Airbus Se Ord

Good morning, ladies and gentlemen. This is the Airbus Q1 2021 Results Release Conference Call. Guillaume Fourier, our CEO, and Dominik Asam, our CFO, will be presenting our results and answering your questions. This call is planned to last around one hour. This includes Q&A, which we'll conduct after the initial presentation. This call is also webcast. It can be accessed via our homepage, where we have set a special banner. Playback of this call will be accessible on the website, but there is no dedicated phone replay service. The supporting information package was emailed to you earlier this morning. It includes the slides, which we will now take you through, as well as the financial statements. Through this call, we will be making forward-looking statements. The package you received contains the safe harbor statement, which applies to this call as well. Please read it carefully. And now, over to Guillaume.

Thank you, Torsten. Good morning, ladies and gentlemen. Welcome to our Q1 2021 results call and thank you for joining us today. Together with Dominique, we will take you through our financial results. It's now more than one year since we were first hit by the COVID-19 pandemic and the status of the overall market environment in Q1 clearly demonstrates that the crisis is not yet over for our industry. Today, the global landscape varies significantly and the path to recovery is what we call not necessarily linear. We see that countries around the world are progressing on their national vaccination campaigns. However, they are doing it at different speeds and new emerging variants of the virus make the sanitary situation more complex and more difficult. However, some regions show encouraging signs of domestic air travel returning. Other regions, like Europe, have maintained or even reinforced their travel restrictions. And travel restrictions, especially if and when they are not well coordinated among countries, have an adverse impact on this traffic recovery. So we continue to face significant uncertainties which results in a lack of predictability, at least over the short term, and we think we need to continue to demonstrate our resilience. In the first quarter, we delivered 125 commercial aircraft, which gives us a good start in 2021. This year, in 2021, we do not expect the entire delivery profile to be the same as pre-COVID-19, or, of course, not the same as last year. Deliveries continue to be driven by the agreements negotiated with our customers in COVID time. Let's now look at our financial results. Due to this still uncertain environment, we maintained in Q1 a strong focus on cost and cash containment while making progress on our restructuring as planned. This is clearly reflected in our Q1 financials together with our Q1 delivery performance. As a result, our Q1 EBIT adjusted was €0.7 billion compared to €0.3 billion in Q1 last year. Our Q1 2021 free cash flow before M&M customer financing was plus €1.2 billion and it includes a strong positive phasing impact from working capital. Our net cash position increased to 5.6 plus 5.6 billion euros as of end of March 2021. During our full year 2020 disclosure, so by mid of Feb, we have established a 2021 guidance to provide some visibility in a complex business environment. And based on everything we see today, we keep our guidance unchanged. Let's look at our commercial position in more detail. Global air traffic started weaker into 2021 than industry forecasts had anticipated. This weakness was driven by deteriorations in most international markets, including domestic China, where citizens were requested to stay at home during the traditional Chinese New Year travel period. However, since March, and based on ASKs available 6 km, we see different developments across region. Domestic China is now above pre-crisis levels. Positive signs of recovery are also coming from domestic North America. Domestic Europe is on the contrary considerably lagging behind with not even half of the pre-crisis level reached in the last months and weeks. international traffic globally remains at a very low level and the recent deterioration in the sanitary situation as in India reminds us of the fragility of the recovery. In this mixed commercial environment, we are managing different priorities with different time horizons. For 2021, We maintain our focus on managing deliveries to our customers in this volatile situation with limited visibility while we closely monitor the health and in particular the financial health of our customers. For the period beyond 2021, we are now in a position to define the appropriate single aisle ramp-up profile. We continue to expect the market to recover and with a full recovery expected between 2023 and 25, with domestic and regional markets leading that recovery. That ramp-up profile needs to take into account that some customers will have to restore their balance sheets when exiting the crisis. Let me remind you of our orders and backlog in Q1. We booked 39 gross orders, including 38 single eyes. We saw 100 cancellations, which were already largely embedded in our backlog valuation that we shared with you as of the year end 2020. This number included 88 cancellations from one specific customer, which we recognized in February. As a result, net orders stood at minus 61 aircraft, and our backlog in units amounted to 6,998, so very close to 7,000 aircraft. Looking at helicopters, in Q1 2021, we booked 40 net orders versus 54 in Q1 last year. In 2021, we see good momentum for campaign in our home countries, especially in public services, while the commercial helicopter market remains soft. We welcome the most recent governmental orders such as the order from France, to purchase eight additional H225M and the second prototype of the so-called VSR 700 unmanned aerial system as part of the French stimulus plan to the aeronautical industry. Finally, in defense and space, in Q1 2021, our order intake was at 2 billion euros, representing a book to build of around 0.9, which is good for a first quarter. During the quarter, €0.8 billion orders were booked in space systems, including the UTELSAT order to build a geostationary telecommunication satellite, the contract signed with INTELSAT to build two 1SAT satellites, and the order from GSAT, the main operator in Japan, that has become the first Japanese telecommunications operator, to order a satellite from Europe. We also booked orders worth €0.8 billion in military aircrafts, including recurring orders in military services and 0.3 billion euros in connected intelligence. On FCAS, the Future Combat Air System, a lot of work has been done until now by the states and manufacturers. We have achieved agreements with our partners in all pillars under Airbus' lead for the so-called Demonstrator Phase 1B. Negotiations are now with the three customer nations, and it is and it remains our joint ambition to fully converge soon in order to move ahead for a timely contracting of this very important so-called demo phase 1b. On Eurodrone we are pleased with the progress made between the industrial partners and the government and we welcome the decision of the budget committee of the German Bundestag which is a key milestone before achieving contract signature. So overall, good progress in Q1. So now, Dominique will take you through our financials. Dominique, the floor is yours.

Thank you, Guillaume, and good morning, ladies and gentlemen. Our Q1 2021 revenues were broadly stable year on year. Our Q1 EBIT adjusted increased to €0.7 billion. This reflects the cost containment we continue to apply as long as we have to cope with significant uncertainties in our commercial environment. It also reflects a favorable mix and a positive impact from hedging. Going forward, we aim to make our cost savings more sustainable and to underpin our earnings and cash growth trajectory for the periods beyond 2021. Our research and development expenses decreased by 6% year-on-year, We continue to expect our 2021 full-year research and development expenses to be at a similar level as in 2020. Our Q1 earnings per share adjusted stand at 58 euro cent per share, based on an average of 784 million shares. Our Q1 free cash flow before M&A and customer financing was 1.2 billion euros. This is mainly driven by a strong positive phasing impact from working capital and reflects our continued efforts on cash containment. Now onto the next slide regarding our profitability. Q1 2021 EBIT recorded was 0.5 billion euros. The level of EBIT adjustments totaled a negative 0.2 billion and included 29 million negative related to A380 program cost, minus 177 million impact from foreign exchange mismatch and balance sheet revaluation, and minus 26 million of other costs, including compliance costs. Earnings per share reported include 59 million of positive financial results. It mainly reflects the revaluation of financial instruments and the evolution of the US dollar, as well as 43 million related to TASO Aviation, partly offset by a net interest result of minus 82 million euros. The tax rate on the core business is around 27%. The effective tax rate on net income is 34%, impacted by impairments of deferred tax assets in certain tax jurisdictions and on certain investments. The resulting net income is 0.4 billion euros with earnings per share reported at 46 euro cents. Now to our hedging activities. In Q1 2021, $4.5 billion of hedges matured at a rate of 1.16%, with associated EBIT impact as compared to 119 in Q1 2020. For the full year 2021, we expect an average hedge rate of 121 compared to 119 in 2020. As a result, for the remaining nine months, we expect a negative year-on-year impact. During the quarter, we further adjusted the phasing of our hedges by implementing $4.8 billion of rollovers. We also implemented 4.6 billion of forwards at a rate of 122. And $1.2 billion of hedges were disqualified. As a result, our total hedging portfolio in US dollar stands at $79.8 billion, with an average hedge rate of 126 versus 81 billion, also at 126 in December 2020. Now let's look at our cash evolution into 2021. Our gross cash flow from operations of 0.6 billion euros mainly reflects our EBIT adjusted and includes a 0.3 billion provision consumption related to the restructuring plan. Our working capital has decreased by 1 billion euros and includes a strong phasing impact from working capital also in our divisions. Year-to-date, the A400M continued to weigh on our free cash flow before M&A, but less so than in Q1 2020. Q1 CapEx was around minus 0.5 billion euros stable versus Q1 2020. For 2021, we expect our CapEx to be at a similar level as compared to 2020. Free cash flow reported was 1.2 billion euros. M&A activities accounted for just minus 7 million euros and customer financing represented an outflow of only minus 31 million euros. This low level of customer financing may not be sustainable going forward We intend to mitigate the impact from cash consumption via external financing sources with support from export credit agencies. Our net cash position has improved to 5.6 billion euros as end of March and our liquidity position remains strong and stood at 34.8 billion euros. We have extended the maturity of our supplemental liquidity line by six months, maintaining a high level of flexibility in the uncertain environment caused by COVID-19. Back to you.

Thank you, Dominique. Now on to commercial aircraft. In Q1 2021, as said, we delivered 125 aircraft to 44 customers. After a slow start at the beginning of the year, we delivered 72 aircraft in March. When we look at the Q1 2021 situation by aircraft family, on A220, we delivered nine aircrafts. Our production rate increased from 4 to 5 per month from the end of Q1 2021, as previously announced. The A220 continues to show high utilization rates throughout the pandemic due to low operating costs and is expected to emerge as one of the strongest post-crisis solutions. On A320, we delivered 105 aircraft, out of which 46 were A321s. we will gradually increase our A320 production rate to 43 in Q3 and 45 in Q4 as planned. The A321XLR, the development of the XLR remains on track. Let's move to white bodies. We delivered 11 aircraft of which 10 A350s and one A330neo. On March 18, the first A350 test flight with 100% sustainable aviation fuel took off, a very visible demonstration of our ambition to lead the decarbonization of the aviation industry and a demonstration that it's possible. Now let's look at Airbus commercial financials for the first quarter. Revenues decreased by 4% year on year, mainly reflecting lower volumes in services. The increase in EBIT adjusted mainly reflects our cost containment as well as the favorable mix. It also includes a positive impact from hedging. Looking at helicopters, in Q1 2021, we delivered 39 aircraft or helicopters in total, eight helicopters less than the first quarter of 2020. This is mainly due to the anticipated lower H145 deliveries in Q1, following the introduction of the new version, the so-called five-bladed version of the 145. Revenues reflect this lower volume in commercial helicopters, partially offset by growth in services. EBIT adjusted increased to 62 million euros, driven by services, program execution, and and lower spending on R&D following the certifications of the H160 and the new five-bladed version of the H145 in 2020, so last year. Now on to defense and space. Revenues are stable compared to Q1 2020. The increase in EBIT adjusted mainly reflects the continued cost containment and the positive saving in the first quarter. For the A400M, one delivery to the French customer was achieved in Q1. We will continue with development activities towards achieving the revised capability roadmap. Retrofit activities are progressing in close alignment with our customers. Some risks remain on the development of technical capabilities and associated costs on aircraft operational reliability, in particular with regard to power plants. on cost reductions and on securing export orders in time as per the revised baseline. Now, let me remind you of the guidance we have issued in February. As the basis for its 2021 guidance, the company assumes no further disruptions to the world economy, air traffic, the company's internal operations, and its ability to deliver products and services. The company's 2020 wide guidance is before M&A and on that basis, the company targets to at least achieve in 2021, same number of commercial aircraft deliveries as in 2020, EBIT adjusted of 2 billion euros and break-even free cash flow before M&A and customer financing. Last slide to summarize our key priorities, which have obviously not changed since our full year disclosure. After a good start in the first quarter, we will continue to focus on delivering aircraft, as agreed with our customers, and managing the backlog, finalizing the implementation of our restructuring, and preparing the single-aisle ramp-up to be ready for when the market recovers, and that's coming sooner now. It is obvious that our priorities go beyond 2021. We aim to become more resilient towards unexpected changes that will inevitably happen from time to time in this complex and fast-changing world, to enable the ramp-up of more complex and more innovative products much faster than before, and to drive our competitiveness by consolidating and simplifying our industrial setup which today is still partially fragmented across the company, our subsidiaries and suppliers. We want to take advantage of the currently lower production rates to best prepare the Airbus industrial system of the future. In that context, we decided to place Fuselage Aerostructures Assembly at the heart of our Airbus production system, and we intend to create two new aerostructures entities, one in France and one in Germany, and a third entity anchored in Germany as a strong global player for detailed powers. We believe that it's the right time to transform our industrial system into one digital design and production stream, which also prepares the next generation aircraft that is likely to have a different architecture as compared to today. This will also support and contribute to our ambition to lead the decarbonization of our industry. This ambition is underpinned by Airbus being the first aircraft manufacturer that has disclosed its so-called scope-free use of sold goods emissions in order to establish a firm reference point against which improvements will be measured. At the same time, we are invested in innovation and in the transformation of our company to deliver on our long-term ambitions across the portfolio. I think Thorsten, looking at you now, we are ready to take your questions.

Thorsten? Absolutely. We now start our Q&A time. Please introduce yourself and your company when asking a question. Please limit yourself to two questions at a time. This includes sub-questions. Also, as usual, please remember to speak clearly and slowly in order to help all participants, particularly ourselves, to understand your questions. So, please go ahead and explain the procedure for the participants.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press 01 on your telephone keypad. If you wish to remove yourself from the question and answer session queue, you may press 02 on your telephone keypad. Participants are requested to use only handsets while asking a question. Again, anyone who has a question may press 01 on your telephone keypad. We have one first question for Madam Seating. From UBS, Madame.

Bonjour. Thank you for taking my questions. So a really good start to the year, Guillaume and Dominique and the rest of the team. So I would say, you know, could you please share our thoughts on what happens next in terms of how we think about the, I would say, quarterly or at least first half, second half thoughts on for example the cash as you seem to be able to sustain break even as long as production is low but maybe do we need to start thinking of potentially a cash headwind into the last quarter as you fund for the future ramp up for next year and also I would say how do you think in terms of cash on rebalancing the cash which was a you know, a challenge for the last years on being so much H2 weighted. Do you think that this year is a bit of a weird profile or it also enables you to say, okay, we've rebased and now we're going to, you know, we're not going to go into this massive H2 skew again for the better and making this company more resilient as Guillaume said.

Thank you. Thank you, Céline. Always a pleasure to start questions with your questions. Yes, indeed, it's a good start in Q1 in terms of deliveries and also in terms of financials. I've said, I mean, we'll continue to work hard to make progress in the year. Q1 start was weak. You remember we had weak deliveries in Jan and Seb. We recovered very significantly in March. I guess Q2 will also not be very linear, and we see that it's a complex environment. We had in April new lockdowns and new restrictions in Germany, in France, which have made our life a bit more difficult. So I want to remain prudent, but we want to believe the situation will improve, probably in the second half of the year with the progress of the vaccination campaigns. So again, we don't have that much visibility on the short term, but we think we're gaining visibility on the more mid-term, and that's probably what's driving the fact that we maintain our provisions to start the ramp up of single aisle in Q3 and Q4 modestly, but that's an important point for us, that's a reference point, and that's a bit the inflection point. Now if I may, free cash flow is too serious for a CEO, so I will hand over to my CFO, to answer your questions on that topic.

I leave the rocket science to you when I go to the plus and minuses of free cash flow. So, yes, indeed, we had a very exceptional Q1 in a certain way compared to prior years. I think it was 2011 when we last had a positive free cash flow. But I think it's always worthwhile diving into the balance sheet to really look at where it came from. And you see the biggest item that's changing is really on the trade liabilities. So it's the question of the phasing when we receive goods for our production system and when we pay them. And that was a $2.5 billion increase. The other topic which is noteworthy is that we still have, because of certain customer discussions, some advanced PUDs. So that's a situation where the customer is giving us the cash for the delivery but is not taking delivery. And that's, of course, for us better than not taking it. And the last topic, and it was positive, of course, also for Q1. And you can, even if you look very carefully, see that a little bit in the current liabilities, current contract liabilities, that they go up. So liability going up is cash in. And then the last point is really the overall picture on the cash phasing related to the PDPs. We remember at the end of last year, we already said that we deferred a lot of aircraft but we keep the PDPs. So we said that in 2021, there will be a difficult situation with a significant negative impact from the overall balance. And this is still to happen in this year. So this will be kind of way more on the outer quarters. So just to give you the color why it does not make sense to multiply Q1 by four, it would not be the right way to think about it. And that's indeed you're right. The cash challenge will be much more ahead of us. and the linearity on the free cash flow, yeah, it has improved in some ways from the production system. I mean, it's not really the production, but it's more the commercial customer interaction and the fine tuning on the supply chain where we need to make sure that we are really synchronized.

And sorry, Danil, just to follow on that, the linearity on the cash, you think that could be sustainable?

I think from a production side, yes, we are more sustainable. But again, we are not expecting that you will have a kind of very strong positive Q1 free cash flow. I think what we see in this quarter was kind of a little bit unusual.

If I may add to this, Céline, actually we have started to see a better linearity of the free cash flow already in Q1 2020. But we were hit mid of March, beginning of March by the pandemic in China. And finally, it was not visible in our Q1 results. But would we not have had the... the pandemic, we would have started to see this better linearity compared to previous years. Now, everything is up and down, and it's difficult to identify the long-term trends, but we believe we are doing much better, and we will do much better on that front moving forward. Brilliant. Thank you very much.

Thank you, Madam. We have a next question from Mr. Tristan Sanson from Exxon BNP Paribas. Please go ahead.

Yes, good morning, Yann, Dominique, and Thorsten. Thanks for taking my question. The first one would be on the commercial relationships you have with airlines today. Can you give a bit of color on what type of feedback you have from airlines, like geographic area and type of airlines, like flagship carriers versus low-cost? Who wants to defer? Who wants to accelerate? especially given your comment that you made that you need to take into account that some customers will need to restore balance sheets in the recovery phase of the crisis. That would be helpful. And the second question is a theoretical question on the margin trajectory. So you had a pretty good cost management performance in Q1 as you flagged, as you've seen in cost control mode, but overall, you're in a situation where you have a low fixed cost absorption and you said that you were accepting to be other staff short-term to be able to get a smooth ramp-up going ahead. So I don't know if your staff to do 50 or 55 or 320 a month, but if it's more than 40. Instead, it means that the margin progression ahead should not be linear and quite front-loaded in the recovery phase. Is it the right way to approach margin development?

Okay, I'll take the first one and maybe we sort of share the second question. Commercial relationships. It's very diverse, actually, and it's very connected to the comments I made on the very different situations we see in the market. China is much improved and is looking positively at the next months and years. So that's one situation. The U.S. is also quite bullish and is looking for a very strong summer. So the airlines are getting prepared and ready, and we see as well that they are willing to start considering accelerating. Some airlines are considering accelerating deliveries of planes, 23, 24, prudently, but it's a good start. And on the contrary, we see in Europe that the scenario of recovery is much worse than what airlines were expecting. And therefore, it leads to very difficult situations for them and therefore for us. So I would say huge diversity of situations. And I try to reflect that diversity by saying that on average, for us, it stays consistent with what we have said a couple of months ago at the full year results. But when you look at the details, it So, I call it volatility and uncertainty because it could go up or go down on the short term. It's very difficult to assess. Now to your question of being prepared for ramp-up. Yes, at Airbus, we are getting prepared for the ramp-up to come on the single aisle later this year. Indeed, we have the staff we will need for the beginning of that ramp-up. The other staffing you're referring to, I would like to put more color on that one. It's not on the white bodies, and on the white bodies we have considered we are at low rates for a long period of time, therefore we are fully adapting to that new situation, and the priority on the white bodies is to be back to break even as soon as we can. On single line, that's different. We considered, and I think we were right to consider that we had a big dip and then a ramp-up, and we want to make sure we can deliver that ramp-up, both from an internal perspective and from the supply chain perspective. The overstaffing is to a large extent financed by our governments with the so-called Kurzarbeit, APLD in France, the furlough schemes that are rather short-term, so they will expire by end of this year for the majority of them, But that's the point where we start to see the ramp-up. So we think so far that decision to keep thousands of people with us, largely financed by governments, to be able to ramp up is a good deal for governments, for employees, and for us. And therefore, we think that will help us in the ramp-up. For the long-term ramp-up, we'll be back to traditional situations for hiring, training, and so on.

did i miss something in the question um no okay maybe it says thank you very much thank you sir this question next question is from mr benjamin helen from of america please go ahead yes uh morning guys thanks for taking uh my question i i have one on uh 2022 production and when you expect to make a decision. You mentioned in your prepared remarks that you still see demand improving in 2022, so I'm just keen to understand when can we be thinking about a decision being made then. And then a second question in terms of the aerostructures announcements. You talked about it a bit in your prepared remarks, but just wondering if you could develop on that a little bit more. What does it mean for the group? Are there any cost savings that we should be thinking about And I guess why has that decision been made now rather than five years ago? Thank you.

Good morning, Ben. Pleasure speaking to you. Well, when it comes to 2020 production rates, we are planning now and we will, for the single aisle, continue the ramp-up So you see the 43 Q3, the 45 Q4, and it will continue to ramp up in 2022. We have already given indications to our supply chain, but that's outside of what we call the firm horizon. So we will solidify those numbers and communicate at a later stage once we enter into the firm horizon. But it's a steep ramp up in 22 and 23 for the single island. Aero structures... Why didn't we make the decision five years ago? I don't know. I think there are a couple of triggers which come today. One is the progress we have made on the so-called DDMS project, which is the digital backbone of the company. We have more visibility on what we want to do for the next generation of products and a better understanding of the depth of the changes in architecture and therefore the the nature, the core nature of aerostructure assemblies to enable the digital design and production of these airplanes and their production systems, and as well the fact that COVID-19 and the low level of production is providing a window of opportunity to accelerate change. Now, this will provide a lot of capacities to enter into service modern products in a much more efficient way in the future. This will improve the cost base at that point in time. On the short term, there is no major revolution to be expected, except that it's creating the conditions for us to be successful when this will be coming, and to focus our investments on aerostructure assemblies and give a life to our detailed paths, to give an opportunity to grow, to get investments, but not as a core activity of Airbus, considering that this is not the priority for our investments. We have so much to do on what is in our place for the technologies, for the future products, for the digital systems, that we want to concentrate on this.

Okay. Is the plan to dispose of that detailed parts business at some point in the future then?

This is one of the scenarios we will investigate with our partners moving forward, but you know we have a We have just started the project, and this will be one of the scenarios that will be considered. Okay. Okay, great. Thank you.

Thank you. Our next question is from Mr. Chris Helen from Goldman Sachs.

Good morning, everybody. So in the full year call, you referenced that deliveries this year would depend upon the industry reaching a tipping point in commercial demand. So I suppose is it too early to say that the March delivery performance was that tipping point? And then second, you mentioned that you now have a better view on the pace of an appropriate ramp-up beyond 2021. Could you give us some pointers on what pace of ramp-up is deliverable from a supply chain perspective and from a demand perspective? Should we assume a similar pace as you're doing this year, i.e. A320 rates moving up by five every six months?

Thanks. So I confirm that it's too early in our perspective to consider we are at the tipping point. We might be coming closer, and I would like to be at that place by end of Q2. We'll see, we will be just ahead of the summer, or in the summer, and it's not unlikely that we have that visibility to call it the tipping point. But end of March, beginning of April, that's really too early. What's the fastest possible ramp up? That's a very important question. And we are currently doing the work with our supply chain to give an answer to that question. So that's why I said it's premature to give figures for 2022. We have indicated scenarios to the supply chain. We are working with the supply chain to see what's reasonably possible. And this will be one of the drivers for when we give visibility on 2022. and the pace of recovery and of ramp-up of the sigilite that we will be targeting. So, sorry to be not more explicit, but that's slightly premature. We'll probably be able to say more next quarter.

Hello?

Thank you, sir. Next question is from Mr. Christophe Menard from Deutsche Bank. Please go ahead.

Yes, good morning. Thank you for taking my questions. So, first one is on the working cap. Yes, indeed, the trade liabilities were up in Q1, but I was also wondering about inventory, which was under, I mean, the inventory control or the inventory level was pretty good under control. How do you see this throughout the year? That's the first question. And the second is on the aerostructure reorganization. Further details, if possible. Do you intend to do more make or buy decision on that basis of the reorganization? And is more CAPEX needed for the DDMS, I would say, implementation? Or is the CAPEX already spent on this? OK.

Okay, I have a go on the working capital question. I mean, first of all, yes, we have an increased aircraft in storage. That's correct. So that should actually give an increase. But you see that what we've seen on the increase side is quite moderate. So it also tells you that in the working process, we've actually been improving the situation. Now, you asked for the outlook at the end of the year. That's kind of... tricky because it very much depends on the delivery number. We have said we want to do the 566 last year, like last year at least. The more that we do, the lower the inventories will be. And as you mentioned, we also want to be prepared for the rent next year. So that's the difficult balancing act to find the right balance between reducing cash consumption, on the other hand, being prepared for the rent. So this is why I'm not willing to kind of really give you a strong indication where the inventories will stand at the end because that would imply a strong guidance on what upsides, if any, on the 566 there are. And that's really premature, as Guillaume has already indicated.

And on the second question, we are spending money for the DMS 2020, 2021, moving forward. That's part of the R&D, predominantly. And when it comes to the capex required for our aerostructure transformation. There will be some, to a limited extent, to the point we launch or we prepare the launch of the next generation products, and here it will come with a major capex. And we want to prepare the industrial setup, the legal entities, the tools and the systems, so this can be done in an efficient way, because the next generation of industrial systems and products will be very, very different. So we need to be prepared and it takes time. So that's really one of the reasons why we're doing this now.

And on the make or buy, do you intend to do more make or buys on existing programs or with this new structure?

I don't exactly understand what you mean by more make or buy.

Do you want to internalize more production that is external at the moment, or is it unrelated, I would say?

It's unrelated. There will be a lot of make, but it will make and buy, and the decisions will be taken one by one based on competitiveness of what we see in the markets, So that's premature. It's unrelated and premature to answer that question. I'm sorry.

Okay. Thank you very much.

Thank you, sir. Our next question is from Mr. Charles Armitage from CT. Please go ahead.

Good morning. Thank you. Just thinking about the A220 versus the A320. So pre-pandemic, you were limited by A320 engine supplies. and so you wanted to deliver as many A321s as you could, and then you would fill in the bottom of the lower end with the A220s as a sort of concept. Now engine supply is much less of an issue. So can you talk through how you think about the A220? The more you sell, the bigger the losses, but potentially the closer you are to break even. And the second question and related question is the A220 looks great playing, but at the moment it's not profitable. When do you think you'll achieve break-even post-pandemic and at what rate? And in the very long term, conceptually, what drop-through margins could you see on the 220?

Dominique, you take the question?

I'll start from the back maybe in terms of the A220 turnaround and maybe you want to answer the kind of fleet decisions of our customers with regards to choosing A220s and A320s On the profitability, indeed, as I always say, we are in a J-curve where we are still going through losses. We have the benefit of the loss-making contract provisions from the purchase price allocation, so we can bring the losses to a low triple-digit million amount, and the cash usage is significantly higher because, of course, these loss-making contract provisions don't help on the cash side. We've always said that we need to ramp basically both factories in Mobil and Mirabelle to a decent loading level to come to a break-even operationally. Now that's the key question, how quickly can we do that? You can make the math. You will see that to come to full load, it would be probably some 170 or so per year. But we don't need all that. We need probably slightly less than that to come to break-even. And it's... will take us several years still to get there because you know the rates we currently have are much lower than that. And for that, to be frank, you need new orders. And then there's also a question about the pricing on the new orders that will determine the breakeven. On the fleet decisions, A220 versus A320.

Yeah, maybe I'll try to answer the question on engine being the limiting factor. It was the case in the roundup of the A320 NEO. both with the Pratt & Witt engine and the CFM engine. So let's say 18, 19, beginning of 2020. You're right in saying that it was no longer the case in the last 15 months, let's say. As I told you just before, we are currently running the analysis of the supply chain readiness for the ramp-up ahead of us. And an engine supply chain is also a complex one with some specific parts which are always at the edge. So it's premature to say that engines will not be the limiting factor again in the ramp-up. I'm more optimistic obviously on that front, that was the case previously, but I would be prudent. And the choice between the 220 and the 320, well, I think The overlap in terms of market segments is very small. I don't see in the recent years that we had campaigns where we would have had one and the other. It was always one or the other. They are on different market segments and I think that's good. It shows that we have a good positioning of the different products as we speak with strong products and we anticipate Good market momentum for both the 220, as we commented upon, it was very, very much used during the pandemic, and for the 320 because it remains a very, very strong product line, including the new developments we have made on the 321 with the XLR, which make it really a super product. Thank you.

Thank you, sir. Next question is from Mr. Olivier Brochet from Credit Suisse. Go ahead.

Yes, good morning, gentlemen. Thank you for taking my questions. I would have two, if I may. The first one on a number of disruptions which are happening in various parts of the supply chain in semiconductors, some suppliers flagging casting and forging issues that they've been facing in the quarter, and another one this morning mentioning productivity issues. Is this something that you are starting to see flow through your production system and something that we should be worried about? And the second question is on the consolidation that is happening in the leasing world with the number of deals having been announced. What is your reaction to this?

Thank you, Olivier, and thank you for your questions. Well, actually, you're right to put the finger on those topics. In the last 12, 15 months, the main issues came from the demand, from the customers, from the disruption on air travel. I fear that the main problems, the main risks ahead of us are on the supply chain. I mean, the main reason that all suppliers have adapted to the pandemic situation is with a lot of consequences, and they will have, on the single island in particular, to ramp up now. And this rollercoaster situation is very difficult to manage for a long-term industry like ours. That's why we are very focused on the transparency of the supply chain, on running scenarios and preparing with our suppliers. We've put in place so-called watchtowers, which have given a lot of positive results. gaining that transparency. And what we see coming in the different fields you have mentioned, but others, is something we expect to see more, unfortunately, in the next 12 months. And we will have to manage the situation. That's why we are also prudently commenting for the rest of the year, because we are filled with the wake of the issues. It's a big wake. of the issues on the demand side and we start to see challenges on the supply. So I would say challenges, complexity, we think we have the level of transparency we need to see problem coming and therefore to anticipate and resolve before it becomes a big crisis. But obviously we have to remain very humble and work hard because it's a lot about preparation. When it comes to the consolidation with lessons, My first observation on the lessors is that they have remained very strong over the last year. They've been instrumental in enabling that industry to keep moving forward in a very, very challenging situation. It relies on the stability of the financial system, and that's very important to probably comment on. There's no financial crisis, and that's very important for us. There is some consolidation with players that are important for us, and actually we look at the consolidation. There are pros and cons in these situations, but overall I would say we're fine with it.

Okay. If I may, on the supply chain issues, are there any specific areas that you think are very much in focus for you?

Yes and no. There are a lot of specific areas. Is there a sectorial crisis on one domain? I don't think so. And what you mentioned on semiconductors is impacting many industries, in particular our friends in the car industry. But we are for the moment not too much exposed to that crisis. But we are monitoring obviously the situation. So I would not point to any sector that I would consider more critical by its nature today than others. That's clear.

Thank you very much.

Thank you, sir. Next question is from Mr. Doug Owens from Drunk Therapy Guide.

Thank you. Good morning. First question, just following up on the financing environment. You said at the beginning that you may have to see an increase in customer financing. And so, It would be good to understand what changes you're seeing, if any, in third-party and the ECA financing environment. And then second, freight has been a hot market during the pandemic, and this is one area that I would say has not been an airbus strength. Do you have plans to address freight more aggressively, and if so, how?

So I'd start with the financing part. The situation is actually, as you mentioned, quite stable. So we still see that the financing service providers are alive and kicking. And on top of that, you mentioned the export credit agencies, which have been really weighing in nicely. So I see a positive trend, but it's still a little bit too early to declare victory. So this is why we said that keeping our vendor financing cash out to a kind of low double-digit million per quarter might not be sustainable in the current environment, but I am not seeing a kind of wave of financing hitting us either.

Thank you, Dominique. On the freight question, it's indeed the case that Airbus has been weak on the freight market segment in the past, in particular on our white bodies. And I don't like the idea, and we don't like the idea, to remain weak on that segment in the future. So, indeed, we will be more aggressive, and we think we have the products to be able to be more aggressive in the future.

Which products are you referring to there?

I was mentioning the white bodies, so it will be in the segment of the white bodies moving forward. Now, the way it comes is not clear, it's not defined today. but we are looking at that segment very seriously and we want to play a role moving forward. We think it's not healthy to have only one player exclusive in the market for a segment that is actually very significant and has been resisting well in the pandemic. So we want to bring our contribution to that market segment.

Okay, thank you.

Thank you, sir. Next question is from Mr. Gawker Copeland from Research. Sir, please go ahead.

Hey, good morning, gentlemen. A couple of questions for me. One on the Airbus commercial and just the profitability and the implied profitability by program. Is there anything to call out that's particularly unique about the customer mix in the quarter that, you know, shouldn't repeat in the future? that we should be mindful of? And then secondly, just, Guillaume, on the conversation around the tipping point and, you know, specifically when you look at, you know, wide-body markets and what you're watching there from an incremental risk standpoint, can you give us some color around, you know, what that tipping point is and what the decision markers are there? Any color would be helpful. Thank you.

Dominique, you take the customer mix?

I think what you probably refer to is the question, given the Q1 we had versus the guidance, and was it something that was kind of boosting profitability in Q1, and was it the mix or other things? I would say it's not a predominant factor, the customer mix. Of course, we sometimes have a stronger mix and better margin aircraft, but I would say it's not the biggest driver. The three big drivers we see on the phasing side are first and foremost the currency issue, that we had a 1.16 effective hedge rate in Q1 versus a remain to do which will be from today's perspective at 1.22. You've seen the phasing of the R&D investment where we said that we are going to spend about the same amount as last year for the full year and we have under proportionately spent on that in Q1. And the last one is you should not forget that the rent activity and the resources required for that are very much loaded towards the second half of the year. So this is the predominant driver of the phasing we're going to see and not so much the customer mix.

I will take the second answer and thank you for raising the question. It gives me the opportunity to maybe put more color on this notion of tipping point. As I said, I hope and I believe we will see that tipping point for regional traffic this year. So for our single-aged family, I would be happy moving forward if later in the year we can tell you what we think we have reached the tipping point. I don't see the tipping point this year for the white bodies. White bodies are relying on the international market recovery, which we see being not significant, at least before summer next year. And due to the complexity of the situation and the big differences in the pandemic situation or the way it's been managed around the world, with some regions with still a lot of circulation of the virus, others where there is no circulation of the virus, some where the vaccination is moving forward at an impressive pace, others where it's not the case. So I believe before we see an international market back to order, it will take more time. So tipping point this year, yes, probably likely for single aisle. For white bodies, in my view, not before 2022.

Great. Thank you for the callers.

Thank you, sir. We have one last question from Mr. Andrew Entry from Morgan Stanley. Go ahead.

Yes. Thank you for taking my question and congratulations on a very strong start to the year. Just a couple of follow-ups on earlier points. You've highlighted in a couple of places in your prepared remarks really customer situation on financing. First, indicating that customers will need to prepare balance sheets and secondly, indicating that you're more open to customer financing or you'd expect that to increase. Is that situation worse than it was when you were giving full-year guidance? And by implication, is the delivery number more challenging? And my second question is also around kind of hair structures and supply chains. I think that the rationale for longer-term integration of a lot of your aerostructures businesses is very clear in terms of future architectures, but clearly we have a situation at the moment where there are parts of the aerostructures supply chain in Europe that are in some distress or have a lot of challenges. Would you anticipate any emerging problems there and I guess what do Airbus strategic decisions mean for the rest of the European supply chain in aerostructures?

Dominique, I suggest you take the question on the customer side, the financing.

Sure. I would say no, it has not gotten worse. If anything, very, very slightly more positive, there was one or the other financing looming where we thought we need to chip in and were able to secure funding externally. but I think, again, it's uncertain and premature, so I would not call it a trend yet, but I'm not seeing any trend down, definitely not.

On the second question, aerostructure companies having challenges in Europe, yes and no. I don't see a situation, and back to the previous question, a situation that would be worse or more challenging than other sectors of our supply chain. And I don't see the need for a structural decision or a sectoral decision on aerostructure assemblies or aerostructures in Europe at the moment. It doesn't mean that we won't have to take case-by-case decisions and actions. It's likely that it will be the case. But I don't have the same perception that what you were suggesting, that we have a particular problem in aerostructures in Europe at the moment.

Thanks, Guillaume. This closes our conference call for this time. If you have any further questions, please send an email to Philippe Goester or myself and we will get back to you as soon as possible. Thank you and I look forward to speaking to you again soon.

Thank you very much. Have a good day.