Ladies and gentlemen, thank you for standing by. Welcome to the Airbus Half Year 2022 Results Release conference call. I am Philippe, the operator for this conference. Please note that for the participation, all participants will be in a listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. At this time, I would like to turn the conference over to your host, Guillaume Faury, Dominik Asam, and Hélène Le Gorgeu. Please go ahead.
Thank you, Philippe, and good evening, ladies and gentlemen. This is the Airbus Half Year 2022 Results Release conference call. Guillaume Faury, our CEO, and Dominik Asam, our CFO, will be presenting our results and answering your questions. This call is planned to last around an hour. This includes Q&A, which we will conduct after the initial presentation. This call is also webcast. It can be accessed via our homepage, where we have set a special banner. Playback of this call will be accessible on the website, but there is no dedicated phone replay service. The supporting information package was emailed to you earlier today. It includes the slides, which we will now take you through, as well as the financial statements. Throughout this call, we will be making forward-looking statements. The package you received contains the safe harbor statement which applies to this call as well.
Please read it carefully. Now over to Guillaume.
Thank you, Hélène. Good evening, ladies and gentlemen, and thank you for joining us today. I'm with Dominik here in Amsterdam to run you through our H1 2022 results. In H1, we've been operating in a complex environment which will persist in the second half of the year. As we speak, the war in Ukraine is still raging. The consequences of the resulting geopolitical situation have added to the uncertainty, including on energy supplies. Supply chains and logistics have remained disrupted, and on a macroeconomic level, we are now confronted with elevated inflation rates. In this environment, in this complex environment, we delivered 297 aircraft, of which 155 were in Q2. Our EBIT adjusted stood at EUR 2.6 billion, reflecting our deliveries and our continuous effort on competitiveness.
It also includes the non-recurring positive element of EUR 4.1 billion related to retirement obligations recorded in Q1. This is partly offset by EUR 0.1 billion negative impact from the international sanctions against Russia, which was reduced as compared to Q1 as we made good progress on the remarketing of some aircraft. Our free cash flow before customer financing stood at EUR 2 billion. To answer to a strong and sustained demand, we continue to ramp up towards a monthly production rate of 75 in 2025 for our A320 Family as previously communicated. In the short term, the current supply chain challenges lead us to adjust the ramp-up steps in 2022 and 2023, and we now target to reach rate 65 in early 2024, around six months later than previously targeted.
For 2022, we have updated our delivery guidance and now target to deliver around 700 commercial aircraft. The EBIT adjusted and free cash flow guidance are maintained and are pinned by the solid H1 financial performance. We'll come back on it later. Let's now look at our commercial environment. The sector fundamentals remain solid, and we see several encouraging signals. Global air traffic continues to recover across almost all regions. Chinese domestic traffic, while still impacted by the COVID situation in the country, has started to improve as travel restrictions are progressively and in a non-linear manner, progressively lifted. Earlier this month, four of our Chinese airline customers have placed a large order for 292 A320 Family aircraft, demonstrating their strong endorsement of our products in confirming the growth potential of the region.
These orders come as the successful outcome of long and extensive discussions that started before the pandemic. They will enter the backlog once all the relevant criteria are met. Beyond air traffic, we observe that the air travel market is currently constrained by supply. Airlines and airports are limited in their ability to satisfy the demand that has come back much stronger and much faster than many expected, including ourselves. We've been saying for a while now that we expect commercial air traffic to recover to pre-COVID levels between 2023 and 2025, with domestic and regional markets leading the way. This is happening and happening faster than expected in certain regions. On the aircraft demand side, we continue to see a robust demand from our customers.
This is further supported by their appetite for the newest generation of fuel-efficient aircraft. We estimate that at the end of 2021, new Western narrowbody aircraft still represented only 20% of the global fleet. This further strengthens the need for ramping up production and enable fleet replacement. Order book. Let me remind you of our order and backlog in H1. We booked a total of 442 gross orders, of which 402 single aisles. On wide-bodies, we booked 40 orders, including 20 freighters, and further progressed on the remarketing of aircraft, confirming the increasing commercial momentum on wide-bodies. We saw 183 cancellations, of which only 13 in Q2. The cancellation in H1 were already largely anticipated and embedded in our backlog valuation as of year-end 2021.
As a result, net orders were positive at 259 aircraft, and our backlog in units amounted to 7,046 aircraft at the end of June 2022, including 5,829 A320 Family aircraft. At Farnborough , we recorded 85 orders. These orders, as well as the one from our four customers in China announced in early July, are not yet in the order book at the end of June. Looking at the helicopters, in H1 2022, we booked 163 net orders compared to 123 in H1 2021. Orders are well spread across programs and include 14 Super Puma. In addition, we were awarded in Q1 2022 by OCCAR an order for the Tiger MkIII program.
We see recovery in the light helicopter segment, and given the current market environment, we expect the oil and gas market to improve in the mid-term. Overall, we continue to see positive momentum for campaigns in our home countries. Finally, in Defense and Space, in H1, our order intake was at EUR 6.5 billion, corresponding to a book-to-bill of around 1.3. During the second quarter, orders were booked in the amount of EUR 3.3 billion. This includes the contract to deliver 20 latest generation Eurofighter jets to the Spanish Air and Space Force to replace part of its legacy F/A-18. This contract will see the Spanish Eurofighter fleet grow to 90 aircraft. Additional orders mainly relates to military aircraft and Connected Intelligence.
On FCAS, consistently with what I told you a quarter ago, we remain fully committed to the program, the importance of which is acutely evident in times of crisis. We continue to work towards launching phase 1B later this year, which is the next milestone for the success of this important European defense program. On the space business, the current economic and geopolitical environment weighs on the commercial momentum of our space products, and let me remind you, we no longer have access to the Soyuz launchers. Now, Dominik will take you through our financials. Dominik?
Thank you, Guillaume, and good evening, ladies and gentlemen. Our first half 2022 revenues were broadly stable at EUR 24.8 billion. Our H1 EBIT adjusted was also broadly stable as compared to the prior year at EUR 2.6 billion. This includes the non-recurring positive element of EUR 4.4 billion related to retirement obligations already recorded in the first quarter. The impact resulting from the international sanctions against Russia recorded in Q1 has been slightly reduced to EUR 0.1 billion as we made good progress on the remarketing of some aircraft. The net positive impact from these two non-recurring elements was largely offset by a less favorable hedge rate versus the first half of 2021.
While we continue to benefit from our effort on competitiveness in the first half, the progress on ramp up and on preparing the future is becoming visible in our cost base. On research and development, our expenses in the first half of 2022 stood at EUR 1.3 billion. We continue to expect our R&D expenses to reach EUR 2.9 billion by the end of 2022. Our first half earnings per share adjusted stood at EUR 2.40 per share based on an average of 787 million shares. Our first half free cash flow before M&A and customer financing was EUR 2 billion, reflecting our deliveries and including a positive impact from working capital. Now on to the next slide regarding our profitability in more detail. H1 2022 EBIT reported was EUR 2.6 billion.
The level of EBIT adjusted totaled a net - EUR 0.1 billion, including EUR 226 million positive impact from foreign exchange mismatch and balance sheet revaluation, of which EUR 36 million positive in Q2, -EUR 218 million related to the A400M, of which -EUR 217 million in Q2, -EUR 33 million related to the Aerostructures transformation in France and Germany, of which -EUR 36 million in Q2. -EUR 7 million related to A380, of which +EUR 4 million in Q2, and -EUR 34 million of other costs, including compliance costs, of which -EUR 29 million in Q2. Earnings per share reported includes 107 million positives of financial results.
It mainly reflects the positive net impact from the revaluation of certain equity investments, partially offset by the revaluation of financial instruments, as well as by -EUR 136 million of net interest results. The tax rate on the core business is around 27%. The effective tax rate on net income is 31%, including deferred tax asset impairment, partially offset by the tax effect on the revaluation of certain equity investments. The resulting net income is EUR 1.9 billion, with earnings per share reported of EUR 2.42. Now, additional information regarding our US dollar exposure. Let me remind you of our long-standing hedging policy. Our first focus is on increasing the level of natural hedging, hence, on the cost side, we privilege US dollar procurement. Then, for the remaining exposure, we actively manage a hedging portfolio using forwards.
Upon customer request, we also implement euro conversion agreements. On the euro conversion deals, we decided to provide you with additional details as we've materially increased the agreements signed in the first half of this year, given the favorable market conditions. Indeed, around 70% of the coverage implemented in H1 2022 is from euro conversions versus only around 5% in 2021. At the end of 2021, our euro conversion portfolio stood slightly below $10 billion at a US dollar exchange rate similar to what we had on our hedging portfolio at that time. In the first half of this year, we implemented $8.7 billion of euro conversion agreements at a rate of 1.19, mainly for the years 2025 through 2028.
At the end of June, our euro conversion portfolio stands at $18 billion at an average rate of 1.23. Now, looking at our hedging portfolio in H1 2022, $9.3 billion hedges matured with associated EBIT effects at a rate of 1.22 versus 1.18 in H1 2021. We also implemented $3.6 billion of forwards at a rate of 1.18, mainly in Q1 2022. As a result, our total hedging portfolio in US dollars stands at $82.2 billion with an average hedge rate of 1.25. Now, let's look at our cash evolution in H1 2022. Our gross cash from operations of EUR 2 billion positive mainly reflects our EBIT adjusted before the non-cash impact related to retirement obligations.
The favorable timing of cash receipts and payments in the first half was partially offset by the inventory build to support the A320 Family ramp-up and the deliveries to come in the second half of the year. The A400M continued to weigh on our free cash flow before M&A, but less so than in the first half of 2021. In the first half, customer financing cash flow amounted to a cash outflow of -EUR 290 million, and we might see additional usage of cash going forward. Overall, the aircraft financing environment remains solid, with sufficient liquidity in financial markets for our products. Our first half 2022 capital expenditures were around EUR 4.7 billion, versus EUR 4.8 billion in the first half of 2021. For 2022, we expect our CapEx to be around EUR 2.4 billion.
Free cash flow reported of EUR 1.6 billion includes M&A activities of EUR 19 million cash out. The dividend for 2021 of EUR 1.50 per share or EUR 1.2 billion in total was paid in Q2. For our pensions, we contributed EUR 4.4 billion in the first half of 2022. That being said, the strong reduction of our net pension deficit from EUR 7.1 billion - EUR 2.9 billion predominantly reflects the rapid increase of interest rates, which was partially offset by the negative performance of our pension assets as well as the increase in inflation assumptions. Our net cash position stood at EUR 2.7 billion as of the end of June. Our liquidity position remained strong and stood at EUR 27.6 billion.
In June, we bought back a portion of our bonds maturing between 2024 and 2028 for a total amount of EUR 1 billion to reduce our gross debt position, thereby optimizing our balance sheet and gaining further financial flexibility. On the 5th July, we further improved our liquidity as we upsized our undrawn revolving credit facility from EUR 6 billion - EUR 8 billion and increased its tenor to five years with two extension options of one year. The pricing of this facility benefited from improved conditions in the loan market and continues to be linked to sustainability criteria. Going forward, we will continue to adopt an active approach when it comes to managing our liquidity with the objective of maintaining our robust credit ratings. Sorry, I just heard that I read the wrong number.
The cash position, it was EUR 7.2 billion and not EUR 2.7 billion. EUR 7.2 billion. Now back to you, Guillaume.
That's better with EUR 7.2 billion.
Yeah.
I like EUR 7.2 billion much better. Thank you, Dominik. On commercial aircraft in H1 2022, we delivered.
Ladies and gentlemen, we have a small technical issue. Please hold the line. I will reconnect the speakers. Thank you for holding. Ladies and gentlemen, sorry for this interruption. We are still waiting for the speakers. We'll be right back. Please hold the line. Ladies and gentlemen, thank you for holding. Speakers, please proceed.
Yes. Apparently we've been disconnected, and I've tried to reconnect, so I hope I will start more or less where we were disconnected. I was just thanking Dominik and moving on to commercial aircraft to say basically that in H1, we delivered 297 aircraft to 60 customers, of which two operating leases without having any recognition at delivery. The net year-to-date delivery number of 295 reflects a reduction of two aircraft previously recorded as sold in December 2021, for which a transfer was not possible due to the international sanctions. Looking at the H1 2022 situation by aircraft family, on A220 we delivered 25 aircraft and we continue to ramp up. We're on track for rate 14 that we envisaged by the middle of the decade.
On A320, we delivered 230 aircraft, of which 118 A321. Our production is progressing towards the rate 75 per month in 2025, and as I already explained, given the current supply chain challenges, we now aim for rate 65 in early 2024, therefore around half a year later than previously targeted. The A321XLR first flight took place on the 15th June, which was obviously an important milestone towards the entry into service that is expected to take place in early 2024. On wide-body, we delivered 42 aircraft, of which 29 A350 and 13 A330. As previously announced, we continue to target an A330 monthly production rate of almost three aircraft at the end of 2022 and an A350 of around six aircraft in early 2023.
On wide-body, we're exploring together with our supply chain the feasibility of further rate increases to meet growing market demand as international air travel recovers. Now let's look at Airbus Commercial financials for the first half of 2022. Revenues are broadly stable year-on-year. The EBIT adjusted was also broadly stable. I remind you that it includes the non-recurring positive impact from retirement obligations recorded in Q1, partly offset by the impact from international sanctions, which was reduced in Q2 as we made good progress on the remarketing of some aircraft. The net positive impact from these two non-recurring elements was largely offset by a less favorable hedge rate compared to H1 2021. Looking at helicopters, we delivered 115 helicopters in H1 2022, same as in H1 2021. Revenues increased year-on-year, mainly reflecting growth in services and a favorable mix in programs.
EBIT adjusted also reflects non-recurring elements booked in Q1, including the positive impact related to retirement obligations. Let's complete the review of H1 with defense and space. Revenues increase year-on-year is mainly driven by military aircraft business and following the Eurodrone contract signature in February. The decrease in EBIT adjusted mainly reflects the impairment related to Ariane 6's delay, the impact of rising inflation in some of our long-term contracts across the divisions portfolio, and the consequences of the international sanctions, partly offset by the positive impact related to retirement obligations booked in Q1. On the A400M, we delivered four aircraft in the first semester. We continue with development activities towards achieving the revised capability roadmap. Retrofit activities are progressing in close alignment with the customer.
In the second quarter, we recorded a charge of EUR 2 billion, mainly reflecting the impact of updated assumptions of inflation on the launch contract. Risks remain on the qualification of technical capabilities and associated costs on aircraft operational reliability, on cost reductions, and on securing export orders in time as per the revised baseline. Now, moving on to the guidance slide. As I said before, we have updated our commercial record delivery target for 2022 to reflect the current challenges that we see in the supply chain. Let me read our guidance, our updated guidance. On the basis of its 2022 guidance, the company assumes no further disruptions to the world economy, air traffic, the company's internal operations, and its ability to deliver products and services. The company's 2022 guidance is before M&A.
On that basis, for its 2022 guidance, the company now targets to deliver around 700 commercial aircraft in 2022. The company maintains its target around EUR 5.5 billion of EBIT adjusted and around EUR 3.5 billion free cash flow before M&A customer financing. Against the backdrop of the persistent disruption of global supply chain, as well as the continued war in Ukraine and the associated international sanctions, we continue to operate in a period of uncertainty and volatility. I guess that's no news to you, but that's the world we're living in. This brings me to our key priorities. The top priority remains the production ramp-up of our A320 Family, which is progressing in a complex and challenging environment.
Our Airbus teams are fully engaged with our suppliers and with the partners, and where needed, we will continue to adapt and reshape our supply chains to the evolving situation. To facilitate our A320 Family production ramp-up towards rate 75, as well as our capacity to produce the growing portion of A321 variants, we will continue to invest in our industrial footprint. At the same time, we are making progress on transforming our industrial activities. After the launch of our new aerostructure subsidiary in France earlier this year, Airbus Atlantic. Now the German aerostructure company has started its operation on first of July, while the restructuring of the detailed part business in Germany is now on its way.
I'm also very happy with the recent go live, what we call Airbus Protect, a new Airbus subsidiary, which now brings together the company's capabilities in cybersecurity, safety, and sustainability-related services. When it comes to our order backlog, we remain focused on filling the skyline for commercial business in the out years. On the different side of our business, we remain ready to support our governments and their allies in this complex geopolitical situation. Our European roots and long-standing experience in European cooperation are valuable assets when it comes to supporting strategic collaboration and cooperation in defense. Let me now update you on our sustainability journey, which is the other top priority of Airbus. In particular, on our commitment to decarbonize the aviation sector and our ambition to reach net zero by 2050.
Last year in 2021, we were the first aircraft manufacturer to disclose the Scope 3 emissions of our products in operations. Now, we have taken an additional step on this journey by defining midterm reduction targets for Scope 1, Scope 2, and Scope 3 emissions by submitting these targets to SBTi for independent assessment and validation. I'm very happy to share this with you. On our Scope 3 emissions, so the emissions from product in use of sold products, USP, which represent the most important part of our overall emissions, we have committed to a reduction of 46% of greenhouse gas intensity by 2035.
Beyond our own target setting, it's clear that the decarbonization of our sector can only be achieved by a collective effort and by exploring and applying different set of technologies simultaneously. That being said, our recent announcement at Farnborough actually underlines our vision to activate and to lead our industry on our road to net zero. This includes a broad range of concrete initiatives. Let me go through them. The launch of a new flight test demonstrator together with CFM, which will help to mature advanced open fan technologies, one key enabler for taking fuel burn down. Our investment in a leading investment fund for hydrogen infrastructure, the launch of a new hydrogen demonstrator that will deepen our understanding of hydrogen combustion and of the constraints it generates, and our commitment to explore jointly with a number of major airlines, opportunities from direct air carbon capture technologies.
Decarbonization and innovation across our portfolio are at the core of our company's purpose and will continue to guide our company's strategy. Now we are ready to take your questions. Thank you.
We now start our Q&A time. Please introduce yourself and your company when asking a question. Please limit yourself to two questions at a time. This includes sub-questions. Also, as usual, please remember to speak clearly and slowly in order to help all participants, particularly ourselves, to understand your question. Philippe, please go ahead and explain the procedure for the participants.
Thank you. Ladies and gentlemen, if you wish to ask a question, please dial zero one on your telephone keypad. If you wish to remove yourself from the queue, you may press zero two on your telephone keypad. Participants are requested to use only their handsets while asking a question. We have a first question from Olivier Brochet from Goldman Sachs. Please go ahead.
Good evening. Thank you very much for taking my questions. The first one was just a sort of simple one, I guess. Could you explain the mechanics behind reducing your full-year delivery guidance by 20 aircraft while maintaining the full-year EBIT guidance? I guess what I'm driving at is what else has improved elsewhere in the business, perhaps to give you confidence in still delivering that 5.5 billion of EBIT. That's my first question. The second question, one for Dominik. You mentioned earlier that your hedge book has reduced from EUR 87 billion at the first quarter to EUR 82 billion now at the end of the second quarter. I guess I just wanted to understand sort of what's been the reasoning behind not necessarily adding to the hedge book in the second quarter despite the favorable environment.
Could you just follow on from that, walk us through how the hedging policy works and the euro conversions that you mentioned earlier, and therefore any changes that you might be making to adapt to the current environment? Thanks very much.
Okay. First on the question of offsetting the attrition in EBIT, because we lose 20 round about deliveries. We mentioned that we had a better outcome on some of the aircraft couldn't deliver into Russia, in terms of placing them. There were some opportunities arising where we could place them at better than expected prices. Secondly, while we do increase the cost base, the rollover of resources is actually a little bit delayed as a bit of a phasing issue because simply labor market is quite tight, and these are the two main blocks here that kind of explain how we could keep the EBIT guidance.
You might wonder why we can also keep it on free cash flow if we lose 20 aircraft, because the impact on cash is of course much higher than on EBIT. There the answer is that basically, we have also good PDPs, and we have been harvesting some good order intake with PDP, the cash tied to it. Secondly, also, some of the parts we could not take in also kind of give a relief on the cash flow, but that's not good cholesterol, so to speak, because we want to ramp. These are the reasons why we can still stick to the yearly guidance.
Hedge book.
Hedge book. Yeah. Well, what we have is a bunch of orders where we discussed with customers in the second quarter and already starting at the end of the first quarter, that they want to convert their firstly dollar quoted deliveries into euros, because as you can imagine, the whole volatility in the dollar has induced some fears in customers, so they really want to secure a certain price in euros, and that's what we call euro conversions. You first offer in dollars, and then when you close the contract, you sit down with the customer and basically lock in the dollar rates as they prevail at that point in time.
Given that that has been an exceptionally high activity on that front, we had added now the transparency on the euro conversions because they become more material. You can then do the math on the overall portfolio going forward. There's one difference. You asked about the hedging policy. If you basically don't do these euro conversions, we just have US dollar denominated customers. We gradually average in over several years the hedge rate. Assume there's a delivery five years down the road, so we start to hedge a little bit in the first year, a little bit in second, third and fourth to be quasi fully hedged when we enter the last year for that aircraft.
Now, with the euro conversions, you basically hedge that order, but that order only for the full amount or the full deliveries. Some of these deliveries can be very far out in the future. As you know, there are interest rate differential between dollar and euro, which result in forward rates tending to be a weaker dollar than the spot rate. That's also something you have to take into account. These are more long-dated contracts, and we now blend them more into our hedge portfolio to come to a solid view. By the way, there's also one other feature of the euro conversion, which is interesting, should an order disappear, the hedge will disappear with it.
As you recall, when we had COVID, there was the issue that we had to roll a lot of hedges because customers were deferring to the right. In such a scenario, that euro conversion has a certain advantage.
Okay, thanks very much.
Thank you. Our next question is from Benjamin Heelan from Bank of America. Please go ahead.
Good evening, guys. Thanks for the questions. The first one I had was around the updated ramp plan. How can you talk a little bit about how you feel this has been de-risked now that you've pushed things out? We've just been at Farnborough. You know, we heard feedback that there were conversations with engine manufacturers and the supply chain going on. So how de-risked does this plan feel? And going forward, where are the choke points despite this slower ramp up? So any color around that I think would be great. And then back to kind of the question around the cost base, Dominik, I think you talked about the cost base starting to increase. I think the guidance implies quite a material step down in margins, particularly in Airbus commercial.
In the second half of the year, you were doing low teens. It looks like it's gonna step down into the kind of high single digits in the second half of the year. Could you talk a little bit about why that is and what are the key risks there? Thank you.
Hi, Benjamin , thank you for the questions. Actually, the ramp up plans reflect a de-risking and what we believe is now a good balance between risk and opportunities and what we can reasonably achieve based on all that we get from suppliers, from discussions we're having with them, and in particular, but not only with engine makers. That with the current understanding of the environment to be expected moving forward. That's the reason I insisted on the volatility and the uncertainty. If the environment gets a bit better, that's good news. If it gets a bit worse, then we will have to continue to further adapt. That reflects the best assessment we can make of what we believe we can reasonably achieve moving forward. Difficult to give more color.
We think it's reasonably solid, but again, the environment is rather challenging, and it's quite difficult to use the usual crystal ball that seems to be no longer working that well. I mean, joke aside, I think it's robust. I think it reflects what we can do, but it's with the current understanding of this, again, this ecosystem, this environment, the state of the industry, the situation of logistics around the world, the situation of the labor market here and there, the ability of the suppliers one by one, and especially the more critical ones to ramp up. You said it, I think a lot of discussions with the engine makers in the recent weeks, including at Farnborough, to try to best assess what they will reasonably be able to deliver as well. Cost base, Dominik?
On the remain to-do cost base, you already see this, and if you compare Q1 to Q2, that there is quite some increase in costs happening. This is also correlating with the headcount numbers. We have actually been for the full half year slightly lower than the prior year's period because we are still kind of benefiting from the base effect, so to speak, that in the prior year, headcount has been taken down, but now it's gradually ramping and accelerating in the second half. I mean, all that challenge on the ramp is not necessarily meaning that we can hire less people, but we really need to throw more resources to make sure we can deliver the aircraft.
Also on research and development and other projects that have been deferred through COVID, we'll step up the pace, and that is explaining the effect you have been highlighting here.
Okay. Very clear. Thank you.
Thank you. We have a next question from Andrew Humphrey from Morgan Stanley. Please go ahead.
Hi. Thank you very much. I've got a couple on the commercial backlog and mix. The first one is if we look at, you know, the skyline of deliveries to sort of 2025, 2026 from Cirium, it's clear from that, you know, there have been orders, even factoring in cancellations, that would support a rate somewhere over 75 for 2025, 2026. That is, you know, that kind of overbooking is something we see from airlines. I wanted to ask you to talk a little bit about whether that gives you more flexibility, say, in kind of allocating orders where, you know, mix might offset cost pressures and whether that's an overall indicator of, you know, pretty decent pricing support. The second one is on mix more broadly.
We've clearly had kind of very strong performance on profitability this quarter. You've highlighted a lot of the reasons for that with kind of remarketing those Russian planes in particular. Are you seeing kind of a generally more favorable mix? You know, we see the A321 increasing as a proportion of the order book. That's clearly supportive. You know, are there other factors that you're seeing being fairly supportive for margins overall?
Dominik, you take the second one?
Yeah.
Okay. Hello, Andrew, and thanks for the question. Well, the demand on the single aisle is really strong. It is supporting the plans we have to move up to rate 65 now beginning of 2024, and then to 75 and maintain 75. The order book today gives us the control that we need and the visibility that we need as well to do this ramp-up to rate 75. That's on that basis that we took that decision and announced it at the Q1 results. That's something that we think is positive and that's why as well I say, I mean, today the markets are, at least for Airbus, the single aisle segment for us is limited by supply.
Therefore, the importance to be able to do this ramp-up and all the effort and the time and the sweat we spend on the supply chain because that's really where the priorities are at the moment. Dominik?
Yeah. I think on the question about what elements could support margin expansion going forward, and you mentioned the A321 mix. It's true that that helps because we've seen that the share of A321 has increased. I think in last fiscal year, we had about 43% in the deliveries from A321 and the neo, the A320 neo, and that has already increased beyond 50% now in the first half, and the backlog is at 59%. That shows a trajectory to a higher share of A321. Now, what we have in the backlog, we can't touch anymore. While it would be tempting to think that if we had some near-term deliveries, we could charge higher prices for that, it's not really actionable because, frankly, as you mentioned, we are pretty much booked.
If you come to delivery slots beyond 2027, 2028 and maybe even into the 2030s, I think we have to kind of look more at a two-cycle mentality. For customers, it's quite challenging to place orders so long out. That also brings me to another element which has a significant impact on the margin going forward, which is inflation. We have certain inflation assumptions in our planning. We observe that in the financial markets, the implied inflation rates seem to point towards a mean reversion down to 2% or so. If that happens, that will be very good for Airbus to be plugged there. Not sure that we should bet the ranch on that.
Thank you.
No bets on that.
Okay. Thank you. We have a following question from David Perry, J.P. Morgan. Please go ahead.
Yes, thanks, gents. I think a few of the questions have been answered. I also don't know if I'm the only one struggling, but the line seems to be quite poor tonight. Can I just ask two questions? One is the sort of guidance on the ramp—is the cadence of it feels a little bit loose to me. I'm just trying to work out the journey between the 65 and the 75. I don't know if you can give us any sort of milestones. You know, are we sort of going up in two every quarter or something like that? The FX, the second one, please, just on the FX. I guess we've all got to play with our models a bit tonight and figure this out.
If I could just ask it in a really simple way. Dominik, what do you think the FX benefit is to your P&L, to your EBITDA next year based on what you show us on page eight, please?
I think very roughly off the top of my head, there's not much change between what we'll see in 2022 and 2023. It all depends on what is the residual open position, so to speak, where we could still benefit from the super strong dollar in the spot market and or hedge that in between now and the beginning of the year. So that is really depending on where the dollar will be at that point in time. Again, the question of whether we wanna be courageous and assume that the dollar will stay at parity or whether we assume something weaker. It really depends on that. But it's not huge anymore because the hedge rate is already quite high.
Obviously, as we move further to the right, further into the future, there's more and more open positions because of the hedge strategy I quickly described. Should the dollar stay at the current parity, of course, we would benefit from that. Now you really have the full transparency on the instruments that matter. As we had the euro conversion, we wanted to complement the information here. Based on your own modeling of future dollar rates, you can come up with how this will evolve.
You are.
Okay. Sorry, Dominik.
No, no. Go on. We don't see this as a question.
I was just gonna say, so we can back test our calculations against what you think it is. I mean, is it EUR 500 million-EUR 600 million benefit in 2023? Is that sort of that nature?
So if-
At today's rate, if today's rate prevails.
Well, there's also, again, a little bit of a forward point issue. You lose probably a couple of cents if you hedge now. If you just wait and leave it open, if it stays at the current rate, I mean, you know our sensitivities. We give one cent in the dollar, gives you 150-160, depending on the rate you assume, benefit. Now then the question is what's the open position? We don't disclose the precise percent of the open position because then we would give a very precise guidance on deliveries for next year, which we don't wanna do at this point in time. There is still a little bit of wiggling room, I'd say.
I would quantify that to be kind of in low single-digit millions.
That's very helpful.
Thank you, Dominik. On the first question, which was on the speed of ramp-up in the outer years, well, we just updated the moment where we want to reach rate 65 is gonna be beginning of 2024. We have confirmed that we will reach or we target to reach rate 75 in 2025. It gives 10 points of rates over this period of time. Then the definition of rate is for Station 40 of the final assembly line. We have strategies we have plans FAL per FAL, and I'm not able to tell you today with the nine FALs we have when exactly each point of rate will come between the beginning of 2024 for the rate 65 and the moment we reach the rate 75.
Basically it gives a slope for the ramp up, which is significantly less than what we are currently doing or trying to do, being back from rate 40 up to rate 65 and be back to where we were before COVID-19.
Should we think of rate 75 Station 40 as being very, very late in 2025 now?
It's too early to say.
Okay. Thank you.
Thank you. Our next question is from Tristan Sanson, from Exane BNP Paribas. Please go ahead.
Yes. Good evening, everyone. Thanks for taking my questions. The first one is on the aircraft inventory situation. Can you give a few data points about the number of completed aircraft excess you have on the balance sheet, the number of aircraft without engine waiting to be delivered? If you can give us a feel for how many aircraft are stuck in the final stages in completion. The question behind is actually, are we talking about delays in the shipment of components that are at the end of the assembly process, or are we talking about delays throughout the production and assembly process of the aircraft?
The second question is gonna be quick, I guess, for you to answer, but now that you clarified the volume trajectory for the years to come on civil aircraft, do you think you may be able to provide some color about how this will convert into margin at your capital market day on September 22, 2023? Thank you.
All these are difficult questions, I guess, they're for you, Dominik.
Okay. On the finished aircraft inventories, yes, in the times of COVID, when demand was really the gating item for the deliveries, we informed you about finished aircraft on tarmac, and I think it was like 1.5 years ago where we mentioned that we are close to a little less than 100, I think it was at that point in time. Last year, we hinted that we only very slightly reduced that, predominantly out of wide bodies. Now this year the complication is that we have different aircraft with different kind of deficiencies.
You basically gave the answer in your question that you say, "Well, what is really missing for that aircraft to be completed?" It's quite heterogeneous, and that means, for us, the definition doesn't make really sense because if a small piece is missing, the lion's share of the effort is done, the inventory is tied up, but you don't have it in kind of finished aircraft not delivered. This is why we decided not to communicate on that number anymore. You have the inventory levels, of course. You see that we have invested in inventory to prepare the ramp and also in a certain way because some deliveries were slow or prevented. On the gliders, we commented that we had 26 at the end of June, and I think that's about the color I can give you on that topic.
Now, what we're going to say on the Capital Markets Day, this will not be about tactical margin guidance. This will be very much about the future of the company, about how we wanna tackle our decarbonization roadmap. Also giving more transparency on our divisions to give you a better feeling about that. This is really the focus of the discussion, and don't expect that we give. We completely deviate from past practice as to how we guide earnings going forward.
Thanks. That's very clear. If I may, I think I would relay the message of the whole of the market that even if you don't give any kind of formal margin, a general discussion about the financial trajectory would be extremely welcome everywhere. Thanks.
Understood.
Great. Thank you. We have a next question from Christophe Menard from Deutsche Bank. Please go ahead.
Yes. Good evening. I had two quick questions. The first one is on the H2 free cash flow. You're gonna deliver more aircraft than in H2 last year, and still, I mean, if I'm correct, you still expect to generate the same free cash flow in H2 2022 as in 2021. Could you help me understand why you couldn't do a bit more than this year actually? The second question is, I mean, a little bit on what Tristan just asked about, but given inflationary pressures, I mean, are you still confident about 2023 margins, EBIT margin to be at par or above 2019, given inflationary pressure we've seen in defense? What can you tell us at this stage, please?
Dominik, what can you tell us?
On the free cash flow, I always, yeah, really insist in my discussions with investors that it's very tough to look at our free cash flow on a quarterly basis because there's so many moving parts, and I always bring them back to the kind of cash conversion of one notion plus minus some puts and takes we disclose, like the A400M headwind or the A220 purchase price allocation topic. There are effects and we really did the math that we think that we can, despite the 20 less deliveries, sustain the EUR 5.5. Yes, it's very dependent on when certain customers at year-end throw money at you or not. It's very hard to predict. It's really something that's quite volatile, but we feel confident.
We have a sufficient confidence level that we can guide and maintain the guidance on the free cash flow. That's all I wanna say on that one.
Free cash flow at EUR 3.5.
Yeah, sorry, EUR 3.5. EBIT EUR 5.5, cash flow EUR 3.5, of course, yes. Now on the inflationary pressures and your comment. You made the comment that we should snap back to the 2019 margin in 2023. What we precisely said is that we wanna be back at the 2019 margin levels when we hit the delivery number of 2019. We don't wanna guide now whether that's the case, but with the rates being pushed to the right, of course, reaching 863 in 2019 is a very far shot. From that perspective, we still stay with the comment we made that we will reach the margin of 2019 when we reach the deliveries of 2019.
Thank you. That's very clear, thanks very much.
Thank you. Our next question is from Douglas Harned from Bernstein. Please go ahead.
Good evening. Thank you. You know, first question, going back to the rate. When you've talked about going to 75 a month in 2025, you know, we found a lot of skepticism from the engine suppliers. When now you've pushed back the timing for the 65 number, which is something that they believe they can do, does this become more difficult to get them on board with that 75 rate, which would be a steep ramp up from that point? And how do you go about getting them on board? That would be the first question. Then the second one. Last quarter, you talked about the A321XLR and the issue that EASA had with its certification.
Can you give us an update on how you approached the redesign of those aspects of the A321XLR and any update to timing for that?
On the rate 75 and the rate 65, we decided to postpone the reaching rate 65 from summer 2023 to beginning of 2024 for a large number of reasons, including engines, but not limited to engines. When it comes to engines, we think we are probably at the tip of the problem. We expect the backlog of missing engines to melt down moving forward, and we target to have zero gliders by the end of this year. That basically relies on what the engine makers, CFM and Pratt & Whitney, are telling us and what they demonstrate in the recent weeks, their ability to deliver engines moving forward. We have an agreement for 2022, 2023, 2024 on a number of engines.
In the meantime, we have taken a lot of orders, and we see that the market momentum remains very strong. Actually, the engine makers are more and more on board when it comes to the rate 75 for 2025, moving forward. The main difficulty today is no longer to decide whether there is enough demand or not to support the rate 75. It is to actually deliver from a supply chain, from a supply perspective, the rates moving forward. These are the kind of discussions we are having with the engine makers, and I can only encourage you to look at the remarks made by Larry Culp when GE just announced their results.
I think it supports the idea that at least when it comes to GE, but GE is a partner in CFM, that they have a clear understanding and a clear sharing of the commitment to the rates moving forward. I see it as an improvement and also facing just the reality of the market, the demand for our products at rate 75, 2025 onwards is there.
XLR?
XLR. Thank you, Dominik. Well, XLR, we've done the job with EASA. There was a lot of back and forth on a number of topics. We are converging. We have started the flight test phase with our PT1 in flight since the 15th June. We continue to anticipate the entry into service of the XLR in early 2024, based on the current situation of the progress of the development, the test, and the certification itself, which has made good progress with EASA in the recent months. There's no redesign. There is a design of the product, a set of certification requirements. Some of them had to be negotiated and discussed with EASA, given the new systems and the type of design we have on the XLR.
That's basically what we're doing moving forward, converging, as per entry into service 2024, beginning of 2024 again.
Okay. That's very helpful. Thank you.
My pleasure.
This closes our conference call for this time. If you have any further questions, please send an email to Philippe, Gustav, or myself, and we will get back to you as soon as possible. Thank you, and we are looking forward to speaking to you or even seeing you again soon.
Thank you, everyone. Have a good day or good evening. Thank you.
Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant evening.