Safran Sa Ord

Welcome to the SAFRAN half-year 2024 results. At this time, I would like to turn the conference over to your hosts, Olivier Andriez, SAFRAN's CEO, and Pascal Bontenay, Group CFO. Mr. Andriez, please go ahead.

Thank you. Good morning, everyone. Thank you for joining us to SAFRAN's first half 2024 call. I'm here with Pascal. Let us go straight to the key highlights for the quarter. we post today's solid H1 results. EBIT margin reaching 15.1%, a substantial expansion of 230 basic points with notably aircraft interiors reaching operating break-even and a remarkable cash generation close to 1.5 billion euro. Air traffic trends remain strong with at the end of H1, narrow body at 113% of 2019 level, and wide body getting close to their 2019 level at 6% below. It supports aftermarket demand across all our businesses. Civil aftermarket is up by close to 30%, boosted by services. Leave deliveries were down in Q2. as we are facing persisting supply chain constraints. Our primary objective is to manage continuously supplier performance in order to meet our customer commitment. We confirm today our full-year guidance with high confidence in EBIT guidance and some pressure on cash flow related to some customer advances. On M&A, We signed an agreement for the acquisition of a company named Préligence, a leader in artificial intelligence. Through this acquisition, we want to boost the adoption of AI within the group, thus optimizing our agility and efficiency. Besides, with multiple applications, it will represent a step change for our defense and space technology businesses, and will also allow us to deploy AI-enabled digital inspection methods to support our focus on flight safety and quality. Closing is expected in Q3 2024. A quick overview of Safran's financial performance in H1 2024. Revenue grew by 19% year-on-year at €13 billion. Recurring operating margin reached 15.1 percent up 2.3 points representing a 41 percent increase in recurring operating income two times sales growth free cash flow was 1.5 billion euro a good performance in an environment where cash is under some pressure i'm very pleased with the performance of our teams in the current environment turning to slide five Let me share with you some of our main business successes since we last spoke. On the 9th of July, I was honored to attend in French Guiana, the successful maiden flight of Ariane 6. This program enables Europe to maintain its sovereignty in space. During this first launch, the VNC engine demonstrated its capacity to restart using the novel auxiliary propulsion units. At Eurosatori 2024, we announced the launch of SkyJacker counter drone solutions. This technology was developed with Aurelia, the company we have acquired in 2022. SkyJacker is an effective response to the growing threat posed by drones in the battle space and at sensitive installations. SkyJacker is deployed for the Paris 2024 Olympics. On the commercial side, we enjoy a very strong momentum. In particular, we signed helicopter engine support contracts with Chinese group GDAT, with one of the largest air rescue organizations in Europe named DRF, Luftretung in Germany. Our Makita 2A engine was also chosen by the German Federal Police, Bundespolizei, to power their new fleet of 38 Airbus H-225 helicopters. Additionally, CFM announced last week at Farnborough the largest ever Leap 1A engine order from a lessor, Avalon, consisting of 150 Leap 1A engines. Safran celebrated the entry into service of the Gulfstream G700 in May. We have many equipment on board, and notably the nacelle for the Pearl 700 engines. In July, we achieved a significant milestone with a certification by EASA of the Leap Powered Airbus FE21XLR. Leap is the first engine certified on this aircraft, with an entry into service expected later this year. Last, we strengthen our footprint in Querétaro with new engine maintenance and production capacities, both dedicated to the LEAP engine. $80 million invested in the construction of the second MRO shop, which is scheduled to begin operation from 2026 onwards. Let me now hand over to Pascal for more details on H1 results.

Thank you, Olivier. Good morning, everyone. I will be commenting today the adjusted accounts. for which a bridge from consolidated statements is presented on page 7. The adjustments remain the same, either relating to FX or PPA. As usual, the number circled in the table represents a change in mark-to-market of instruments, edging future cash flows recorded in financial income in H1 2024. So pure accounting entry, no cash impact. More color on FX on slide 8. So the US dollar remains strong against the euro in the first half, ending the month of June slightly below 1.07, while the average spot rate was unchanged compared to H1 2023 at 1.08. The stronger dollar means more euro sales, and as a reminder, on a full year basis, one cent change is about 110 million euros impact on sales. Again, we took benefit of its favorable environment to further edge our exposure, And for 2024, our H-book will deliver a hedge rate of $112 per euro. Page 9 provides a summary of the income statement. One of items amounted to a small 24 million euros. It's 10 million of impairment on a capitalized R&D for one program in equipment to reflect some delays in the entry date in service. And we also booked a few expenses related to ongoing M&A transactions. Financial income, we benefited from a positive carry on cash invested compared to the cost of debt. Net, it generated 84 million euros of financial interest. On the other hand, the stronger dollar, the negative impact on the revaluation of some positions in the balance sheet. Tax rate came back to 23%, same as last year. And net income to the parents to that 1.4 billion euros. up 37%, representing €3.37 per share. Turning to page 10 on revenue, H1 revenue slightly exceeded €13 billion, representing a solid 19% organic growth, which is in line with our full year outlook. This is an incremental €1 billion revenue per quarter. despite fewer than expected OE deliveries in propulsion and equipment. OE was up 16% organic, mainly driven by equipment and defense and aircraft interiors. Service activities were up 22% with consistent growth across all our businesses. Also, the net impact in revenue is not material. Change in scope reflects the M&A activity with the divestment of non-core cabin activities and a couple of Bolton acquisitions in aircraft equipment. Turning to page 11, operating profit grew by more than half a billion euros to reach nearly 2 billion euros. EBIT has risen at twice the rate of revenues, leading to a 2.3 points improvement in margin, reaching 15.1% of sales. I'll come back to the main drivers by division in the next slide. I can here mention the efforts made by the teams to properly control overhead expenses, and we continue to increase investments in R&T to get prepared for future market opportunities. Moving now to performance by division and starting with aerospace propulsion. Revenue was worth 6.5 billion euros at 14% organic, almost no growth in OE revenues, We've delivered fewer leap engines than initially expected, with a substantial drop in Q2. On the other hand, engine deliveries have increased on wide-body and helicopter platforms. Services revenue grew by 23%, primarily driven by a 30% increase in seeded aftermarket. Again, this good performance has almost no EBIT impact. Let me provide some colors on the underlying trends. As you know, civil aftermarket reflects revenue trends in spare parts and services. So the performance in CFM 56 spare part sales came in line with expectations. Volume was good. We benefited from price increase and scope of work remained stable. The main reason for the good performance, again, as in Q1, fully relates to service contracts. We had stronger growth than expected in our LTSA contract, but this comes with no profit. And we are today raising our full year assumption to reflect that. EBIT margin came close to 20%, a strong improvement from last year. On a full year basis, we expect to be at 20% plus. Slide 13 on equipment and defense, sales of 5.2 billion euros, up 23%. On the OE side, we did enjoy strong growth compared to a soft H123. Of interest, I would mention a one-off item in NACELS. The certification of the Gulfstream 700 led to recognized revenues for all NACELS delivered since 2023. Once again, the carbon break activity came strong in line with the air traffic trends, and defense enjoyed significant growth with strong deliveries of guidance systems and electronics equipment. Services revenue grew by 18%. Recurring operating income at 657 million euros, up 35%. Operating margin of 12.7%, up by 1.3 points. Same drivers as for revenues. And on a full year basis, we still expect about one point of margin improvement year over year. Last on aircraft interiors. sales of 1.4 billion euros, up 27% organic, an impressive growth rate, but we are still 14% below 2019 revenue. I would highlight the recovery in business class seed deliveries, which is up 72% off a low base, with a strong scale-up in Q2. Be mindful that this is not an easy journey. Seeds still have to execute a strong step-up in deliveries in H2. Cabin activities enjoy solid growth as well, both OE, aftermarket, and retrofit activities. We reached an important milestone in the turnaround of this business. Profitability has finally been restored. Again, the work is not over, and we will continue our efforts to reach a decent level of margin in the coming years. The weak point today remains the excessive cash consumption resulting from engineering expenses and unfavorable effects of working capital requirements, and we are obviously working on that. Free cash flow is another positive news in this H1 report, which generated 1.5 billion euros of cash in a context of inventory buildup due to the lower deliveries and supply chain constraints. EBITDA grew by more than half a billion euros, replicating the EBIT performance, and cash capex was up by 160 million euros to further grow our industrial capacity in MRO and production. Some update now on share repurchase programs and liability management. In H1, we did repurchase 2.9 million of shares for a total amount of 560 million euros. We have now completed the edging of the potential deletion of the 2028 convertible bonds. We have launched the first range of the 1 billion euros program for share consolation, which we did announce in July 23, and which will be carried out across 24 and 25. We also repaid with cash on end two trenches of debt maturing in 2024, $505 million of USPP notes issued in 2012 and 200 million euros, EuroPP issued in 2014. And we also proceeded with the early redemption of 2027 convertible bonds. In that respect, Safran delivered 9.3 million existing treasury shares to bondholders who preferably exercised their conversion rights and paid back in cash 20 million euros. This soft call had a net debt positive impact of 961 million euros and no dilution impact on existing shareholders. Last on slide 17, we ended the first semester with a net cash position of nearly 900 million euros. Free cash flow was primarily used to pay dividends, 2.2 euros per share, and repurchase shares. The M&A activity led to a cash out of €171 million. Going forward in the year, we will execute on the share buyback plan about half of the €1 billion plan. And given the context of the Collins Actuation and Flight Control Acquisition, I would now expect the transaction to close more likely in 2025 rather than 2024. Olivier, back to you.

Thank you, Pascal. So today we posted the strong print for H1, but we need to be mindful of further risk down the road, notably on cash, while we navigate in a challenging supply chain environment and softer demand, waiting on inventories and advanced payments. We need to adjust our underlying assumptions to our guidance. Leap engine deliveries should now be flat, to up 5% this year. We do our best to meet customer commitments and work to unlocking supply chain constraints. Our civil aftermarket revenue assumption is revised upwards to mid-20s growth, reflecting stronger growth in LEAP LTAC contracts. And all in all, we do reaffirm our fuller guidance and we feel confident in our ability to deliver. Thank you for your attention, and now Pascal and I will be pleased to answer your question.

Thank you. 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 1 and 1 again. Please stand by while we compile the Q&A roster. Thank you. We'll now take our first question, which is from the line of Ian Douglas Pennant from UBS. Please go ahead.

Thanks very much for taking my question. So the first, I guess, two questions on the same theme, which is trying to assess your vision of what happens in the second half of this year. Could you help us understand when equipment is tracking well, interiors you've returned to profitability, and civil aftermarket services is growing strong. Why is there no revision to your guidance? Maybe you could give some more detail there, especially, I guess, I'm thinking on cash flow in particular. And then secondly, you made some interesting comments, throwaway comment just now around demand softening in the second half. Maybe you could expand on that. Particularly, I wonder whether you're referring to the series of airline profit warnings we've seen. What does that mean for your ability to continue to price, I guess, from here? Thank you.

Good morning, Yann. On your first question and the reason why we do not revise upwards our guidance, as we say, we are highly confident that we will meet our numbers this year. It's true that we have a strong print for H1. Now looking forward to H2, We are expecting to deliver much more LEAP engines in the second half compared to the first half. As you know, this comes with a slight loss. We might decide to allocate some spare engines towards installed engines to support Airbus during the H2. And we are also expecting less OE growth. Not only in proportion, but also in equipment and interiors versus the initial guidance So all in all we feel comfortable to reach our EBIT guidance this year But we are mindful of some you know moving parts in H2 with respect to cash You know our ability to deliver will depend on the deliveries and that we will have in H2 because we have built a lot of inventory that we need to deplete in the second half. And depending on how many engines or equipment we deliver, it could have an impact as well on advance payments. So it's only a question of timing to receive this advance payment. But all in all, again, we reiterate and reaffirm our guidance.

Yann, your question relating to demand softening. Well, I have to say the CFM56 aftermarket demand is dynamic, is very dynamic. So we don't see the demand for CFM56 pairs in the aftermarket softening in H2 and probably in 2025 as well. You know the global situation. The ramp-up of the new generation aircraft is not as strong as planned. Therefore, most airlines basically are reluctant now to retire older generation aircraft. The storage of the CFM56 powered fleet is at a record low level. It is a lower level. It is now today a level that is even lower than pre-crisis. So we are about at 6% of storage. Retirements have been very low. We are less than 70 aircraft have been retired in H1 2024, which is even a lower level than in 2023. So you see, basically, airlines... fully focusing on flying more intensively the previous generation aircraft because basically they are starving from new gen aircraft today. This is the situation. So the demand for CFM56 spare parts will continue to be dynamic. I'd like also to insist on what Pascal mentioned. On LEAP, on new LEAP engine deliveries, we have to serve two types of customers, the airframers and the airlines. And you have to take every week allocation decision. But obviously, as basically our LEAP engine deliveries have dropped in Q2, and as we are impacting especially Airbus, uh we basically we we we will uh take decision of of allocation which are going to be more biased towards others than airlines but we have to serve both but but but obviously we need to manage that very carefully

Thank you. Sorry, I thought I was picking up on a comment that you made around demand rather than trying to push something on my side, but maybe you were referring to the demand from the OEMs. Anyway, thank you very much.

Thank you. We'll now take our next question. This is from George Zell from Bernstein. Please go ahead.

Yes. Hi. Good morning, everyone. First question, I mean, for the second straight quarter, you had unexpectedly high contribution of LEAP, RPFH, you know, cost and revenue. I mean, what's driving this? Is it pull forward or higher levels of shop visits that you didn't expect? And second question, coming back to cash again, related to the timing of advance payments, I mean, assuming this is all related to lower lead delivery guidance versus your expectation at the start of the year, I mean, that's a shortfall of over 300 engines from the 20 to 25 initial outlook. I guess, how much advance payment would you have expected from those 300 engines you would have expected for this year? Thanks.

Morning, Georges. On your first question, There is a higher contribution of LEAP RPFH services on the revenue side. As we already discussed at the end of April when we disclosed our Q1 numbers, it reflects a lower than expected time on wing on some engines, meaning slightly more cost coming to us. And as you know, we do recognize revenues as per the cost incurred. All in all, by construction, the way we account is no profit on this CRPFH contract. So I would say whatever the growth rate is, it has no impact on EBIT. By the way, we may change in the future our civil aftermarket index to better reflect what is the trend for spare part sales, which highly contribute to our margin. and what is coming from the service RPFH LEAP contracts for you, the analytics community, to better understand what are the underlying trends to give you the numbers. So we may do that for 2025, not now. So what I can tell you is that on spare parts, we are perfectly in line with our initial expectations. Now we see more revenues coming from services, but it means a higher cost on LEAP RPFH contracts. On cash, We have two kinds of advance payments. One is related to the Rafale export programs, and there is one advance payment that we are expecting in H2, which may fall in 2025. So it's obviously not lost, but it's a phasing issue. And the second risk we have is on the LEAP-1B, we do receive advance payments depending on the production rates of Boeing. Today, the production rates are well below what one could expect. So it could have an impact for a couple of hundred million euros this year. So we'll try to manage to offset that, but this is a risk we have.

Very clear. Thanks.

Thank you. We'll take our next question. This is from Robert Stallard from Vertical Research. Please go ahead.

Thanks so much. Good morning. Good morning, Robert. Olivier, maybe start with you. I wonder if you could comment on why you're so confident in your ability to deliver significantly more LEAP engines in the second half of this year, given the problems that you experienced in the second quarter. And then maybe one for Pascal. You noted that you finished the first half with a $900 million cash balance. What do you see as your optimal cash level going forward and also your optimal net debt leverage? Thank you.

Hello, Robert. So as you've seen, we had a significant drop of leap engine deliveries in Q2 versus Q1 and versus what we've delivered last year. In Q2, we have delivered 297, so a little bit less than 300 engines, to our airframe customers and airlines. Whilst in Q1, we had delivered 367 LEAP engines. So all in all, in H1, we have delivered 664 LEAP engine deliveries. Why is it? we've been hit by a significant drop of output in high pressure turbine blades in Q2. So the HP core have been pacing the deep engine deliveries. And within the HP core, the HP turbine blades have been pacing the whole deliveries of LEAP engines. There has been a significant drop of yield at the HPT blade supplier. So it has been a yield drop issue, which has surprised us. And basically this drop of yield has persisted in April and May is slightly recovering now, which makes us hopeful that, yes, indeed, we'll be able to ramp up our production in H2. But I have to say that the yield of our blade supplier has not yet reached its normal and nominal level. So in H2, we have to deliver between 900 and 1,000 leap engines. So you see it's a significant step up versus H1, but basically it's much less than what we had anticipated at the beginning of this year. So this is all driven, this is all going to be driven by the pace of recovery of the HP core, meaning the pace of recovery of the HPT blades, HP turbine blades.

Morning, Robert. On your question on net cash, if I refer to slide 17, you see that we ended the semester at plus 900 million euros. which I would say is all attributable to the one-offs that we add on the soft call of the 2027 convertible bonds. So it's a good level. If I look to H2, we should generate about 1.5 billion euros of free cash to match the 3 billion euros free cash flow guidance for the full year. I would expect 500 million euros of cash consumption for the share buyback. We have to pay for the Prelegence acquisition, 220 million. And then, as I said earlier, I don't yet know if the Collins acquisition will be closed this year or next year. I would say more likely next year, but let's assume it's this year. It will definitely bring back, you know, Safran to a slight net debt position instead of a net cash position. But it all depends on the timing of Collins. So the, I would say, target leverage we have is from zero to one time ABDA. So today we are slightly better than that. But given, you know, share buyback programs ongoing and M&A, I think we should be back to that range.

That's great. Very helpful. Thank you.

Thank you. I'll take our next question. This is from Olivier Brochet from Redburn Atlantic. Please go ahead.

Yes, good morning, Olivier. Good morning, Pascal. Thank you for taking my question. The first one is a double-parter on shop visits. The first bit on the leap, did you have any positive or negative surprises in the shop visits that you've done in the first half? And the second on CFM? Do you see a change in content recently with airlines maybe eliminating life of their engines? And the second question is on the holding. It moved to a profit. Can you just share a bit of color on why and whether this is recurring in H2 or in 2025? Thank you.

Olivier, I will take your first question relating to short visits. So on Leap, As Pascal has mentioned, and this is what is driving, let's say, the higher revenues on LEAP services. Basically, there has been more events than what we expected at the beginning of this year on LEAP. So more engines to be basically refurbished because of time on wing in harsh environments. And for each of those events, the amount of work has been higher than what we expected as well. So basically it means more cost, and as Pascal has mentioned, more revenues at no profit. This is for LEAP, and this is what happens. So yes, the rate of events on LEAP has continued basically to be strong in Q2, same way as in Q1. On CFM 56, we are in line with what we expected for the year. So today we are aligned. The amount of work has not changed. compared to 2023, so we still have, let's say, a nice wear scope, which is typically a full scope, mostly, not only with the core, but also with the turbine, the LP turbine. So basically, we are in line. We benefit from the pricing escalation that we at decided mid last year as forecast. And there has been almost no erosion related to used parts just because there is a very low level of aircraft retirement. There is no feeding for the used part market today. And so no erosion of, let's say, the revenues per show visit because of use parts, almost no erosion.

Good morning, Olivier. Indeed, we have a slight positive EBIT in holding. It all relates to intra-group services, which are re-invoiced to the three divisions. In fact, it relates to the cost of the long-term incentive plans, which have been re-evaluated according to the share price. which is now slightly above 200 euros. At the end of June, we have simply re-involved from holding to the three divisions the cost of this long-term incentive plan. So it has no impact on the full year basis. It's purely a timing issue.

Thank you.

Thank you. We'll move to our next question. This is from Chloe Lemary from Jefferies. Please go ahead.

Yes, good morning. Thank you for taking my question. I have another one on the seasonal aftermarket, if I may. Just wanted to check that the change in the guide from around 20% to 25% was strictly driven by the LEAP LCSAs and essentially the higher level of shop visit there, or if there were also something else. The second one is on equipment. So the margin expansion in H1, We're slightly ahead of the 100 bps you'd indicated for the year. Should we assume this is phasing or have you seen some elements which boost your confidence and maybe a slightly higher year-on-year increase in margin? Thank you.

Good morning, Chloé. You're right on your first question. The change in guide in civil aftermarket is all attributable to the LEAP LTSA. Again, no impact on profit.

On equipment, Chloé, there has been a very strong dynamic on equipment, and as you rightly say, we are basically in H1 above our expectations for the full year. We've enjoyed a strong dynamic in some services activities such as carbon breaks. This is also a reflection of the dynamism of the market overall and the airline demand. So carbon breaks has enjoyed a very strong dynamic and also some NASA services as well. And I would say I'm hopeful that we'll do slightly better than what you have guided for in for equipment. So slightly better than one point. But this will depend. Basically, whether the dynamic we've seen in H1 will continue in H2, especially on carbon breaks. Very good. Thank you. So, hopeful that we will do slightly better than one for equipment.

Noted. Thank you. Thank you. We'll now take our next question. This is from Ben Helan from Bank of America. Please go ahead.

Yeah, good morning, Olivia and Pascal. Thanks for the question. I had a few on LEAP and the aftermarket. So clearly the LEAP shop visits are higher volume or coming through in higher volume than you'd anticipated. From memory, when you talked in the past about recognizing the profitability of of those shop visits is zero. It was for the first thousand shop visits from memory. So just wondering if you can kind of, if you can confirm that. And I guess we're not that far away from you actually starting to think about recognizing profitability on those Leap shop visits. We know what your partner is saying around that. So I'm keen to understand what you think the underlying margins of these shop visits on the Leap are today and how you see that progressing. That'll be the first one. Thank you.

Good morning, Ben. Yes, we do see slightly more shop visits today, or what we call quick turns on LEAP. As you rightly said, we wanted on our side to wait for about a thousand shop visits to be performed before we start to recognize profits. This will be the key theme of the Capital Market Day on the 5th of December this year. to discuss how we will recognize profit moving forward from 2026. We won't discuss the level of margin we have in our book, but once again, we have a book of nearly 60 LTSA contracts on LEAP. We are managing carefully that margin at completion of our portfolio. in order to book new contracts at higher margins, restructure existing contracts in order to continue improving that margin that will be released over time, but over the next 10, 15 years, because these are long-term contracts. But it will be the central theme for the capital market day.

Okay. Okay, fine. And then my second question is around the other elements of aftermarket you said were all broadly kind of in line with your expectations. In terms of the wide-body demand and the spares, are you able to give us a bit of color in terms of what the growth was in those two areas of aftermarket?

We had higher growth in the wide-body spare parts than we had on CFM56. So, right, the dynamic is good, and the G90, for example, or their GE engines for the wide-body platform. So the demand is there, and the trend is good on spare parts.

Yeah, very strong dynamic on the G90. Okay. And also a good dynamic, interestingly, on the GP7000. as the F-380 fleet is flying intensively at Emirates.

Okay. Okay, and then final one on LEAP as well. I think you made some comments, Olivier, to maybe the media earlier about supply chain snags lasting into 2025. Just keen to understand, have you signed a purchase order with Airbus now around the LEAP 1A for 2025? And... How should we, you know, very early, I recognize that, but how should we be thinking about growth of LEAP into 2025 from here?

No, we have had a constructive discussion with Airbus on basically the way forward, and we have an agreement in principle on volumes for 2025. So the purchase orders basically are going to come accordingly. But we have an agreement in principle for 2025.

Okay. And any early comments on the growth we could see?

No, it's too early, Ben. You know, we have... You know, we've delivered 264 engines in H1. If you look to our guidance for the full year, it means about 900 to 1,000 engines in H2, which is even 50% step up in H2 compared to H1. So first, we need to deliver that before we can... Put a number on the table for 2025.

And I will respectfully give it to Airbus and Boeing to communicate on their numbers for 2025. Yeah.

Okay. Very clear. It was worth a try. Thank you both.

Thank you. Your next question is from the line of Sam Burgess from Citi. Please go ahead.

Hey, good morning, guys. Just one quick question on equipment and defense, actually. So some might find it surprising that OE volumes on the civil equipment side are quite so strong given the slowdown in aircraft deliveries. Given the strength of H1, should we expect to see maybe some slowdown from customer destocking going forward? That's the first question. And the second question, Are there any specific bottlenecks in either equipment or interiors where you're seeing real supply chain snags, or are those challenges predominantly around engines? Thanks.

Good morning, Sam. On your first question, I would say that the lead times of equipment we delivered on the A320neo or 737 MAX are quite different and not comparable to the lead time we have on engines. So this is why you don't see the same timing or phasing of deliveries within propulsion and equipment. So moving forward, as we say, I don't know if there is any slowdown, but there is a risk of slowdown depending on the inventory that is sitting at the airframe place.

Typically for those equipment where we've been on time, well in advance, basically, where there's a significant buffer and whip at Airbus or at Boeing, but at Airbus, let's say, of course, you'd understand that for inventory management, they will try to soften their demand vis-a-vis us. So this is typically the example on Nacelle. On Nacelle, for Airbus, we have been well on time 100% on time delivery, well in advance, and therefore, basically, there's a softening of the demand just for that reason. Inventory management at their frame of sight, which is well understood. Now, are there any other, let's say, identified bottlenecks? We've already mentioned what happened on LEAP. I will not come back on that. HPT blades. They are still, you know, overriding supply chain issues all over the place. So basically it's an everyday fight for our teams. We have doubled our supplier performance managers. So we have a team of 300 people now. basically that we are dedicated to follow and help our suppliers improve their performance. So there are some missing parts here and there, you know, but it's quite, how could I say, quite all over the place, and we fight every day. Now, we've been... I mean, we've been hit on landing gear, especially for the A330. We've been on time on the A320. We've been on time on the A350, even despite a strike in one of our facilities in Canada, in Montreal, where we've basically impacted the Airbus followers on the A330 in H1. But basically now we are at full speed and hopefully this is behind us now, but it's an everyday fight. On cabin items and seats, we know from the AFRAMUS that they are impacted by all suppliers on cabin and BFEs and seats. We have indeed been a few days or weeks late here and there, but basically we are now in full speed to ramp up our production in H2 versus H1 as we did in H1 versus 2023.

Thank you. That's really helpful, Carlo.

Thank you. Your next question is from the line of Christophe Menard from Deutsche Bank. Please go ahead.

Yes, good morning. Thank you for taking my question. I had three quick ones. The first one on equipment and defense, just to continue on the good profitability you've shown. You mentioned carbon breaks. That's my understanding, at least. What are the other moving parts? I mean, defense is probably one of the moving parts in H1. Will it continue in H2? You mentioned Nacelles for Gulfstream. I guess it was also recognized with some profits. So just that first question. The second question is, can you comment on the turnaround times on LEAP? I understand they've declined versus 2023. Will they continue to decline, in your opinion, considering supply chain issues? And the last question, I think, Pascal, you mentioned cash consumption for aircraft interiors. When do you expect that cash consumption to stop, so to say, or to become a cash generation, and what would be a good normative cash conversion level for that activity when things get better one day, much better?

Christophe, yes, there's a number of, as you say, moving parts in equipment and defense, and yes, indeed, We see a very strong dynamic there, and this is why basically we enjoy a nice improvement in the margin. Defense is extremely dynamic, very strong growth on defense. On guidance system, optronics, the demand is very strong. So I think Pascal, I'm turning to you, but on the, just on the defense, I think we are, we have a nice organic growth here. There.

Yeah. Very, very good growth. Yes. In defense indeed in guidance guidance systems, electronics. Yeah.

Wow. So this is defense. Now, um, the, the entire equipment branch is enjoying strong aftermarket. I mentioned carbon breaks. Nacelle, this is mainly relating to the A320 neo-nacelle. So there's a strong demand there for parts and repairs. I could also mention aero system with slides. There's a very strong demand for evacuation slides and oxygen system. So it's all over the place. And landing gear parts as well. Here as well there is a strong demand. On TAT, we are still in a phase where basically there's an overall shortage of capacity for the maintenance. And so the LEAP engines have to wait some weeks before being incepted. in the shop. So the turnaround time basically is a reflection of that. We are on a decreasing trend, but we are still far from where we should be. And so the numbers on TRT are basically three digits, which is not satisfactory yet. But we are on a decreasing trend. As we built up as we built up capacity and as our partner is building up capacity as well. And as also we have signed agreement with third party shop for which we have granted a license. So all in all, the capacity is increasing. As we have already mentioned, I think we have decided on our side to invest $1 billion to increase our maintenance and repair and overall capacity in the world. And I understand our partner has basically taken the same kind of decision.

Good morning, Christophe. On interiors, first, as we said, we did put an end to the losses in H1, so we are a bit breakeven in H1 2024. Our target is to be a bit breakeven for the full year, so I guess we are on track with that objective. And going forward, we would expect to achieve a decent level of margin in these businesses. In H1, we did improve the cash burn by about 60 million euros, but it's still a negative number of 135 million euros of cash being burned in H1, so it's not satisfactory. I've mentioned before that we are expecting to be cash breakeven in 2025. It's still a challenging target, but if we will be able to deliver our late backlog, we will deplete inventory, and we should be able to achieve that target. Looking forward, I would expect, like in any other businesses, to have a cash or EBIT to cash conversion rate of nearly 70%. There is no reason why we should not be at par compared to proportional equipment.

Thank you. Thank you very much for the details, Clarence.

Thank you. We'll take our next question. This is from the line of David Perry from JP Morgan. Please go ahead.

Yes, good morning, Illegate and Pascal. Thanks for squeezing me in. So I just want to dig a bit deeper on some LEAP issues, if I may. First on OE. I'm just a bit surprised by how quickly the delivery guidance changed over the course of the year. So I just want to ask you a couple of things so I understand it better. Why did the yield fall at this supplier? And what have they done to fix it? What are the lead times on these HPT blades? Because it seems to have been an incredibly abrupt change in your delivery expectations. So I just would like to understand that a bit better. And then a question on the leak aftermarket, please, Pascal. I'm just trying to make the maths work, because it seems like all of the increase in the aftermarket guidance is leak, and yet It's quite a small base number. So can I just throw some numbers at you and maybe you'll tell me if they're crazy or not. But is LEAP aftermarket going from something like $400 in 23, $400 million to say $800 million in 24? So are you doubling? Is that the kind of magnitude or am I just way off on that? Thank you very much.

David, I will take the OE side of your question. Yes. You're right. We have significantly changed our delivery guidance for LEAP since the start of this year. The first change occurred in April after our Q1 communication, and this was really the consequence of, let's say, the Boeing situation following the Alaska incident, as you know. Boeing had to completely change their production plan for the 737 MAX this year and next year. So this was basically the first change was mainly reflecting the Boeing situation when we basically came down to the 10 to 15% range in April. And now the new change is basically a reflection of the HPT blade situation, which is spacing, as I mentioned, the HP core delivery to our assembly line, and therefore the engine deliveries to Airbus and Boeing. Boeing is not so much impacted this year because we have an inventory of engines sitting at Boeing, so they are not impacted this year, but it is impacting Airbus. And yes, it has been a very surprising situation from the HPT blade supplier, the casting supplier, where we discovered that the yield has dropped significantly in Q2, in April and May. So now we see a recovery path for the yield coming from this blade casting supplier. And this is what is driving our guidance today. But once again, Our basically ability to meet this rampart in H2, getting to 900 to 1,000 lib deliveries, is going to be dependent on the yield recovery from this bled casting supply.

Can I just follow up? Sorry, can I just follow up? I'm sorry to be a nuisance. I'm just trying to understand the mechanism. What is the lead time? It seems to me, given how quickly the guidance changed, that you must be getting these blades on a very short lead time, almost in real time, which surprised me a bit. I just thought you'd be getting the blades in many, many months before an engine was assembled. So I'm just trying to understand the kind of visibility and the level of confidence about the turnaround, because obviously it's been a big change. I'm sorry to labour the point,

David, I understand your question, but I know the lead time for our own modules. I have less knowledge about the lead time leading to the HP core deliveries. I can answer you what are the lead times on the fan or the low-pressure turbines, but I can't answer on the HP core.

Okay. All right. Sorry to be so persistent, but it's important.

Yeah, I know. David, on the second part of your question on the LEAP LTSA, so as you rightly said, the revenue base is small compared to what we have on spare parts, which are all embedded into the civil aftermarket revenue guidance. But if I was to put some color on the growth rate, it was way above 50% revenue growth in H1 compared to H1-23. So it's material growth from a low base, obviously, but it's a material growth. On a full year basis, I would expect, again, strongly beat the initial expectation in terms of growth rate, but coming from a low revenue base. And I won't comment on what the revenue base in dollars is, obviously.

I appreciate it. Thank you very much.

Maybe we'll take the last question. The very last question.

In fact, there are no further questions. So I will hand the conference back to the speakers. Thank you.

So thank you for your attention. Thank you and have a nice summer. Hope you will have some days off and see you soon.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.