Welcome to the Safran Q3 twenty twenty Revenue Conference Call. At this time, I would like to turn the conference over to your host, Philippe Petitcolin, Safran's CEO and Bernard Delpitz, Group CFO. Mr. Petitcolin, please go ahead.
Thank you very much, and good morning, everyone. I thank you for joining us to this Q3 twenty twenty revenue conference. First, and more important, I hope that you are all safe and healthy. I will start the presentation with the Q3 business highlights, then I will talk about our recent air traffic trends and the impact on our activity. And I will end with an update on where we stand on our path to adapt Safran to this ongoing crisis.
Afterwards, Bernard will go more in details on our financials, and I will conclude the presentation with our 2020 outlook. I'm now on Slide five. In Q3, the activity is a bit better than in Q2, but we are still working at levels that are very low compared to 2019. Revenues at EUR 3,382 million was down 42% on an organic basis compared to minus 47.5% in Q2. On an organic basis, all divisions did better than in Q2.
September was better than July and August for Propulsion and Equipment, but not for Aircraft Interiors. In the first nine months, revenue decreased by 33.4% on an organic basis at EUR 12,149 million. Turning on Slide six, some Propulsion business highlights for this quarter. In Propulsion, we delivered two eleven engines in Q3, including 172 LEAP engines compared to four fifty five in Q3 twenty nineteen. Our market share on A320neo family remains at 61% as of 09/30/2020.
And we delivered also 39 CFM56 compared to 69 in Q3 last year. Our civil aftermarket indicator decreased by 56.2% year on year in Q3, bringing it to a decrease of 41.8% for the nine months. Bernard will give you more details on this. On helicopter turbines, the Airbus H160 helicopter equipped with our engine, Arano, received its type certificate from EASA. Going to Slide seven in the Equipment, Defense, AeroSystems and Interior divisions.
Safran's new generation Eurofleer electronic system has been chosen by the French Navy for their H160 helicopters. In carbon brakes, Safran signed contracts with two Asian airlines for A320neo and Boeing seven eighty seven-ten. Even if Aircraft Interiors is the division that is the most affected by the COVID-nineteen, Safran has been selected by a U. S. Airline to provide business class seats for its new seven eighty seven and by an Asian airline to provide economic class seats for its future A321 and business class seats for its new seven eighty seven.
Turning on Slide nine, an update on the COVID-nineteen impacts on air traffic. The very uncertain landscape we were describing in July has evolved in different ways in different parts of the world. We see a very gradual recovery even if September has been weaker than what we expected this summer. We see encouraging signs of development of testing. But on the other hand, we also see a resurgence of the COVID-nineteen cases in several regions of the world.
The second wave of the pandemic is striking Europe. China remains the only main domestic market to have readily recovered. We are today between 9598% of scheduled domestic flights with up to 80% load factor. Last month, IATA has lowered its 2020 global RPK forecast to 66 to a reduction of 66 compared to 2019, it was, I remind you, minus 63% in July. After the steady increase in cycles for CFM that we have seen through Q2, the improvement in flight cycles has been modest for CFM56 engines through Q3.
The improvement has been better for LEAP engines, which flight cycles are now down only minus 15% year on year on a global basis. The increase in flight cycles has been improving more steadily for GE90 and also more evenly around the world. On Slide 10, our main actions to reduce our cost. Our workforce has been downsized is done by more than 15,000 permanent workers and by another 4,000, if you count temporary workers. The activity transformation agreements reached in France is valid until 2021 and renewable.
It is getting implemented now. For instance, the long term furlough scheme provided by the French government is in place since October 1. We estimate that this only scheme will allow Safran to maintain 6,000 jobs. At the September, purchasing programs are scaled down, in line with the activity reduction. We have decreased raw material and supply expenses as well as subcontracting expenses by 42%.
CapEx commitments are being cut by 74% in the first nine months of 2020, above the objective of minus 60% for the full year. R and D expenses have been reduced by 33%. Finally, OpEx have decreased by more than 20% through the first nine months of the year. Slide 11, to conclude my presentation, some key takeaways. First, we are dealing with a very uncertain environment, and the lack of visibility remains strong.
We have observed a slight improvement in Q3 compared to Q2, but there is still some significant pressure on Q4. Safran approach was quick, proactive and the benefits of the adaptation plan are already materializing, thanks to a strong operational execution from all Safran's team worldwide. I do believe that measures that we have taken will structurally enhance the competitiveness of the group in order to benefit from the recovery. We have been profitable every single month since the month of April. As of today, a gradual recovery is still the central scenario with air traffic expected to go back to 2019 levels by 2024.
In this context, we think that civil aftermarket is likely to recover faster than OE. Safran is more exposed to narrow body, and we see that the recovery is likely to be faster in domestic or regional routes on narrow body. Having a young fleet as a CFM56 fleet is a key asset, less likely to suffer from higher retirements and part of out after COVID-nineteen grounding. As I have had the opportunity to say on several occasions, Safran is definitely committed to address the climate change challenge. The growing state support in 2020 and in the next couple of years will help us keep a high level of R and D activity.
I now give the floor to Bernard for the financials.
Thank you, Philippe, and I'd like to jump to Slide 14 on FX. The average spot rate was 1.17% in Q3. It was 1.11 last year's Q3,
and
it creates a negative translation effect on revenues. Year to date, the average spot rate is now 1.12, and the accumulated impact of currency was a positive 53. Under current spot conditions, the impact of currencies should turn negative for the full year at the end of Q4. Hedge rate is $1.16 in Q3, no change here, improved by zero two dollars versus 2019. Still on hedging.
A few comments on Slide 15 with regard to our hedge book. It totaled 24,900,000,000.0 as of October 15, up
EUR
3,300,000,000.0 from what we disclosed in July. For the period twenty twenty one, twenty twenty three, the average net exposure is revised downwards from EUR 8,000,000,000 in 2020 to EUR 10,000,000,000 in 2023. It was EUR 11,000,000,000 before. To reflect a more cautious view on future dollar flows as lack of visibility remains strong. With the weakening of the dollar in the summer, some KO barriers have been triggered, leading to deactivate some options for 2022 and 2023.
New options have already been put in place to replace knockout options within the targeted range of hedge rates. Quell burials have also been moved and are now between $1.21 and $1.27 and we closely monitor the situation as volatility may be a risk for the hedge book and the targeted hedge rate in case of sudden and significant weakening of the USD against euro in the next weeks. On Slide 17, adjusted revenue for Q3 reached EUR 3,382 million in Q3 twenty twenty, down 44.5%. It is exactly the same amount of revenue as in Q2. Organic decrease was 42% with a lesser deterioration for all the businesses compared to Q2, but still very heterogeneous.
As I mentioned before, currency impact was negative during the quarter, and change in scope was almost neutral. On Slide 17, details on the revenue per activity in Q3. For propulsion, revenue were EUR 1.559 down 47.8% or 45.9% on an organic basis. OE revenue were down 48.8% due to LEAP production increase and CFM56 continuous ramp down. Services revenue in Propulsion are down 47%.
Civil Aftermarket is down 52%. The decrease is somehow not as strong as we expected, with spare parts sales for high thrust engines, notably G90 and services contracts, better than anticipated. But as planned, M88 engine deliveries were down and amounted to six units in Q3 compared with 20 last year. Equipment revenues were 1,461,000,000, down 36.4% or 33.6% on an organic basis. OE revenue for equipment was down 34.2%, mainly driven by lower volumes of nacelles as well as wiring and power distribution activities and, to a lesser extent, by landing gear.
Services within the Equipment division were also down 41.1%, driven by carbon brakes, landing gear MRO, nacelle aftermarket and, to a lesser extent, by Aero Systems. Aircraft Interiors revenue were $357,000,000, down 55.7% or 51.8% on an organic basis. OE revenue within the division dropped by 51.9%. Sales were strongly impacted in cabins due to lower volume for lavatories, galleys as well as catering. Seats problems, mainly business class seats, were strongly impacted by delivery rescheduling.
And within Passenger Solutions activities, Connected Cabin, Air Management and Custom Cabin Interior activities were all impacted. Services revenue within Aircraft Interior decreased by 64.9%, mainly due to seat aftermarket as well as cabin spare parts sales. On the other hand, revenue decrease in Q3 were attenuated by more resilient businesses. Helicopter turbines activities improved, low double digit increase compared to 2019. And within defense activities, Sighting and Navigation System were flat compared to the year ago period.
I will not comment share to date sales on Slide 18. On Slide 19, I will only repeat that the 13 the 37.3% decrease in Propulsion takes into account 41.8% decrease on civil aftermarket. I remind you that in Q1, it was 3.3% negative. In Q2, it was 66%. And in Q3, it was 56.2%.
Last words on liquidity. Saffron liquidity position is strong and sound. The refinancing of the €3,000,000,000 bridge facility is still going on with a tap issue of €200,000,000 of convertible bonds in October on top of the €800,000,000 we issued in May 2020. And now more than the 50% of the bridge facility has already been refinanced. I remind you that on top of that, we have a 2,500,000,000.0 available RCF in case of dysfunctional commercial paper market.
And I'll leave the floor to Philippe for the final words on our final guidance.
Thank you. Thank you, Bernard. On Slide 22, let me have a word on our 2020 guidance. Despite remaining uncertainties regarding the pace of air traffic recovery, Safran is confident to meet its fiscal year twenty twenty outlook, with adjusted revenue to decrease by approximately 35%, recurring operating margin around 10% of sales and a generation of a positive free cash flow in H2. This is the end of our presentations.
Bernard and I are now ready for any questions you may have. Thank you.
Thank We have a first question from Olivier Brochet from Credit Suisse. Sir, please go ahead.
Cecilia, I hope you're all well. Thank you for the presentation and taking my question. I would have two, please. The first one on civil aftermarket, if you could give us some elements of color around the breakdowns between services, spares, the content, the number of shop visits and so on. And the second question is in H1, you mentioned in a second half headwind from payments to certain framer.
Is there any remaining such headwind in Q4, please?
Thank you, Olivier. I will start with the first question. I will let Bernard to maybe get a bit more color on details on the civil aftermarket question, and I will let him answer the question on cash coming from our premise. In terms of civil aftermarket, as you could see, we in Q3, we do better than in Q2. That was expected.
Nevertheless, when we look at the color of this index for the rest of the year and the beginning even of 2021, there is a reduction in the quantity of shop visits, especially for the CFM 56 engines. Basically, we are around 50% reduction in quantity of shop visits compared to what we got last year. We didn't see a reduction of value per shop visits. It's always a kind of questions that people ask, do you see a huge reduction or a big reduction in the value of shop visits? Not really.
There is a small reduction in some of them, but it's not really material. The improvement, as we said in the presentation compared to Q2 and Q3, is coming mainly from services and wide body engine, especially the GE90, which is doing a lot better because the GE90 is flying a lot more than what we are expecting. Don't forget that the seven seventy seven is today the airplane of choice for freighters. And they use the G90 a lot for freighters. So we do a lot better on G90 on services.
We do better on, generally speaking, in services. And in terms of CFM, we are in line with what we were expecting. Bernard?
Yes. Some more color. As Philippe said that the volume of shop visits is approximately the same profile as the total aftermarket sales. So it's approximately 50% down at the September. And we had more shop visits in Q3 as in Q2.
That's the rebound that we had seen. If I try to break down the civil aftermarket, the 56% in Q3, it's more or 66% for spare parts, but 34% only for contract. So parts are always still depressed, I would say, but the contracts have improved in Q3. And year to date, the 41.8% decrease is 48% on parts and 26% on contracts. For Q4, we expect that for parts I mean, for CFM56 parts, see some improvement in Q4.
I expect that for high percentage, the good trends that we've seen in Q3 will remain. For Contracts, it's a bit early to tell. We might have some negative impact of what we do every end of year in terms of regulation from the regularization for some contracts. But we believe that Q4 will be okay for aftermarket, still on the trend positive trend that we've seen in Q3. Now for the cash, yes, I still consider that we'll have some negative or, let's say, some headwinds in terms of working cap in the next month.
And for the reasons that I gave when making comments for the H1 results, we have some agreements with Airframeers to flow to them some of our concessions back in a given number of days. That's what we have decided with airframe. And this will be a headwind in Q4, and that's why we still are very cautious on the free cash generation in Q4. But we are confident we can keep it positive.
Thank you, Bernard. Just to come back one second on the Q4 on aftermarket. I'm not sure if I understand correctly because you suggest that there is an improvement, but at the same time, you should you say that it is on the same trend as Q3, which was pretty much down.
It's pretty much down, but it's less down than in Q2. That's what I compared to Q2. Okay.
Q3 is better than Q2, and Q4 should be better than Q3. That's what he said.
Okay. Very clear. Thank you.
Thank you. Next question from Ben Ilian from Bank of America. Sir, please go ahead.
Yes. Morning, Philippe and Bernardo and Cecilia. Thank you for taking my question. I wanted to ask, we saw kind of the headlines on Ebberson, on Ebbers' call this week that they'd asked the supply chain to ramp to be prepared and to protect to ramp A320 to rate 47. I was wondering what are the implications of that for you in terms of CapEx, staffing, inventory as you head into 2021?
And then a second question on Boeing and the ramp of the MAX. Do you see a decent ramp up of seven thirty seven MAX deliveries of LEAP-1B next year? Or do you think it will be relatively slow? Thank you.
Thank you for these questions, Ben. Regarding A320, we are in discussions, of course, with Airbus in order to meet their requirements. And we are in a negotiation, which is, in my opinion, extremely good. And I believe that we should be in line with the requirement of our customers in the next coming days or weeks. So I do not foresee a problem with Airbus as long, of course, as the requirements materialize.
We want to be sure that it's not only a wish list, but it's something where there are some commitments. Do not forget that we have stopped for a long period of time some parts of our supply chain. For example, the big forgings, big casting suppliers, they didn't want to stop their deliveries during the first phase of the crisis. And we had to buy a lot of parts that we didn't need on a short time basis. So now we have to use all this inventory.
And at the time we relaunch the supply chain, we want to be sure it is so good. It's not something which is going to last a couple of months and then drop again. In our business, we don't like sharp movements. We like soft movements. So if it's a sharp increase, okay, as long as we are not two months or three months later with a sharp decline.
So in terms of CapEx and in terms of workforce, we are fine. Don't forget that we set up a production system on the LEAP engines in order to be able to build 2,300 engines. So we are talking in 2020 of something 800 plus LEAPS to be produced and next year should be broadly in the same vein. So we have plenty of investments to do what is requested today by Airbus. So no problem.
In terms of workforce, by the same thing, we will have a lot of people in furlough that we are going to bring back to full time work. So we do not expect any problem on this side. The question is, is it real or not? For the MAX, the ramp up in 2021 will be slow. That's the way I see it.
Expect now a return to service, a green light coming from the authorities, especially the North American authorities in the next coming weeks. And from there, the production, which has already restarted at Boeing, will continue to grow. But don't forget that they have more than four fifty airplanes on the tarmac sitting, and they will have to take that into consideration before thinking about increasing their production rates. So we are in line with what Boeing said that by the 2022, they would be somewhere in the range of 31 airplanes a month. So we are in line with that.
But do not expect in 2021 a huge impact of ramping up of the MAX on our engines. I hope it answers your question, Ben.
Yes. No, that's very clear. Thank you.
Thank you. Next question from George Dahl from Bernstein. Sir, please go ahead.
Hi. Good morning, everyone. If we contrast the engine aftermarket versus the equipment aftermarket, in which one are operators incorporating higher utilization of used service material today? And how do you see that going forward? And I guess related to that, across the different products within your equipment business, so nacelles, landing systems, wheels and brakes, etcetera, I guess how would you contrast or rank them in terms of the inclination for operators to turn to USM?
Thank you, George, for this question. In fact, we do not see really a great use of used parts in equipment. It happens, but usually, we don't have a lot of used parts. And this is not the kind of thing we see. If you talk about carbon brakes, for example, used carbon brakes do not exist.
You have to as soon as they have been used, you have to reinforce and put more carbon in them before sending them to the airlines. So it doesn't happen. In interiors, we see a few used parts could be used on seats. But generally speaking, the percentage of used parts in equipment and interiors is extremely low, by essence, because of the products do not like to use parts. And by the fact that there is not really a huge network, which has been developed around this kind of opportunity.
In engines, of course, we all know that used parts is a common factor of the competitiveness of a shop visit. But we do not see a lot of retirements of CFM engines airplanes. We didn't see since the beginning of 2020 an increase in terms of retirements of airplanes. So there you don't see a huge amount of available spare parts, used spare parts. So again, more generally speaking in engines than in equipment, But we do not have a trend where we would see a lot more used parts available on the market.
Thank you.
Thank you. Next question from Robert Stodd from Vertical Research. Sir, please go ahead.
Thanks so much. Good morning.
Good morning, Robert.
A couple of The U. S. Aerospace companies were talking about using this downturn as an opportunity to take out structural floor space. I was wondering if you have some similar opportunities at Safran as this downturn continues? That's the first question.
And then secondly, on interiors, as you noted, it's got a bit worse in Q3. When do you expect this part of your business to trough out?
Thank you for these questions, Robert. Regarding the floor space, you have two kinds of floor space. You have the one for production and you have the one for all the support functions. So with what we are doing every day in order to remain competitive and reduce our costs, yes, we are going and we have already started to get rid of some plants. We are closing we have closed a plant in Thailand.
We have closed two plants in The U. S. We have closed plants in The UK. And of course, we try to take advantage of this reduction in terms of recurring costs for the future. So yes, but it is directly related to the consolidation of our business and the consolidation of our operation.
The second part of floor space is related to people in engineering, people in support function, where today, there is really a push from governments for them to work from home. We have not yet factored an improvement in terms of cost coming from this part of our company. I am not a huge pro of working from home. Don't forget that we use very big computers, we use big systems. And especially in R and D, you need the people to work together.
So in engineering, yes, for working from home, but not full time. And same thing from the support functions, we think that it is nice, but not what not at 100%. I believe that the company is made of people and the people have to meet, to discuss, have to work together. And by definition, working from home is not really a catalyst for this support and this competitiveness coming from working together. So we have today at Safran, a system where people work from home for support functions two to three days a week.
And I would like to try to keep that on the future. And for engineering functions, they are part of the business, they are part I cannot imagine production people working alone in a plant and all the support being
from
home. You need to work together. That's the reason I think that engineering should mostly be done from the company. But for support function, I would agree with you, we still have some improvement to make and cost reduction coming from a reduction of floor space for support function. Interiors, question on interiors on how are they doing?
Yes, as you just said, they have been hit more than others by the crisis just because they depend a lot directly from airlines. And airlines today do not cancel, but delay push on the right all their orders. So in terms of recovery for our interior business, I do not see it in 2021. I think that 2021 should be a year where we would be at breakeven. I mean, the objective for 2021 is a good breakeven, is a nice breakeven.
But the recovery of Interiors should come in 2022.
That's great. Thank you very much.
Thank you. Next question from Jeremy Bragg from Redburn. Sir, please go ahead.
Hey, Philippe, Bernard. Hi, Jeremy. Hey. Two questions, please. Another one on seven thirty seven MAX, slightly different angle on this.
So Boeing has got four fifty aircraft. They've admitted that they need to reconfigure and remarket quite a number of those. So put it another way, they've got quite a number of White Tails, and quite a number of those aircraft were originally destined for China where it might take a bit longer to get approval for the aircraft to fly again. So what I really wanted to understand is how that kind of impacts you in terms of pricing on the engine and your sort of views on pricing on the LEAP-1B generally going forward? And then the second thing, please, Philip, is could you give us an update on the supply chain and the health of that?
Because that's something that's really hard for
us see outside the company? Thank you.
Well, these are difficult questions, Jeremy, but I will try to answer them. Regarding the MAX, you're right. When you look at these four fifty plus airplanes, which have to be delivered, I believe that today, there is a percentage of them which have to be reconfigured. I'm not talking about whitetails. A whitetail is a plane that you build without a defined customer.
The four fifty airplanes, which are sitting today at Boeing, they add customers. They may have lost their customers because bankrupt, because contractual disclosure. But when they built these airplanes, they had customers. So we think that it's a Boeing problem. And we are not directly involved in this situation because the situation is coming from the grounding and Boeing now has to find customers to reconfigure these airplanes.
For the future of the LEAP-1B, it's a different story. We are a risk sharing partner of Boeing. And of course, we are a 100% risk sharing partner. So if Boeing has to make some marketing effort in order to sell new airplanes, of course, will be next to Boeing and work with Boeing. Regarding our supply chain, of course, it is something that we are really looking in details, especially now.
We have a kind of watch tower, where we follow today about 06:20 suppliers. So this six twenty suppliers are really screened on a regular basis by our people. And from there, have about four forty, which are French, so mainly coming from France. We found that on these six twenty, you have about 100, which are critical. We cannot let them down.
And so we really are behind them, helping them as much as we can. And as you know, we are part of a kind of equity fund, and Bernard may give you a little bit of color on this equity fund, that is supposed and will support these suppliers that we really need for the future, either by bringing them some cash or by acquiring them if necessary. Bernard?
Yes. There are many ways to support our supply chain. And the first one is the one that is activated by the government and by banks. In France, we have specific loans that have been granted to the supply chain. So sometimes for small suppliers, we help them having access to those loans.
And the second way of supporting supply chain is the equity fund that Philippe just mentioned. It's something that we already talked about in July. We have invested EUR 58,000,000 in an equity fund that is now EUR $630,000,000, funded by the French government, by the main aerospace French aerospace company with Airbus, Thales, Dassault and ourselves and lastly, by TKO, a PE firm. So and I think that they will continue to raise fund in order to get from EUR $630,000,000 to EUR 1,000,000,000, which is the target. And this fund is now completely operating, and they have announced a first transaction, I think it was two days ago, for a small supplier in France.
So we think we have the tools. We have the structure in terms of watch tower in order to be sure and to coordinate actions within all the big aerospace company in France. So we know it's critical. It's a key issue in order to keep the our whole business healthy. And as Philippe said, we have one of the suppliers that we follow to be sure that once we ramp up, they are there to follow the efforts.
Thank you, guys. Could I just ask a quick follow-up one on the pricing on LEAP-1B? Would you be mostly talking about working with Boeing and standing beside them as a risk sharing partner on the pricing, I'm guessing you'd be far less inclined to discount the pricing on spares or any long term agreements on those on the aftermarket on those engines, please?
Well, it's both, in fact, Jeremy. We when you're a partner, you're partner for the total life of a product. So of course, we will support Boeing and it is contractual. We will support Boeing for the OE sales. And if we need to help also on the service side, we'll do our best.
Our objective is, of course, to be sure that Boeing wins new contracts, and we'll do our share of the work.
Understood. Thank you very much, Philippe. Thank you, Bernard.
Thanks, Jeremy. Thank
you. Next question from Nick Cunningham from Agency Partners. Sir, please go ahead.
Thank you. Good morning, gentlemen. Yes. Boeing said several times that it expects the oldest tranche of aircraft, perhaps the oldest five years' worth, which I think is about 16% of the fleet, perhaps to retire very quickly. And they said on Wednesday that they thought that would have a sort of multiyear recession impact on their aftermarket services business.
So the question is, does that apply to Safran? And if so, in what way? I'm guessing it's much more equipment and propulsion for those, let's say, 1990s aircraft. And the second one is, do you expect it
to Could you come back on the first question, Nick? I didn't really understand the first question.
Yes. Well, the first question is, if that oldest five years worth of aircraft retires and so therefore you end up with a much younger fleet. So that's what Boeing seems to be saying that that will impact on their Boeing Global Services business going forward.
Okay. Understood. Yes. Understood the question.
Okay. Also one yes. And the second question is effectively closely linked, which is that if you have that younger fleet, will that impact on the replacement element of OE demand over the next, I don't know, five years, decade or whatever as we get into recovery? Well,
that's two big questions. In terms of aging of the airplane and the implementation of this in terms of influence on services, it's different from if you talk about propulsion, if you talk about equipment. For propulsion, as we said already many times, during the life of an engine, you have three, four shop visits. The first two shop visits, which happened after six, seven, eight years for the first one, according to the number of cycles, the engine fly and where they fly. Second one, twelve, fourteen years.
Third one, seventeen, eighteen. And the fourth one, if there is any, twenty, twenty one, twenty two years after entering to service. We really make our money in terms of selling new spare parts in the first two shop visits. Starting on the third one, you see more and more used parts. So when you talk about the last shop visit, if you do a shop visit after eighteen years, for example, you have 90% of used parts in the engine.
So only 10% of new parts. So the influence of the aging of an airplane on our propulsion business is very limited because again, we make our money for the first fifteen years of services of an airplane. For equipment, it's different because some MRO are done, for example, after so many years. You don't care if for landing gear, for example, the revision of the landing gear has to be done after, for example, ten years, every ten years. It doesn't matter if the airplane flies 10 times a day or only two times a day, you have to do it after so many years, eight years or ten years.
So in this one, of course, the age of the airplane has some importance. But it is factored already in all our business plans, and I do not see really a big impact if this twenty five years could drop to twenty years, very limited impact, if any, on our products. Then the second question is on OE, if there are more OE, is it a problem for us in terms of services? Not really. We have a match.
As you know, our business is done at in population 45% OE, 55% services. In equipment, it's 7065%, 70% between 6570% OE, 30% to 35% in services. And for interiors, it's even less in terms of services. So it's a mix of both. And you are healthy if you do not depend only of services and if you have a good mix between OE and services.
So that's what we want to keep. And so far, when we look at the fleet, which are flying today and we look at what the airframers are saying in terms of new airplanes, we believe that we have a good split of businesses, both for Propulsion and Equipment between what we do in OE and what we do in Services. Thank you.
Thank you. Next question from Zafar Khan from Societe Generale. Sir, please go ahead.
Thank you very much. Good morning, everyone. Bernard, I like your Slide 15, the currency one. It's always very helpful. What I find particularly interesting this time is how you've adjusted the net exposure requirements going forward.
And you've downgraded revised down the 2023 from $11,000,000,000 to 10,000,000,000 And then I assume, hopefully, get back to $11,000,000,000 in 2024. Is this a good proxy for how you see the sales volumes in the civil business? In other words, from this, can I interpret that maybe we get back to the 2019 levels of sales volume by about 2024?
Okay. In fact, there are two questions. The first one is how we measure our exposure for our hedging policy. And the second one is when do we see the level of activity coming back to 2019 levels. And I think we should deal with both questions.
I'm not trying to use our dollar exposure as a proxy for the business. Yes, we have revised down our exposure because of activity, but also because we don't want to be trapped by over hedging. So we need to be more conservative when we do our hedging policy than for just planning reasons. So we I don't know if we are too conservative when we look at 2023, but I prefer to have conservative views on that rather than still thinking that we have to hedge a lot of volumes that may not happen. Now the question is when do we see our activity back to 2019 levels?
I think that first, we have to remind that 2019 was a record year for Safran in terms of everything, including in terms of organic sales. And for example, for military services, for spare engines, 2019 was a very strong year. Now we see our activity back to 2019, I would say, in 2024 or 2023 or 2025. It depends on which kind of activity. For example, for lead volumes, I think that in 2024, but it will depend on the ramp up of the MAX, we could come back to the volumes that we delivered in 2019.
For CFM56 aftermarket, we think that '23 could be the year that we will recover 2019 level. And for other OE and equipment, that could be between 2425%. So it's a mix of a lot of things, and you shouldn't take our exposure as a proxy for planning activity.
That's a very comprehensive answer. I really thank you for that. Could I please just ask a little simple one where I'm struggling slightly? The Rolls Royce hedging and because they've had to cut that from $36,000,000,000 to $26,000,000,000 is costing them GBP 1,400,000,000.0 in cash. How is your hedging different to the sort of thing that rules were doing?
Is this revising down was going to cost you very much? Or is that already in the auction prices when you bought the hedging?
In fact, the big difference between some players and ourselves is that we use options. By hedging through options, we have more flexibility because when you get forward sales, you have to deliver the volume of hedging that you have bought within the transaction with the banks. With options, and it depends on how it works, you have some flexibility to move an option from one year to another year. This is why we I don't think we are exposed to the same kind of issues that you've just mentioned. This is not a reason to overshoot in terms of hedging, of course, but that's a big difference between some players and our options.
It has some risk because of KOBERRY that we explain every quarter, But it has some merit because we don't pay for swap points. And we have some flexibility in terms of volumes of dollars, in our case, we have to deliver every year.
That's excellent. Thank you very much indeed.
Thank you, Zafar. Thank you.
You. Next question from Andrew Humphrey from Morgan Stanley. Sir, please go ahead.
Hello and thank you. Just a couple from me. The first one is you've clearly made some very good progress on cost containment and cost reductions during the year. Could you quantify to the extent it's relevant what the numbers that you've given would have been, I guess, kind of ex the government support you've received, just so we can have an idea of what the kind of underlying cost reductions have been? And the second point is or the second question, rather, is a broader question following up on something Nick asked.
I wanted to ask if you could kind of characterize current discussions with airlines. You've obviously said that most of the aftermarket value that you generate in spares comes in the first or second shop visits. I wanted to ask to what extent you're having discussions around those second shop visits at the moment, when and whether airlines might be thinking about what to do with engines when they get towards, I don't know, fifteen years and a second d check and how you yes, whether you see a kind of significant increase in risk around early retirement of those engines?
Bernard, maybe you can take the Yes. First
I don't want to break down our cost assets between what we self help and what we get from the government. But I would say that the vast majority of the savings will come from self help. And the target in terms of amount, sorry, is roughly EUR 2,000,000,000 of cost out.
Yes. And when we look at what we do on the international side and what we do on our French side, of course, we are not using the same tools to bring this level of production. We are forced by some countries to lay out people to close plants. In France, the support program coming from the government is very generous. And let us keep the people even if they stay home, they are paid partially by the government.
So this is a system which, at the end of the day, as we have about 50% of our staff workforce in France and 50% international, we come to the same kind of effort requested by the two sides. So all in all, I mean, what we are doing in France and what we are doing abroad is similar in terms of cost reduction. And as Bernard said, we today, we come to a total number of around 2,000,000,000.
Yes. That is twenty nineteen, yes.
So the second question, Andrew, is related to airlines. In fact, to be totally honest with you, we don't have a lot of discussions with airlines. We talk with airlines when they have really a requirement, when they have a need or when they want specific systems or conditions given to them, especially in terms of postponing some orders, asking for longer terms of payment. This is the kind of thing we discussed today with airlines. Are really looking at their capacity to remain alive in the next six months.
And again, they don't spend really too much time looking at what they should be doing in a year, two years or five years from now. So sorry to give you this kind of answer, but this is the truth. We do not have a lot of long term discussions on the future of airlines. They really, in my opinion, today are more in the survival mode than in a long term investment mode. Last question?
Thank you. Yes.
Last question from Tristan Foncon from Exane. Sir, please go ahead.
Yes, good morning. Bernard, thank you so much for taking my question to close the Q and A session. So it's going to be two quick ones. The first one is on your full year trajectory. So your cost saving plan is a bit ahead of schedule.
The aftermarket for this year is clearly ahead of schedule. If you have Q4 organic growth similar to Q3, you're more on a pace of minus 45%, 46% and minus 50 And there are only two months to go left to the end of the year. What are the key elements of uncertainty that prevents you today to be a bit more optimistic on your full year trajectory? That would be the first one. And the second question would be on the R and D spending trajectory.
You're aiming at a quite strong decrease in R and D spending this year. How sustainable is that R and D spending cut? And how long can you fund your strategic development priorities with that? That would be my second question. Okay.
Jean Jacques Cicent, I will take the first one. You have it right. I mean the kind of Q4 that we are monitoring or looking at is not exactly the one that implies going to 50% decrease when you look at where we are at the end of Q3. We've not changed the guidance because there is there are two months to go now, and there are still some uncertainty. That's why refining the 50% for 100 or 200 basis points is not really what matters today.
What is key is to know if some shops will anticipate 2021 for some purchasing in December. We don't know exactly. That's why keeping the same assumption, I think, was the right way to look at that. But it could be better. That's true.
The 50% is maybe too pessimistic, but we didn't change it. That's right.
It's not pessimistic, Bernard, it's conservative. It's conservative. You're right.
You get it right. So that's how we see Q4.
Okay. The last part of your question, Christian, regarding R and D. In fact, when you look at R and D, which is the R and D that is in our cost, we have not really touched any single element of our innovation picture and map for the future. We have delayed a little bit something, but we have canceled nothing, especially regarding the climate change and what we have to do for the next generation of engine. We have kept absolutely nothing.
We have at the end of the day, when you look on our midterm plan, we have about three quarters delayed on average on everything we do, but we have canceled nothing. And do not forget that in addition to what you see in our numbers, there are a lot coming funding coming from governments, especially from the French government. As you know, they have doubled the spending for innovation going from roughly 150,000,000 a year for the total industry, not only to us, but we usually take 30% to 40% of that. They are going in 2020 from CHF 150,000,000 to CHF 300,000,000. And for 2021 and 2022, they are already committed to CHF 600,000,000.
So we believe that the support of government and in addition to that, we should get I hope we should get some funding also coming from Europe. But as you know, the budget has not been negotiated and we are still waiting And we are not expecting really a lot of support from Europe before 2022. But it's going to be also, I hope, quite massive. So all in all, we keep our trajectory. We keep our map in terms of innovation.
We are working on all the things, especially the decarbonization of our industry. And at the end of the day, when you compare apple and apple, lost basically three quarters.
Nothing Okay. That's very clear. If I may, as I'm the last one, I think, Philippe, it's your last conference call as CEO of Safran. So I just wanted to take thirty seconds to thank you so much for your incredible contribution for that company and say you best wishes for the future.
Thank you, Christian. That's very nice of you. Thank you all for attending this session. I wish you a good health and a good weekend if you are in a country where you are allowed to move. Thank you very much.
See you.
Thank you, ladies and gentlemen. This concludes the conference call. Thank you all for your participation. You may now disconnect.