively; and

- 8% and 9% in real return asset securities, for Canadian and U.K. plans, respectively.

In addition, to mitigate interest rate risk, interest rate hedging overlay portfolios (comprised of long-term interest

rate swaps and long-term bond forwards) will be implemented for the pension plans when the market will be

favourable and the plans’ triggers will be reached.

The plan administrators have also established dynamic risk management strategies. As a result, asset allocation

will likely become more conservative in the future and interest rate hedging overlay portfolios are likely to be

established as plan funding status and market conditions continue to improve and the plans become more mature.

Under certain pension legislations, and subject to compliance with certain conditions, the buy-out of annuities with

insurance companies would discharge the Corporation and administrators of their respective obligations.

Accordingly, in 2018, annuities were purchased for pensioners of seven pension plans registered in Ontario, the

U.K. and the U.S. Also, in 2019, annuities were purchased for pensioners of the three Bombardier Aviation pension

plans registered in Ontario. Overall, in 2018 and 2019, annuities were purchased for 4,690 pensioners with total

premiums paid to insurers by the pension funds of approximately $676 million. The buy-out of annuities payable to

pensioners of other pension plans will be contemplated in the coming years when these plans become fully funded

on a buy-out basis.

Bombardier Inc.’s Pension Asset Management Services monitors the de-risking triggers on an ongoing basis to

ensure timely and efficient implementation of these strategies. The Corporation and administrators periodically

undertake asset and liability studies to determine the appropriateness of the investment policies and de-risking

strategies.

Risk management initiatives

The Corporation’s pension plans are exposed to various risks, including equity, interest rate, inflation, foreign

exchange, liquidity and longevity risks. Several risk management strategies and policies have been put in place to

mitigate the impact these risks could have on the funded status of DB plans and on the future level of contributions

by the Corporation. The following is a description of key risks together with the mitigation measures in place to

address them.

Equity risk

Equity risk results from fluctuations in equity prices. This risk is managed by maintaining diversification of portfolios

across geographies, industry sectors and investment strategies.

Interest rate risk

Interest rate risk results from fluctuations in the fair value of plan assets and liabilities due to movements in interest

rates. This risk is managed by reducing the mismatch between the duration of plan assets and the duration of

pension obligation. This is accomplished by having a portion of the portfolio invested in long-term fixed income

securities and interest rate hedging overlay portfolios.

Inflation risk

Inflation risk is the risk that benefits indexed to inflation increase significantly as a result of changes in inflation

rates. To manage this risk, the benefit indexation has been capped in certain plans and a portion of plan assets has

been invested in real return fixed income securities and real return asset securities.

Foreign exchange risk

Currency risk exposure arises from fluctuations in the fair value of plan assets denominated in a currency other

than the currency of the plan liabilities. Currency risk is managed with foreign currency hedging strategies as per

plan investment policies.

Liquidity risk

Liquidity risk stems from holding assets which cannot be readily converted to cash when needed for the payment

of benefits or to rebalance the portfolios. Liquidity risk is managed through investments in treasury bills,

government bonds and equity futures and by having no investments in private placements or hedge funds.

188 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

Longevity risk

Longevity risk is the risk that increasing life expectancy results in longer-than-expected benefit payments. This risk

is mitigated by using the most recent mortality and mortality improvement tables to set the level of contributions.

The buy-out of annuities with insurance companies transfers all of the risks listed above to insurers for the

annuities purchased.

UNFUNDED DB PLANS

Unfunded plans are located in countries where the establishment of funds for segregated plan assets is generally

not permitted or not in line with local practice. The Corporation’s main unfunded DB plans are located in Germany.

Nearly two thirds of the German unfunded DB plan liability relate to former plan members who no longer accrue

future service benefits. The Corporation contributes annually to the Pensions-Sicherungs-Verein, Germany’s

pension protection association, which provides protection for pension benefits up to certain limits in the event that

plan sponsors become insolvent.

DC PLANS

A growing proportion of employees are participating in DC plans and, as a result, contributions to DC plans have

increased over the past several years. The largest DC plans are located in Canada and in the U.S. The plan

administrators and ICs oversee the management of DC plan assets.

OTHER PLANS

The Corporation also provides other unfunded defined benefit plans, consisting essentially of post-retirement

healthcare coverage, life insurance benefits and retirement allowances. The Corporation provides post-retirement

life insurance and post-retirement health care, with provisions that vary between groups of employees in Canada,

U.S. and U.K. New non-unionized hires are generally no longer offered post-retirement health care.

BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019 189

RETIREMENT BENEFITS PLANS

The following table provides the components of the retirement benefit cost, for fiscal years:

2019 2018

Pension Other Pension Other

benefits benefits Total benefits benefits Total

Current service cost $ 227 $ 4 $ 231 $ 264 $ 6 $ 270

Accretion expense 63 10 73 55 10 65

Past service costs(1) 10 — 10 28 — 28

Curtailment(2) (40) (22) (62) (22) — (22)

Settlement(3) 5 — 5 32 — 32

DB plans 265 (8) 257 357 16 373

DC plans 86 — 86 91 — 91

Total retirement benefit cost $ 351 $ (8) $ 343 $ 448 $ 16 $ 464

Related to

Funded DB plans $ 231 n/a $ 231 $ 321 n/a $ 321

Unfunded DB plans $ 34 $ (8) $ 26 $ 36 $ 16 $ 52

DC plans $ 86 n/a $ 86 $ 91 n/a $ 91

Recorded as follows

EBIT expense or capitalized cost $ 288 $ (18) $ 270 $ 393 $ 6 $ 399

Financing expense $ 63 $ 10 $ 73 $ 55 $ 10 $ 65

(1) Includes loss related to the pension adjustments of $26 million for fiscal year 2019 ($28 million for fiscal year 2018). See Note 8 – Special

items for more details.

(2) Includes $10 million of curtailment gain related to previously-announced restructuring actions for fiscal year 2019 ($10 million for fiscal year

2018). Also, includes $23 million of curtailment gain related to the gain on disposition of a business - Q Series business. See Note 31 –

Disposal of businesses for more details.

(3) Includes the loss related to the purchase of pension annuities. See Note 8 – Special items for more details.

n/a: Not applicable

Changes in the cumulative amount of remeasurements gains (losses) of defined benefit plans recognized in OCI,

and presented as a separate component of deficit, were as follows, for fiscal years:

Gains (losses)

Balance as at January 1, 2018 $ (2,577)

Impact of asset ceiling and minimum liability 18

Actuarial gains, net 171

Effect of exchange rate changes 89

Income taxes (6)

Balance as at December 31, 2018 (2,305)

Actuarial losses, net (453)

Effect of exchange rate changes (67)

Income taxes 50

Balance as at December 31, 2019 $ (2,775)

190 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

The following tables present the changes in the defined benefit obligation and fair value of pension plan assets, for

fiscal years:

2019 2018

Pension Other Pension Other

benefits benefits Total benefits benefits Total

Change in benefit obligation

Obligation at beginning of year $ 9,817 $ 260 $ 10,077 $ 11,742 (3) $ 315 (3) $ 12,057 (3)

Accretion 325 10 335 340 10 350

Current service cost 227 4 231 264 6 270

Plan participants’ contributions 23 — 23 26 — 26

Past service costs(1) 10 — 10 28 — 28

Actuarial (gains) losses - changes in

financial assumptions 1,447 30 1,477 (620) (14) (634)

Actuarial (gains) losses - changes in

experience adjustments 6 (9) (3) (21) (12) (33)

Actuarial gains - changes in

demographic assumptions (66) (1) (67) (88) (2) (90)

Benefits paid (354) (11) (365) (377) (13) (390)

Curtailment (40) (22) (62) (22) — (22)

Settlement (14) — (14) (484) — (484)

Disposal of ACLP business — — — (327) (8) (335)

Reclassified as liabilities directly

associated with assets held for

sale(2) (2,421) — (2,421) — — —

Effect of exchange rate changes 341 12 353 (644) (22) (666)

Obligation at end of year $ 9,301 $ 273 $ 9,574 $ 9,817 $ 260 $ 10,077

Obligation is attributable to

Active members $ 3,217 $ 117 $ 3,334 $ 4,928 $ 139 $ 5,067

Deferred members 1,785 — 1,785 1,460 — 1,460

Retirees 4,299 156 4,455 3,429 121 3,550

$ 9,301 $ 273 $ 9,574 $ 9,817 $ 260 $ 10,077

Change in plan assets

Fair value at beginning of year $ 7,896 $ — $ 7,896 $ 9,633 (3) $ — (3) $ 9,633 (3)

Employer contributions 275 11 286 217 13 230

Plan participants’ contributions 23 — 23 26 — 26

Interest income on plan assets 262 — 262 285 — 285

Actuarial (losses) gains 954 — 954 (586) — (586)

Benefits paid (354) (11) (365) (377) (13) (390)

Settlement (19) — (19) (516) — (516)

Administration costs (20) — (20) (15) — (15)

Disposal of ACLP business — — — (231) — (231)

Reclassified as liabilities directly

associated with assets held for

sale(2) (2,007) — (2,007) — — —

Effect of exchange rate changes 312 — 312 (540) — (540)

Fair value at end of year $ 7,322 $ — $ 7,322 $ 7,896 $ — $ 7,896

(1) Includes loss related to the pension adjustments of $26 million for fiscal year 2019 ($28 million for fiscal year 2018). See note 8 – Special

items for more details.

(2) See Note 30 – Assets held for sale for more details.

(3) Opening balances are before the assets held for sale reclassification related to the disposal of ACLP.

BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019 191

The following table presents the reconciliation of plan assets and obligations to the amount recognized in the

consolidated statements of financial position, as at:

December 31, 2019 December 31, 2018 January 1, 2018

Pension Other Pension Other Pension Other

benefits benefits benefits benefits benefits benefits

Present value of defined benefit

obligation $ 9,301 $ 273 $ 9,817 $ 260 $ 11,432 $ 308

Fair value of plan assets (7,322) — (7,896) — (9,415) —

1,979 273 1,921 260 2,017 308

Impact of asset ceiling test and minimum

liability(1) — — — — 18 —

Net amount recognized $ 1,979 $ 273 $ 1,921 $ 260 $ 2,035 $ 308

Amounts included in:

Retirement benefit

Liability $ 2,172 $ 273 $ 2,121 $ 260 $ 2,325 $ 308

Asset(2) (193) — (200) — (290) —

Net liability $ 1,979 $ 273 $ 1,921 $ 260 $ 2,035 $ 308

(1) Comprises the effect of exchange rate changes.

(2) Presented in Note 21 – Other assets.

The following table presents the allocation of the net retirement benefit liability by major countries, as at:

December 31, 2019 December 31, 2018 January 1, 2018

Pension Other Pension Other Pension Other

benefits benefits benefits benefits benefits benefits

Funded pension plans

Canada $ 783 $ — $ 695 $ — $ 639 $ —

U.S. 370 — 332 — 366 —

U.K. (10) — 102 — 162 —

Other 48 — 72 — 81 —

1,191 — 1,201 — 1,248 —

Unfunded pension plans

Germany 571 — 526 — 575 —

Canada 27 245 24 232 28 276

U.S. 41 16 35 18 37 20

Other 149 12 135 10 147 12

788 273 720 260 787 308

Net liability $ 1,979 $ 273 $ 1,921 $ 260 $ 2,035 $ 308

The following table presents the allocation of benefit obligation and plan assets by major countries, as at:

December 31, 2019 December 31, 2018 January 1, 2018

Benefit Plan Benefit Plan Benefit Plan

obligation assets obligation assets obligation assets

Funded pension plans

Canada $ 4,822 $ 4,039 $ 4,069 $ 3,374 $ 5,030 $ 4,409

U.K. 2,235 2,245 3,752 3,650 4,215 4,053

U.S. 1,081 711 891 559 1,000 634

Other 375 327 385 313 400 319

8,513 7,322 9,097 7,896 10,645 9,415

Unfunded pension plans 1,061 — 980 — 1,095 —

$ 9,574 $ 7,322 $ 10,077 $ 7,896 $ 11,740 $ 9,415

192 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

The fair value of plan assets by level of hierarchy, was as follows, as at:

December 31, 2019

Total Level 1 Level 2 Level 3

Cash and cash equivalents $ 618 $ 471 $ 147 $ —

Equity securities

U.S. 873 867 — 6

U.K. 215 207 8 —

Canada 334 334 — —

Other 1,071 1,068 — 3

2,493 2,476 8 9

Fixed-income securities

Corporate 853 — 853 —

Government 2,536 — 2,536 —

Other 17 — 17 —

3,406 — 3,406 —

Real return asset securities 682 622 — 60

Other 123 — 123 —

$ 7,322 $ 3,569 $ 3,684 $ 69

December 31, 2018

Total Level 1 Level 2 Level 3

Cash and cash equivalents $ 707 $ 513 $ 194 $ —

Equity securities

U.S. 832 826 — 6

U.K. 228 220 8 —

Canada 259 259 — —

Other 1,089 1,086 — 3

2,408 2,391 8 9

Fixed-income securities

Corporate 1,038 — 1,038 —

Government 2,766 — 2,766 —

Other 22 — 22 —

3,826 — 3,826 —

Real return asset securities 895 840 — 55

Other 60 — 60 —

$ 7,896 $ 3,744 $ 4,088 $ 64

January 1, 2018

Total Level 1 Level 2 Level 3

Cash and cash equivalents $ 732 $ 551 $ 181 $ —

Equity securities

U.S. 1,007 1,001 — 6

U.K. 300 291 9 —

Canada 419 419 — —

Other 1,240 1,238 — 2

2,966 2,949 9 8

Fixed-income securities

Corporate 1,335 — 1,335 —

Government 3,139 — 3,139 —

Other 29 — 29 —

4,503 — 4,503 —

Real return asset securities 994 934 — 60

Other 220 — 220 —

$ 9,415 $ 4,434 $ 4,913 $ 68

Plan assets did not include any of the Corporation’s shares, nor any property occupied by the Corporation or other

assets used by the Corporation as at December 31, 2019, 2018 and January 1, 2018.

BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019 193

The following table presents the contributions made for fiscal year 2019 and 2018 as well as the estimated

contributions for fiscal year 2020:

2020 2019 2018

Estimated

Contribution to

Funded pension plans $ 239 $ 248 $ 190

Unfunded pension plans 25 27 27

Other benefits 12 11 13

Total defined benefits plans 276 286 230

DC pension plans 97 86 91

Total contributions $ 373 (1) $ 372 $ 321

(1) The estimated total contribution for the Aerostructure business is approximately $48 million for 2020.

The following table presents information about the maturity profile of the defined benefit obligation expected to be

paid, as at:

December 31, 2019

Benefits expected to be paid

Within 1 year $ 333

Between 1 and 5 years 1,556

Between 5 and 10 years 2,475

Between 10 and 15 years 2,966

Between 15 and 20 years 3,284

$ 10,614

The following table provides the weighted average duration of the defined benefit obligations related to pension

plans, as at:

Duration in years as at December 31, 2019

Funded pension plans

Canada 17.3

U.S. 15.7

U.K. 20.4

Other 17.3

Unfunded pension plans

Germany 15.9

Canada 13.6

U.S. 13.0

Other 15.8

The following table provides the expected payments to be made under the unfunded plans, as at

December 31, 2019:

Germany Other Total

Benefits expected to be paid

Within 1 year $ 22 $ 17 $ 39

Between 1 and 5 years 93 81 174

Between 5 and 10 years 133 120 253

Between 10 and 15 years 146 134 280

Between 15 and 20 years 127 141 268

$ 521 $ 493 $ 1,014

194 BOMBARDIER INC. FINANCIAL REPORT - FISCAL YEAR ENDED DECEMBER 31, 2019

The significant actuarial assumptions reflect the economic situation of each country. The weighted-average

assumptions used to determine the benefit cost and obligation were as follows, as at:

December 31, 2019 December 31, 2018 January 1, 2018

Pension Other Pension Other Pension Other

(in percentage) benefits benefits benefits benefits benefits benefits

Benefit cost

Discount rate 3.29% 3.88% 3.03% 3.56% 3.22% 3.95%

Rate of compensation increase 2.99% 3.00% 3.00% 3.00% 3.00% 3.00%

Inflation rate 2.28% 2.20% 2.28% 2.20% 2.30% 2.25%

Ultimate health care cost trend rate n/a 5.08% n/a 5.08% n/a 5.07%

Benefit obligation

Discount rate 2.51% 3.15% 3.29% 3.88% 3.03% 3.56%

Rate of compensation increase 2.91% 2.75% 2.99% 3.00% 3.00% 3.00%

Inflation rate 2.23% 2.10% 2.28% 2.20% 2.28% 2.20%

Initial health care cost trend rate n/a 5.21% n/a 5.24% n/a 5.25%

Ultimate health care cost trend rate n/a 5.07% n/a 5.08% n/a 5.08%

n/a: Not applicable

The mortality tables and the average life expectancy in years of a member at age 45 or 65 is as follows, as at

December 31:

(in years) Life expectancy over 65 for a male member currently

Aged 65 on December Aged 45 on December

Country Mortality tables 2019 2018 2019 2018

Canada 2014 Private Sector Mortality Table ("CPM2014Priv")