Ladies and gentlemen, thank you for standing by. Welcome to the AirBoots H1 20 21 Results Release Conference Call. I am Clotilde, the operator for this conference. Please note that for the duration of the presentation, all participants will be in a listen only mode And the conference is being recorded. At this time, I would like to turn the conference over to your host, Dominik Assam and Tofton Fisher.
Please go ahead.
Thank you, Plutil. Good morning, ladies and gentlemen. This is the HERBOOST H1 20 21 results release conference call. Joao Fouri, our CEO Dominik Azam, our CFO will be presenting Our results and answering your questions. The call is planned to last around 1 hour and 15 minutes.
This includes Q and A, which we'll 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 e mailed to you earlier this morning. 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. And now over to Guillaume.
Thank you, Thorsten, and good morning, ladies and gentlemen. Welcome to our call And thank you for joining us today. Together with Dominik, we will take you through our H1 results. The good start we had with our delivery performance in Q1 continued in the 2nd quarter. We delivered In Q2, 172 commercial aircraft to our customers, which takes our year to date delivery number to 297 aircraft.
Our financial performance in H1 clearly reflects that high number of deliveries, but it also demonstrates that we adapted our cost structure During the crisis and that we maintained in H1 a strong focus on cost containment and competitiveness. Our H1 EBIT adjusted was at €2,700,000,000 compared to minus €0,100,000,000 in H1 last year. H1 2021 free cash flow before M and A and customer financing was €2,100,000,000 and includes a strong positive phasing impact from working capital. The Many actions taken by the teams have delivered a strong H1 performance. And from all what we know today, We at Airbus have put our adaptation process largely behind us.
Entering the second half of twenty twenty one, We shift our attention more towards securing the A320 ramp up steps as planned, and we will work closely with our suppliers. We'll continue to work We also continue to transform our commercial aircraft industrial operations by bringing FusEdge assembly back into the heart of the company. The project teams In France and Germany, we are making progress, while we continue to discuss with our social partners. For the full year, our strong H1 performance enables us to raise our 2021 guidance, Although we continue to face a rather unpredictable and difficult environment. The COVID-nineteen crisis is indeed not yet behind us.
We'll continue to work on managing customer deliveries, And we have to monitor the risks resulting from new variants of the virus, in particular, the delta variant. We'll come to the guidance update more precisely later, but let's first have a look at our commercial environment.
I'd like to kick it
off with some comments on the recent developments of the WTO dispute. We welcome the news of a cooperative framework between the EU and the US regarding the The WTO disputes on the large civil aircraft, which resulted in a suspension of tariffs for a period of 5 years. This will provide the basis to create a level playing field, which we have advocated for since the start of this dispute. Now to our commercial environments in more detail. From the discussion with our customers in the most recent macroeconomic data, We observed that the market recovery in the commercial aircraft business is gaining momentum in key domestic markets, which underpins the underlying air travel demand, pent up demand.
Measured in ASK, Domestic China remains close to the pre crisis levels. Domestic North America benefited from early and fast vaccination rollouts And is converging back towards the pre crisis demand for air travel. Recent industry forecast Expect the full recovery of the U. S. Domestic market by the end of this year or early 2022.
And the air travel inside Europe, which had been lagging behind in Q1, is now also showing encouraging signs of a rebound. When it comes to international air traffic, we continue to believe that the market will take more time to recover. Globally, the potential impact from new variants remain a concern and progress on vaccination is a key element for a sustainable resilience Again, it's
Randy.
Let me remind you of Our order and backlog in H1, we booked 165 gross orders, of which 158 Single eye, it includes in June a new order for 70 A321neos. We saw 127 cancellations, of which 27 in Q2. The cancellation in H1 were largely Anticipated and embedded in our backlog valuation as of year end 2020. As a result, net orders were positive at 38 aircrafts and our backlog in units amounted to 6 19 25 aircraft. It is our ambition to continuously adapt and Evolve our product portfolio in line with customer needs, as for example, we did it with the launch Of the A321 XLR back in 2019, I'm sure you remember.
In that spirit and following positive customer feedbacks, We obtained the Board of Directors approval for a freighter derivative of our well established A350 platform. So based on the proven efficiency of the 350, the freighter version is planned to deliver lower fuel burn compared to freighter models of that size Currently in service, for example, around 20% less fuel burn compared to twins, 30% less compared to 3 Jets and 40% less compared to Quad's 4 engine plans. It will also meet the IKO CO2 emission standards and it will mark another step on our way To lead the decarbonization of the aviation industry. We are convinced that the A350 freighter will provide a Strong answer to our customers' needs and expectations, and we'll introduce a healthy competition to this well established segment. The entry into service is planned for year 2025.
Now looking at Helicopters. In H1, we booked 123 net orders versus 75 in H1 last year. In Q2, we recorded a previously announced order for France for 8 H225N and for a second prototype of the unmanned aerial System, the VSL 700, which are part of the French stimulus plan for the aeronautical industry. In 2021, we continue to see good momentum for commercial campaigns in our home countries and in particular in public services. Finally, in defense and space, In H1, our order intake was €3,500,000,000 During the Q2, orders were booked in the amount of €1,500,000,000 This includes in Space Systems The authorization to proceed granted by the ESA, the European Space Agency to Airbus on the Earth return orbiter project.
With ESA, we also signed a contract for 3 additional European services modules, which are a mission critical element for NASA's Orion spacecraft dedicated to the U. S. Artemis return to moon program. Airbus has also been awarded by ESA the contract to design and manufacture 6 Galileo 2nd generation spacecraft. This important order is partially reflected in the order intake of the 2nd quarter.
And in unmanned aerial systems, we booked a renewed service contract agreement for Heron 1, the US system Heron. On FCAS, we continue to progress and we welcome the validation by the Bundestag of the German share of the FCAS Phase 1b demonstrator That is a key step for this strategic European program, which will also further strengthen European technological sovereignty. We are proud of the continued trust that France, Germany and Spain are placing in us in the frame of the future combat assistance program. On EuroDrawn, we continue to make progress. And with this, now Dominik, I hand over to you, so Dominik will take us or will take you through our financials.
Dominik?
Thank you, Guillaume, and good morning, ladies and gentlemen. Our H1 2021 revenues increased to €24,600,000,000 up 30% year on year, mainly reflecting the higher number of commercial aircraft deliveries in 2021. Our EBIT adjusted Increased to €2,700,000,000 in H1 2021, up from minus €0.9 In the first half of twenty twenty, which you recall included €900,000,000 of charges due to impairments and write offs triggered by COVID-nineteen. The strong year improvement of our EBIT adjusted is mainly driven by the delivery performance. It also demonstrates that We have adapted our cost structure during the crisis and that we have maintained in H1 a strong focus on cost containment and competitiveness.
Our research and development expenses decreased by 10% year on year. We continue to expect our 2021 full year research and development expenses To be at a similar level end in 2020, including a moderate amount of R and D expenses for the freighter version of the A350. Our H1 earnings per share adjusted stood at €2.37 per share Based on an average of 785,000,000 shares, our H1 free cash flow before M and A and customer financing was at plus €2,100,000,000 It reflects our continued effort on cash containment, on top, strong positive phasing impact from working capital. All in all, in H1, we benefited from a very favorable combination of elements. We saw firstly, a good number of commercial aircraft deliveries.
Secondly, we focused on competitiveness, while we are still managing our costs in a crisis mode and thirdly, We benefited from a very favorable exchange rate. Going forward, we also may start the selective hiring of key employees Necessary to secure the required skills when it comes to supporting the ramp of our single eye program, new technologies, digitalization And decarbonizing our products. Now on to the slide regarding our profitability. H1 2021 EBIT reported It was also €2,700,000,000 Net EBIT adjustments were broadly neutral and included €145,000,000 related to A380, of which plus 174 booked in Q2, we released the provision for the impairment of the former A380 The Lagardere facility recognized in prior years as we are now using the building for the modernized A320 filed in Toulouse. Minus €170,000,000 impact from foreign exchange and balance sheet revaluation, of which only plus €7,000,000 in Q2 €49,000,000 positive of other adjustments, including compliance costs, of which €75,000,000 positive in Q2, mainly from provision release related to the group wide restructuring plan.
Earnings per share reported Includes minus €30,000,000 of financial results, mainly reflects the net interest result of minus €172,000,000 As well as plus €79,000,000 related to Dassault Aviation. The tax rate on the core business is around 27%. Effective tax rate on net income is 18%, including the effect from tax risk updates And the tax effect on the revaluation of certain equity investments partially offset by deferred tax asset impairments. The resulting net income is €2,200,000,000 with earnings per share reported of €2.84 Now on to our hedging activities. In H1 2021, dollars 10,200,000,000 of hedges matured With associated EBIT impact at a rate of 1.18, this hedge rate is unchanged compared to
the same period last year.
However, for the full year 2021, we expect an average hedge rate of 1.21 compared to 1.19 in 2020. As a result, for the remaining 6 months, we expect a negative EBIT impact based on a less favorable hedge rate to materialize in H2, both on a year on year and in comparison to H1 2021. During the first half of the year, We implemented SEK 10,700,000,000 of forward at a rate of SEK 1.22. In H1, we further adjusted The phasing of our hedges by implementing €4,900,000,000 of rollovers. As a result, including €1,200,000,000 2,000,000,000 hedges disqualified in Q1 'twenty one.
Our total hedging portfolio in U. S. Dollars stands at $80,200,000,000 with an average hedge rate Of EUR 126,000,000 versus EUR 81,000,000,000 offset EUR 126,000,000 in December 2020. Going forward, we will continue to adjust our portfolio to match our delivery profile. Now let's look at our cash evolution in H1 2021.
Our gross cash flow from operations of EUR 2,100,000,000 mainly reflects our EBIT adjusted and includes a EUR 500,000,000 Provision consumption related to the restructuring plan. Our working capital has decreased by €700,000,000 It includes a positive impact from the inventory reduction in the A350 and A380 programs. It also includes a significant positive phasing impact from the timing of receipts and payments, albeit to a lesser extent than in Q1. Year to date, the A400M continued to weigh on our free cash flow before M and A, but less so than in H1 2020. H1 CapEx was around €800,000,000 negative, down 14% versus H1 2020.
For 2021, we now expect our CapEx to be around €2,000,000,000 Free cash flow reported was
€2,000,000,000 M and
A activities amounted for only minus €8,000,000 and our customer financing We presented an outflow of only minus €31,000,000 remaining at a very, very low level in H1. The aircraft financing environment remains solid with We also benefited from the support of HEXBOT Credit Agency. When it comes to our fiscal year 2021 free cash flow and in particular looking at our working capital, we expect the H1 phasing effect To further decrease going forward and to see implications from our single aisle rep. Our net cash position has improved to €6,100,000,000 at At the end of June and our liquidity position remained strong and stood at €33,700,000,000 In H1, we have redeemed the $1,100,000,000 exchange with bonds with 2 Dassault Viejo shares and prepaid A $1,000,000,000 bond in order to reduce our gross debt and further improve our leverage ratios with the objective of supporting our robust credit rating while maintaining a strong liquidity position. Now back to Guillaume.
Thank you, Dominique. Now on to commercial aircraft. As already said, in H1 2021, we delivered 297 aircraft to 67 customers. When we look at the H1-twenty one situation by aircraft family, on the A220, we delivered 21 aircraft. Our production rates currently at 5 per month since the end of Q1 this year It's expected to increase to around rate 6 per month in early 2022.
On A320 Family, we delivered 237 aircraft, of which 110 were A321s. In July, we raised our monthly production rate from 40 to 43 As planned, and we will increase our production rate to 45 aircraft per month in Q4 this year. We also called on suppliers to prepare for the future by securing a firm rate of 64 by Q2 2023. As Dominik already mentioned, the modernization of the A320 family file in Toulouse resume in May, It will increase our flexibility while we are ramping up. On the A321XLR, We recently started the 1st structural assembly in Hamburg with the rear and center fuselage, followed in early July By the structural assembly and the system equipment of the nose and front fuselage in San Jose, which means we're moving forward on time.
On one release, we delivered 39 aircraft, of which 30 A350s, 7 A330s and 2 A380s. On the A380, 3 aircraft remain to be delivered. Last week, we delivered the first A350 from our wide body complexion and delivery center in Tianjin, China, taking additional steps in the expansion of our global footprint And long term strategic partnership with China. While the A330 production remains at an average monthly production rate of 2 per month, We expect to increase the A350 production rate from 5 per month to 6 per month by 4 2022. Now let's look at Airbus Commercial Financials for the Q1.
Revenues increased by 42% year on year, largely reflecting the higher deliveries as compared to 20 That was obviously strongly impacted by COVID-nineteen. The increase in EBIT adjusted is mainly driven by the delivery performance, but also demonstrate that we adapted our cost structure during the crisis and that we maintained in H1 Our strong efforts on cost containment and competitiveness. Let me remind you that our H1 2020 included And EUR 0.9000000000 charge due to impairments and write offs triggered by COVID-nineteen. Looking at helicopters. In H1 'twenty one, we delivered 115 helicopter in total, 11 aircraft more, even Helicopter more than in H1.
Last year, revenues increased by 11% year on year to EUR 2,600,000,000 reflecting a growth in services as well as a higher volume in civil helicopters. EBIT adjusted increased by more than 20% versus H1 2020 up to EUR183,000,000 driven by services, Program execution and lower spending on R and D due to the end of the certification process for the H160 And the new 5 bladed versions of the H145 in 2020. Now on 2 d Samsung space. Revenues are broadly stable compared to H1 2020. The increase in EBIT adjusted mainly reflects the ongoing cost containment and competitiveness efforts as well as increased Volume in Space Systems.
For the A400 and military transport aircraft, we delivered 2 aircraft in the first half of twenty twenty one. We have continued with development activities towards achieving the revised capability roadmap. Retrofit activities are progressing well and in close alignment with the customer. Risks remain on the development of technical capabilities And associated costs on aircraft operational reliability, in particular with regard to power plants, On cost reductions and on securing export orders, e time as per the revised baseline. Coming to guidance.
Let me remind you that we issued our 2021 guidance in February this year. Although we continue to face a rather unpredictable environment, our strong H1 performance Enables us to raise our 2021 guidance. Let me read our updated 2021 guidance to you. As the basis for its 2021 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 2021 guidance
is before
M and A.
Now on that basis, the company has updated its 2021 guidance and now targets to achieve
in 2021
around 600 commercial aircraft deliveries, EBIT adjusted around €4,000,000,000 and the free cash flow before M and A and customer financing of around €2,000,000,000 As usual, I want to conclude by summarizing our key priorities. Obviously, we continue to manage our deliveries and backlog as agreed with our customers. This is, of course, Including our defense contracts, it makes us proud that our defense and space capabilities contribute to the peace And security of our home nations, our EU and NATO partners as well as to UN peacekeeping missions. Ultimately, These defense activity make vital contributions to a more stable and sustainable world. In our commercial aircraft business, we shift in H2 our attention to a greater extent towards securing the A320 ramp up As planned, and we will work closely with our suppliers.
We'll continue to work closely with our suppliers who will play a key role In the ramping up of single line production that is now so important for us and for the market. For the ramp up, We expect to see benefits from having preserved our capabilities for the crisis and from having maintained the stability of our supply chain in that period. We will continue to integrate and modernize our industrial value chain to further support our ramp up, our long term competitiveness as well as our evolving range of products. And we remain focused on innovation and on our ambition to lead the decarbonization of our In this context, we welcome and support initiatives and policies, which encouraged the carbon reduction in aviation, including ambitious targets to scale sustainable aviation fuels and green hydrogen. Our key priority will, of course, be to deliver on our updated 2020 wide guidance And to sustain our ability to invest in our long term ambitions across the portfolio.
And finally, on 1st July, we implemented changes to our executive committee, And we welcome 3 new members to the team. I'm convinced that these changes to our executive team We'll be a strong support for the challenges ahead. And I guess now we are ready to take your questions.
We now start our Q and A time. Please introduce yourself and your company when asking a question. Please limit yourself to 2 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 questions.
So Clotilde, please go ahead and explain the procedure for the participants.
Thank you. We have one first question from Mr. Tristan Sanson from Exane BNP Paribas. Sir, please go ahead.
Yes, good morning everyone. So it's Christian from Exane. Thanks for taking my question. The first one Will be a question on the EBIT guidance for this year and the new conversion of deliveries to EBIT. Obviously, you have 2 parts in the increase Of the EBIT guidance for this year, one is the increase of the underlying level of deliveries to calculate it from at least stable to 600 And then the way these deliveries are converted to EBIT and if I make simple calculation, I have the impression that you have an underlying Please update the deliveries of about €1,500,000,000 to the EBIT guidance.
Can you explain a bit where it's coming from? How you identified your progress in cost saving compared to plan? How you quantified it for us to get a bit better feel of How this guidance is being built? And the second question will be On the margin ambition beyond 2021, I don't know what you want to communicate at this stage, but in the early stage of the release, You mentioned that your ambition for commercial aircraft was to bring back over time profitability to pre crisis level at around 10%. When we reach pre crisis level of deliveries, you reach almost 17% in Q2.
So how should we consider That's a trajectory going forward. Any thanks?
Yes, Dominik, the question is too Thank you, Christian.
Okay. Christian, yes, you're right. Our underlying performance adjusted For flexing for the volumes is very strong and has been, I would say, a little bit of picture perfect quarter and where all the factors came together. I mentioned in my introductory remarks that we have been really still running the company in crisis mode. So minimizing the cash, we made very good progress on the, When you say restructuring, you have seen the headcount numbers come down significantly.
The ForEx was very positive. If you look at our disclosure, you see that for the full year, we see a significantly higher rate than the 118 in the first half. So the remainder to do is a quite big swing On ForEx, and yes, we are in the process of ramping and we have now several quarters in a row where we have been sailing very smoothly Without big efforts on continuous support and without all the cost in normalcy, no liquidated damages, we have to assume that when we accelerate the system, the cost base will And then there are also very deliberate decisions like on research and development expenses where we will need to snap back to some degree. So So there were some deferrals to the right. Some of that will be phasing, which need to be caught up in the second half and beyond.
And this is why it's not very advisable to just extrapolate from H1.
If I may just to be clear because the ForEx, you mentioned positive ForEx, but it's fairly roughly as planned overall. And the R and D is a small balance, a bit stronger tailwind than expected, but it's not a big driver. So the total €1,500,000,000 of Crazy. Fully organic. It doesn't come from FX and R and D.
So where is it exactly coming from?
No, no. It also comes from a very Strong gross margin because of the very smooth manufacturing process. Frankly, yes, our forecast turned out to be conservative and prudent in that regard. If you look at where it comes from, it's really throughout. I mean, we have gone through a very stark reduction in rates.
We have readjusted. And of course, it's not easy to recalibrate where you stand. And then the next discussion is phasing versus really sustainable events. And I must say, we have deferred Quite some projects which we need to resuscitate and that will lead to cost increase in the second half and beyond. And again, this is why I would see this as kind of a picture perfect quarter, but not a good base to extrapolate from.
Is that clear? And on the margin ambition beyond 2021?
Yes, the longer term. I wouldn't change anything to that statement. We've always said that our aspiration is to come back to the 2019 margin performance As we ramp back to the rates of 2019, which you recall, were 863, and we think that's still a very good target to aspire to.
Okay. Thank you.
Thank you, sir. Next Question is from Mr. Benjamin Heelan from Bank of America. Sir, please go ahead.
Yes, morning guys. Glad to hear that you're doing Well, I wanted to come back a little bit on Tristan's question because I guess the guidance that you've Given implies a massive reduction in EBIT in the second half of the year, right? It doesn't feel like it's just cost coming back. I mean, it sounds When I ran the numbers quickly, it sounded as though EVIL was going to be down over 50% in commercial in the second half of twenty twenty one versus the second half of 20. So again, is there anything else in particular that we're missing there?
That would be my first question. And then on the A350 freighter, obviously, you've announced that today. Can we get a bit of a view in terms of the Cost of developing that, so the non recurring costs and how we should think about your expectations for production rates on that program? Thank you.
Yes. So I think the elements I can just reiterate, if you think about the move and remain to do versus the 118 in H1, That's good for kind of €0.5 billion issue. So negative variance, I mean, you could apply the logic. You take the first half A bit multiplied by 2 and then you look at the puts and takes. So the big first block is the ForEx I've mentioned.
The second one is really the deferral discussions of cost where The phasing was pushed to the right and then the fact that the cost has not been incurred in H1 doesn't mean it's not coming, but it might even come stronger. And if you add all these elements together, plus still the ambiguity we see in the market and the challenges we see with the ramp and the cost that might be associated To really secure it, let us do the guidance you have. But I mean, should we be lucky again with a picture perfect environment in the second half, We have to see that, but I think it's also important not to get carried away in the environment we are currently facing.
Good morning, Ben. It's good to speak to you. On the A350 freighter, well, No, we don't intend to communicate on the nonrecurring expenses of the program. It's a derivative of an existing program or basically from 2 existing products mainly, and we use the building blocks 2 existing products mainly, and we use the building blocks of what we've done on the A350 -1000 mainly, but not only. And also the learnings and the tools and ways of working that we've developed recently With the Beluga XL, the plan that we have developed for ourselves to carry wings across Europe.
On the production rates, well, the beauty of that program is that it will be embedded in the A350 production system, so we don't need to plan for individual rates for the freighter. It's a commonality with the -900 and -1000 that we It is inside the final assembly lines and the production rates will depend on the commercial success of the program at the data stage.
Okay, great.
Very good.
It's too
early to answer your question in a very
specific manner. Okay. All
right. Thank you.
Thank you, Vanessa.
Thank you, sir. Next question is from Madam Celine Fornaro from UBS. Please go ahead.
Good morning, gentlemen. Thank you for taking my question. My first question would be related to the outlook, but probably more So on the delivery outlook to start with and then on the free cash flow, if I may. So looking at the deliveries And maybe that explains some of the caution on the EBIT. But is there a particular region that maybe you're concerned about in terms of your H2 delivery expectations, is it a bit more Asia Pac focused in H2 than in H1?
Because even the EUR 600,000,000 guidance, which means you're going to deliver the same amount in H2 versus H1, Well, hopefully, we would expect an inventory drawdown as well on the build planes. I see a degree of conservatism there. And also on your free cash flow, it's early days and free cash is always very volatile at your end, but No cash generation in the second half. Could you please provide a little bit of color on how we think about that? Thank you.
Hello, Celine, and good to speak to you as well. Long time no see. Yes, You're touching an important point, which is the balance between H1 and H2. I think H1 comes as a very strong half year, first half year compared to previous years. That's a bit unusual for us.
300 planes was really 297 was really at the top end of what we could have expected. And I think Dominik rightly said that it's been made possible also because of the 15 months of stability we have enjoyed On the production system, that's a bit of a positive from the COVID-nineteen situation, but now we're ramping up. But we have also a lot of uncertainties that are now on H2 as we did such a strong H1. So that's a bit the background, and we are prudent because the 300 of H1 are done and around 300 of H2 are still So maybe to give more color on the free cash flow, I hand over to Dominik.
I think In the context of the free cash flow, it's really worthwhile looking at the balance sheet development in H1 in more detail. There are 2 major positions you should analyze, which is the Trade liabilities, we see there's a big boost coming from the reduction sorry, increase in trade liabilities, Which is of course giving us cash. That was one of the positives. And the other big negative is on the kind of development Assets and liabilities, which is basically the net of PDP inflows and usage of PDPs in By delivery. And what you see there is that we had quite some cash out actually on that front and this is the effect we've already highlighted before that As the last year, we negotiated all backlog basically, largely all the backlog As we pushed aircraft to the right, while really insisting on preserving the PDPs, the customers are kind of in advance Of the schedules and that gives us several quarters where there is a lower kind of PDP payment.
I have to underline Customers are very much compliant with PDP payments right now. So we have basically 3 big things that the operational performance is very strong, the headwind Caused by COVID-nineteen and the PDPs because we deferred aircraft to the right without deferring the PDPs to the right. And then lastly, the trade liabilities. Trade liabilities will not reoccur, but the headwind from the PDP adjustment, so to speak, of COVID-nineteen deferral will continue in the second half. And this explains why you will see a relatively moderate performance of free cash flow in the second half of our expected to date.
And And then there's, of course, the question of deliveries. Deliveries might move very strongly. And last but not least, the rent. The rent will also We saw some working capital and this is why we have been prudent, I think, in the second half on the free cash flow.
Thank you, Dominik and Guillaume. I think we're still puzzled, all of us, given how well you manage the way down, that you're not going to manage as well the way up. That's My question
is from Mr. Robert Stallard from Vertical Research. Thank you. Thank you, madam. Next Question is from Mr.
Robert Stallard from Vertical Research. Please go ahead.
Thanks so much. Good morning.
Good morning. Good morning. How are you?
Good. Thank you. I've got a couple of questions for you. First of all, Guillaume, obviously you announced The other month, your plans on the A320 ramp up and your long term target of 75 per month, some of your suppliers have expressed some skepticism Chisholm, as to whether that's a realistic target relative to the demand that could be out there.
So I was wondering if
you could give Your explanation on that. And then also on the narrow bodies, on the A321, could you get to over 60% Of A320 family production being the A321, will you have enough capacity to hit that number? Thank you.
Yes. Thank you, Robert.
So we have a backlog of A320 that is coming close to 6,000 planes. At rate 40, it would be 15 years. If we go up to rate 60, it will be 10 years or more than 10 years. And obviously, you can imagine that the customers which have an A320 or an A321 in the backlog today, They don't want to wait for 12 or 15 years. So actually, if you just do the math, it's obvious that we need to go significantly above rate 60 to serve the backlog.
So I'm ready to do the math with the suppliers and partners, which are challenging the need for going above range 60, but We see it as a fact in our backlog. And Dominik mentioned that the customers at the moment are current on PDPs, which is signaling to us that they really want
to take delivery of their
planes on time. So the reason why we've been very transparent and clear To our supply chain and to our partners on our rates is because we really want them to get ready. And I'm really disappointed to see that Some usual partners are still challenging the rates. They were challenging the rate 40 a year ago. We've managed to Stick to the RACE 40, and we really want to manage the ramp up, the re ramp up, as we call it now, on the A320 that has started already In July this year.
Question on the A321. Indeed, we want to be able to serve more than 50% Of the deliveries being A321s, I mean, in the A320 family. I don't know if the 60% mark that You mentioned it's the right one, but we will be significantly ahead of 50% or we will be capable of significantly more than the 50%. That's also why we are replacing an A320 file in Toulouse by a modern A flexible line that will be capable of both A320 and A321 and will continue to increase the capacity and the Flexibility of the A320 family production system to be flexible on the A321, and that will be particularly important 2023 onwards, when the XLR will join the family. As you know, the XLR is an X321.
So yes, the 60% mark is probably not too wrong. I've not done the math and to if and when we go to 60%, But we know that we are with a very strong demand for the 321 moving forward, and we want to serve that demand.
Backlog is a 53% as well.
Backlog is 53. Thank you very much.
That's very helpful. Thank you very much.
Thank you, sir. Next question is from to Jeremy Bragg from Rougett Bem. Please go ahead.
Good morning, guys. So First question, please, would be on PDPs. And Boeing, yesterday talking about material headwind in PDPs in the second half of the year and going into 20 22. So I wonder if there's anything specific there for them or whether you are also going to experience that. And then second question, please, And sorry to come back on it, but outlook for free cash flow in the near term raised by 2,000,000,000 EBIT guidance raised by $2,000,000,000 Fine.
But you're clearly expecting more inventory aircraft out of inventory to be delivered and also the CapEx guidance It's lower as far as I can see. So again, just sort of struggling if I look at it that way as well. Thank you.
Okay. On the PDPs, I can only reiterate what I said already. I don't want to comment on what Boeing's challenges are, but we We have a headwind on PDPs for several quarters to come because the deferrals have been performed and We felt it's important to ensure that the deferrals are underpinned by PDPs. So we have not It's been forthcoming in terms of returning GDPs to customers because we felt that's prudent to do that. On the free cash flow guidance For the second half, again, it's the puts and takes I mentioned.
There was a very strong tailwind from trade liabilities, which will not reoccur In the second half and then maybe the cash absorption for the ramp, which I think is missing in what you commented. There will be some efforts Not only on the CapEx side, but also some on the inventory side, we will not necessarily see Support from there because we really want to prepare for the rent and make sure that we can deliver a steep increase. You referred the rate, I don't want to reiterate the rate profile we've It shows a very steep brand which needs to be catered for.
Okay, lovely. Thank you.
Thank you, sir. Next question is from Mr. Douglas Arndt from Bernstein. Sir, go ahead.
Thank you. Good morning. Good
morning. As a first question, I want to go back to the longer term rate plans that you talked about going to 64 months in Q2 2023 75 a month In the 2025. We've heard the same skepticism from many suppliers. This is still a ways out. And what I was interested in is what commitments have suppliers actually made on this such as interim rate increases before That 2023 point.
And the second question is, historically Airbus and Boeing have split the Chinese market. Now given the challenges that currently exist in U. S.-China relations, does this create more opportunities for Airbus there? Do you believe you could take a larger share Of the Chinese market at this stage?
So thank you for the questions. When it comes to the rates, I mean, we have given some rates till 20 To the supply chain, so we expect the supply chain to be up to our orders, and that's What we've seen so far, so that's the point. Now when it comes to beyond the Reg 64, that's more assessment of the capacity of the supply chain and And exploring at what speed and what would be required to go to rates up to 75, so It's more uncharted territory, but the 64, I mean, we were going to 64. We were close to 64 just before being hit by the pandemic. The production system is in place for that, and we expect the supply chain to be able to ramp up at a much faster pace For the re ramp up than it was the case for the initial ramp up of the family.
The trajectory to between now and And rate 64 in Q2 2023 is rather linear, more or less linear. I don't have all the details in mind, but it looks like Something that is rather progressive to give the chances to the supply chain to adapt. It goes by steps, which is something necessary To have some stability in the quarter, as we like to do it. So other linear growth, And that's basically what we see ahead of us. So, anticipating Doing the right things on reviving the schemes, the onboarding the people, checking on time the Readiness of the physical production system so the ramp up can happen as it was the case just before the pandemic.
And then on China?
Yes, sorry. China, Well, I don't really know the situation for the other guys. We see A good number of deliveries for Airbus. We continue to deliver around 20% of our delivery numbers To the Chinese airlines, we've not seen a large order as well for Airbus now for quite a while. So we see that the COVID-nineteen situation is leading to some procrastination and wait and see It would be in this region of the world, and we would expect things to start to ramp up again to make progress moving forward.
So I think COVID-nineteen is playing a role in the bit of the wait and see attitude in general. At least that's the way I see it for Airbus, and I cannot comment for our
Thank you, Tom. I hope not. Okay. Thank
you. Thank you, sir. Next question is from Mr. Andrew Goelen from Berenberg. Sir, please go ahead.
Yes. Hi. Good morning, gents. Thanks for taking my questions. 2 for me.
First one is on widebody Can you just give us an update there where you are at current rates in terms of gross margin really and how you see that evolving over the next A couple of years, say, particularly with the slight increase in A350. And secondly, on the Aerostructures reorganization, can you just give us an update there again really and Just outline the changes that are being proposed, where the progress is on that and kind of expected timing and what benefits you expect Airbus will derive from that in terms of operational improvement.
Dominik, we take the first part on profitability of our wide body programs. No change, I would say, to what we've previously communicated, which is that even at these lower rate levels, we want them to bring them back To a breakeven level, that's not a contribution margin, but only an EBIT breakeven level. There is, of course, with the advent of The freighter for the A350 program, a little bit of headwind created, but it's not too massive. And we still want to bring that program Back to a breakeven position in the not too difficult future. I'm not sure it can happen already next year because of the ramping NRCs on freighter, but Still in the middle of the forecast here, it looks very roughly.
I think we can turn the program around to breakeven and similar time line on the A330.
On Aerostructures, I don't know if I shall go through the rationale again. I will try to make a simplified version for you. We are today with 2 subsidiaries, Stellia on the French side and the Premier Mironotec We call PAG as well in Germany. That's our in charge of front fuselage and half fuselage mainly. They are independent organization, and this has led to other simplified We're operating the production system for Airbus.
So we like the fact that we have standalone entities managing a large part of the production system And simplifying the interface with Airbus. Now moving forward, we want to drive simplification. We want to drive Better efficiency and going a bit more in that direction, but removing the transactional relationship we have with those organizations As they were carved out sort of carved out a decade ago with the idea that the Fuse of the HDR frame would be commoditized. This has not really happened in the meantime. And when we look forward, we see that the decarbonization of aviation We lead to very different architectures where it will probably no longer be about a fuselage, a simple fuselage, But the airframe will be also the place where the energy management part of the propulsion system And a lot of complexity will be directly embedded.
And therefore, we really believe that this will be core moving forward, that there will be a lot of complexity. That's why we are holding out what we call DDMS, which is the digital design and manufacturing digital platform That will connect end to end the product, the production system and the services, and this has to go Into the future airframe design and manufacturing, that's why we consider its core. That's why we want to bring it closer to Hair Boost, but managing the simplified way of dealing with the production system. Therefore, the model we have developed, which we think fits Very much with our needs. We call them the ASAD, the Aerostructure Assembly Organizations.
There will be 1 in France combining some of our today's Airbus plant and Stadia and similarly in Germany With the more complexity on the German side that we still have a rather significant detailed part activity In Germany, that we think is a bit subcritical that we don't see a score moving forward and for which we want to find a positive So we are working hard with the social partners to define the best way forward for this part of the activity of the today's so called premium Aerotec. So we do it as well in times of lower production rates. It's a good time to transform. We want to be ready on time for when our DGMS platform will be fully available and running. And for the times where we will have to start designing future products, So it's now or never, and we do it now.
Thank you. Can I just follow-up there? Is it possible to scale the parts business within premium AeroTech? Or is it too early to say?
Yes. We think it's important to give it a bigger scale, combine it with other detailed part activities To increase the competitiveness, that's why we think the option to divest it and combine it with the business of Other, industrials to be able to address other customers than Airbus in aerospace or other sectors It's a good way forward for the detailed part. That's one of the options. We are also looking at other options to restructure and make sure we have a good business on detailed parts moving forward Whatever we keep it or we divest it?
Yes. Sorry, Graham for the confusion. I meant scale it in terms of how large is it in terms of Revenues, for example.
Yes. I mean, we're talking about the high, sorry, digit,000 revenue number. It would be the carpet of How high triple digit millions? Okay. 2,500,600 people.
That's great. Thank you very much.
Thank you, sir. Next question is from Mr. Chris Hallum from Goldman Sachs. Sir, go ahead.
Yeah. Good morning, everybody. So two questions. The first on pricing. So the price mix effect on A320 was quite positive in the second quarter.
So should that be sustained over the coming years as you ramp up production and as A320 accounts for a larger portion of deliveries as you mentioned? And then with the recent narrow body orders, particularly on 737, are you noticing any changes to price levels you're seeing in competitions? So that's my first question. And then secondly, with the better cash performance, I suppose your year end net cash should be around €6,000,000,000 to €7,000,000,000 And of course, you still have the €1,000,000,000 ish Dassault stake, which could be monetized. So with all of that, how do you think about when to restart the dividend and at what level?
Thank you, Chris. Good questions. Dominique, what do you think about it?
Should we start with the cash? So it's true that our net cash performance is coming in quite nicely. We were more cautious previously because we were still Hearing some more vendor financing would be required, but not only do we do better on operating performance, but also basically no vendor financing To a large degree required, so that leaves some opportunities to consider what we can do. I mean, next decision is, of course, for fiscal year 2021 Payable in 2022, we cannot preempt the discussion, but
I would not rule it
out that we revert To a conservative to the dividend. We have a dividend policy in place, which is basically 30% to 40% of our net income or a tax affected EBIT. And from that point of view, I would not see that we are very aggressive on that, but the discussion will be had with the Board of Directors. Question? Sorry, the question?
The pricing discussion. I mean, first of all, you know that the ramp on the A320 is not Delivered on new orders, but it's delivered on the backlog and the prices are in the backlog. So there's no pressure there. Of course, in other programs where we need new orders, There is a lot of supply in the market. Every order is fiercely contended and that means there is pressure on programs like H220 And the wide body is that, that is clear, but this will kind of take some time to feed through.
And Important thing is that the real big lift on the A320s is well protected by the backlog And we are not desperate for new orders on that front.
Very clear. Thanks.
Thank you, sir. Next question is from Mr. Aymeric Poulin from Kepler Cheuvreux. Sir, please go ahead.
Yes. Thank you for taking my question. Good morning. I've got 2 follow-up questions, please. The first one Is on the operational leverage for the 2023 margin Target, given the margin you have right now and the fact that you will be using your capacity 2% more in 2 years' time based on your delivery schedule.
What kind of operating leverage should we assume? And also, you mentioned the tariff So removal, are there any benefits we can also take into account in the margin expectations? And the second question is, again, around your growth rate beyond 23 and the production rates going to 75 months for the H2 20 family in 2025. What kind of assumption do you You take for the replacement cycle and is there any hint at an acceleration of the replacement cycle due The recent EU carbon taxonomy that may be an incentive to go for more fuel efficient plane? Or and also what are your Estimate or assumption for market share relative to Boeing and Cormark in particular?
Thank you.
Dominik, do you want to
take that? I think the operating leverage is very much related to the question of the margin aspiration we have. So at the point in time where we step back to the 2019 deliveries, we want to be back at the margin levels of 2019, in that context, it's worthwhile mentioning that we want to be at a similar research and development expense level As in 2019, so that shows you there is some resuscitation. And yes, we have put a lot of brakes on costs on initiatives that are Important but not so urgent, if you further to the right and they will come back. So I don't want to go now into a detailed model how that should We put together, but I give you 2 data points.
1st, the margin should be back to the 2019 margin level, EBIT margin level and that the absolute euro R and D is at a similar level probably. I mean, at that point in time, we're reaching that back to what we had in 2019. And that's, of course, a headwind for operating leverage
On the second question, which deals with production rates, Just repeating that the trajectory to rate 64 is a plan and to 75, We are assessing the capacity of the supply chain. So we are reviewing what it would take when and obviously, we will target 2025. That's That's what we've given to the supply chain as a question, and we will evaluate the result and whether it's relevant to go there, at what pace, a bit later. And it has to do indeed with your question on the market. As I said earlier on the call, on the previous call, we will update GMF, the Global Market Forecast, later this year.
And there are a lot of changes coming to coming from COVID-nineteen, Coming from the acceleration of the and the reinforcement of regulations on carbon emissions. So there's a lot of moving parts, And we want to come with the picture that will be as good as possible a bit later in the year. There are tendencies that Time to go in different directions, and we need to weigh them and combine them in something that is as much as possible Likely to happen. But obviously, we see that new products will be in demand. That's for sure.
We can see it, as Dominique explained, For the PDP, the customers are very current because they want to take delivery of new planes. And we anticipate on the short term That we will probably be limited again by production capacities, and we won't be able to serve all the demand, At least on the short term for the single line.
Okay. Thank you.
Thank you, sir. Next question is from Mr. Christophe Menard from Deutsche Bank. Sir, please go ahead.
Yes, good morning. I had two questions. The first one is on the EBIT adjusted Airbus Commercial in H1, it's a very strong performance. And I was wondering whether you were feeling or seeing the impact of The industrial efficiencies that you've been implementing already in H1 and what is I mean, if there are some Efficiency is already materializing. Wouldn't it be fair to think that your margin aspiration by 2023 as you just mentioned could be higher than 2019 due to the efficiencies.
Got that. That's the first question. The second is on the convertible bond that you've deemed On Dassault, is the plan to remain a shareholder of Dassault or do you have other aspiration going forward?
So on the efficiency on H1, yes, we had a very stable environment. Several quarters run very smoothly. I always, in layman's terms, try to compare it to your experience when you cruise on the highway with a car and You consume much less fuel if you steadily cruise at 130 kilometers per hour than if you ramp from 80 to 130 despite the fact that you run lower. And we basically were running at 80 in a steady mode and that's a super efficient operating point. And once we restart the ramp, There will be some incremental effort required, but it also costs us money.
The margin aspiration beyond 2019, I don't want to get carried away on that one. So when we snap back to the delivery rates of 2019, because it's really a pretty adverse mix effect from the fact that our White bodies are running at much lower rates than in 2019. They did deliver in absolute euros per aircraft a pretty healthy contribution margin. When you talk about breakeven in 2019 on the A350, that's fully loaded. It's not the contribution margin.
Contribution margin is significant positive. And of course, we sell much less of that. And from that perspective, we are really displacing that with A220s. 2020, as you know, is not delivering us that profile. And there, we also have to think about the pricing pressure going forward.
If you have a contribution margin on the product in a market where there's a lot of supply, that contribution margin will be under pressure from the pricing side and last but not least, U. S. Dollar. So for all these reasons, I would be cautious to try to go beyond what we've achieved in 2019 on that way. That's all obviously you want to Well, the convertible bond has expired.
We got the shares back. We currently don't We think we should, at that point in time, keep them. And We don't see any activity moving on that.
Thank you very much. Thank you.
Thank you, sir. Our last question is from Mr. Harry Breach from Stifel. Sir, please go ahead.
Yes. Good morning. Good morning, Guillaume. Good morning, Dominik. Thank you for taking my question.
I just wanted to ask Couple of questions. Maybe when we think about the current level of sales campaign activity, It seems that certainly the gross order bookings have picked up in recent months. Guillaume, can you give us your feeling For the level of sales activity at the moment and how that's going forward? And then in a related Hi, dear. Can you give us a feeling of the sort of the balance of your customers' requests to Maybe to accelerate delivery?
Are you starting to see more acceleration requests compared with deferral requests? And then a Completely different question, maybe more for Dominic. Dominic, please can you help us to understand just a little bit more In terms of some of the headcount reduction and the furlough benefit dynamics, are we now Fully achieving the benefits from headcount reduction, were there still furlough benefit payments benefiting EBIT in the second quarter? And then just on PDPs, I know Dominic you said, look, you're still going to face a headwind from Effectively, the slow normalization of PDP flows, could you give us any feeling at all about when you're going to be Maybe 50% of normal flows or back to total normality, just so we can have a sense of how that headwind gets back to normal, please.
I'll take the first part. Actually, there are A lot of discussions ongoing, if not campaigns or Early discussions for new orders. So I would anticipate around the end of the year or at least In the second half of the year, that we would see the orders picking up. That's, I think, quite reasonable to say, given the Very dynamic discussion we're having at the moment. Balance to accelerate, well, we can't offer possibilities to really accelerate the deliveries, But we have to consider offering some slots in the early years When it's about large orders for many, many years.
But as you might have seen from At least one previous big order, we were unable to completely cope with the request for short term deliveries. So need to accelerate, yes, ability to accelerate, not that much opportunities to take orders On the short term, not that much. On the midterm and the long term, yes, obviously. And I think there will be many coming starting this year, probably more next year. There will be some this year.
And there have been some this year already, by the
way. Headcount reductions, furlough schemes, I mean, you've seen the headcount come down from They peaked in March 2020 to end of June this year by 10,500 effective workforce. There's still a little bit remain to do, but we're also going to hire again. So I'm not sure that we go much deeper than that. And in terms of furlough schemes, they are gradually unwound because we are ramping, but they are not fully unwound.
There are still some furlough schemes in place. And of course, the full year effect of the headcount reductions will only come to bear next year because we are gradually Implementing them in 2020, but the other important point is really the snapback also we see from barrel compensation. It's not only executive bonuses, but also Very broadly applied profit and success sharing mechanisms, which depend on the profitability in absolute terms of the group. So as we recover profitability, the big numbers we saved last year on that front will be gradually eroded and that's the headwind against all these savings. On the PDPs, if you dive into our balance sheet and add all the counter contract assets liabilities, you see a net balance of minus €1,400,000,000 I can tell you that from commercial, because of the deferral topic I was describing before, a little bit more than that is coming.
So we have a very significant headwind In a half year, I'd say that maybe not a bad yardstick as a kind of order of magnitude we could see in the next coming 2, 3 and half years. But by the end of next Here, I think we should be through that and then have a better ability to cash convert at The target of 1, which you know is always a target. Of course, you still have the A400M, the A220 topics to overcome in that cash conversion aspiration, But the PDP issue itself will be definitely digested before the end of 2020.
Great. Thank you very much, gentlemen.
Okay. I think that we'll soon conclude our call. Before handing over to Thorsten, I'd like to share with you that, that was the last quarterly call for Thorsten. Assist in that role, obviously. Thorsten has been so successful in managing a good second quarter that we are now Contemplating having Thorsten helping us on managing the ramp up.
So he will transition later in the quarter To a new role, but as it was his actually his last presence in our quarterly call, I wanted to To thank Thorsten, to tell you that we've been very happy to have Thorsten for a couple of years with us, at least Something like almost 3 years now. And wishing him all the best for later when you will Transition to your new role as we really continue to be as successful on managing or helping us managing the ramp up of the single line You've been successful on delivering last quarter as Head of Investor Relationships. So I hand over to you. Thank you very much.
I think it's quite clear that it's one thing talking about numbers and the other thing delivering the numbers, but
I will do my best, of course. So then the famous last words, yes, this closes our conference call for this time.
If you have any further questions, please send an
e mail to Philippe, Gusta and Still to myself and we will get back to you as soon as possible. Thank you and I look forward to speaking to you again And I think they can say soon.
Okay. Thanks a lot everyone.