Good morning, this is the Chorus Call Conference Operator. Welcome, and thank you for joining the Avio 9 months 2023 results conference call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, let me signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Giulio Ranzo, CEO of Avio. Please go ahead, sir.
Hello, good morning to you all, and thank you for joining the nine months results call. As always, I'm here with Alessandro Agosti, our CFO, and I will guide you through the presentation we have posted on the website. So on page two, we have the agenda. I will cover the highlights and the focus on the main facts of the first nine months, and then Alessandro will follow with the financials. And then we'll open to questions and answers. So on page three, what are the key highlights of the first nine months of this year? First of all, on October 2, we announced the conclusion of the investigation for the Vega C anomaly we suffered in June for our second stage solid rocket motor.
And we defined with ESA a return to flight path over the next few months to safely come back to flight after fixing the issues with the second stage motor. Then, most importantly, on October 8, we concluded the Vega mission VV23 successfully, and now we have a plan for the next mission to occur before the end of the first half of 2024. So as you know, we are adapting our schedule still to make sure we continue to serve our customers while we fix our issues on Vega C.
So we have some of the satellites that were originally planned to be flown with Vega C, that we have reverted to fly with Vega, with some challenges, but still, our effort to stay resilient in securing the launch plan. Then some very important decisions that we'll talk about today have been taken at the European Space Agency Ministerial Council on November sixth. Important decisions regarding Ariane 6, Vega C and Vega E. A substantial evolution of the European space launcher sector, that I will talk about and be happy to answer any questions, because these are intricate complex issues that I'd love to be able to debate with you, as long as you deem this important.
Then one other important point is we maintain the order backlog extremely high compared to last year, which we had anticipated, because we had lots of orders this year, lots of order intake. In spite of the revenue progression, we still continue to accumulate orders, providing more visibility for the future. In particular, the order backlog was kept very high through the new development projects, and a very rapid surge of the defense business, so the tactical propulsion business for missiles. In the meantime, we improved profitability thanks to the new projects and the surge of the defense business, but also the partial relief of the energy costs. The energy costs have dropped down to some extent, and so that has allowed for some optimization on the profits.
Out of all of this, we expect to stay within the guidance announced for the fiscal year 2023. So, jumping on page five, the Vega 23rd mission was a success. We completed it on October 8. I can tell you, this, for us, was a very remarkable success. We flew two Earth observation satellites, one for Thailand, THEOS-2, and one for Taiwan, FORMOSAT-7R/TRITON, in addition to a number of auxiliary payloads. Now, why was this a very relevant success in my... From my point of view? First of all, because we had, as I said before, to adapt these satellites to fly on a much smaller rocket, with a much smaller payload.
So it's, I think, a good demonstration of our ability to stay resilient, to adapt ourselves to whatever has happened, unfortunately, with Vega C. And I can tell you that this was not exactly a walk in the park, a difficult exercise, because adapting these satellites to fly on a much smaller rocket was quite an engineering challenge. And keep in mind that we are the sole entity in Europe capable of launching multiple satellites at the same time, to multiple destinations. So it was quite a remarkable demonstration of flexibility and ability to serve. And by the way, out of this success, you know, we now score back into 87% success rate after 23 launches. Not optimal, but obviously improving, and this is, you know, encouraging from my point of view.
Now, the next Vega launch is expected to be in the second quarter of 2024. It will be another challenge for a number of reasons. First, because it's likely going to be a payload that was not envisioned to be launched with Vega, and once again, we try to adapt to this scenario. And second, because it will be the last flight of Vega. And as a matter of fact, it's also somewhat emotional, it's the end of an era, then we will turn into legacy, and we, we'll have to place quite some effort to do this right. On page six, I wanted to cover with you, sorry for a lot of text here, but I wanted to be precise and echoing a little bit the communication already done by the European Space Agency.
I wanted to give you a little bit of visibility as to what is happening on Ariane 6 and Vega C in particular. As you know, you expect us to be able to tell you what we will be doing on, on the P120 activities, and so on, which very much depends on when, you know, the first launch of Ariane 6 is happening. So I wanted to cover this ground a little bit. Now, getting to the maiden launch, as the European Space Agency has explained, depends on conducting successfully a number of tests before such maiden flight. So the European Space Agency has reported now that very recently, between July and September, hot firing tests of the main stage and the upper stage of Ariane 6 took place successfully, which means that, you know, they are in good shape.
Now, they were planning, beginning of October for a so-called long duration hot firing of the main stage, directly on the launch pad, which is, let's say, the last important test before you can set a date for, a maiden flight. Unfortunately, they had a slight issue on the hydraulic systems, and so they were forced to, push back the, the date, to, end of November for such a long durational firing test. This is essentially, you, you fire up the main engine, you stay there for eight minutes, you check that nothing happens, and everything performs nominally. So they will do this by the end of November now. A gain, this is what, the European Space Agency announced.
So, the European Space Agency said that the date of the maiden flight will be announced only after this test has taken place. They want to make sure that everything works, and then in the month of December, they'll do some further hot firing of the upper stage to test all of the possible conditions, even in the great cases. Once these things are done at the end of the year, I think the European Space Agency, together with ArianeGroup, would shed more light into when is exactly the launch period for the maiden flight, and what will follow. Realistically, what will follow in terms of what are the subsequent launches, will be announced by Arianespace, but will also be dependent on how well the maiden flight goes, as you may understand.
As far as we can tell you now, this is the plan. Now, relative to Vega C. So first of all, as I said, in October, we announced what were the reasons of the anomaly we suffered in the past. A little bit of recap, as you know, we suffered an anomaly in December on the second stage of Vega C. The reason for this anomaly back then was attributed to, let's say, a non-optimal manufacturing on one of the parts of the nozzles, the carbon-carbon insert. And most importantly, I have to recall to everyone that this component was supplied by a Ukrainian supplier.
So now, what happened, unfortunately, following such event, is that the effect of the war made this supplier unavailable, because unfortunately, the factory where they were manufacturing this part was bombed, and so is no longer available as a supply source. So we were forced to switch the supply source, and therefore, to fit a new component into an existing nozzle. So what happens is, we perform the nozzle with the new material, but what happened is we found an anomaly, because the new characteristic, the new mechanical properties of this component, caused some damage on the adjacent parts. Okay? So, at the end, what we agreed with ESA is to implement therefore, some design changes to adapt the design of the nozzle of this motor to the new material properties.
The European Space Agency asked us, as design authority, not only to do a design optimization, but also to calibrate our numerical predictive models, such that we could get to know much better in advance what the performance would be, and to conduct two more hot firing tests to verify the optimal performance. Essentially, one test will be needed to understand the behavior of the new design, and the second one would just be a verification one. This is the typical activity we do to reduce the risk of having any failure in flight. Particularly in the cases where you have to modify a component on an existing design, and this is an unexpected change that we were forced to do, quite frankly, due to the consequences of the war.
So we have put in place a task force, joint task force by ESA and Avio, to carry out the design and prepare for this program. And we have involved also a pool of independent experts, to really make sure that the new design we come up with is robust. Then, what is important from a financial standpoint, is that the European Space Agency has voiced very clearly that they consider their return to flight of Vega C a priority for Europe to maintain access to space, and as a consequence, they plan to support financially this additional effort through available financial resources that they have. So the impact from a financial standpoint should be neutral to us, and this is important for, especially for the analysts to make their own expectations.
So we plan, therefore, to have a flight of Vega C in 2024, and to resume, let's say, expect the launch cadence by 2025, which will be in the range of four launches per year. And that's pretty much as far as we can tell right now. Okay? The plan is very, very clear. It has precise milestones, so we will perform two hot firing tests of Zefiro-40 , one before the summer, one immediately after, you know, between Q2, Q3. So you can follow and track these milestones to see if we are doing well along this path or not, and similarly for Ariane 6. These are pretty much the dates that I invite you to follow on the news flow, so that you can get to know what's happening in the future.
On page seven, we basically reported this graphically. This is what we plan to see in 2024. You know, behind us in 2023, we had two flights of Ariane 5 and one of Vega. In 2024, for as far as Vega is concerned, we'll have two firing tests of the second stage motor Zefiro-40 , one flight of Vega and one of Vega C. Okay? Now, why did it take so much time to prepare for a return to flight for Vega C? Exactly for the reason I told you.
Because first of all, we decided to stay resilient and to put in the middle some Vega flights to fulfill customer expectations in the meantime, by switching satellites that were actually designed to fly with Vega C to be flown on Vega, which is not exactly a trivial exercise, as I said. Plus, we have an intense engineering activity and experimental activity to prove the effectiveness of the new design of Zefiro-40 , so it will be a busy year for Vega, but still with two flights. Regarding Ariane 6, we shall see. We'll probably get to know before the end of the year, after the long duration of firing test.
The plan is to have, in 2024, a maiden flight, as announced by the European Space Agency, and then following that, Arianespace will announce when following flights will occur. All I can tell you is that the flight date, as always, do not matter too much relative to our revenues, because as you know, our revenues are very much linked to production activities rather than to the flight event. But this is still to provide to you some visibility. Now, switching to page eight. I want to spend quite some time on this page, and again, sorry if this page is busy, but it does echo pretty much what the European Space Agency press releases that were done in the last few weeks.
This is the main outcome of the recent European Space Agency Ministerial Council, with the relevant, very relevant news for on the different subjects. I will tell you, first of all, all of these news are overwhelmingly positive from our standpoint, and I will try to explain to you why. First of all, Ariane 6. In Ariane 6, the European member states recognized that incremental production costs emerged, in particular, over the last 2-3 years, due to the high inflationary situation that developed in Europe as a result of the war. The energy costs increased, not only for us, but for anyone else in Europe, and industrial costs grew very rapidly.
It became clear that the cost of the product grew, and so the European Space Agency member states decided to provide an additional support to cover unexpected unit cost increase for Ariane 6 with a financial package that will cover up to the 42nd launch of Ariane 6. And so this will help in this period to basically amortize, offset a little bit, this unexpected surge in costs. At the same time, the European Space Agency reiterated the commitment to secure purchases for 4 launches per year for European institutional customers for Ariane 6, which is important, because that will continue over an extended period of time, let's say more or less, until 2028, for the time being, to secure a portion of the backlog.
We know very well that Ariane 6, Ariane 6 already enjoys a backlog of almost 30 launches, but knowing that, you know, maybe 40% of your annual backlog is somewhat coming automatically for European institutional customer, is important, because that provides visibility and security over future business. The package is financially relevant. It was already published on several different websites, that the package for Ariane 6 is, will be for this period of time, EUR 340 million per year. So it should be sufficient really to cover for all these extra costs. Regarding Vega C, lots of important news.
Similarly to Ariane 6, the European Space Agency member states agreed to have an extra support to cover this cost increase, which for Vega C will cover up to flight number 42, which is basically the 20th Vega C launch. Okay, now we have done 2 Vega C launches, it will cover up to the 20th for the time being. This may be renewed in the future, but that's the current visibility. So give or take, it should be up to 2028, with a package of about EUR 21 million every year, up to EUR 21 million every year. In parallel, as for Ariane 6, is granted a commitment to secure purchases of 3 launches every year for European institutional customers.
So now, this is a change, because with respect to past commitments, the European Space Agency moved from 2 to 3 purchases per year in terms of security. This is important. We know well that many of the Vega customers are typically European institutional customers, and this is by the nature of the business, because Vega launches primarily earth observation satellites, which are in nature 90% of the time, institutional customers. They have institutional customers behind. But it is again, important, because now we know that for an extended period of time, we can count on a portion of backlog somewhat guaranteed by European institutional parties. Then, one very important piece of news that we were pursuing now for quite a long time.
Many of you have asked us why do we not increase the launch rate, and also, quite frankly, cope with this huge demand for launches. Now, in this session, the European Space Agency assigned to us, to Vega C, the so-called building, which is an integration building for launches, which is very close to our launch pad. And this will be used to pre-integrate the building before it goes to the launch pad. So this means practically that we can start to integrate the next launcher while one is launching on the launch pad. So it will essentially increase the capacity for launches by a rate of about 50%.
So if we can perform today, maybe 4 launches every year, this will move the needle to about 6 a year, okay? Then, of course, the whole supply chain will have to follow, but this was the main bottleneck in the system, which is now removed. And this is crucially important, is the most important piece of news. I believe that this market is very much supply-driven, not so much demand-driven, so the ones provider who has more capacity available and reliable, will win the customers, no doubt, at least for the next foreseeable future, I would say. So this is a very important task. You may recall that at the Ministerial Conference of 2022, we were assigned also some financial resources to invest in such a building, so now we will have to obviously adapt this building.
This was a former five building. We will adapt it and make it available for Vega C, but it's very important. Then, another very relevant piece of news is that Avio will become the launch service provider and launch operator for Vega C, which are two responsibilities that were formerly and presently held by Arianespace. Now, we will come to the reasons why for this, but in practice, what does it mean? The launch service provider role means the responsibility for marketing, sales, and customer support, okay? And the launch operator means the responsibility for in-flight activity in compliance with the French Space Operations Act.
Now, in reality, Avio was already involved in both of these activities quite heavily, because as you may recall, the sales activities are somewhat shared today between Avio and Arianespace to a joint committee that reviews all of the offers to the customers, and so on. But managing this directly will provide an opportunity, first of all, to better understand the customer requirements, and also provide some cost optimization. Why that? Because obviously, some of these activities require competencies that are also present in Avio, and therefore, we will exploit synergies from an organizational point of view, which will be important to optimize the margins. The launch operator role is more of a formal responsibility vis-a-vis French authorities, such that we demonstrate to respect the regulatory requirements to ensure safety during flight.
This is once again, an activity in which Avio was already heavily involved. Avio puts together the software that lets the rocket fly. So of course, much of this information was already under the control of Avio, but of course, this will imply an important responsibility directly vis-a-vis the French authorities. So we need to be equipped to this. We will strengthen the organization to make sure we do this thoroughly. And by the way, we will continue cooperation with Arianespace, with which we will have to agree to implement, let's say, a transition between the current condition and the to-be condition. Okay, now we have lots of contracts that were already sold, so the European Space Agency indicated that we should agree with Arianespace on a transition.
And such way forward should become effective by the first half of 2024. I believe this is an important, important change, which goes very much into the, the direction of, liberalization of the market, where every operator is responsible in full of all of its costs and all of its revenues. And I think that if you want to manage a business, being capable of managing all of your costs and all of your revenues, is your better... the, the better condition you can, you can, think of to, to achieve your, your, your targets. Now, a couple of other important news. Vega E, you know, is the successor of Vega C, is an improvement of Vega C with a new, more capable upper stage. Vega E is a program that is running quite well.
We have reported recently the success of our upper stage testing. Also very recently, through the completion of the second model, performing very well. Vega E will be a slight upgrade to Vega C, with a little bit more performance, with this new upper stage, and hopefully, a reduction in cost, which is what is of our concern primarily. Now, what we were missing on this program was the flexibility to have a second launch pad, because working on Vega C and Vega E simultaneously on the very same launch pad proves complex. We have seen that when we switched from Vega C to, from Vega to Vega C, adapting the launch pad to Vega C, while we were running Vega, was quite a challenge.
So now having the possibility, even on a non-exclusive and time-limited basis, to use the ex launch pad of Ariane 5, is very, very good news, because the launch pad is already fully equipped. It was being used for Ariane 5 until not so long ago, until a few months ago, so this means that the launch pad is already equipped. And most importantly, this launch pad is also very closely connected with the integration building. So this means that the complex now, that we will be operating, is extremely efficient, because all these assets are interconnected and close to each other. Last point, the European Space Agency agreed to prepare a so-called European Launcher Challenge. So by 2025, they would like to run a competition among European companies, to demonstrate the ability to develop new launch service solution, new rockets, new, new solutions.
The approach they have, they call it an incremental and stepwise approach, meaning that they will target maybe at first smaller launchers, and then maybe larger in a second time, but without, let's say, a performance limitation. So this call for new launch system could be of any size in practice. They will provide to the winners of such competition a funding of about EUR 150 million, and potentially a number of missions to be launched by this new solution. So what is the implication of this? What does it mean? That practically, the European system has realized the need to open to internal competition, in a way, so to new solutions, potentially.
Now, whether this will exist or not, we will see, because we will see if the new rockets that are announced in Europe will actually make it to the finish line or not, or when they will make it, this we don't know. But then you see that the responsibility as a launch service provider and launch operator is a fundamental step in a market that is de facto becoming competitive, rather than administered more from an institutional side. So obviously, we will do to the best to compete, okay? We have quite a track record of experience and a long backlog.
We will adapt to this change, and I think it is, in general, a positive, because it stimulates all of us to be more efficient, faster, and more up-to-date with technology, and most importantly, with costs. So let me switch to complete my presentation to page nine, which is dedicated to the defense business. On this, I want to emphasize a number of things. The order backlog here is growing steadily and very rapidly. You see, we have now accumulated backlog for over EUR 100 million, which we never had, and you have seen in the past few years was only a few million. In particular, in these nine months, we signed another EUR 90 million for additional ASTER 30 deliveries. This is our legacy product; we have had it for years.
And so, there is a lot of opportunity also for the future, on top of what we have already. In particular, on the right side of the page, we mention one important point. You know that over the last few years, we have been developing a second product for MBDA, the main booster for the CAMM-ER missile, the new product of MBDA. This was selected recently by the Italian Armed Forces, with a very small initial contract. But now, MBDA has announced just a few days ago, to have signed with Poland, an agreement for the supply of 1,000 CAMM-ER missiles, for a long-term period, so-called Narew project. So Avio will supply the CAMM-ER motors for MBDA, with a backlog that will materialize in 2024, while essentially, MBDA flows down this order to us.
Now, this is very relevant, very important. See, both size-wise, because it will be sizable, but also because now we have not one, but two products fully into the production phase. Which means that in the upcoming years, revenues from defense propulsion systems will grow probably two to threefold with respect to what was over the last 3-4 years. And so it will change the ratio within the mix of the revenues, you know. So, so far, defense propulsion activities accounted for less than 10% of the total revenue mix. So if you go back to the year 2019, 2020, 2021, 2022, it was less than 10% of our revenues.
In the next three, four, five years, this number will tend to go towards 20%-25% of our revenues, so maybe 2.5 x-3 x what it was. Which means that it will provide a completely different contribution to the mix, and this is important because it will spread the risk of our business across different types of businesses. And I believe it's very relevant, important, encouraging, and it's definitely a positive and an opportunity for upside. So that's pretty much what has happened in the first nine months.
I would say a lot, you know, decisions of the European Space Agency and and this evolution of the defense business are very relevant issues, very relevant news relative to the expectations, in particular for the years up to 2026, 2027, 2028. So provide us a very bright visibility for the future. So my section is concluded. I would hand it over to Alessandro to cover the financials.
Yes. Thank you, Giulio, and good morning, everyone. Let's move to page 11. This chart we present the results for the first nine months, 2023, compared to the corresponding period of 2022, with improved results, driven by development and defense activities, with decreasing energy costs. Backlog is the highest in the company's history for the third consecutive quarter. This result has been reached thanks to the contract authorization of development in flight demonstrator for a two-stage light launcher, propelled by LOX-methane engine, with reduced environmental impact. Development of new high performance LOX-methane engine, with reduced environmental impact. Development of multi-purpose engine for technologies, for new technologies offering of the service and space logistics. And as Giulio said before, the increase in tactical propulsion system for ASTER and CAMM-ER, as committed before.
In the nine months, we recorded an increase in development revenues from technology development project and production revenue from defense activities. This increase has been offset by lower contribution for Ariane, considering the phase out of Ariane 5, whose last launch was made in last July, and the postponement of the ramp up of Ariane 6, whose maiden flight is currently expected in mid-2024, as commented before. As a result, in the nine months, the shares of development revenues, it reached more or less 40% of total revenues. In the nine months of 2023, a clear improvement in results came out, as you can see in the chart.
The pronounced increase in EBITDA, compared to the corresponding period of 2022, is mainly attributable to the contribution of higher revenues from technology development projects to defense activities, as commented before, as well as a relief in energy costs. As you can see, non-recurring in the nine months increased mainly due to the provision for charges related to the Zefiro-40 anomaly. In the first nine months of 2023, however, 2022, however, there was a positive one-off effect related to the cancellation of two management incentive plans, with consequent release of the amount accrued up to that date. Net of this effect, non-recurring costs in nine months 2022 would have been EUR 5.1 million, compared to the EUR 5.4 million in 2023. So more in, on a like for like basis, we are on track with the previous year.
In 2022, the non-recurring costs were mainly affected by the maiden flight of Vega C, which happened in July 2022, and in 2023 from the Zefiro-40 anomaly. On EBIT, you can see that EBIT is better than EBITDA trend for lower depreciation, reflecting the life cycle of certain assets and different mix of development and production activity during the nine months of 2023. On net cash position, higher than typical seasonality trend, in 2022 was EUR 21 million at the end of nine months, for timing effect of advances from development contracts. Shall we move on to page 22?
Twelve.
Twelve, sorry. We have reported the gas, the energy cost impact on Avio, in particular for the cost of gas that is used to produce the steam, which is used in the industrial production process for casting activity, and the cost of electricity for missile business. The slides show the actual gas trend, price trend in full year 2023, in full year 2022, and the actual gas price trend in the first nine months of 2023, and expected for the Q4 of 2023, based on energy market authority data. Gas price in the first nine months of 2023 was lower than in the first nine months of 2022, when we experienced a peak during the summer. In Q3 2023, is also expected to be lower compared to Q4 2022.
However, this gas price still remains higher than the 2019 levels before COVID pandemic, implying an energy cost on annual basis, higher by EUR 3 million, more or less EUR 3 million compared to per year, per year, on an annual basis, compared to pre-pandemic period. On page 13, we reported the full year 2023 guidance, that is substantially confirmed, as anticipated by Giulio before. Net order backlog is in the range between EUR 1.15 billion and EUR 1.25 billion. Revenue between EUR 330 million and EUR 350 million. EBITDA between EUR 19 million and EUR 25 million, implying an EBITDA adjusted between EUR 25 million and EUR 31 million, and a net income between EUR 2 million and EUR 6 million.
Finally, on page 14, we reported the quarterly pattern of EBITDA and cash generation, which confirmed also in 2023, as it was in the past, the concentration of contribution in the last quarter of the year of both EBITDA and cash generation. I give back to the floor for if you have any, any question on this nine-month presentation.
This is the Chorus Call Conference Operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. First question is from Martino De Ambroggi with Equita. Please go ahead.
Good morning, everybody. My first questions are on the service operator and service providers, because you are going to become to get these responsibilities. So, number one, probably you need to hire people, or maybe on the commercial side, probably not so much, because you are already involved in this activity. But just to understand, what is the impact in terms of costs? And number two, if I understand correctly, you become responsible for the failure risk. So how you manage, how do you want to manage the insurance coverage? Because I remember there, there was also the extra guarantee from the French government. I don't know if it remains or not, but every whatever you can provide us on this subject could be useful.
The third is, what is the potential impact on margin? Obviously, I do not expect a precise figure, but just to have an idea on the magnitude, it could be. And four, when will it be effective? So just to have also a time span.
So, let me try to answer your question, Martino. First of all, these two roles, as I said, operator and provider, to some extent, already have Avio people involved, okay? Yes, for sure, we will have to hire some people. The type of these people, as you correctly say, they are not many on the commercial side, just really a few. Also because the customer base is relatively concentrated, you know. Many of the customers are European, European Space Agency, you know, France, Italy, Spain, maybe, and a few international. So it's not so many commercial people. Lots of the people involved are essentially program managers.
These are the people who follow the customer with their satellite, to make sure that while they develop the satellite, the, you know, integration with the launcher is properly, managed and engineered. So we have people with this background. So we can hire, some more people, yes, but we will also, exploit synergies with the activities we do. Just to make you a couple of examples to make you understand. So in Arianespace, there is activity to conduct mission analysis, to prepare, the customer, to see if the satellite can fly with a rocket or not. But we similarly have people who do the same thing, because at the end of the day, they have to build the software for the launcher to fly. So in this, we can exploit quite a bit of synergy.
And similarly, for program management, of course, we have program managers who follow that the rocket follows the planning and the costing to arrive on the launch pad on the exact date. So there, we will exploit quite some synergy. It is true that we will have more costs, but we will also have more revenues. Because the portion of revenues that was attributed to Arianespace to cover for this cost shall be, in the future, our own revenue. What we change is primarily the cost is what we count on by exploiting the synergies. I don't want to give you a precise figure, first of all, because we need to investigate this thoroughly, and second, because it's a matter of commercial sensitiveness. Relative to the coverage of the failure, the risk of failure in flight.
So the risk of failure in flight is the risk that you cause damage to third parties, okay? With a cap up to EUR 60 million, such condition is defined directly by the French law. So this risk is typically insured. So Arianespace is insured against this risk, and we will do most realistically the same thing, we will insure such risk. But we are not new to this type of activity, because imagine, you may recall a few years back, we took the responsibility of the launch pad, which was former of Arianespace. On the launch, we ran a substantial risk of causing third-party damage, for example, to the workers, because should an accident occur while the launcher is on ground with 200 tons of propellant, of course, you can cause a lot of damage to the party.
So we are not new to the management of this type of risk, and to the associated insurance policies related to this risk. Of course, it's a new part that we will have to account for. So, when will this become effective? Well, we shall see. Of course, we are not in a terrible rush to make this happen. You know, 2024, as discussed, will be dedicated primarily, the main focus will be to return to flight successfully, and to make sure we operate well. Then we have a backlog of Arianespace now of 17 launches, probably more. You know, two other launches are to be sold shortly, they are in pipeline. So we can set a transition time, and we see how long this shall be.
We will have to find the right point of equilibrium between the expectation to improve the margins, yes, of course, but also, most importantly, to make sure that we provide the best service to the customer, okay? I believe the margin improvement can be material, okay? I will not rush into that at the expense of safety or you know, relationship with Arianespace, which we want to maintain as good as it possibly is. Recognizing that we need to work together to better serve the customers. We have been a team for a long time, we will continue to be. Arianespace continues to be a key factor in selling Ariane 6, so we want to have a cooperative approach because the most important thing is to better serve the customers.
But there is no doubt that any one manufacturer like us, will benefit from a closer relationship with the customers, and understanding the requirements more thoroughly. Because in this way, we can design the launcher, provide solutions to integrate satellites on the launchers, that actually cost less. Think about all of the customization that we had to do, for example, for the last flight, to fit all the customers. This was a tremendous effort. By getting closer and closer to the customers, we can understand this better, and so reduce substantially the cost of customization, hopefully. So this is what we expect.
Okay, thank you, Giulio. One more question, just on the extra cost coverage from the European Space Agency. I imagine that you cannot provide a precise figure for your slice, but just to have an idea, it is already included in 2023 guidance, or will be in the following years? And I don't know if you can elaborate on what could be the impact for you.
The amount is defined, is up to EUR 21 million per year, in the next few years. It will not be 2023, but 2023 is covered somehow, 2023 and 2024, by the regime that was voted at the ministerial of 2022. So it is something that is somewhat less than this amount, okay, not much, but somewhat maybe 20%-30% less than this amount. But still, still there is a coverage coming from the previous ministerial conference. This is an amount that will become effective, most probably by 2025, okay? And it is increased with respect to the, to the current, value, but most importantly, is associated to a guarantee of a larger number of institutional flights, three rather than two. So it is two benefits at the same time.
On one side, you are secured of having three launches per year from European institutional customers. On the other side, you are also backed up with a larger financial package to cover costs, which protects us from the risk of on the margin, basically. So I think it's a double benefit in a way, that will kick in most realistically from 2025. 2023, 2024, 2023 and 2024, we will cover with existing resources. Obviously, the package is much less significant than that of Ariane. We have less a problem of cost competitiveness on the product than Ariane. And we believe that we can very well manage with this amount.
Okay, thank you. You are not receiving anything for Ariane?
Well, we will receive our portion, because of course, also the part for Ariane, you know, maybe 8%-10% of Ariane, it's done by us, so a share of that will flow to us as well.
Okay, thank you.
As a reminder, if you wish to register for a question, please press star and one on your telephone. The next question is from Bruno Permutti, with Intesa Sanpaolo. Please go ahead.
Good morning, everyone. I have a question related to the timing of the new integration building. So, I would like to understand from when there will be such an increase in the integration capability. And then on some details on the widening competition. So, Arianespace will continue to sell Vega and, in time, what do you expect to sell along with Vega? And so what do you expect, there could be some competition?
Do you have any plan to be more present in smaller launcher systems, and if yes, how do you see the competitive scenario? Then, I would like to understand, as for the expansion of the production of Ariane, do you expect to have increase in CapEx related to the new orders you expect to have in 2024, and critical propulsion? And lastly, this is only economic in the slide, you included EUR 9 million more capital, which they're not, that not inconsistent with the employment adjustment you got. So as I understand it, they are EUR 6 million, or if it were EUR 9 million.
Bruno, the line was very bad. We hardly understood what you said, but we will try to answer. So first of all, what is the timing of the integration building?
Uh, yes.
The honest answer is, we will see, because now this is an existing building, which it was in operation until six months ago, but was designed for another rocket. So we will likely have to do some modifications, okay? Which we can take probably 2024 to carry out, and maybe, you know, make the building available in 2025. Okay? What is good is that the building is in operation, is well-maintained, so it's not an old abandoned asset somewhere, but something that was in operation only until a few months ago. So I expect, to make a long story short, that by 2025 it will be in operation, allowing to increase the flight path.
Regarding the question on competition, Arianespace, and so on, I honestly did not understand the question because I couldn't hear very well. But in general terms, I would say, Arianespace will continue to do the job. It's not up to us to say what Arianespace will do in the future, I don't know. There are many European announced new rockets, as you know. At least that I know of, there is two in Germany, one in France, one in Spain, and maybe more to come. So we will see. I think the European Space Agency has realized that there's appetite for more operators to enter this this sector, and has consequently adapted their approach to a new scenario that was not there just three, four, five years ago. Okay?
Therefore, we are adapting to this scenario, and we try to do the best we can, okay? Knowing that we have quite some track record or experience compared to other players, and that is very relevant. There's one more important thing, not only do we have a very relevant track record compared to competitors, but we have assets. And assets are fundamental and paramount importance, because you can be extremely good, you can be extremely cost competitive, but if you don't have a launch pad, if you don't know where to integrate your launcher, and that is not ready to go, it takes years before you figure this out. Years. This is not months. So, many do not understand this, but it's fundamental, you know.
Apart from the experience we have, out of 20 years we do this, is understanding that all these availability of assets and availability and knowledge to use these assets, to integrate the rocket, to make them flight worthy, it's of paramount importance to flight cadence. Many of you have asked over the years: Why don't you increase the rate, and so on? You can increase the production rate, but then the flight rate depends on where you can use the asset on the launch center. Relative to CAMM-ER production CapEx, essentially, in this type of business, the CapEx is part of a customer concern. So the customer includes in the pricing, the coverage of the CapEx, because they want to make sure that you adapt your production capacity to what they need.
So it's all in one package with the price, which is a very reassuring approach, of course, for this type of products. Then on the issue of non-recurring costs, maybe Alessandro can call it.
Yes, thank you, Giulio. Yeah, on non-recurring, we reported EUR 5.4 million in nine months 2023, compared to EUR 3.5 million in nine months 2022. In nine months 2023, the most relevant portion of this non-recurring cost was related to the Zefiro-40 anomaly, as already reported in the half year 2023. In 2022, as a matter of fact, the EUR 3.5 million was net of a non-recurring income related to the cancellation of management incentive long term in the 2022. So on a like for like basis, only the non-recurring costs for 2022 were EUR 5.1 million, so substantially in line with the EUR 5.4 of 2023. We confirm the guidance for full year end 2023.
Okay. Sorry, sorry, Alessandro. So, the guidance is for EUR 6 million for non-recurring costs in the full year?
Yeah, the guidance is, as we commented before, we, EBITDA adjusted imply a EUR 6 million, more or less EUR 6 million non-recurring cost. For the time being, we expect to be on track of the, of the expectation.
Okay. Okay, thank you. Bye.
For any further questions, please press star and one on your telephone. The next question is a follow-up from Martino De Ambroggi with Equita. Please go ahead.
Yeah, two more questions, please. One is still on the competitive environment. So now there is the European Launcher Challenge, but I don't want to ask you about competitors, because I imagine you don't want to talk about. But when do you feel the de facto monopoly could be broken? So is it a 2028 or 2030 event that you expect? Or maybe obviously, if someone else will have a product, reliable product, sooner or later, which is still a question mark at current stage. And the second is on the tactical propulsion, so you stated 25% of your sales in three, four years, so it means already in 2026, 2027.
I don't know if you are willing to share with us what are your expectation in terms of the new CAMM-ER Polish order, contract. Thank you.
So let me answer first the last question. Your view is correct. In the next three years or so, we need to ramp up to that level of revenues, because we need to perform on contracts. And by the way, there is more in pipeline to come, huh? There is more orders that we are currently working on a commercial basis, and we hope to be able to announce them in the next few quarters, but there's more to come. Now, the Poland order was announced to be 1,000 motors. It will cover a certain period of time, a number of years. I cannot be more precise than that because I need to follow the guidelines of what MBDA has decided to announce. Okay?
But it's a thousand, it's a thousand motors now. As always, these contracts have options for more, but, you know, give or take, that's the number that was announced by MBDA. So this practically means that in aggregate, you know, in the past few years, we were manufacturing something like 50, 60, 70 motors per year. We will very soon move to 300, 350 motors per year, which is not tremendously high compared to what we used to do, maybe at the end of the 1990s or something like that. There is a comeback, definitely, of the defense business, and quite a relevant one. And as I told you, there is more to come, substantial.
Then, on the story of competition for Vega, well, difficult to say. In particular, we have to see, you know, this competition, what type of the market we'll be able to cover based on the performance that they can field, and on the launch rate that they can field. So if you look at the current announcements, if you just read the current announcements in Europe, you know, launches were announced with performances, target performances, that are significantly smaller than that of Vega C. Okay? Which practically means that if these competitors were to implement these products as announced, they will be unable to launch many of the satellites we know today.
Just to make a very simple example, the European Commission Sentinel programs has satellites which are all heavier than the maximum performance of any of the new announced launches. So practically speaking, these are small launches, okay? Whether or not they withdraw their performance, I don't know. It is possible. All of them have the ambition to create a rocket as big as that of SpaceX, I mean, Falcon 9. I have no idea. We will see. What I can speak is coming from our experience. You know, we first did a rocket of 1.5 tons, now we moved to 2.3 tons. It took us a decade to go from 1.5 tons- 2.3 tons. If someone is able to do faster, I will congratulate them.
It's not exactly a trivial task in my view. Additionally, the story of flight rate, as I said before, the flight rate very much depends on your capabilities, especially at the launch site. Not so much because of congestion with other flights, which is not the case in Europe, but because you have to have assets and means to make this happen. You know what I mean? And it does not only depend on your factory's throughput, it depends on your ability to design the mission, to make the mission available for a certain date, to align all of your assets and means at the launch site. It's a very long chain of capabilities.
So even assuming that the new competitors will come with a product in a performance range, and maybe it's one out for Vega C, we should see by when such competitor will be able to build enough capacity in reality, not production capacity, but launch capacity available. Some of them have announced that they will launch from Norway. Norway has just completed a new, very, very small launch pad, but such launch pad is limited in the type of orbits that can be served. France has announced, as you know, we also participated into such challenge, the possibility to have additional new launch pads in Kourou, in French Guiana, but in an area that today is green grass. There’s nothing. There is no infrastructure, there is no electricity, nothing.
So we need to discount for some time to infrastructure what today is green grass. So once again, here, I believe the advantage we have is that we are dealing with assets that are already in operation, and actually closely interconnected with each other and very closely located. So that is, I believe, one of the advantages we have with any competition. And as always, we don't have to underestimate competition, and this is the reason why, with the new responsibilities, we will try to tighten our bolts and to stay as competitive as we can on the cost, and quite frankly, on the delivery capability. Because cost is important. It's important for us with margins, I speak also as a shareholder.
But today, what is important is really to deliver flight frequency, because the demand is growing too fast for us to cope with. So what is most important is launch rate.
Thank you, Giulio.
For any further questions, please press star and one on your telephone. Mr. Ranzo, there are no more questions registered at this time.
Thank you, all. Thank you very much, and look forward to follow up with any of you. If you need more exchange, Alessandro and I are available at any time. Thank you.
Thank you. Bye-bye.
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