Airbus Se Ord

Good evening, ladies and gentlemen. This is the Airbus Nine Moms 2023 results release conference call. Guillaume Faury, our CEO, and Thomas Topfer, our CFO, will be presenting our results and answering your questions. This call is planned to last around an hour. This includes Q&A, which we will conduct after the presentation. This call is also webcast. It can be accessed via our homepage by clicking on the dedicated banner. Playback of this call will be accessible on our website, but there is no dedicated phone replay service. The supporting information package was published on our website earlier today. 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. I invite you to refer to our safe harbor statement that appears in the presentation slide, which applies to this call as well. Please read them carefully. And now, over to you, Guillaume.

Thank you, Hélène, and hello, ladies and gentlemen, and thank you for joining us today for our nine-month 2023 results call. I'm here in Amsterdam with Thomas, our CFO who joined the team at the beginning of September. warm welcome again thomas since then we've been working closely and i'm very happy to present the nine months results today with thomas so let me start with a high level overview operationally we continue to make progress on our plan i have to say it has not been and still is not a walk in the park as the global environment has become increasingly complex it means that management of the supply chain remains a crucial part of our activities. And there, while the situation is progressively getting better, our needs for material and components keep increasing as we continue to ramp up. So we expect the supply chain to remain challenging for a while, and we expect the ramp up to continue to be paced by a few critical suppliers. This is notably the case for engines. where we continue to work closely with manufacturers in order to secure deliveries for production ramp-up as well as the support of the fleet. In Q3, we delivered 172 commercial aircraft. This brings our year-to-date deliveries to 488 aircraft as compared to 437 last year, so in line with our plan. And we started Q4 on the same track as shown by our October deliveries, 71 commercial airplanes in October. Our EBIT adjusted to that 3.6 billion euros. This reflects the commercial aircraft deliveries and the good performance of our helicopter division. It also includes charges recorded to reflect the reassessment of certain of our satellite development programs. Our free cash flow before M&M customer financing was 1 billion euro, mainly reflecting the inventory buildup in Q3, consistent with the back-loaded delivery profile and the ramp-up. On that basis, we maintain our 2023 guidance while acknowledging that the charges recorded in our space business are putting some additional pressure on EBIT adjusted. Let's now look at our commercial Positioning, aircraft continue to improve in the third quarter, and forward ticket sales indicate a sustained growth for air travel, despite inflationary pressures and higher fuel prices. In nine months, we booked 1,280 gross orders, including 200 in Q3. On the A220, we booked 33 gross orders in nine months. The recently announced order from Air New Guinea for six aircraft is not yet reflected in our order book. Looking at the A320 family, we booked 1,087 gross orders, including 149 in the third quarter, bringing our backlog to 6,754 aircraft. Moving to the white bodies, we recorded 160 gross orders as of including 28 A330s and 23 A350s in Q3, confirming the recovery of the wide-body market. Nine-month net orders amounted to 1,241 aircraft, following 39 cancellations, and our backlog in units stood at almost 8,000, being at 7,992 aircraft at the end of September. Looking at helicopters, in nine months we booked 191 net orders versus 246 in the nine months 2022. And these 191 net orders are well spread across programs. In this quarter we signed an agreement with PHI group for 20 H175 helicopters and eight H160s to serve the energy market worldwide. In addition, the H-175 received its CAAC, Chinese Certification Authorities, the CAAC-type certificate in July, enabling deliveries to begin in China. Overall, we still see positive momentum in home countries for both civil and military markets as we continue to progress on some key strategic campaigns. Finally, in defense and space, our third quarter is impacted by charges on our space business, and Thomas will further address it. However, we continue to see a good order momentum across our business, and as of nine months 23, the division had an order intake of 8.5 billion euros, of which 2.4 in the third quarter. It includes the renewal of the contract for the A400M in-service support for Germany, And here I would highlight the recent groundbreaking of the new Airbus A400M maintenance center in Wunstorf. In October, we signed contracts with France valued at 1.2 billion euros for the capability enhancement and for the in-service support of the French MRTT fleet. On IN6, two important tests, the hot firing of the main and upper stages have been successfully achieved recently, another key milestone towards the inaugural flight next year. The priority now is on successfully completing the final test of Ariane 6 and securing its ramp-up to provide the sovereign access to space for Europe. On that note, you may have followed the outcome of the summit which took place earlier this week in Sevilla. European member states have reconfirmed their support to the continued operational phase of IN6, which is an important milestone for the future of our European launches. On FCAS, we are working on phase 1B and progressing according to plan with our partners. And before we move on to the financials, let me give you a quick update on the transformation of Airbus Defence and Space. Recent geopolitical conflicts have actually reinforced the need for innovative defense and space and cyber capabilities. Meanwhile, the execution of programs is more and more challenging, technically, financially, and also sometimes politically. To face this situation, to improve our position in defense and space and our competitiveness and meet requirements, we launched a transformation program aiming to adapt our ways of working, focusing on rigorous program execution from bidding to delivery, including a reinforced risk assessment and mitigation commensurate with the nature of the programs and the changed environment. Aiming to reinforcing end-to-end business ownership and fostering entrepreneurial culture and improve competitiveness, as I said, via numerous measures, some of which are already delivering some efficiency gains. We aim to implement in early 2024 a simplified organizational structure with three fully empowered and accountable business lines, air power, combining our existing military air system and FCAS activities, space systems, and connected intelligence, and supported by a strong transversal operational function. The consultation process with our social partners is ongoing for this change of organization. Obviously, it will take some time for all the initiatives to deliver their full potential that is necessary to achieve our strategic and financial ambitions for the division. And now I turn to you, Thomas. Thomas will take you through our financials.

Well, thank you, Guillaume, and very warm welcome also from my side to everybody on the call. It's my pleasure to speak to you for the first time in my capacity as the Airbus CFO, and I'm very much looking forward to meeting as many of you as I can over the next coming months. And I'm, of course, also delighted to join Guillaume and the rest of the management team to actively contribute to the continued success of Airbus. Now, I'll walk you through our nine-month financial performance in a little bit more detail. As you can see, our nine months 2023 revenues increased to 42.6 billion euros, up 12% year on year, and that is mainly reflecting the higher number of commercial aircraft deliveries. If you look at the EBIT adjusted, before we're looking at the 2023 number, let me start by recalling that the nine months 2022 stood at 3.5 billion euros, and included a net 0.3 billion positive impact from non-recurring elements, which were related to retirement obligations and to international sanctions against Russia. Now, our nine-month 2023 EBIT adjusted slightly increased to 3.6 billion euros, reflecting the higher commercial aircraft deliveries and a more favorable hedge rate versus the nine months of last year, partly offset by investments for preparing the future. As Guillaume mentioned earlier, we recorded charges in certain of our satellite development programs, mostly in the third quarter of this year. And these charges of 0.4 billion euros are the result of an update of our estimates at completion. And it accounts for revised timelines and cost estimates, as well as for the reassessment of commercial risks and opportunities leading to these updated financial estimates on some major long-term contracts. We have therefore today a better assessment of the risks in these programs than we had before. And as a reminder, in 2023, we made further progress on our compliance related topics, which allowed us to release provisions for an amount of 0.1 billion euros in the first half of the year. On R&D, our expenses in the first nine months of this year stood at 2.2 billion euros versus 2.0 billion in the nine months of last year. and we continue to expect our full-year R&D to slightly increase compared to 2022. As you can see, our nine-month EPS adjusted stood at €3.59, based on an average number of 789 million shares, and our nine-month free cash flow before M&A and customer financing was €1 billion, mainly reflecting the back-loaded delivery profile in Airbus Commercial and Helicopters, and the necessary inventory build-up as we execute our ramp-up. Now turning to page 7 of the presentation regarding our profitability, our 9-month 2023 EBIT reported was 2.7 billion euros and the level of EBIT adjustments totaled a net negative of 0.9 billion euros including minus 806 million negative impact from FX mismatch and balance sheet revaluation that is mainly reflecting the mechanical impact coming from the difference between transaction date and delivery date of which negative or minus 155 million were recorded in Q3. It also includes minus 57 million related to the aerostructures transformation of which minus 23 million in Q3 And thirdly, it includes minus 56 million of other costs, including compliance costs of which minus 10 million were recorded in the third quarter. The EPS reported includes positive 231 million of financial results, and that mainly reflects a positive impact from the devaluation of certain equity investments and also the evolution of the US dollar, partly offset by negative impact coming from the devaluation of financial instruments. The tax rate of the core business continues to be around 27%. However, the effective tax rate is 25%, including the tax effect on the revaluation of certain equity investments and a net deferred tax assets impairment. Finally, the resulting net income is 2.3 billion euros with earnings per share reported of 2 euros and 96 cents per share. Now let's move to the next page, page eight, and look at the US dollar exposure coverage. In the nine months of 2023, $15.2 billion of forwards matured with associated EBIT impact and euro conversions were also realized at a blended rate of $1.20 versus $1.22 in the nine months of 2022. And in the first nine months of this year, we also implemented $8.7 billion of new coverage at a blended rate of $1.11. As a result, our total US dollar coverage portfolio in US dollars stands at 87.5 billion with an average blended rate of $1.23 as compared to $93.9 billion at 1.24 at the end of 2022. Now with that, let's have a more detailed look at the free cash flow on page nine. Our free cash flow before M&A and customer financing was one billion in the first nine months of this year. This reflects on the one hand, the level of deliveries and on the other hand, the mechanical inventory build up supporting our Q4 deliveries, both on commercial aircraft and helicopters, as well as the execution of our ramp up. This was partially compensated by a favorable timing of receipts and payments, notably the healthy TDP inflows from orders placed at Le Bourget. The A400M continued to weigh on our free cash flow before M&A, and the nine-month 2023 capex was around negative 1.7 billion versus minus 1.3 billion in the nine months of last year. Looking forward, we expect our capex to slightly increase in 2023, supporting our industrial ramp-up. Now, the free cash flow of 0.7 billion includes M&A activities for 58 million euros and customer financing of 261 million. Overall, however, we can say that the aircraft financing environment remains solid with sufficient liquidity in financial markets for our products. And in the first nine months of this year, the customer financing cash outflow was mostly related to the planned execution of certain contractual obligations. And we might see additional usage of cash going forward in that respect. Now, in total, our net cash position stood at 8.3 billion as of the end of September, and our liquidity remains above 30 billion euros. And with that, I would like to hand it back to Guillaume.

Thank you, Thomas. Moving on to commercial aircraft. In the first nine months, we delivered 488 aircraft to 78 customers in line with our plan. And looking at the situation by aircraft family, on the A220, we delivered 41 aircraft and we continue to ramp up to reach rate 14 in 2026. September also marked the 10th anniversary of the first flight of the A220. On the A320, we deliver 391 aircraft of which 222 A321 representing 57% of deliveries for the family. Production is progressing well towards the previously announced rate of 75 aircraft per month in 2026. We continue the modernization and digitalization of our industrial system as illustrated by the recent opening of the automated A321 XLR equipment installation hangar in Hamburg. On the XLR, the aircraft completed in September its route-proving campaign and more recently its first passenger experience flight, two important milestones towards certification and the entry into service that is expected to take place in Q2 2024, no change compared to previous situations. On wide-body, we delivered 56 aircraft, of which 20 A330 and 36 A350. We continue to target rate 4 in 2024 on A330. On A350, I mentioned earlier the recovery of the wide-body market, and I'm happy to share that we decided to increase the production rate to 10 aircraft a month in 2026. Airbus commercial financials for the nine months, revenues increased 18% year on year, mainly reflecting a higher number of deliveries. The EBIT adjusted increased to 3.2 billion euros from the 2.9 billion euros last year in the nine months 2022. This reflecting the increase in deliveries and a more favorable hedge rate, partially offset by the investments for preparing the future, which is also reflected in our R&D expenses. Nine months 2022, again, including the non-recurring positive impact from retirement obligations, partly upset by the impact resulting from the international sanctions against Russia, while in 2023, we released provisions for 0.1 billion euro from compliance-related topics in H1. Looking at helicopters. In nine months 2023, we delivered 197 helicopters, slightly above the nine months 2022. Revenues increased 3% year-on-year to 4.7 billion euros, reflecting the overall performance across programs and services at helicopters. As a result of this performance, EBIT adjusted increased to 417 million euros, here also, nine months 2022 included net positive non-recurring elements. And let's complete our review of the nine months with defense and space. Revenues decreased 6% year-on-year, mainly driven by a back-loaded A400M delivery profile and updated estimates at completion on certain satellite development programs. The decrease in EBIT adjusted reflect the charges resulting from the update of these ESCs, of these estimates at completion, partially mitigated by the better performance of the rest of the business for the period. These charges are the result of revised timelines, cost estimates, and the reassessments of technical and commercial risk and opportunities. We believe we have now more balanced, better balanced assessment of the overall risk and opportunities, noting that these programs bring new technologies which naturally carry a certain level of risk. As a normal part of the development process, we will continue to closely monitor our exposure on our programs. On the A400M, we delivered four aircraft in nine months. We continue with development activities towards achieving the revised capability roadmap. You notice retrofit activities are progressing in close alignment with the customer. No further net material impact was recognized in the first nine months of 2023, but risks remain on the qualification of technical capabilities and associated costs, on aircraft operational reliability, on cost reduction, and on securing overall volume as per the so-called revised baseline. And here again, let me recall that the nine months 2022 included some net positive non-recurring elements like for the two other divisions. So page 15 and onto the guidance slide. As the basis for its 2023 guidance, the company assumes no additional disruptions to the world economy, air traffic, the supply chain, the company's internal operations, and its ability to deliver products and services. The company's 2023 guidance is before M&A, and on that basis, the company targets to achieve in 2023 around 720 commercial aircraft deliveries, EBIT adjusted of around 6 billion euros, and a free cash flow before M&A and customer financing of around 3 billion euros. As I said earlier, We maintain the guidance, but while we maintain the guidance, we acknowledge that the charges recording in our space business are putting some additional pressure on EBIT adjusted. Now a word on our key priorities moving forward before wrapping up. We obviously remain fully focused on serving the very strong demand for our latest generation aircraft as we continue to ramp up production across all our commercial aircraft programs. Let me briefly touch upon the upcoming evolution to our Airbus leadership team. We operate and actually we are ramping up in a rapidly changing world. Impacted by profound geopolitical shifts, acceleration, sorry, accelerating innovation as well as ecological and digital transformations. In this context, our new organization going live in January 2024 will serve primarily two objectives. reinforcing our focus on our operational business. This is why we decided to create a fully dedicated commercial aircraft management under the helm of Christian Scherer. Second, it will also allow me to focus strongly on our company's strategy and to drive transformation across our group-wide businesses as well as on international matters. Given the growing importance of sustainability in our business, we have also decided as part of the reorganization to create the role of Chief Sustainability Officer. Let me mention here a few highlights for the quarter on decarbonization. We unveiled the Airbus Helicopters Pioneer Lab Demonstrator to test and mature technologies aiming for a fuel reduction of up to 30%, 3-0. We signed a contract with EasyJet for the Airbus carbon capture offer using direct air carbon capture and storage, so DAX technology. And we became a strategic partner of DG Fuels for the production of sustainable aviation fuel in the US in line with our ambition to act as a catalyst in that SAF domain. While on this topic, I'd like to say we welcome the recent adoption of the Refuel EU Aviation Regulation, That's an important step to get sustainable aviation fuels flowing in Europe. And on that note, I think we are ready to take your questions. Thank you.

Thank you Guillaume, thank you Thomas. We will now start our Q&A session. Please introduce yourself and your company when asking a question. Please limit yourself to two questions at a time, and 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 Sharon, please go ahead and explain the procedure for the participants.

Thank you. We will now begin the question and answer session. To ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. We will now go to your first question. One moment, please. And your first question comes from the line of Ben Helan from Bank of America. Please go ahead.

Yeah, thank you. Good afternoon, good evening. Thomas, nice to speak to you for the first time. The first question I have is around deliveries, and in particular, the GTS. Guillaume, is there any color that you can give now in terms of how we should think about production and delivery growth into 2024? And in particular, as we think about the mix of A320 deliveries from an engine perspective, has that changed between LEAP and GTS versus what you were thinking maybe four months ago?

Thank you Ben for these questions. So color on GTS. I'd like to say that this is not going to impact 2023 so and that's why we confirm the guidance. I mean not more than what we agreed with Pat and with the end of 2022 beginning of 2023 when we sized the hump up for this year, taking into account the time on wing and the need to better support the fleet at that time. When it comes to 2024, and as it's been reconfirmed by Pratt & Whitney and RTX, they will stick to their commitments to Airbus for all ramp up. But obviously, we're also paying a lot of attention to the situation in the fleet and the many, many planes that will be AOG for some time as a result of the recall campaign for the metal powder issue. Therefore, you could expect the mix to be slightly more in favor of the LEAP and a bit less in favor of the GTF than what we would have had absent the recall campaign on the GTF.

Okay, very clear. Thank you. Thank you. We will now go to the next question.

And your next question comes from the line of Mylene Kerner from Barclays.

Please go ahead. Mylene Kerner from Barclays. I have two questions, please. My first question relates to the Airbus headcount. At the end of September, you had over 88,000 employees at Airbus Commercial. And that's 7,000 more than what you had in 2019. So I understand that productivity is not the same, but could you try to quantify what delivery number you have labor for currently? And then my second question is on your inventory. I mean, as you flagged, I mean, it was up a billion versus Q2, up over 4 billion versus last year. I was wondering if there is also any increase that is related to buffer inventory given the supply chain constraints? And if they are, if you could quantify how much these are. Thank you.

Okay, so thank you, Mylène, for your questions. For the second one, the answer is yes, but I will let maybe Thomas see if you can give color, I'm not sure, to that one. Yeah, so the headcount. So indeed, as you rightly said, productivity is not what it was in 19. We are rehiring a lot of people, training them. We have employees to train the newcomers. We are heavily impacted by disruptions in the supply chain, and that creates a rather inefficient environment that we believe we will continue to have to live with. On top, and as we prepared with Thomas and Thierry Baril, our head of HR for the board we had before and for those calls. On the headcount side, we have also some change of scope, change of scope of business and more consolidation of entities, which means we have also part of the additional headcount compared to previously that come from change of scope. We have also re-internalized or internalized a number of activities because we think it's more efficient to have Airbus employees, to have Airbus workforce, rather than subcontractors of third parties. And without impact on cost, actually with a slightly positive impact on cost. So the direct comparison to 2022 needs those explanations and it's even more complex when we come back to 2019, just to try to answer as good as I can to this question. Now, on the inventory and buffer, Thomas, do you want to try to give some color on where we stand?

I think on that question, the way I would look at it is if you look at our fee cash flow statement, you see that for the first nine months of the year, we built up 4.3 billion euros of inventory I would say first of all this is fully in line with our plan to achieve the ramp up that we have ahead of us for the rest of the year and of course to your question it also takes into account that we want to take some precaution because the supply chain is still very challenging and therefore I'm not sure what I would call it the buffer but of course there is some kind of elevated inventory level included in this simply because the supply chain is pretty much disrupted on that note however I Since we're not expecting the situation to improve significantly in the short term, but also 2024, we'll probably have to deal with some challenges. I would just make the statement that you should not expect that this will be reversed very quickly, but it's probably some issues that we will have to deal and continue to deal with over the course of the next quarters to come.

Yeah, that's indeed something that we've been discussing very closely with operations. we have a rather high level of buffer stock of intermediary inventory that we believe is necessary given the landscape and the very volatile nature of the supply chain to be able to secure the ramp-up even if we have crises popping up here and there, and that's the very nature of the environment we have at the moment. So I fully confirm what Thomas said just before.

Thank you. Thank you. We will now go to the next question. And your next question comes from the line of Victor Allard from Goldman Sachs. Please go ahead.

Good evening. Thank you for taking my question. Could you please share with us some color regarding the main moving parts baked in your implied 4Q guidance at EBIT? I guess needless to say that DNS is clearly tracking below the expectation that we had at the time of formulating the guidance in February. So I was curious to hear what has turned better than expected elsewhere in the business and beyond FX. And also, should we assume that the views you shared with us earlier this year in terms of inflation, which I think was roughly a $200 million headwind for the full year, remains valid today? Thank you.

Yeah, maybe on that topic. Essentially, if you look at Q4, I would say the most telling thing is the comparison with last year. So we're not assuming a major uplift, but just a slight uplift relative to last year. That is coming from the deliveries on the one side. That should be helpful and provide some tailwind. And secondly, it should come from a little bit of tailwind from our FX rate, which also should be helpful. And against that, you mentioned some headwinds that we might face. Overall, the Q4 that we're expecting is slightly above what we had last year. And I think with the delivery trajectory that we currently have, this is also what we deem fully realistic. But those are the major moving parts in there. I think there's nothing really big other than that you should have on the agenda.

Thank you. Thank you. We will now go to our next question.

And the next question comes from the line of Robert Stallard from Vertical Research.

Thanks so much. Good evening. Hi, good evening. Guillaume, just wanted to follow up on Ben's question at the start of the Q&A session on engines. We all talked a lot about the GTF issues, but CFM also reduced their growth target in terms of their ramp up recently as well. I was wondering if these two combined are pushing out your plans for the A320 ramp in 2024, although you're still holding to your longer term target of 75 a month.

Well, CFM and they have commented on their overall business. I would not take their remarks for valid for Airbus. So they have confirmed that they will stick to their commitments with us. So I need to say it very clearly. And for Pratt & Whitney, that's the case as well for 2024. So we will be ramping up in 2024. We are not at the point of being specific on this, but again, this is going to be about ramp up on the 220, on the 320, including given the complex engine landscape with Pratt & Whitney and on our white bodies. So that's where we are and we keep going in that direction. Obviously, the Pat and Whitney situation is creating a lot of additional complexity for us and for aircraft and less for customers. But in spite of those difficulties, we have found ways of managing the situation with Pat and Whitney. They have commitments to us that they have reconfirmed several times that they intend to stick to. So 2024 is again about ramp up.

Yeah. And then also on the supply chain, we've talked about engines, but are there any other areas that are proving particularly challenging at the moment?

Well, that's a good question. I mean, we have now more and more situations which are more linked to a given equipment or a certain part or supply chain. rather than suppliers. So we have few suppliers that are the so-called pacing ones and then we have a number of specific situation to manage with yes again critical suppliers but not as suppliers but given the fact that they are providing a certain number of equipment and parts and on some of them in some cases sometimes only one of them they are in difficulties. So that's a bit of a different landscape than what we had last year. And in the ones that are difficult and challenging as suppliers, we have obviously Pratt & Whitney, and we have also a spirit that is of public knowledge. So that's basically the best way I can answer to your question. It's more specific, it's more targeted, but still we have difficult situations to manage. Okay, thank you very much.

Thank you. We'll now go to the next question. And your next question comes from the line of Douglas Harnett from Bernstein. Please go ahead.

Good evening. Thank you. I wanted to actually, first question, go to Spirit because you've got the Boeing agreement. They've got the Boeing agreement in place. Where do you stand there, particularly given that the situation is quite different for you on the A350, the A220, and the A320 at Spirit. And then, second, just going back to the geared turbofan one more time, on the early CERN call, Steve Hawsey talked about the likelihood that Pratt would divert engines to customers for spare engines. We've heard something similar from other lessors. How do you and that that could cause shortfalls in your deliveries. How do you work this so that you can incentivize Pratt to deliver to you as OEM deliveries as opposed to some of their other direct customers at airlines?

Let me maybe start with the latter. I heard what Steve said, and obviously my previous statements are not accurate, Consistent with what Steve said, I confirm that we will deliver according to our ramp-up plans at least the confirmation of the guidance and that's what we have in the cards and we think we are well placed to deliver the 161 planes that would around the 161 that will bring us around the 720 for the year and when I say 161 That's what we need to deliver between end of October and end of December to fulfill the guidance. And that's what we see. And again, for those deliveries, we have obviously a high degree of visibility on parts, including engines. So I want to be very clear on this. Now, going back to the question of spirits, indeed, we are in a different place compared to Boeing. our level of dependency to Spirit is to a much lesser degree. We are providing A350 and A220 shipsets mainly, also a A320 shipset, but it's mainly A350 and A220, and we are working very closely with Spirit to support operationally. We have a lot of people dedicated to the support of the A350 and the 220 to help. And we're also discussing on how to find ways that would be deemed acceptable by Spirit and by Airbus to move those programs forward in a way that would make better sense for them but remain acceptable for us. So working very closely with Spirit operationally and from a contractual standpoint. Very good. Thank you.

Thank you. We will now go to the next question. And your next question comes from the line of Tristan Sanson from BNP Paribas. Please go ahead.

Yes, good evening, Guillaume, Hélène, and welcome, Thomas, to the show. A couple of questions on my side. The first one was on defence and space. I'm not sure I understand why the charge is so large for a business that has 2.7 billion euros of sales a year. I guess you probably said the maximum you can say for the moment, but I'm surprised that if you assume you have three quarters of that in Q3, the underlying margin for difference in space in Q3 is actually quite high and way higher than what it was in H1 or throughout the first three quarters of last year at around 9%. So if you could give us a feel for what is going on elsewhere in difference in space in Q3, that would be helpful to get a feel for whether the right level going forward is closer to 9% or closer to the reported level. And the second question, I'm sorry to come back to the GTF, but I think you mentioned, Guillaume, on the Q2 call that In your view, the risk on the PWA 1100 was more risk of second order, not coming from the risk so much of relocation of engines to the support of the fleet and service, but coming from the risk of industrial difficulties and disruption at Pratt on staffing or on parts production that would put them under pressure to deliver on their commitments. How do you see this specific risk evolving now?

Maybe I start with the first question and try to shed a little of color on the topic of the charges that we've recorded in defense in space. So I think the way you have to think about it is we're talking about a satellite program, which of course consists over several satellites that have to be developed, sold, et cetera. And such a program runs over several years. Now, the way that you look at it and account for it is that you build a so-called estimate at completion. So you build a business case which takes into account all the positives and the negatives for the program over the years to come. And accounting rules has it that if you make changes to that, it can be that the negatives can have to be already accounted for in a single quarter if certain conditions are fulfilled. And therefore what we did, and this is nothing really new, but we already started with it in the first half of this year. We looked at exactly these estimates at completion, and we carefully looked at the timelines, the cost estimates, but also the balance between the risk and the opportunities of those programs. And the result is that we had to take some charges in Q3, but I can absolutely confirm what you said. Those are charges that do not relate solely to the third quarter of this year, but which are a result of an assessment of an, as I said, estimate at completion and therefore a much longer timeline that isn't financially reflected in Q3 of this year. So therefore, I would also say we had against that, and I think we were transparent about it, released some provisions which were helping to the positive and therefore I don't think that Q3 is really representative of the underlying performance of the business. We said that we think we're able to generate a high single-digit margin on it going forward, and I think that is also the ambition that we have for the business in the future. Thank you so much.

I'm not sure I've identified the positive reasoning you were talking about, but we can follow up with the IR team. Sorry, Jose.

Thank you. If I may, sorry, Christiane, on the GTF question and what I call the, I think I used the word indirect impact, that was not very explicit and I had to explain myself afterwards. No, I don't think we see anything of that kind as of today. That's maybe a bit early, by the way. I think that's something we would see if it would be the case developing over time. And what we see for the moment, be it on the 220 or the 320, so on the 1,500 or the 1,100 engines, is we receive engines on time. We have a very good alignment on the industrial plan and its execution. So as of today, know what I call potential indirect impact is materializing, or at least not to my knowledge, not at my level.

That's really helpful. Thank you, Guillaume.

Thank you. We will now go to the next question. And your next question comes from the line of Phil Buller from Barenberg. Please go ahead.

Hi, good evening. Thanks for the question. It does sound like in the prepared remarks, there is something being flagged around this increased complexity statement, but nothing seems to have really changed in the numbers. If I look at the 23 guide, that's unchanged, but it feels like DNS and helicopters are below budget. Maybe that's unfair. And in answering the questions, it sounds like you believe you will get the GTFs and LEAPs you need next year. and the mid-term rates come 2026 are even higher on the 850. So I guess financially speaking, what are we to interpret here? Is it that commercial aero deliveries in 2024 might be a bit more challenging somehow? Is the cost of realizing those deliveries be that inflation or whatever ticking up next year? Anything you could add to try and make sure we're interpreting the complexity statement better as we think into 2024 would be great is the first question. Thanks.

Yeah, OK. Thanks for the question. I think what we mean by increased complexity is trying to reflect our day-to-day lives in the current environment, which indeed is dealing with geopolitical regulatory supply, political complexities around us, fast-moving picture, and that's what we see in terms of environment to deliver what we have to deliver. We are not suggesting that we're not going to meet or that there is a higher risk profile here and there, but we're trying to reflect on the complex, the growing complex nature of the environment we are operating in. and therefore the time and effort we spend, but as many management resources that are involved in dealing with that complexity, in better anticipating the risk and putting in place the mitigation plans, and maybe the more volatile and a bit unpredictable nature of what we are doing. And we're trying to factor this also in our plans. Thomas commented on the question on the buffers, indeed. We have an industrial system that is more buffered than what we would do in an easy and predictable environment. That's not the situation. So we are not trying to suggest anything else than reflecting that other complex, unpredictable, volatile, sometimes a bit ambiguous environment that makes our life more complex. and that creates more potential for unexpected crises here and there, and therefore the need to be eyes open, to be better in anticipation, and also in our ability to react and to adapt to the situation. That's basically what we're trying to reflect through the so-called increased complexity.

Okay, thank you. And then just to follow up, I guess it's a different question really, but the transformation in defense and space is a nice thing to see. Just to read between the lines, is there more to this than getting the operations and margins in the right place? Is this, for example, a precursor to something more strategic, i.e. is there an opportunity perhaps that you see for an improved European defence collaboration or consolidation in some way that Airbus could spearhead, so to speak? Thanks.

I would not directly make the link. That's also something we have obviously in sight. I mentioned the more complex, changing, geopolitically influenced environments, and of course being agile and being able to act accordingly is important. That's something we factor in the transformation that we are running at Defence and Space, but that's not directly targeting this. Thank you.

Thank you. We will now go to the next question. And your next question comes from the line of Ken Herbert from RBC. Please go ahead.

Yes, good evening, everyone. Hi, good evening. Yes, Gil, maybe just to start a two-part question. A number of your suppliers have talked about a recent slower ramp on the A220 program, and I wondered if you can provide an update on that program, and I guess more specifically as you think about the potential launch of a stretched aircraft. You've got a new management team running Airbus. You've talked historically about wanting that extension or new aircraft to pay for itself as we get to break even towards the middle of the decade. But can you give an update on the A220 specifically and how you're thinking about the 500 variant?

so on the 220 we are going to or we think we're going to deliver this year according to our plan that contributes to the reaching the guidance the the ramp up still targets the rate 14 by 2026 We had said earlier, I think a year ago, that we were targeting middle of the decade, so indeed it's probably slightly going to the right. That's maybe what you've heard from suppliers, but I would not see it as really material. We have a level of booking that supports this ramp up as far as we can see, so that's okay. On the Dash 500, no change compared to the previous quarters. We believe That's a version of the A220 that will make a lot of sense one day. But again, we stay very focused on reaching the rate 14, the breakeven of the program, managing to reduce the costs. And there's a lot of activity ongoing to make this happen. So we have said with Christian that Dash 500 is not a matter of if, but is a matter of when. And the when is not now, and we are not changing on this. So that's premature. Dash 500, we don't even know today what it really means. Looking at different architectures, different solutions, different possibilities, and different trade-offs. So we are not in the situation to launch, even if we would like to do it now. And it's not the case. We don't want to do it now anyway.

Great. Thank you very much.

Thank you. We will now take our final question for today. And your final question comes from the line of Ian Douglas Pennant from UBS. Please go ahead.

Thanks very much for squeezing me at the end. I appreciate it. Just going back to the inflation question that we had earlier, I wasn't quite sure I understood the direct answer to that. In the light of Safran also saying that inflation costs are slightly worse than expected this year and reiterating that at the call just recently, is that what you're seeing as well? And should we bundle that into the comments that you're making on investment in the future? And the second thing is, aside from the demand picture, what gives you confidence to raise the A350 message that you've given to the supply chain today, especially around the supply chain? Do you perceive that to be less tight or able to ramp up quicker than you've experienced in the narrow body? Thank you.

I'll take the question on the A350. The reason why we are raising from the previously announced rate 9 in 2025 to now rate 10 in 2026 is because we have secured a number of orders because we have positioned ourselves in campaigns where we believe we have a certain likelihood of winning and we continue to see a growing demand and a lot of customers coming to us with campaigns and needs and fleet plans. So that's consistent with the message I think we've been passing now in the last 18 months that we see a very significant recovery on the wild bodies and the growing demands and it's translating the demands into our ability to supply. now it's a fair question from you to say well are you going to manage the ramp up on the white bodies given what we have experienced previously on the on the ramp up of the a320 mainly the difficulties in 2022 as i said earlier in the call and in previous calls we have a much better understanding we believe at least of the supply environments and of the supply the state of the supply chain and its ability to deliver. We've done a lot of work on the A350 to try to take the lessons and the learnings from the initial A320 ramp up and we have based our assumptions for the A350 ramp up on this work, on those activities and the very detailed understanding we think we have for the ability of the supply chain to deliver on that ramp up.

Just on the inflation question. So, yes, I think just to confirm, of course, we're also seeing that inflation is playing a role. And as I try to indicate in Q4, we have, of course, the positive from the deliveries and a little bit of tailwind from the FX. But of course, we're also seeing that the inflationary environment continues to evolve, as we have indicated, that is roughly the 200 million per year. We have been on track in line with the trajectory for the first nine months of the year and therefore we're also expecting that Q4 will evolve accordingly. That is fully baked into our guidance and also therefore I can confirm that of course we're also seeing the inflation, but it's not an additional risk relative to what we have said we would achieve this year.

Thank you. Thank you very much.

Thank you. I will now hand the call back to Ellen for closing remarks.

Thank you, Sharon. This closes our conference call for today. 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 again and see you soon.