Airbus Se Ord

Ladies and gentlemen, thank you for standing by. Welcome to the Hair Boost final year 2021 results release conference call. I'm Clotilde, the operator for this conference. Please note that for the duration of the presentation, all participants will be on listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. At this time, I would like to turn the conference over to your hosts, Guillaume Faurie, Dominique Assam, and Hélène Legorgeux.

Thank you, Clotilde. And good morning, ladies and gentlemen. This is the ABAS Full Year 2021 Results Release Conference Call. Guillaume Faurie, our CEO, and Dominique Azam, our CFO, will be presenting our results and answering your questions. This call is planned to last around one hour and 15 minutes. This includes Q&A, which we will conduct after the initial presentation. This call is also webcast. It can be accessed via our home page, 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. Throughout this call, we will be making forward-looking statements. The package you receive contains the Safe Harbor Statement, which applies to this call as well. Please read it carefully. And now, over to Guillaume.

Thank you, Hélène, and good morning, ladies and gentlemen. Thank you for joining us today for our full year 2021 results call. I'm happy to be here with Dominique to run you through our results. 2021 has been another challenging year, but it was also a year of transition where our attention shifted from navigating the crisis towards recovery and growth. In the early months of 2021, we still had to demonstrate our resilience in a global context of low air traffic and an overall lack of predictability. We gained visibility as we progressed in the year. We saw that air traffic accelerated quickly once travel restrictions were lifted, starting in key domestic markets, and demonstrating the fundamental need for connecting people and cultures worldwide. This visibility, together with the strengthening of our customers' demands, gave us confidence to set our ramp-up trajectory, engage our supply chain, and launch all necessary actions to prepare for a strong recovery in the single-line market. 2021 has also been a remarkable year for Airbus, thanks to the resilience and efforts of our teams to deliver outstanding industrial, commercial, and financial results. Let's now look at our commercial aircraft deliveries and our financials, both showing that we delivered on the guidance we provided in October. In Q4, we delivered 187 aircraft, taking our full year 21 delivery number to 611, an 8% increase compared to 2020, and in line with our 2021 guidance. I'm proud of this collective achievement by Team Airbus, together with our customers and suppliers. For the full year 21, our EBIT adjusted was 4.9 billion euros, and our free cash flow before M&A and customer financing was 3.5 billion euros. Our strong 2021 financial results, and in some ways they are very strong, reflect the number of commercial aircraft deliveries, the good performance of our divisions, as well as our cost containment and efforts on competitiveness. While carefully managing our cost base for the year, we progressively resume activities to prepare our future, and we will further accelerate in 2022. Our EBIT adjusted also benefited from the reduction of risk exposures, which enabled us to release some provisions. Our record net income of 4.2 billion euros, together with our strengthening net cash position at 7.6 billion euros, and Dominique will comment on both later, They underpin our proposal to reintroduce dividend payments going forward, which will amount to 1.5 euro per share for 2021. Today, as we have entered 2022, the pandemic is not yet fully behind us. We experience additional complexity coming from the global macroeconomic landscape, including tensions on supply, logistics, and labor. Nonetheless, we continue to deliver on our production ramp-up as planned while closely monitoring and managing the associated challenges. Let's now look at our commercial environment. After a sharp decline in 2020 and in spite of the certain challenges in 2021, the global economy rebounded. The air traffic also progressively recovered throughout the year, Even though the crisis is not over yet, the aviation industry continues to emerge from it. It has become clear that people want to fly again, and they do so as soon as travel restrictions are relaxed. Yet, 2021 has also shown that some key markets remain volatile, and the Omicron variant has confirmed once again that the path to full recovery is not linear. These uncertainties are not, today, of the nature to change our expectations that the market will recover between 2023 and 2025, with domestic and regional markets clearly leading the way. This is underpinned by our customers' strong demand for latest-generation fuel-efficient aircraft, which reinforce their competitiveness and lower their fleet emissions. In fact, latest-generation aircraft represent today only around 13% of global fleets, underlining the strong potential of fleet replacement to decarbonize commercial aviation with today's technologies. Let me now remind you of our orders and backlog, which also reflect a strong commercial activity in Q4. For the full year 2021, we booked 771 gross orders. In Q4, we recorded 501 gross orders, including 43 A220s, 46 A320 family aircraft, and 32 white bodies. This includes the first A350 freighter orders, which, together with several commitments, mark an important milestone for this program. I am pleased by this great commercial performance, and we at TABUS appreciate the strong endorsement from our customers we placed new orders for 2021 to answer both passenger and freighter market demands. We saw 264 cancellations in 2021. As a result, net orders were positive at 507 aircraft, and our backlog in units amounted to 7,082 aircraft at the end of 2021. At group level, our backlog in value increased to 398 billion euros in 2021, mainly reflecting the strengthening U.S. dollar. I'd like to say a few words about the situation we are unfortunately experiencing with one of our customers, Qatar Airways. We had to make the decision to exercise our rights and terminate two A350-1000 delivery slots and the A321 contract. This decision followed many attempts to find mutually beneficial solutions, and we continue to hope for an amicable solution. And I'd like to say as well that for us at Airbus, this relationship with our customers is of the utmost importance, and we will continue to work hard to serve them. Looking at helicopters, in 2021, we achieved a record year of booking with booked to be well above 1, which confirms the positive momentum for campaigns in our home countries, as well as the good performance of our support and services business. Over the year, we booked a total of 414 net orders, compared to 268 in 2020. This includes 52 H-160 helicopters, of which the firm order by the French DGA for 30 units of the H-160 military version as the first batch of the light joint helicopter program, which plans for an overall total of 169 units. In addition, we recorded in Q4 an order for 36 H-135 helicopters by the Spanish Ministry of Defense and Interior. Finally, in defense and space, in 2021, order intake was at 13.7 billion euros, up 15% year-on-year, corresponding to a book-to-bill of around 1.3. This commercial performance includes key orders in our military aircraft business, such as two major contracts for the in-service support of the German and Spanish Eurofighter fleets, the Indian order for 56 C-295 to replace the Air Force Legacy fleet, MRTT-related orders from the United Arab Emirates, the UAE, and Spain, as well as the export contract with the Republic of Kazakhstan for 2A400M. In our space systems business, we were granted the contract to design and manufacture six Galileo second-generation satellites. And in 2021, we launched 10 spacecraft and the one-web constellation deployment reached 394 satellites, so close to 400. We received orders for 12 more spacecraft, and importantly, 20 of our satellites are now involved in climate change monitoring, with 20 more in development. For Eurodrone, we welcome the recent budgetary approval by Spain, following that of France, Germany, and Italy. Eurodrone will be the first product to be, from the start, designed and developed through our new digital design manufacturing and service concept. On FCAS, we continue to work with our industrial partners with the objective to move on to the next development phase later in the year. Now, Dominique will take you through our financials.

Thank you, Guillaume, and good morning, ladies and gentlemen. Our fiscal year 2021 revenues increased to 52.1 billion euros, up 4% year-on-year, mainly reflecting the higher number of commercial aircraft deliveries, partially offset by a weakening average US dollar exchange rate. Our fiscal year EBIT adjusted increased to 4.9 billion euros, up from 1.7 billion euros in 2020, which included 1.1 billion euros of charges due to the impairments and write-offs triggered by COVID-19. The strong year-on-year improvement of our EBIT adjusted is mainly driven by the commercial aircraft delivery performance and our efforts on cost containment and competitiveness. It also reflects a reduction of risk exposures, which enabled us to release some provisions. In particular, we reviewed the COVID-19 related charges and reassessed the level of exposure which had a positive impact on our EBIT adjusted mainly in the second half of the year. On research and development, our expenses in 2021 stood at €2.7 billion, slightly below the 2020 level. The R&D expenses are expected to increase to around €2.9 billion in 2022. Our fiscal year earnings per share adjusted stood at €4.33 per share, based on an average of €700 85 million shares outstanding. Our fiscal year free cash flow before M&A and customer financing was 3.5 billion euros. It reflects our efforts on cash containment and a decrease in working capital, mainly driven by inventory improvement. It also includes the divestment of one of our sites in France. All in all, we saw a very strong performance in 2021. While we were still managing our costs in a crisis mode in the first half of the year, and benefited from professional releases mainly in H2. We progressively resumed activities to prepare our future, and this will further accelerate in 2022. This mainly includes additional investments in research and development, digitalization, and cybersecurity, and efforts to support the single aisle ramps up. Now on to the next slide regarding our profitability. Fiscal year 21 EBIT reported was 5.3 billion euros, The level of EBIT adjustments total a net positive of half a billion euros, including plus 274 million related to the A380 program, of which 84 were booked in Q4, plus 122 million gain on disposal from the sale of the aforementioned site in France, recorded in Q4, minus 212 million euros related to A400M, of which minus 209 in Q4. minus 38 negative impact from foreign exchange and balance sheet relation, of which plus 127 in Q4, and 331 million euros of other adjustments, mainly including around 0.2 billion of provision releases related to the restructuring plan and payments by suppliers. Plus 285 million were booked in Q4. Earnings per share reported includes minus 315 million of financial results It mainly reflects minus 246 million of net interest results, as well as the revaluation of financial instruments and of certain equity investments. The tax rate on the core business is around 27%. The effective tax rate on net income is 17%, including the positive effect from tax risk updates and the tax effect on the revaluation of certain equity investments, as well as a net release of deferred tax assets impairments, mainly net due to an updated business outlook. All this results in a record net income of €4.2 billion, with earnings per share reported of €5.36. Regarding our hedging activities, in fiscal year 2021, $20.9 billion of hedges matured with associated EBIT impact at a rate of 120 versus 119 in the prior year. During the year, we adjusted the phasing of our hedges by implementing around $5 billion of rollovers, mainly in Q1. We also implemented $29.5 billion of forwards at a rate of $1.21, of which $6.7 billion in Q4, at a rate of $1.18, mainly for the years 2022 to 2025. As a result, our total hedging portfolio in US dollar, including 1.2 billion of hedges disqualified in Q1 2021, stands at $88.3 billion with an average exchange rate of 125 versus 126 in December 2020. Now let's look at our cash evolution in 2021. Our gross cash flow from operations of 4.5 billion euros mainly reflects our EBIT adjusted and includes a 0.6 billion provision consumption related to the restructuring plan. Our working capital has decreased by a billion euros. It mainly reflects the reduction in inventory. With the deliveries of the last A380s and the continued optimization of our wide-body inventories, largely offset by contract assets and liabilities. Year-to-date, the A400M continued to weigh on our free cash flow before M&A, but less so than in 2020. 2021 CapEx was around minus 1.9 billion euros, slightly higher than in 2020. We expect our CapEx to be around minus 2.4 billion euros in 2022. Free cash flow reported was 3.5 billion euros. M&A activities accounted only for minus 32 million, while customer financing represented an inflow of 28 million. The aircraft financing environment in 2021 remained solid, with sufficient liquidity in financial markets for our product. We also benefited from the support of export credit agencies. Going forward, A low level of customer financing may not be sustainable, and we anticipate some usage of cash in the coming years. Our net cash position has improved to 7.6 billion euros as of the end of December, and our liquidity position remains strong and stood at 28.7 billion euros. As mentioned during our last quarterly disclosure, we've extended the maturity of our 6 billion revolving syndicated credit facility by one year in Q4. Going forward, We will continue to adopt an active approach when it comes to managing our liquidity with the objective of maintaining our robust credit rating. Now back to you.

Thank you, Dominique. Now on to commercial aircraft. In 2021, we delivered 611 aircraft to 88 customers, of which two operating leased without revenue recognition at delivery. This delivery performance represents a year-on-year increase of 45 aircraft. In 2021, we also provided additional visibility to our suppliers, and in particular, we secured the production rate for the A320 family up to summer 2023, which is mid of next year. In addition, we continue the development of our product portfolio with the launch of the A350 freighter and the progress on the A321XLR. Let's now look at the more detailed situation by aircraft family. On the A220, we delivered 50 aircraft. We continue to ramp up and are on track for rate 14 that we envisage by the middle of the decade. The prefile in Mirabel is now operational and will support this ramp-up. On A320, we delivered 483 aircraft, of which 221 A321s. We continue to deliver on our production ramp-up, and we are on our trajectory to achieve rate 65 by summer 2023. We continue to de-risk the ramp-up, including by enabling all our assembly sites to become A321 ready For our production rates beyond 2023, we are still in the assessment phase, and we are working with our suppliers to potentially enable an increase above rate 65. On the A321XLR, the first of three development aircraft entered the fall in Hamburg in November. These aircraft will perform the flight testing and type certification program starting this year, to pave the way for series production and entry into service next year, 2023. On A330, we delivered 18 aircraft, of which three MRTTs. The A330-800 received its 251-ton max takeoff weight certification in December. And as previously announced, we target to increase our monthly production rate to almost three aircraft at the end of 2022. On the A350, 55 aircraft were delivered. We continue to expect to increase the A350 production rate from around five per month to around six in early 2023. On the A380, we delivered five aircraft in 2021, of which the last produced A380 to Emirates. The F380 will continue to fly with our support for many, many years. Let's now look at Airbus commercial financials for the year. Revenues increased by 6% year-on-year, mainly reflecting the higher deliveries as compared to 2020. The increase in EBIT adjusted is mainly driven by the delivery performance. Our efforts on cost containment and competitiveness. In addition, we relieved some provisions reflecting, among others, the good progress made on the remarketing of unplaced aircraft resulting from COVID. Finally, let me remind you that our full year 2020 EBIT adjusted included €1.1 billion of charges due to impairments and write-offs triggered by COVID-19. Looking at helicopters, in 2021, we delivered 338 helicopters, which is 38 more than in 2020, and it includes the first H160 delivery. Revenues increased by 4% year-on-year to 6.5 billion euros, reflecting growth in services and higher deliveries. EBIT adjusted increased by around 14% year-on-year to 535 million euros, mainly driven by support and services, program execution, and cost focus. As a result, the profit margin stood in 2021 at 8.2%, compared to 7.5% in 2020. And let's complete our review of 2021 with defense and space. Revenues are slightly lower compared to 2020, mainly driven by military aircraft, partially offset by systems. The increase in EBIT adjusted reflects cost containment continuation. As a reminder, the performance of 2020 was impacted by the COVID-19 on multi-year projects. On the A400M, we delivered eight aircraft in 2021. We've continued with development activities towards achieving the revised capacity roadmap. Retrofit activities are progressing in close alignment with the customers. In the fourth quarter, we recorded a charge of 0.2 billion euros, mainly reflecting the updated estimates of delivery pattern of the launch contract and the associated impact on unabsorbed costs. I'm sorry. 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's move to 2022. And let me read our 2022 guidance to you. As the basis for its 2022 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 2022 guidance is before M&A. On that basis, the company targets to achieve in 2022 around 720 commercial aircraft deliveries, EBIT adjusted of 5.5 billion, and free cash flow before M&A and customer financing of $3.5 billion. This guidance reflects our expected growth trajectory and the investments we are making to prepare our future and the future of aviation. And now a few words to wrap up and address key priorities. In 2021, we delivered on our commitments. We intend to do so again this year while, as I said, we lay the foundations for our future. We will remain focused on managing our contracts and deliveries, and as we speak, we have to adapt to the effects of Omicron. We will also focus on further strengthening our backlog across businesses. Ramping up our F320 family production will be at the heart of our priorities. We continue to work closely with our suppliers to execute our plans. We also announced a global plan to recruit around 6,000 new employees across the entire group to support both the ramp-up and the company long-term projects and ambitions. The production ramp-up will also be supported by our investments in upgrading and transforming the industrial value chain. We achieved major steps early in the year. We launched the launch of our new Wallion subsidiary, Airbus Atlantic in France, and the agreement with our social partners in Germany to establish a fully integrated similar aerostructures assembly company, which will be operational on the 1st of July this year, 1st of July 2022. Looking forward, let me mention our future A321 final assembly line in Toulouse, which will fully benefit from our latest progress in digitalization and robotics. The transformation of our company, including a continuing focus on operational excellence across the group, is key to prepare the future of aviation. This brings me to our long-term ambition to lead the development of sustainable aerospace, which remains at the center of what we do and who we are as a company. We have all seen how aerospace plays a critical role in society over the last years, connecting people and culture and driving prosperity, which will ensure the availability of the levels of investment required to meet the world's ambitious climate targets. making our sector carbon-free is essential to ensure aerospace can continue to play this vital role. The decarbonization of air travel is a key pillar of Airbus' sustainability strategy, and this objective was given a renewed impetus last year with the commitment of the entire sector to reach net-zero emissions by 2050. This was reinforced by the recent so-called Toulouse Declaration, signed earlier this month by the 27 EU member states. At Airbus, we'll continue to invest and to grow our skills and know-how in order to meet this objective by maturing the enabling technology bricks and continuing to work on reducing our own emissions as a company. Furthermore, our industry will ensure we benefit from peace, stability and security without which sustainability can simply not exist. As such, we remain proud to see our defense and security solutions contributing to a safe and united world. Finally, and before taking your questions, let me reiterate that delivering on our guidance will remain one of our top priorities in 2022. Strong financial results will secure our ability to invest in our long-term ambitions across our portfolio. And now, we are ready to take your questions. Thank you.

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 Clotilde, please go ahead and explain the procedure for the participants.

Thank you. 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 queue, please press 02 on your telephone keypad. Participants are requested to use only handsets while asking your question. Anyone who wishes to ask a question, they press 01 on your telephone keypad. First question is from Madame Céline Fornaro from UBS. Madame, please go ahead.

Bonjour, everyone. Good morning. Thanks for taking my questions. First of all, well done on the 2021 results, and also it's good to see some of the non-airbus divisions having record margins, I would say. And on that, my first question would be for the defense performance towards the last quarter of the year. If you could just explain maybe a little bit the dynamics there and how sustainable that performance is. And similarly for helicopters, when we're thinking about 2022, but also maybe the midterm. And then my second question would be, regarding your delivery outlook for 720 deliveries. If you could also maybe try to explain to us how are you thinking about the inventory levels that you're ready to, I would say, take towards this year compared to the levels that you ended around in 2021, which was around 100, and what level do you think you would see towards the end of the year? Thank you.

Okay. Thank you, Celine. Maybe I can take these questions. So on the performance of our divisions, Defense and Space and Helico, they are normally, as this year, again, notoriously back-end loaded. So I would not recommend extrapolating from the Q4 performance into the future. I think what we can say is that we don't expect much change in the profitability in the coming year. We see some opportunities to gradually, over a five-year planning horizon, move the margin slightly up. On the question of deliveries, 720 and how that would correlate with the inventories, first of all, yes, you're right. We mentioned that we had close to 100 aircraft which were finished or quasi-finished and not delivered end of last year, year 2020. End of 2021, we were slightly down, so a couple handful, I would say, very much white bodies which we could place. You recall we had some unplaced aircraft and we were successful In placing them, not all of them have been placed, so we will see further progress. Sorry, all of them have been placed but not delivered. So now we will see in 23, 24 that they will be delivered, so that will reduce. And we will also see a slight reduction on single aisle, but still let's not forget the situation is very dynamic, so we always have to match the specific granular customer demand with our manufacturing, and that will in that turbulent period still mean a certain high level of that inventory, which over time as things normalize can be worked down because pre-crisis, yes, we were lower with these single inventories at the end.

And so just a quick follow up on that, Dominique, when would you expect a normalization of the inventory level towards 2023? Or you think that would be too early?

I think it could take a little bit longer, but a gradual decrease. And again, we are not talking about huge numbers. We talk about a mid-to-double-digit potential there in terms of deliveries over the next two, three years, I'd say.

Thank you.

Thank you, Madame. Next question is from Mr. Tristan Sanson from BNP Paribas Exams. Please go ahead.

Tristan, how can I help you? Yeah, now it's okay. I'm sorry, can you hear me? Yes, it's okay now.

Apologies for that. So it's Tristan from BNP Paribas. So first question, please. Guillaume, can you give us a few hints of where you see the bottlenecks, the main bottlenecks that you need to monitor in the management of deliveries in 2022? Is it at the delivery centers? Is it on the supplier side? Is it HR related? That would be quite helpful. And maybe a question for Dominic. If you could give us some elements of the main moving parts of the bridge for 22. You provided some helpful comments of about €150 million of cost increase from R&D. What are the other big moving parts that we should be aware of for 22?

Yes, maybe I'll take the first one. Hello, Tristan. Well, the bottleneck at the moment and most probably for the whole year is on the supply chain. And with a large diversity of situations, what are the root causes of those bottlenecks at the supply chain? Well, that's just basically having been idle for a while with COVID-19, having to ramp up again in a very complex environment of high prices and scarcity of raw material and difficulties with logistics around the world and incredible prices, by the way, energy situation is complex, and a number of places around the world and for a number of skills where it's really difficult to find the resources again. But at Airbus, we don't have too much of this HR challenge this year, in 2022. We think 2022 will be okay. Moving forward, this will continue to remain a point of attention.

maybe on the bridge from the actual 4.9 billion EBIT adjusted in 21 to the 5.5 we've guided for 22. So you mentioned already the R&D increment, so we are stepping up the R&D effort to 2.9 billion with a couple hundred million runabouts. We will also resuscitate and accelerate on our digital roadmap, including the famous DDMS project, which is paramount to our future success and competitiveness. and will reduce time to market. That's another 0.2 billion-ish. And last but not least, we'll also invest more than in the prior year in the ramp-up secularization because of these challenges you were mentioning. So altogether, that kind of investment in the future, as we call it, and again, it's technically not investment, it's expenses, is half a billion roundabout. If I add the kind of protection we take on inflation risks and the two cents of dollar depreciation, that's another half billion. Take that together, you add a billion. And then let's not forget there is a kind of non-repetition of these releases of provisions which are about 0.4 billion. So if you take all that together, you see that for the increment of aircraft deliveries, and don't forget in the increment, there are also A220s which don't add margin. We actually do a pretty good job to bring the incremental deliveries to a healthy contribution margin addition, including the mixed effect. We had 46% A321 deliveries in 2021, and you see the backlog disclosed is now at 59% A321, so that will also help to add the margin from the incremental delivery. So that's how you can kind of easily walk from 21 into 22.

That's great, Kolach. Many thanks, Dominique. Thank you.

Thank you, sir. Next question is from Mr. Benjamin Heaton from Bank of America Meridynch. Sir, please go ahead.

Yeah, morning, guys. Thanks for the question. So I've got a question first on the production rates for the 320. You said you're still in the assessment phase for beyond 23. When do you anticipate that you can make some decisions here, and what do you see as the hurdles to this? Is it demand? Is it supply chain? I think you've just talked about supply chain, so any incremental color there would be great. And then my second question is on the kind of more medium term. I think in your key priorities – You highlight that you're focused on cash and earnings growth beyond 22. How should we think about the margin potential of this business medium term and any potential for a capital market stay at some point? Thank you.

I will let the question two and three to Dominique. Hello, Ben. Good speaking to you. Production rates. Well, that's front and center here. For the first half of this year, we want to be in a position to decide by mid of the year, and this would be the right timing for decision for 2024-2025, so that's why we're targeting mid of the year. And it will be all about the balance between demand, and the demand is very strong. We could go quite high, actually. if we would just look at the demand, but we have to balance it with the supply and the supply capacities. And as I said before, the result of the assessment of the whole supply chain and its capacity and willingness to go to higher rates, and we need to look at it over time. We need to have sustainability of the rates we will consider for beyond the mid of 2023. So the short answer is, By mid of this year, we want to have concluded on what we do for 24, 25, and beyond. Dominique, the two other ones?

So on the margin prospect, I mean, now we've guided 22, so I think you have quite solid data points to start extrapolating a little bit from 21, 22, and into the coming years. Yeah, it's clear that there are certain opportunities we have because the year is 23. still burdened by a lot of activities. I mean, there is the introduction of the XLR, which is, of course, only giving us the harvesting 24, 25 timeframe. And freighter entering to service 25, where we have now all the burden of the investment and then will benefit. And yes, on the R&D, we're also stepping up DDMS. The project I just mentioned is kind of highest spend rate in these years, 23, 24. So So there is opportunities to expand the margin. I mentioned the mix, the positive mix, that we have 59% of A321 in the backlog. Now, the reason why we don't want to give a specific guidance for, I say, middle of the decade is that we have a couple of imponderabilities which are still quite speculative. So what's the wide-body pricing on the open slots in the timeframe? We have the big question about inflation now. What does it really mean in the short term? As I mentioned, we can handle it quite well, but in the longer term, it might cause an issue. And then there's always the question of R&D invest. What's the product policy? What reaction is needed towards what the competitor is doing? So that's out of our control. And all these topics together make us cautious in terms of really giving you a precise number. But yes, there are ingredients which give us hope that there is potential to go to higher margins beyond 22, 23.

Okay. And capital markets stay at some point. Is that something that you've thought about?

I'll give that to Hélène to comment. That's not fair, Dominique. Not fair. I would like to do one. Let's put it that way. But again, I mean, it's more that we regularly have done it in the past. Don't expect any miracles on that day. I think one topic we want to really, really work on is on also the ESG-related topics. There's always a debate about defense, which is currently heating up. I think we need to invest time with our investors. So I'm looking for opportunities to do that, yes.

Cool. Thank you, guys.

Thank you, sir. Next question is from Mr. David Perry from G.P. Morgan. Please go ahead.

Yes, good morning, Graham and Dominic. So my two questions. The first one, yesterday afternoon, some headlines popped up on Reuters about Airbus undertaking a review of its defense activities. So maybe, Graham, you could make some comment on that if there's anything to say. The other one is also some press reports a few days ago of a the threat of a strike in the UK. I believe it's about policy on a pay. So just more broadly, I mean, in this high inflation world, what will your policy be on pay? And can you just remind us how much of it will be covered? Any pay increases are covered by the escalation clauses.

Thank you. So I'll take those questions. Thank you. I think the first one is you're referring to the paper on the defense review at Airbus. Well, there's no real news here. We are conducting strategic reviews with the board on our different business lines every year and that's something I believe we'll continue to do and I think that's what the paper was about so there's nothing I can comment on that topic. Strike in the UK, well, let's Let me take maybe a step back. We had two very difficult years. I think Airbus employees have really done a great job. As you have seen, we have decided to put the dividend again in place, and that's about moving forward now and finding the right balance between the different stakes, the short-term, the mid-term, the long-term. And I respect the fact that employees want to have a fair share of the results that they have contributed to create. So we need to find a solution case by case. You might remember we had a situation to manage, a similar situation to manage in Germany by end of last year. We resolved the situation by negotiation. We have a culture in the company to find solution and to... work together for the good of the company, and I guess that's what we will do again in that case. Moving forward, and Dominique made some comments about it, there are a number of areas of uncertainty we think will continue to perform, but we need to be all together finding those right trade-offs to make sure this will continue to be the case, and that's the kind of discussion we are used to have with our unions and social representatives and employees. And that's what we're going to do in the UK as well.

Okay, thank you. And maybe just to clarify, if there are pay increases, I mean, what is allowable in the escalation clauses in the contracts with the customers?

Well, there are pay increases given the environment we're in and given the fact that we were very prudent in 2020 and 2021. So it's clear that there will be increases in the pay. I mean, the contracts... are taking reference to indexes, which are by far more general data points, and there is no direct correlation between what we do on salary in one country or one division and where the contracts are protecting us on inflation and the way escalation is managed. So we have an overall protection from the contract, and then we have to manage our costs, and by the way, all costs, to make sure this remains quite balanced. And in a situation where inflation is popping up very quickly and to very high number, that's quite of a challenge, and that's why the need to try to explain before.

Okay. Thank you very much.

Thank you.

Thank you, sir. Next question is from Mr. Neil Green from Credit Suisse. Sir, go ahead.

Well, good morning, everybody. I'll also ask two questions, please. The first one is following on from the previous comment on R&D over the medium term. I appreciate there are moving parts here, but just interested in your take as to whether the R&D level will eventually step up from the 2.9 in 2022 towards a 2019 level of 3.4 or something like that. Keen to understand how you think about that progression and recovery. Then the second question, you mentioned a low level of customer financing, not sustainable. And obviously that's been very, very low for some time. Could you give us some additional color as to whether the issue changing your, I guess, necessary approach to that activity is driven by pockets of weakness, for example, in Southeast Asia, or are there any other changes you're observing in the appetite from financiers as interest rates rise that may prompt you to have to step into the breach? Thank you.

Yeah, so on R&D, Yes, I think as a trend, we see R&D scaling a little bit with the deliveries going up. And I think your assessment is a reasonable starting point that once we're back to what we've seen in 2019, we might be at a similar level of R&D. So there's nothing I can say that would make that kind of unclosable. But as I said, also, we need to review year by year what we exactly do there. On the customer financing, what we wanted to highlight is that we have been really going down and reducing that exposure to close to nothing. We do have certain obligations going forward, like buybacks. You've heard some stories around 80 buybacks. Some financing is required. We don't see that the market itself will weaken. I mean, obviously, we have to monitor the interest rate environment. Should there be a massive increase in interest rates, that might have a negative impact. But on the other hand, that has positive impacts for Airbus. Recall, we have a net cash position. We have a pension liability, which would benefit from high interest rates. So these are the things that we look at. I just wanted to highlight that the fact that we reduce our financing portfolio every year is not something we can continue because simply it's close to zero and that there are some obligations we need to fulfill going forward.

Understood. Many thanks.

Thank you, sir. Next question is from Madame Hélène Kerner from Barclays. Please go ahead.

Hello, Guillaume, Dominique, Hélène, and everyone. Thank you for taking my question. I have two related to the free cash flow. First, Dominique, you mentioned that the A400M cash out flow was lower in 2021 than it was in 2020. Could you comment what you expect for 2022 and the total amount that is left to cash out over what time frame? And then secondly, also, can you help us How should we think about the PDP inflow from now on as you're going to ramp your production on the A320? Thank you.

I mean, on that question of A4 and M, I would like to add also the A220 because these are the two big blocks which have caused a kind of negative bridge in cash conversion, so from the earnings down to the free cash flow. And the guidance I want to give you is that for this year 22, I think that the sum of the two will be a headwind in that cash conversion calculation of about half a billion. I don't want to single out any of the two, but that's just a rough order of magnitude. There is a little bit of headwind left from provision payouts for restructuring and from the compliance case where we will need to spend some money And this is explaining why we go from the 5.5 billion EBIT adjusted down to a 3.5 billion free cash flow. So it also shows you that if you adjust for these two effects I mentioned, we actually are on a super trajectory to convert EBIT into cash at once. So it's actually quite solid for 2022 if you think about these headwinds, which, as you know, will stop over time or reduce over time. PDP flows, you have heard us comment on this deferral discussion that we basically were clinging on to our PDPs in the COVID times, have been deferring aircraft. You've seen that this has cost us quite some cash flow in 21. And you have already disclosed the full cash flow statement, so you see what's happening there. It was less pronounced than what we thought because we had actually very good commercial activity. We're collecting a lot of PDPs in 21. And that combination of seeing less of that hangover of the COVID kind of issue, plus picking up in commercial activity should bode well for actually the cash conversion. And you should not see a repetition of such a negative PDP inflow in 22.

Thank you. Very clear. Thanks. Thank you, Madam. Next question is from Mr. Christophe Minard from Deutsche Bank. Please go ahead.

Yes, good morning. I had two quick questions. Could you comment, please, on the supply chain constraint, raw material, and logistic costs? Have you seen any worsening of the situation? I mean, following your comments in January, essentially. And I'll follow up on the second question afterwards.

No, I would not single out significant modifications since January. That remains the same environment. nothing significantly different.

And, uh, no, nothing on titanium, for instance, and still, um, um, you know, you're not seeing any additional constraint on that specific material. No. And the second question was on the, uh, uh, 2024, uh, 2025 production levels, um, is, I mean, we understand it's a supply issue with suppliers, Is it also tied to their capacity to deliver some cost reduction, i.e., is your decision linked to or fostered by their ability to cut the cost, or is it just to ensure the supply of parts?

We are having discussions on rates and on cost at the same time with suppliers, but I guess the outcome of the decision will be mainly the result of the ability of the supply chain to do that ramp-up and having the certainty on the demand side that there is enough sustainability in the demand to make sure that once we have ramp-up, we can stay at the higher level of ramp-up. We don't want to ramp-up at a peak and then ramp-down immediately. That would be meaningless for most of us. So that's the complex balance of the different stakes. And that's why it takes time, and when we get there, we have to stick to what we will have decided. So balance between demand, supply, and the ability to keep that level of activity for a while.

Okay. Thank you very much.

Thank you, sir. Next question is from Mr. Robert Stahler from Vertical Research. Please go ahead.

Thanks so much. Good morning. Good morning. I have a couple of questions. Thank you. A couple of questions from me. First of all, Guillaume, on the whole Qatar issue, has this had any negative ramifications on the broader A350 demand environment? So I was wondering if you could comment on that. And then Dominic, for you, you've given us quite a few components on the 2022 cash guidance. But I was wondering if you could give us some idea of your assumptions on what working capital is going to be doing. Thank you.

I take the first question. No, I don't see any impact on the broader A350 situation. And as you have seen, we are quite successful on the launch of the A350 freighter, the commercial launch, with now a number of customers having signed or committed to the A350 freighter in the last month. So, no, I don't see any repercussions so far.

Okay, so on working capital, I mean, I already hinted to some of the topics. The first big thing is always the net PDP flows, which you find under contract assets and liabilities in the cash flow statement, which was a negative 2.3 billion in 21. And I mentioned that this will come to an end because we will start collecting better PDP. So I'm anticipating that this is really turning neutral, if not slightly positive. On inventories, yes, while on the one hand we can still divest some of the finished goods and get cash out of them, there is a big heavy lifting happening on the single-line ramp, so I see that more on a trend as a headwind on working capital. And then there are some other accruals where, for instance, we had a very strong target achievement in 2021 and now this needs to be paid in 2022. So these are the hints I can give you, but overall, if you fold it all together and embark the big items like A400M and the A220 headwind because of loss-making contract provisions which are used to offset the cash burn and give you a neutral EBIT on cash burn, the 3.5 billion is what kind of embarks all of that.

That's very helpful. Thank you.

Thank you, sir. Our next question is from Mr. Andrew Humphrey from Morgan Stanley. Sir, please go ahead.

Good morning and thank you. Could I come back to defense and David's question earlier? I've got a couple on that, if I may. Would it be fair to assume that this year's review of defense activities and strategy is focused on or primarily on FCAS and, you know, What are the scenarios you're considering in relation to that? And the second question is, what are the areas where you perceive a most pressing or acute need for strategic partnership in defense?

So, FCAS is obviously an important part of the defense review, but the strategy is not FCAS. It's one brick of the strategy. We are already in partnership in many areas in defense. That's very much the nature of the defense business, especially in Europe. And I will not comment on what we consider we should be doing for the future. That's part of the strategic review, and that's not something I will comment on. Okay. Thank you.

Thank you, sir. Next question is from Mr. Harry Bridge from Stifo. Please go ahead.

Yes, can you hear me? Yes, loud and clear. Good morning. Thank you. Good morning, Dominic. Thank you for taking my question. Just two from me. First, maybe A400M says, revision to the delivery schedule, small charge that you announced today. Can you give us any understanding or any light of when we can get to stable production rates, stable cost at completion, and the order backlog or the order intake will need to get there? And second one, maybe more generally on the sales campaign activity, We had a very strong end to last year. I think the Dubai Air show, the commercial success you had there, certainly surprised me very strongly. Can you give us some sense about the level of sales campaign activity at the moment? Would you still characterize it as being strong? Is it strong and getting stronger, about the same? Any hesitation caused by Omicron? Any feelings for that would be great to hear.

Maybe I'll start Guillaume speaking by the second one. Yes, the end of the year was very strong in terms of bookings and it was also a bit of a surprise for me compared to what we were expecting a year ago. But indeed it represents an acceleration that is steady beginning of this year. it's very much in line with what I said with the airlines being now very active to look into the future, becoming by far more optimistic, looking beyond Omicron, for sure on the domestic markets, but as well for international flights and long-distance flights. So I would consider it as a trend, as a solid trend, always remaining very prudent, when it comes to forecasting the future, but yes, it's very active at the moment, and we see as well that the Singapore air show is a bit of that nature. So I take it as something that is rather positive moving forward. Dominique, you want to take the other one?

On AF400M, I mean, you mentioned the charge we've taken before. Yes, it's still charged, but I would also like to mention that if you compare how we've kind of reduced these charges over time, we're really kind of converging, stabilizing. That program is a very tricky program, so you can never kind of be entirely sure, but we think the worst is behind us. On top of that, we had some export success, and the assumptions we have embarked in our provisions in loss-making contract provisions on the program are such that we feel confident that we should be on the right trajectory and So all what we can see today is that we are not anticipating huge charges going forward and that the trend is our friend actually on that topic.

Dominic, you spoke earlier on about the level of cash burn on A400M. I think together with the A20, I think you talked about around a half billion number. What sort of run rate level should we think about maybe

in in next year in 2023 or 2024 for those two programs and and do they get to break even and cash out in any year first i have to highlight we're not talking about the cash burn directly here what i mentioned is the offset between earnings and cash that's different because we will also have some losses on 8 to 20. um so there's higher cash burn than than than what is embarked in that 500 million niche for both of them um um I mean, I mentioned we had half a billion roundabouts last year. So in the year prior, it was lower this year. So we're trending down. We're trending towards kind of, I'd say, low triple-digit numbers over the coming years, every year. But it should also be over next couple, two to three years. So we're not talking about massive cash out on the A400M. It's stabilizing and trending down to levels which are clearly below the half billion or so we've seen in the prior years.

Great. Thank you. Thank you both. Thank you.

Thank you, sir. Last question is from Mr. Jeremy Bragg from Bradburn. Please go ahead.

Good morning. So my first question, please, would be to you, Guillaume, and it would be how confident do you feel? What's the level of visibility on the 720 deliveries in 2022? Do you see this as a realistic number or potentially a flaw? And then the second question, please, is a medium term one on capital allocation. You've restarted the dividend. What level of net cash buffer do you think you need medium term? Is that still around 10 billion euros? And how are you thinking about capital allocation in the medium term? Because you're quite quickly going to get to 10 billion of net cash. Thank you.

Thank you, Jeremy. The second question is obviously too difficult for me, so I will hand over to you, Dominique. Sorry for that. Visibility on the 720, well, we guided for 2021 600. If you look at 720, it's plus 20%. Actually, we did 611, which I consider a very strong result compared to the 600. So it just gives you an indication that 720 is a balance, and we think it's not going to be easy, but we think we can reasonably do it. That's why we guide on it. Significantly more is, in my view, extremely difficult. So I would not bet, if I were you, on significantly more than 720. It's a challenge, and we need to earn our right to reach this 720 every month, every week, and maybe every day. It's a difficult ramp-up. Now the more difficult one, Dominique?

Well, it's actually not that difficult because we, again, reiterate what we said before. $10 billion net cash seems to us to be a reasonable target. Don't forget our net cash definition is excluding the pension liability. The pension liability has benefited clearly from the increase in interest rates. So interest rates have moved up and the pension liability is now reduced to more than 7 billion. It used to be 10 billion plus, now it's 7 billion plus. And we will need to close that gap over time. Obviously, how much cash will be used for that is very much dependent on further development of interest rates, so that's why it's hard to predict, and that will also be a question in the capital allocation. So, yeah, yes, we work very hard to bring it up to 10 billion as quickly as possible, but there are some items we have to take care of before we can think about measures beyond the dividend. And obviously also with the earnings growing, we also want to see the dividend evolving accordingly.

Thank you. And you mentioned a compliance charge this year. Could you just remind me what that was?

No, I mean, we have previously told you that there is still some provisions that will need to be settled, so to speak. And it's not about taking more provisions. It's about paying these provisions. But I think the good news is that I think we at some point in time said it could be as high as the mid to high triple digits million. I think I'm a little bit more optimistic today for what's left to be paid.

Okay. Thank you. Thanks very much.

Thank you.

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

Thank you, everyone. Bye-bye. Have a good day.

Ladies and gentlemen, this concludes the conference call now. You may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.