Safran Sa Ord

Good morning, everyone, and thank you for being with us today. So, Q2 continued on the strong trends observed in Q1, resulting in an exceptional first half, marked by a stellar demand in the civil engine aftermarket, a strong ramp-up in LEAP and M88 engine deliveries, and record financial performance. The Middle East conflict barely impacted our performance. Civil aftermarket activity is remaining well above our pre-conflict forecasts. Spare parts sales for civil engines increased by 28% in dollar value and civil engine services also grew by more than 40%. All this despite the geopolitical context in the Middle East. CFM 56 continued to drive spare parts performance with a fleet benefiting from a low level of retirement combined with a very strong demand for aftermarket. LEAP is also expanding with a fast-growing number of show visits Significant wear scope increase and more shop visits being performed by third-party maintenance repair and overall shops. We delivered 1,030 LEAP engines in H1, a 41% increase year-on-year, aligning four consecutive quarters with over 500 deliveries. All of this translated into record financial performance. Revenue reached 17.6 billion euros, up 20% on an organic basis. Recurring operating income climbed by 29% to 3.2 billion, representing an unprecedented operating margin of 18.4%. Free cash flow was even stronger, up 43% to 2.6 billion euros. Given this robust performance and the strong visibility in front of us, we are raising our four-year guidance. Lastly, disciplined portfolio management remains a priority. We completed the divestment of Safran Passenger Innovation and of our 50% stake in Easy Air, our past joint venture with Embraer. Regarding Aubert et Duval, Airbus and Safran recently completed the acquisition of TQO Capital's stake, further strengthening our objective to building a more resilient aerospace and defense supply chain. Turning to slide four. Saffron is benefiting from strong commercial momentum across its civil businesses. We continue to ramp up our capacity to support growing demand and strengthen the resilience of our industrial footprint. In Mexico, we opened end of June, we opened a new LEAP maintenance shop in Querétaro, and a new electrical wiring factory in Chihuahua. At Farnborough, Leap confirmed its position as the engine of choice on narrowbody platforms, as illustrated by the signature of an MOU by Indigo for more than 1,000 Leap 1A engines. Our largest ever engine order to power its A320neo family fleet and support its new MRO facility. BOC Aviation also placed an order for up to 300 LEAP engines. The new LEAP Premier MRO license with IAG and CFM, together with the full-fledged LEAP engine shop being developed in Singapore through our joint venture with Singapore Airlines, will further expand maintenance capacity and strengthen the global LEAP ecosystem. We are also preparing the future of flight. Electra, a U.S. company, selected Safran's turbogenerator, Turbogen 600, for its EL9 hybrid electric aircraft, a short and take-off and landing aircraft, with an initial order for 250 units. Turning to slide 5, RISE technologies are now being matured towards ground and flight test demonstrations this decade. Since CFM unveiled RISE in 2021, approximately 500 test campaigns and more than 5,000 endurance and dust cycles have been completed across OpenFAN. and Hybrid Electric Technologies, mobilizing more than 2,000 CFM engineers in both sides of the Atlantic Ocean. The program is moving from concept to reality. The compact core modules, the open fan blade and the OGV airfoils have passed preliminary design reviews enabling the program to enter the detailed design, manufacturing, and physical realization phase of the demonstrator, leveraging decades of expertise, including four composite fan blades in saffron. Mechanical and material tests are underway on blades and OGV, including impact, ingestion, fatigue, endurance, load, icing, and vibration response. Wind tunnel campaigns have also demonstrated aeroacoustic performance above technology maturation objectives. Durability is being addressed earlier than ever in the new technology development cycle. More than 2,000 dust ingestion cycles have already been completed on next-generation HPT airfoil in an engine core. A second campaign is now testing RISE HPT technologies in our more product representative LEAP-1B engine to assess their potential benefits for the fleet. On the fan system, the first high-speed, low-pressure turbine has been tested for more than 1,000 hours, validating aerodynamic design and aerothermal performance. The next milestone? is the preparation of a full-scale front module test in our new test cell at Villaroche, progressively building towards the low-pressure system, including the reduction gearbox. Finally, on hybrid electric, Safran has launched the Phileas ground test campaign at Istres, a full-scale engine demonstrator with two electric machines installed on the high-pressure and low-pressure shafts with a campaign plan for approximately six months and nearly 300 hours. We are using our Silvercrest engine for those tests. Turning to slide six, defense continues to show a particularly strong momentum. Eurosatori confirmed the depth of demand which we are converting into major wins and partnerships. We are, once again, ramping up capacity in critical areas with major investment in hemispheric resonant gyroscope inertial navigation in Montluçon. In positioning navigation and timing equipment and electronics in Germany, and Optronics and Surveillance and Recognition System in Dijon, France. Numerous new partnerships were announced recently, supporting our global expansion as more than 80% of our defense electronics backlog is international. Safran joined Airbus, Destinus, MBDA Deutschland and Thales, in signing a letter of intent to establish the Blixem Exo-Consortium and develop a sovereign European exo-atmospheric interceptor against medium and intermediate range ballistic missiles. Finally, we are converting this demand into major wings. Thunderdart is a key illustration with Safran and MBDA selected to provide France Thank you Olivier, good morning everyone.

Today I will guide you through the adjusted accounts and you will find a reconciliation to the consolidated statements in the appendix. So let's begin with the FX trends which are highlighted on slide 8. In the context of the ongoing Middle East crisis and its impact on the macroeconomy, volatility persisted during the first half with the dollar strengthening against the euro, moving from 118 to 114. Given the level of activity observed in H1 2026, it is likely that we will need to revise upwards the volumes to be hedged for the remainder of the year and for future periods. This does not call into question the hedged rates targets shown in the graph starting with 1.12 in 2026. Overall, our hedged portfolio continues to serve as a key protection mechanism, providing us with solid visibility on future dollar exposures despite Currency Relativity. Now let's turn to revenue and recurring operating income on slide 9. Revenue reached 17.6 billion euros in H1, representing a 19% increase on a reported basis and more than 20% organically. The negative currency impact of 742 billion euros reflects an average spot rate of 1.17 compared to 1.09 in H1 2025. This impact was partly offset by the scope effect, which had a positive impact of €560 million, mainly due to the acquisition of Codin's Actuation and Flight Control activities, and partially offset by the divestment of Safran Passenger Innovations. Recurring Operating Income rose by 29% to €3.2 billion, significantly outpacing revenue growth. Despite some costs increases in certain materials, Partly offset by tariff refunds, the margin improved by 140 basis points, reaching a record 18.4%. The main drivers of this performance were robust revenue growth, the outstanding performance of the civilian engine aftermarket, strong defense activities, and as usual, a sustained focus on operational excellence across the group. Moving on to slide 10, you will find a summary of the income statement. One of items amounted to minus 177 million euros, which include program impairment charges, M&A transaction costs, and the outcome of commercial discussions concerning past operations. Net financial expense was 123 million euros. This includes a positive 57 million euros of net financial interest, reflecting our positive net cash position, as well as 188 million euros foreign exchange loss, which includes the impact of reassessing US dollar provisions. The reported tax rate was 33%, which reflects a 322 million euros impact from the French corporate surtax. Without this surtax, the effective tax rate would have been 22%. With the increased EBIT guidance, you should now expect nearly 500 million euros impact for the full year, meaning an additional 180 million euros in the second half from the surtax. Overall net income attributable to the parent reached 1.9 billion euros, up 21% year over year, resulting in earnings per share of 4 euros and a few more. Turning now to propulsion on slide 11, revenue reached 9.2 billion euros in H1, up 28% organically, driven by the strong momentum in both civil and military engines. In civil engines, aftermarket growth exceeded our expectation. Spare parts sales grew by 28% in dollars, mainly supported by a continued favorable work scope mix on the CFM56, something we have seen since mid-2025, as well as a higher contribution from Leap Aftermarket with an increase in external shop visits. Pricing also supported growth on both CFM56 and Leap. In addition, civil engine services were particularly strong, up 40% in dollars, led by Leap RPA Fetch Contracts. It's important to note that the trigger to recognize LIP1 BRPFH profit has not yet been reached. The introduction of the Maverick lay is planned for later this year or early next year. On OE, we delivered 1,030 LIP engines in the first half of 41% year-over-year, including 24% growth in the second quarter. This marks the fourth consecutive quarter with over 500 deliveries. and you can expect further sequential growth in the second half. Military engines also contributed positively. As announced, Rafale production is ramping up from two aircraft per month in 2025 to four per month by 2029, resulting in MMT-8 engine deliveries more than tripling in the first half. Revenue growth also benefited from the favorable customer mix and a solid level of services. Helicopter turbines benefited mainly from the aftermarket activity, while OE was slightly down due to ongoing supply chain challenges. Missile propulsion systems continue to grow, driven by increased deliveries. By the end of this year, we will have tripled our missile turbojet capacity compared to 2022. Recurring operating income reached €2.3 billion, up almost €500 million versus H1 2025. The margin increased by 120 basis points to 24.5% of sales record, exceeding our annual guidance of 22 to 24%, mainly thanks to the outstanding performance of the civil engine aftermarket and continued strength in military engine deliveries. Moving on to equipment and defense, slide 12. Revenue reached 6.9 billion euros in H1 2026, up 14% organically. The scope effect primarily reflects the full integration of the flight control and actuation business. Organic growth also takes into account the transfer of software ventilation systems from aircraft interiors to equipment and defense. Without this transfer, organic growth would have been 12.4%. On the equipment side, we observe higher OE volumes across the board. with particularly strong performance in NAFAS for the A320neo. Electrical systems also delivered solid results, driven by strong demand for programs such as the 737 MAX, A320neo, and the A350. Defense activities made a solid contribution as well, especially in inertial navigation systems, which recorded strong double-digit growth, along with robust performance in electronics and the AMER guided boat. Aftermarket services grew across all segments with especially strong growth in electrical systems notably on the A380 and in nacelles for the A320M. Recurring operating income reached €907 million at €204 million year-over-year. The margin improved by 60 basis points to 13.1% all by 110 basis points to 13.6% excluding the contribution from the actuation business. All business units contributed to the strong overall performance supported by higher volumes, improved pricing, and continued focus on operations. Turning now to slide 13 on aircraft interiors, revenue reached 1.5 billion euros at 6.6% organically, When you exclude the transfer of SAFRA ventilation system to a container defense, organic growth would have been 12.2%. In cabin, aftermarket growth was led by spare parts, notably on the A350, A220, with good dynamics in all geographies. OE volumes also increased, driven by A350 lavatories, as well as 737 and A320 galleys. Business Class Seats Deliveries increased by 4%, with a 21% catch-up in the second quarter. OE performance was also supported by a favorable pricing effect, in line with the Right Pricing for Value strategy that we presented at our CME. Aftermarket activities delivered good growth in both spare parts and services. Recurring Operating Income doubled to €54 million. lifting the margin by 200 basis points to 3.7%, despite the deductive impact of the SAFRA passenger innovation divestment and the transfer of SAFRA ventilation systems. This margin expansion was driven by pricing on cabins and business class seats and volume in spare parts. This performance confirms that Aircraft and Serials remains firmly on track with its roadmap for continuous margin improvements. Turning now to slide 14, free cash flow generation increased by €800 million to €2.6 billion, up 43% year-over-year, resulting in a very strong EBIT to cash conversion ratio of over 80%. This excellent performance was driven by a 24% increase in EBITDA, as well as the positive changes in working cap. Indeed, inventory growth was More than are saved by increases in advance payments and deferred income, which benefited from defense-related advance payments and deferred income related to the RPFH contracts on leap. It is worth highlighting that inventories grew at a slower rate than sales, allowing us to reduce our inventory DSO by five days. Income tax payments remain broadly stable, as the cash impact of the French surtax will take place in the second half of the year. We continue to invest significantly to support our growth. Tangible CAPEX reached 750 million euros at 15%, with spending focused on capacity expansion across the group, particularly for LIP-OE, MRO activities, and defense electronics. Looking at slide 15, Safran's net cash position remained almost stable at 1.7 billion euros. 90% of the cash generated in the first half was used to pay the dividend of 3.35 euros per share, totaling 1.4 billion euros, and to finance the share buyback program. In the first six months, we bought back 2.6 million shares for consolation purpose. And looking specifically at the share buyback program, Between Jan and July 2026, we repurchased around 2.8 million shares for consolation. It's about 0.7% of the share capital, for a total amount of 875 million euros. These shares are scheduled to be consoled before year-end, and we also plan to launch an additional tranche in the coming weeks, which will be executed before the end of the year. M&A activity resulted in a limited net inflow. of 33 million euros, mainly reflecting the divestment of SPI, partly offset by smaller acquisitions including Syntony in inertial navigation. Finally, reflecting Safran's strong financial discipline, 3,000 pools upgraded the outlook on Safran's A-minus credit rating to positive in July 2026. With that, I'll hand it over back to you, Olivier.

Thank you, Pascal. I am now on slide 17. Building on our strong first-half performance and sustained momentum across both civil aerospace and defense, we are raising our 2026 outlook. Revenue should increase in mid-teens above €36 billion. Recurring operating income guidance is improved by Thank you very much. Their parts and services revenues are expected to be up in the mid-20s, while lead deliveries are now expected to be up in the high teens. Thank you, and we are ready now to answer to your questions.

Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Once again, please press star 1-1 and wait for your name to be announced. To withdraw your question, please press star 1-1 again. For the benefit of all participants on the call, please limit yourself to two questions so that everyone is given an opportunity to ask questions. Thank you. We are now going to proceed with our first question. The questions come from the line of Olivier Brochet from Roche Child and Co. Please ask your question.

Good morning, Olivier. Good morning, Pascal. Thank you for taking my questions. I would have two then. First of all, in the margin in propulsion at 24.5%, which is quite exceptional, you have an increase in the leap deliveries and in services sales, which I would assume are dilutive. Could you share some color on the drivers for that performance in H1? and the second question is on the one-offs. Could you just give us a little bit more detail on what is within the proportion number of minus 134 and how much of that is cash rather than P&L? Please.

Good morning, Olivier. Indeed, we recorded A stellar performance in the margin in propulsion with a margin of 24.5%, exceeding our annual guidance of 22 to 24%, which was clearly driven by spare parts, notably on CFM56, but as well on LEAP. We benefited from the pricing effect on CFM56 that we had on 1st of August last year. but mainly from a very favorable World Cup mix effect, meaning that airlines will spend a lot every time they come to maintain spare engines. And the second driver for this strong performance was the volume of spare engines that we delivered in H1. It's about 60% of the annual volume we expect to deliver as spare engines for the full year. And I would even add a third item, which is a very good performance we enjoyed in the military engines, notably on the M88. As we said, we tripled the volume of engines we have delivered in H126 compared to last year. Now looking to the one-off in propulsion, it's what we say on slide 10. It's about the impact of the conclusion of commercial discussion that we had for long Concerning past operations with some partners.

And is it cash or not cash?

Part of the cash will be at the end of this year and next year. Okay, thank you.

Thank you. We are now going to proceed with our next question. and the questions come from the line of Christophe Minard from Deutsche Bank. Please ask your question.

Good morning, thank you for taking my question. For the full year, could you refresh the divisional EBIT margin guidance? I think you were last time mentioning equipment and defense to be slightly above 12.7, but it seems that for the full year it will be better. So that's the first question. And still in terms of the equipment and defense margin, which came out very strong in H1, you mentioned 110 basis points improvement linked to the structural business. What share of this is linked to defense and what is linked to electrical and nacelle in terms of margin improvement?

Thank you.

Good morning Christophe. So we are raising our full year outlook, so one can expect that our margin should be slightly above what we communicated so far. Starting with propulsion, as we recorded the 24.5% operating margin in H1, I would expect the full year margin to be At least at the upper end of the 22-24% guidance, meaning around 24%, which would be a point of improvement compared to what we had in 2025. In equipment and defense, we have always called for at least 50 basis points margin improvement, including the actuation business, excluding the actuation business, As we communicated back at the capital market in 2021, our target is to increase by at least one point the margin in that transit branch to reach 15% at the end of the day. Here again, as we had a strong margin in H1, I would expect to beat the 50 basis point margin improvement for the full year. And then on aircraft interiors, there have been a lot of Changes in scope with the divestment of SPI with the transfer of the SAFRA ventilation system. But still, I would say at least one point of improvement. And then on your specific question around equipment and defense, defense is clearly a good contributor to the margin improvement. But as you rightly say, the Nacelle business also enjoyed a pretty good growth momentum Thank you very much.

Thank you. We are now going to proceed with our next question. And the questions come from the line of Ross Lowe from Morgan Stanley. Please ask your question.

Hi, morning everyone. Thanks for my questions. So the first is on the guidance upgrading services to mid-20s. It implies a pretty aggressive deceleration in the second half, something in the sort of 10% low double-digit range. Can you just walk us through the key drivers of that? And then secondly, Airbus has indicated quite publicly that it wants to recalibrate the economic relationship between OE and aftermarket on the next generation single aisle. I would be interested to hear how Safran thinks about this and whether and your partner GE would be willing to give up future aftermarket profits in return for better OE economics. Thanks.

Hello, Ross. Olivier speaking. On the spares, spare parts.

It was on services. Ah, it was services.

Okay, it was services. Okay, but the main driver for the services growth is really the leap, shop visits. The shop visits Volume has increased by more than 30% compared to last year. This is basically just the consequence of the fact that the leap in service is simply growing. And also the wear scope continues to increase on the leap as well. So this is the main driver for the services side. As Pascal has mentioned, on the spare parts side, the main driver for the growth has been the wear scope. In fact, we have seen a higher proportion of heavy wear scope, basically continuing the trend that has started in H2 2025. We've not been surprised by the volume of shop visits. It was as expected. So we confirmed that we are going to be around 2,400 CFM56 shop visits. So no surprise on that. Pricing was obviously anticipated. So the main surprise, if you wish, which was well ahead of So, that's the main drivers.

If I may just add, Olivier, as you know, there is no impact on profits because whatever the revenues are, you know that from the accounting perspective, we have defined a strategy to release on the, you know, the services as a portion of the PAPFH profits we want. whatever is the growth rate in H2, there will be no consequence on H2.

Okay, so we have listened to the Airbus communication as you did as well with an appetite basically to discuss the respective business model as you know. On the engine side, when we invest On a brand new engine development, we have to be quite patient to get our return because not only we spend a lot of money for the development of the engine, the industrialization, the ramp-up, getting to service and all that. On top of that, for years and years, when we deliver engines to the framers, we do that at a loss. And we only make profit at the time when shop visits come up. So we have to wait quite a long time. So any potential discussion on business model has to be holistic, taking into account the OE side and the aftermarket side.

Thank you. We are now going to proceed with our next question. And the questions come from the line of Sam Burgess from Goldman Sachs. Please ask your question.

Great. Thank you very much for taking my question and good morning both. Maybe I'll just follow up on those last two questions with similar themes. So just on the work scope, looking forward, I mean, what are you In terms of the evolution of this work scope as we move into H2 and then even beyond that into 27, does this continue to be a tailwind and supportive or does it start to reverse at some stage? And then secondly, on the engine deliveries, I mean, they've been very, very strong in H1. Is there a possibility that we could see you maybe over-delivering to Airbus, particularly as we look towards 27, and we know that Airbus has been slightly out of pocket from the other supplier. Is there a possibility you could help them out? Thank you.

Hello, Sam. Indeed, on Wearscope, in fact, interestingly, The World Scope in 2025 has been mainly driven by material availability rather than demand. And the material availability does improve. And so basically we are in a tailwind situation. And so we are indeed confident that the trend that we see now with let's say a significant proportion of shop visits with a heavy wear scope is going to continue for at least the two next years in 2027 and 2028. This tailwind will go on for at least the next two years. On engine deliveries, we have revised that Our guidance simply because we have gained confidence in our ability to deliver. We basically with that we are going to meet both Airbus and Boeing expectations as well as to deliver Enough spare engines to the airlines in order to ensure that there's not going to be any aircraft on ground, which is a strong focus of ours. Nothing is more frustrating for an airline than having bought an asset and having this asset grounded simply because there is an engine issue. So yes, in 2026, we are going to meet Airbus expectations, we are going to meet Boeing expectations, we are going to deliver what the airline market needs in terms of spare engines and I can say that we are confident also in 2027 to meet both Airbus and Boeing expectations. Do we have enough, let's say, to offset and some of the other guys, if I may say, lack of deliveries. This is, I mean, if you can't help in that respect, we would obviously, but again, our first priority and our first commitment is to deliver on our promises, both Airbus and Boeing and the allies. Thank you.

Thanks, very helpful.

Thank you. We are now going to proceed with our next question. And our next questions come from the line of Ian Douglas Pennant from UBS. Please ask your question.

Thanks for taking my question. Yes, it's Ian with UBS. I'm sorry to ask another question on WorkScope. But can you give us any metrics or anything, any just more information or color to allow us to share your confidence that WorkScope will continue to be strong for the next couple of years, and especially that the increase in material supply won't impact your ability to maintain price from here. I'll just leave it there. Thank you.

Okay. Good morning, Yann. So clearly, when we are discussing CSN56 after market, demand exceeds supply today. So, we continue to see substantial MRO capacity constraints, which is driving longer lead times and elevated world scope today. And, you know, the airlines, they learn from past crisis and they are looking to manage, you know, potential MRO capacity and supply chain risk. And they come to, when they come to maintenance, they tend to spend more than less. That trend should continue not only in the H2 V-surf, But as Olivier said, in 27 and 28, meaning that when you are discussing the revenue on CFM 56 after market, you need to consider, I would say, a flattish volume in number of show visits, pricing forward. This year, by the way, will be in the mid to high single digit range, plus an increase in work scope. Another way to look at it, following the COVID crisis, We have seen, you know, huge ramp up in volume in terms of number of show visits. And now it seems that we are seeing, you know, the, I would say the other way of the green time effect that we had suffered from, you know, during the COVID time. And airlines are spending more in order to get ready when the Middle East crisis starts and traffic resumes. So they don't want to lose time. and Idole Zerflix. They want to take benefits of this period to maintain their engines and get ready when the market starts again very strongly.

And Yann, I would add that we see a very significant proportion of shop visits where basically the full scope of HPT blades and LLPs Thank you very much.

Thank you. We are now going to proceed with our next question. And the questions come from the line of Mylène Kerner from Barclays. Please answer your question.

Yes, bonjour, Olivier, Pascal and Armelle. Congrats on a very strong set of results. I have two questions. One to follow up on Olivier's question. Your propulsion margin reached 24.5%. As you said, Pascal, that is above your target range of 22-24%. How should we think about the margin trajectory from here as work scope will remain elevated on CFM56? You're going to start booking the LEAP B Maverick and you're going to have more LEAP shop visits that will be performed by third party. And then my second question is that you're now guiding to around 6.5 billion recurring operating income. The updated 2028 target of 7 to 7.5 appears relatively close. Are there headwinds beyond this year that could moderate the earnings growth? Thanks.

Good morning, Mylène. On propulsion margin, as I said, we should be at least at the upper end of the 24-24% margin. This year, we could definitely slightly exceed the 24% mark. Going forward, a bit early to say, but we continue to see a lot of tailwinds, notably on CFM56, as well as the LEAP spare parts. As you rightly said, we will start to recognize anytime soon Leap 1B RPFH margin, despite the fact it's slower than what we had to recognize on Leap 1A. So all that concur to, I would say, upper range of 22-24% going forward. And as you rightly said as well, when we look to our 2028 guidance, we may have to revisit that once again, given the

Thank you.

We are now going to proceed with our next question. And the questions come from the line of Benjamin Hilland from Bank of America. Please ask your question.

Yeah, morning guys. Thank you for taking my question. I hope you're both well. So the first question I had was on the LEAP OE profitability. Could you give us an update on where you are on that journey to the breakeven point? And you mentioned that you delivered Thank you very much. And then the second question is coming back on this engine versus OE economics. I guess the question is more why would you guys entertain that discussion? What does Airbus, you know, what would an OE, take it away from Airbus, what would the OEs really bring to the table other than program participation? You know, they don't have servicing IP, they don't have engineering IP on the engine side. So those would be the two questions. Thank you.

Good morning, Ben. So on the LEAP OE, as we say many times, we already turned profitable when you combine install engines and spare engines since maybe three years now. Now if you look specifically at installed engines, we continue to have a slight a bit negative every time we are selling a new engine, and we are definitely All combined, it is already profitable. In H1, as I said, we delivered 60% of the total expected volumes of spare engines. I would say that the ratio of spare engines with respect to the total of LEAP engines was in the low double digits. Looking to H2, there will be a deceleration to I would say a ratio of 10 to 12% which basically will be the norm going forward.

On the other question, of course the discussion is not going to be the same depending on which configuration we are in. If indeed we are in a single source discussion, you know, Then topics could be on the table that would not be on the table if we are in a typical dual source situation. At the end of the day, we will make sure that in terms of internal rate of return, our ambitions are going to stay identical and remain the same before we launch a new development. We have, you know, a very strict discipline and we want to make sure that our internal rate of return is going to be the same. As I said before, in our current business model, we have to be more patient simply because, you know, as long as there is no shop visit, basically, and because we deliver the engines at the afrema, at the loss, basically, we have to be patient. So that's the point. It's all about what kind of discussion could happen in a sort of single-source situation.

And if you remember well, we introduced the CFM56 second-gen engines back in the early 90s. And we only enjoy from the peak of the market revenue and profit today in 2026. So it's a long, long, long cycle for engine makers.

Okay, very clear. Thank you both.

Thank you. We are now going to proceed with our next question. And the questions come from the line of Robert Stallard from Vertical Research. Please ask your question.

Thanks so much. Good morning. Morning. Morning, Robert. A couple of non-engineering questions for you. First of all, In equipment, Airbus said the other day that they're looking at significantly increasing the Airbus A350 production and exploring what your capacity is in equipment to satisfy any further rate increase there. And then secondly, in interiors, you noted a recovery in seat deliveries in Q2. Have we turned the corner in this certification logjam for seats? Thank you.

Thank you. Hello, Robert. Yes, the ramp-up objectives and the ramp-up plan of both Airbus and Boeing are very good news for us, for our equipment division, because in our equipment division, we are more exposed to wide bodies than on our engine division. And so that's also part of Thank you very much. We are on board with the landing gear, you know, a lot of electrical equipment as well, wiring, so all that is good news. On interiors, we continue to improve our pricing on seats. As we've already mentioned to you at our last Capital Market Day, there's significant demand. Demand on seeds is indeed significantly above supply globally. That's just a combination of a demand for a retrofit program and demand for a line fit program. So, indeed, we can get more value for our seeds. Now, we've not yet turned the corner. It's an industry issue that is now well understood and identified by the affirmers and by the awareness authorities. And, by the way, there's going to be significant discussion in H2 on that issue. because indeed the air roughiness authorities have elevated their interpretation of pre-existing rules in a view that is creating roadblocks for the certification of seats and therefore for deliveries of seats. Again, this is an industry issue. It's not a saffron issue. It's an industry issue that will need to be tackled. I hope we will be able to turn the corner by the end of this year. But again, it will have to be a collective and objective discussion between seed manufacturers, airframers, and airware finance authorities.

Last year, we turned a bit positive on seeds, but the challenge this year is to turn cash positive. In H1, it was slightly negative. So we expect to generate some cash in H2 in order to be a balance for the full year.

Great. Thank you very much.

Thank you. We are now going to proceed with our next question. And the questions come from the line of Ken Herbert from RBC Capital Market. Please ask your question.

Yes. Hi. Good morning, Olivier and Pascal. Two questions, if I could. Can you quantify or be more specific on how much advance payments, I'm guessing the defense side benefited the first half free cash flow? And second, with the very strong balance sheet, is there any updates you can provide on either how we think about buyback over the next couple of years or maybe any incremental interest in scopes or further mergers and acquisitions as you think about Capital Allocation. Thank you.

Okay. On your second question, we definitely enjoy your strong balance sheet. On share buyback, we have a program in two-fourths of 5 billion euros. We have executed nearly 50% of that right now. So we'll continue, as I say, we will launch a new trench, I guess, early September to be executed by the end of this year. So we are on plan to execute our share buyback program. Until we fully execute the program, we don't see any need to announce any further share buybacks at this point in time. Regarding M&A, as Olivier said many times, we clearly are looking at opportunities, notably on the defense segments in Europe. You may have seen that we have missed One of them very recently. So you can see that we continue to be active.

And disciplined.

And disciplined. Absolutely.

And disciplined.

Now looking at, you know, advance payments and deferred income. Deferred income has continued to rise in H1. I won't quote the specific numbers, but it's all driven by the LEAP RPFH contracts. As you know, we're getting paid by flying hours. For advance payments, we have seen a slight increase in each one, not much, so you cannot consider that the 2.6 billion euros free cash flow performance was driven by advances. As I already said many times in the past, we have not factored in any advance payments which could come before year end from the Thank you. We are now going to proceed with our next question. And the questions come from the line of David Perry from JP Morgan. Please ask your question.

Yes, hi, Olivier and Pascal. Three, if I may, please. First one, just on the work scope. Oh, can you hear me?

Yeah, yes, we can hear you.

Okay, so I'll ask two questions. On the work scope issue, we often think of it as discretionary airline decisions or, as you said, availability of materials. I was just wondering whether mix was also a factor. Is it the fact that you're seeing a lot more second shop visits that are just coming in at a higher price? Is that a factor or not? And the second one, just following up on the M&A question just before, you bid for XL and obviously TAL is offered more. But I'm just wondering, are you looking more proactively now at defense M&A? Thank you.

Hello, David. On World Scope, of course, at the end of the day, it's always an airline decision. The World Scope is an airline decision. I mean, to the exception of, let's say, what has to be done. If an LLP part has come to the end of its life potential, it has to be replaced. But again... It's beyond what is absolutely compulsory, which is a driver for the shop visit, because there is always a driver for a shop visit. It's an airline decision to extend or not the world scope of the shop visit. And again, in the past, especially Up to mid-2025, it was constrained by material availability, which is not the case anymore. And so we have seen, let's say, a tailwind popping up in that respect. As I said, it's going to continue for the next two years. We are very, very confident on that. On M&A, yes, we've missed Ex-Aid. That was nice to have for us. That's why we decided to remain disciplined. So that's what happened. We are going to continue actively to look at opportunities. In that respect, again, opportunities that are consistent with our core objectives and our core portfolio of activities. So on defense electronics, we want to stay platform agnostic on one side, and on the other side, we are. Pretty active in what we call ISTAR. ISTAR means intelligence, surveillance, tracking, acquisition of target and recognition. That's basically our field of activities. And so as long as it is, let's say, consistent with this portfolio of activities, and as long as it makes sense as well financially, I mean, we would move on an opportunistic basis.

And I would add that valuation of defense assets are pretty rich today. So as you say, we need to remain disciplined from the financial perspective. It has to fit our DNA from a technology perspective, obviously. But we need to remain disciplined. There is a kind of global valuation on defense assets today. So we need to remain disciplined on that.

And our priority is Europe. Thank you. Very clear.

Thank you. We are now going to proceed with our next question. And the questions come from the line of Sébastien Gros from BNP Paribas. Please ask your question.

Thanks. Good morning. I'm Olivier and Pascal. Thanks for squeezing in. Two questions then. One on equipment and defense. And your earlier comments suggested that demand growth continues to exceed mid-teens revenue growth in the business that we've seen in the first half. So could you please share the H1 book-to-bill ratio with us in the segment? I think you said earlier that in 25 you had 1.6 times of book-to-bill. And how should one think of the order book conversion to sales growth going forward? The second question I have is then on free cash flow. The 300 million higher guidance does reflect a 100% drop through from the raised adjusted EBIT target. And Pascal, you mentioned The reduction in inventory days, among others, having supported the strong free cash flow generation in the first half. So my question is, how sustainable might this working capital improvement be? And do you feel now more confident with regard to your midterm conversion target of 70%? Thank you.

I'll take the first one. On the book to build, yes. On defense electronics, we've enjoyed. 1.6 book to be last year. Our basic objective is to be this year above 1.3. I hope we will be better than that, but this is our minimum goal is to be at 1.3. This is what we need. to feed a growth of, let's say, 20% or more year on year between now and 2030.

Good morning, Sébastien, on your free cash flow question. We have a target to improve by almost 10 days our inventory DSOs this year. As I said, at the end of June, we improve by five days. So there's still some work to do on that side. Any increase in value in Euro terms of inventories would be more than offset by the level of advance payments or deferred income we will receive in the second half. So I would expect the working capital change to remain slightly positive. CapEx will continue to increase given all the projects that Olivier has discussed in his introduction. So all in all, the free cash flow increase reflects, you know, good growth in the ABDA, increasing capex and the positive change in working cap. And as you know, on the taxes, it will be a significant increase from last year.

Thank you.

Maybe the last question?

Okay, we will now take one last question.

One more, you can take one more if any.

Okay, sure. So the next questions come from the line of Hervé Drouet from CIC CIB. Please ask your question.

Yes, good morning. Thank you for taking my questions, two as well on my side. The first one on pricing and bargaining power. Obviously, you mentioned the demand in all segments are overwhelmingly above supply. I was wondering, looking in next year, do you believe the pricing dynamics you currently enjoyed could be maintained or even increased. It looks like some motorists are increasing their pricing even on OEM quite significantly. So I wanted to have your view on that, on OEM but also on services and spares. and the second one is on the profit on LEAP for flight per hour contract. Do you believe starting from next year you will be able to release some profit on those contracts in your financials? Thank you.

Hello Hervé. The dynamic is different depending on the customer's categories if you wish. On the equipment side, we have a program life agreement with the FMLS. And so the pricing is defined by those long-term agreements, program life, where we have escalation formulas. So this is quite ballistic, if you wish. And we don't have much room to maneuver on those program life contracts that we have with the FMLS. We have more, let's say, flexibility and room for maneuver on the services side, on one side, and when we have a direct relationship with the airlines, which is what we call the BFE business model on aircraft interiors. BFE means buyer furnished equipment. This is basically what reflects the equipment for which our customer is not the AFRAMA, but directly the airline. So the pricing dynamic, we believe, will mostly remain the same on the aftermarket side. We want those to be moderate because, again, we don't want to have an abusive posture at all. Every price increase has to be explained. And the fact is that because of supply chain constraints, some of our suppliers may be in strong position and impose as well some price increase. So we are this on the cost side as well. And so we need to reflect that. And so any price increase has to be explained and understood. But I would say the pricing dynamics is going to to stay more or less the same in the coming years on the aftermarket side. And I would say the same on the aircraft interior side for what we call the BFE business, which is mainly the seed business.

Morning, Hervé. On your second question about LIBOR-PFH margin recognition, the triggering event to recognize profits is the introduction of the Maverick HPT blade. So regarding LIP1A, this occurred in late 2024. This is why in 2025, we started to recognize profits on LIP1A RPFH contracts, not only for the year 2025, but also for the past margins, which was kept on the balance sheet at that time. Regarding the LIP1B, you know that the Maverick blade, HPT blade is now certified by GE. We are waiting for the introduction into service of that blade. Should that occur late this year, we'll start to recognize in H2 some profits. Should that occur early 27, we'll start to recognize profits for the LIP1B RPFH contracts in 2027. So it's pretty simple. It only depends on the date of introduction of the HPT blade from GE. Thank you.

That's very clear.

With that, we'll conclude this session. Have a good summer break. Thank you for your attention.

Thank you.