Airbus SE

Thank you, Sharon, and good morning, ladies and gentlemen. This is the Airbus Full Year 2023 Results Release Conference Call.

Guillaume Faury, our CEO; and Thomas Toepfer, our CFO, will be presenting our results and answering your questions. This call is planned to last around 1 hour and 15 minutes.

This includes Q&A, which we will conduct after the presentation. This call is also webcast.

It can be accessed via our home page by clicking on the dedicated banner. Playback of this call will be accessible on our website, but there is no dedicated phone replay service.

The supporting information package was published on our website earlier today. It includes the slides, which we will now take you through, as well as the financial statement.

Throughout this call, we will be making forward-looking statements. I invite you to refer to our safe harbor statement that appears in the presentation slide, which applies to this call as well.

Please it them carefully. And now over to you, Guillaume.

Thank you, Helene, and hello, ladies and gentlemen, and thank you for joining us today for our full year 2023 results call. I'm happy to be here with Thomas that will run you through our results and also provide color on our outlook for 2024.

Let me begin with an overview of last year's business highlights. Across our businesses, we saw a very strong order intake, notably reaching new heights for our commercial aircraft business as well as for our Defence and Space division.

Global air traffic has now returned to pre-COVID levels. After travel resections were lifted, short-haul flights bounced back very quickly, and we now see, as anticipated, a sustained recovery for long-haul flights.

For commercial aircraft, it's been a landmark year as we reached a record-breaking level of aircraft orders and backlog, which gives us long-term visibility and clearly supports the production targets for our single-aisle and widebody program. In Q4, we delivered 247 commercial aircraft, taking our full year 2023 deliveries to 735 units, a year-on-year increase of plus 11%.

We delivered on our 2023 commitments and progressed on our production ramp-up as planned. Against the backdrop of an operating environment that remained complex and affected by supply chain challenges and geopolitical tensions, I believe this is a significant achievement.

Therefore, I want to sincerely thank our customers, suppliers, partners and, of course, the team Airbus, who made it happen. We benefit from our industrial transformation that keeps growing with further investments in our production system as well as from our close cooperation with the supply chain.

Over the last 2 years, our supply chain has been a limiting factor, and we expect that it will still pace our production ramp-up going forward. This said, we carefully assess and target what I call the sweet spot, which is the best balance between demand and the ability of our supply chain to deliver, while, of course, and that's very important, maintaining the highest safety standard in our industry.

Our plan for 2024 is built on that. Now looking at our 2023 financial performance.

Our EBIT adjusted stood at EUR 5.8 billion, reflecting our commercial aircraft deliveries, the good performance on Helicopters, as well as the charges recorded in certain Space programs. Our free cash flow before M&A and customer financing was EUR 4.4 billion and is mainly driven by our commercial aircraft deliveries and also reflects the strong performance in all businesses.

These financial results with a net income of EUR 3.8 billion, and our confidence in our future financial performance supports our dividend proposal for 2023 of EUR 1.8 per share. The strong free cash flow generation, in particular, in the last quarter has brought our net cash above EUR 10 billion.

This underpins our proposal of a special dividend of EUR 1 per share. With all that in mind, let's take a closer look at 2023, starting with commercial positioning, commercial aircraft.

2023 marked the recovery of global air traffic and the return to profitability for the airline industry. We booked a record level of 2,319 gross orders, including 1,039 in Q4, confirming our customers' trust and our positioning in the market.

On A220, we booked 142 gross orders, including 109 in the last quarter. And with this order intake, we now have a backlog of 600 aircraft.

Looking at the A320 Family, we booked 1,335 gross orders, an unprecedented level, including 748 in the fourth quarter. This brings our backlog to 7,197 aircraft, out of which around 2/3 are for the A321.

Moving to the widebodies. We recorded 342 gross orders in 2023, including 182 in Q4, confirming the recovery on the widebody market.

Net orders amounted to 2,094 aircraft following 225 cancellations, which were largely anticipated and embedded in our backlog valuation as of year-end 2022, and our backlog in units stood at 8,598, so very close to 8,600 at the end of December 2023. At group level, our backlog in value increased to EUR 554 billion in 2023, mainly reflecting our book-to-bill above 1 for all divisions, partly offset by the weakening of the U.S.

dollar. Looking at Helicopters.

In 2023, we booked 393 net orders compared to 362 in 2022. Those orders being well spread across programs with a book-to-bill above 1, both in units and value.

It includes a remarkable performance on the medium segment and services in the last quarter. In the fourth quarter, we signed an agreement with Germany for the purchase of up to 82 multi-role H145M helicopters, the largest order ever placed for this platform.

The contract also includes 7 years of support and services. We also signed an agreement with the French Armament General Directorate, the DGA, for 42 H145 helicopters, 36 for the Sécurité Civile and 6 for the French Gendarmerie Nationale, plus 22 options.

This contract also includes a range of support and services solutions. In addition, the DGA awarded a contract to NHI -- to NH Industries for the production of 8 additional NH90s in Standard 2 configuration for the French Army Aviation.

Overall, 2023 was a strong year, and we continue to see positive momentum for both civil and military markets. Finally, Defence and Space.

First, we were pleased to record a strong order inflow throughout the year. In full year 2023, our order intake was at EUR 15.7 billion, up 15% year-on-year, corresponding to a book-to-bill of around 1.4.

Here also, as for the commercial aircraft business, order intake is reaching new heights. This commercial performance confirms our long-term ambition for the division and highlights the strength of our products.

Key orders recorded in Q4 include Spain order for 16 C295s, which will enhance Spain's national security and search and rescue capabilities. On Eurofighter, we are proud to highlight that Airbus will equip 15 German Eurofighters for electronic warfare capabilities.

This variant is to be NATO certified by 2030, and will then take the role of the Tornado electronic warfare aircraft. In the area of unmanned aerial systems, we signed a contract with Spain for the SIRTAP, the next-generation tactical UAS, unmanned aerial system.

The development of SIRTAP will bring key experience and competencies in the field of Remote Carriers for FCAS, preparing therefore for the future. While on FCAS, we continue progressing on Phase 1b with our partners, we also continue to make progress on Eurodrone.

Even though we faced delays in some design specifications, we are now working to complete the so-called preliminary design review later this year in order to enable an entry into service by the end of this decade. On Ariane 6, all hot-fire tests necessary for the maiden flight were successfully completed.

The first launch is targeted for the summer 2024, subject to the clearance of some final tests. Our Space business has been impacted by further charges in the fourth quarter, and we will come back to that.

But before we move to financials, I'd like to give you an update on the transformation that we initiated in the division early 2023, early last year, aiming at making our organization simpler, more agile, and more customer oriented, with more accountability and also, of course, driving competitiveness for the division. At the end of 2023, we reached an important milestone with the finalization of a social dialogue with our European and national social partners.

As a result, the new structure went live on January 1 this year, a few weeks ago, with 3 business lines: Air Power, the biggest one, combining our existing Military Air Systems and the FCAS activities; second, Space Systems; and third one, Connected Intelligence. In this new setup, around 15,000 employees are moving from former central engineering and operations functions to the 3 aforementioned business lines, giving those the means for a clear end-to-end business ownership and accountability.

Hence, they are fully equipped and empowered. This transformation targets excellence from bidding to delivery to secure performance for the future.

Let me highlight major initiatives that include stringent and selective bidding in order to improve profitability, quality and operational excellence in production and engineering through specification definition, execution and risk management, and having the right skills and competencies at the right place. This comes with some changes in management, which we are currently implementing.

This transformation will also allow to address the long-term cost structure more efficiently. As I have experienced with previous transformation programs and given the long-term nature of the business, it will take time to grasp the full benefit of this change, but we will get there and converge towards our high single-digit margin ambition in the midterm.

Now Thomas will take you through our financials.

Well, thank you, Guillaume, and hello, ladies and gentlemen, also from my side. I'm on Page 6 of the presentation, and I would now like to take you through our financial performance in a little bit more detail.

So as you can see, our full year 2023 revenues increased to EUR 65.4 billion, which is up 11% year-on-year and mainly reflecting the higher number of commercial aircraft deliveries. If you look at our EBIT adjusted on the upper right-hand side of the page, let me start by reminding you where we come from, because in the financial year 2022, we stood at EUR 5.6 billion, and that included a net EUR 4.4 billion positive impact from several nonrecurring elements.

And this resulted from a positive effect from retirement obligations and also from compliance-related topics, partly offset by the loss of the Pleiades Neo satellites and also international sanctions against Russia. Our full year 2023 EBIT adjusted increased to EUR 5.8 billion, mainly reflecting the higher commercial aircraft deliveries, a more favorable hedge rate, and the solid performance at helicopters, partly offset by investments for preparing the future and also the charges in certain Space programs.

Now when it comes to these charges and building on the work done in the first 9 months, we extended actually the scope in the fourth quarter, and we reviewed our Space programs in depth. And this resulted in EUR 0.2 billion of additional charges from the update of the estimate at completion.

Now as for the full year 2023, the charges totaled EUR 0.6 billion and have been recorded and they now account for revised time lines and cost estimates as well as for the reassessment of commercial risk and opportunities. If you look into these EUR 0.6 billion of charges, about 1/3 reflects the current period and the remainder is to adjust past and future profits.

So therefore, 2/3 is probably the right order of magnitude to be normalized if you want to come to a clean 2023 result. And I would say, while this high-tech business, of course, always carries some risk, I now sincerely believe that we have a balanced assessment.

And just as a reminder, in 2023, we made further progress on our compliance related topics, which allowed us to release provisions for an amount of EUR 0.1 billion in the first half of the year. In terms of R&D, our expenses stood at EUR 3.3 billion versus EUR 3.1 billion in 2022, and the R&D expenses are expected to continue to slightly increase in 2024.

Our full year EPS adjusted stood at EUR 5.60 based on an average of 789 million shares and our full year free cash flow before M&A and customer financing was EUR 4.4 billion, reflecting the strong commercial aircraft deliveries and the predelivery payments collection from commercial momentum, mainly in December. Now let's go to the next slide and look at our profitability.

Our full year 2023 EBIT reported was EUR 4.6 billion the level of EBIT adjustments totaled a net negative of EUR 1.2 billion, and you have the details on the upper right hand of the slide, so you can see it includes roughly EUR 1.030 billion negative impact from the dollar working capital mismatch and balance sheet revaluation, mainly reflecting the mechanical impact coming from the difference between the transaction date and the delivery date, of which EUR 224 million occurred in Q4. It also includes EUR 89 million related to the Aerostructures transformation, of which EUR 32 million in Q4 and EUR 41 million to the A400M.

Last but not least, minus EUR 75 million of other costs, including compliance costs, of which EUR 19 million in Q4. Our EPS reported includes EUR 166 million of financial results positive and that mainly reflects a positive impact from the revaluation of certain equity investments.

The tax rate on the core business continues to be around 27%. However, the effective tax rate is 24% for 2023, including the tax effect on the revaluation of certain equity investments and also a net deferred tax asset impairment.

And therefore, the resulting net income is EUR 3.8 billion with earnings per share reported of EUR 4.80. Now on the next page, let's look at our U.S.

dollar exposure coverage. In the full year 2023, $22.4 billion of forwards matured with the associated EBIT impact, and also euro conversions were realized at a blended rate of $1.20 versus $1.22 in the full year 2022.

And in 2023, we also implemented $20.2 billion of new coverage at a blended rate of $1.13. So as a result, our total U.S.

dollar coverage portfolio in U.S. dollar stands at EUR 91.7 billion, with an average blended rate of $1.23 as compared to $93.9 billion at a blended rate of $1.24 at the end of 2022.

Our portfolio is currently being adjusted by implementing some rollovers to reflect the delivery target for 2024 and the delivery profile, which we expect to be somewhat back-end loaded. Now let's move to the next page for a more detailed look at our free cash flow.

Our free cash flow before M&A and customer financing was EUR 4.4 billion in 2023. And this reflects, on the one hand, the level of deliveries as well as the commercial momentum across all our businesses, notably in December, resulting in healthy PDP inflows.

On the other hand, the execution of our ramp-up translate in a mechanical inventory buildup. And the A400M, let me just remind you, continues to weigh on our free cash flow before M&A.

Our full year 2023 CapEx was EUR 3.1 billion, and this reflects the investments in enhancing and upgrading our industrial system. And to support our ramp up, we expect our CapEx to continue to increase in 2024, however, at a somewhat lower pace.

The free cash flow of EUR 3.9 billion includes M&A activities for EUR 65 million and customer financing for EUR 436 million, and I would say that the aircraft financing environment remains solid with sufficient liquidity in financial markets for our products. So in 2023, the customer financing cash outflow was mostly related to the planned execution of certain contractual obligations.

And of course, we might see additional usage of cash going forward. As you can see, our net cash position stood at EUR 10.7 billion as of the end of December, and our liquidity remains well above EUR 30 billion.

And this strong net cash position supports our proposal for a special dividend in line with our commitment and further highlights our focus on shareholder return. And with that, I would like to hand it back to Guillaume.

Thank you, Thomas. So let's look at the divisions, and let's start with commercial aircraft.

In 2023, we delivered 735 aircraft to 87 customers, in line with our plan. Looking at the situation by aircraft family.

On the A220, we delivered 68 aircraft, and we continue to ramp up to reach rate 14 in 2026, while still working on the program's industrial maturity and its financial performance. On the A320, we delivered 571 aircraft, of which 317 A321s, representing 56% of the deliveries for the family.

So we are well above 50% for A321 deliveries. Production is progressing well towards the previously announced rate 75 aircraft per month in 2026.

I insist, in 2023, we started the construction of the second A320 final assembly line capacities in Tianjin in China and Mobile in the U.S. And in December, we delivered the first A321neo from the new final assembly line that we inaugurated in Toulouse in 2023 in the former Jean-Luc Lagardère, file of the A380, as you might remember.

On the XLR, our first customer aircraft entered into the final assembly line in December, and the entry into service is now expected to take place in the third quarter later this year. On widebody, we delivered 96 aircraft, of which 32 A330s and 64 A350s.

We continue towards rate 4 in 2024 on the A330, and rate 10 in 2026 on the A350. So for those 2 programs also, no change on our plans.

Now let's look at Airbus commercial financials for the year 2023. Revenues increased 15% year-on-year, mainly reflecting a higher number of deliveries.

The EBIT adjusted increased to EUR 4.8 billion from EUR 4.6 billion in full year 2022, reflecting the increase in deliveries and a more favorable hedge rate, partially offset by investments for preparing the future. Full year 2022 included a sizable nonrecurring positive impact resulting from the retirement obligations and compliance-related topics, partly offset by the impact resulting from international sanctions against Russia.

In 2023, we released provisions for EUR 0.1 billion from compliance related topics, which was in the first half of the year. Now looking at helicopters.

In 2023, we delivered 346 helicopters, in line with full year 2022, but with a different mix. Revenues increased 4% year-on-year to EUR 7.3 billion, reflecting the overall performance across programs and services.

As a result, EBIT adjusted increased to EUR 735 million, and the profit margin stood at 10%, confirming the solid performance of the division over the last few years. Here also, 2022 included net positive nonrecurring elements.

Going forward, we aim to make this profitability sustainable, while maintaining our commitment to sound program execution and continuous improvements. And let's complete our review of the full year 2023 with Defense & Space.

Revenues slightly increased year-on-year, mainly driven by Military Air Systems and CI, Connected Intelligence, offset by some updated estimates at completion assumptions on certain Space programmes. The decrease in EBIT adjusted reflects the charges resulting from the update of these estimates at completion, partially mitigated by the good performance of the rest of the business for the period.

These charges are the result of a number of things, revised time lines, cost estimates, and the reassessment of commercial risks and opportunities, as Thomas explained. On this topic, we've had a bumpy ride last year, which is very frustrating.

But today, I believe we have now a balanced assessment in our Space programs, noting that we are working in a high-tech business with complex and sophisticated products. We will continue to closely monitor our exposure.

On the A400M, we delivered 8 aircraft in 2023. We continue with development activities towards achieving the revised capability road map.

Retrofit activities are progressing in close alignment with the customers. In '23, an additional update of the contract estimated completion has been performed and a net charge of EUR 41 million recorded.

Risks remain on the qualification of technical capabilities and associated costs, on aircraft operational reliability, on cost reductions, and on securing overall volume as per the revised baseline. Let me remind you that full year 2022 included some nonrecurring elements, notably from the loss of the 2 Pleiades Neo satellites.

And before we now move on to our 2024 guidance, Thomas will give an update on our free cash flow definition. Thomas?

Yes, of course. And I'm on Page 14 of the presentation.

So starting from the 1st of January of 2024, we are modifying the definition of the alternative performance measure free cash flow, which allows the company to measure the amount of free cash flow generated by its operations. And this will provide a more operational view and is fully aligned with market practices.

So the new definition will no longer include the investment in financial assets, meaning it de facto includes M&A transactions and investments in funds. And so from now on, we will measure and communicate our performance on the basis of free cash flow before customer financing.

To be clear, this has no impact on the net cash position. And the 2024 guidance is issued on that basis and a reconciliation of previous year's free cash flow is provided in the appendix.

So let me just say again, it means that it de facto excludes M&A transactions and investments in funds.

Thank you, Thomas. And now on to the guidance slide.

As the basis for its 2024 guidance, the company assumes no additional disruptions to the world economy, air traffic, the supply chain, the company's internal operations, and its ability to deliver products and services. The company's 2024 guidance is before M&A.

On that basis, the company targets to achieve, in 2024, around 800 commercial aircraft deliveries; EBIT adjusted between EUR 6.5 billion and EUR 7 billion; and a free cash flow before customer financing of around EUR 4 billion. The guidance reflects our expected growth trajectory and the investments we are making to prepare our future.

Now let me say a few words on our key priorities before taking your questions. As we progress in 2024, we remain fully committed to serving our customers and the strong demand for our modern, fuel-efficient commercial aircraft, and working closely with our global supply chain partners as we ramp up across all our programs with safety and quality at the heart of all that we do in a new organizational setup.

To support our increasing production rates, we'll continue to invest, modernize, and adapt our global industrial system. We're operating in a rapidly changing world where geopolitical shifts, the acceleration in innovation, and the importance of decarbonization are growing in focus and we're working to rise to the challenges and opportunities ahead in those areas.

It comes with a need to transform our Defense & Space division. I elaborated a bit on it earlier.

At the same time, we keep pushing forward on our ambitions in digitalization and decarbonization. Digitalization is an important enabler for the success of our commercial account ramp-up and for the future of the business overall, and it will be fundamental to the design, manufacturing and operating of the next generation of our civil and military products, in particular, for DDMS.

Therefore, delivering on our digital road map is, for me, a key priority, and we will continue to explore strategic opportunities in this area. Moving now to the Airbus decarbonization road map.

We have laid very strong foundations and ambitions, and we are now delivering concrete progress against defined action plans. In 2023, we received validation from SBTi for near-term climate target, and we're reducing CO2 emissions in line with this trajectory.

We're acting as a catalyst to increase SAF, sustainable aviation fuel, to increase SAF usage in aviation starting with our own. In 2023, SAF represented around 10% of our fuel needs at Airbus for transportation of our aircraft components and flight testing as well as some delivery flights of commercial aircraft and helicopters.

We have conducted a number of commercial demonstration flights with partners and have established a number of partnerships with SAF producers. In terms of innovation, we're working on a number of technology bricks for new aircraft technologies for both the next generation single aisle to be fueled by up to 100% SAF, and the hydrogen powered ZOE for a commercial aircraft ready in service in 2035.

We recently conducted a successful engine fuel cell power on. We continue to explore technology bricks and solutions, which support both fuel cell and direct hydrogen fuel burn options.

The fuel cell results are fueling our optimism in this technology. These initiatives, among others, underline our commitment to take action towards building a low-carbon future and to bringing airlines and industry players from all sectors together in order to shape a sustainable aviation.

Finally, and before taking your questions, let me reiterate that maintaining our commercial positioning across the businesses and delivering on our growth potential remain top priorities. I guess now we are ready to take your questions.

We will now start the Q&A session. Please introduce yourself and your company when asking a question.

Please limit yourself to 2 questions at a time, and this includes 2 questions. Also, as usual, please remember to speak clearly and slowly in order to help all participants, particularly ourselves, to understand your questions.

So Sharon, please go ahead and explain the procedure for the participants.

First question for Guillaume. I was wondering if you could comment on the possible ramifications of the recent incident your competitor experienced with regard to the door.

And then secondly, for Thomas, I was wondering if you could give us a quick walk of how you get from your 2023 free cash flow to your 2024 guidance?

Okay. Thank you, Robert.

I'll take the first question. We're obviously, like many other players in the industry, observing the development after the event, the door plug event.

We're obviously not directly involved in this event, but we are always trying to take all learnings from what's happening in the industry, learnings of very different nature, and that's 1 of them. And consequences of many different kinds, I mean, potential consequences.

We will observe the reaction of the supply chain, of the involved parties, of the regulatory bodies. So that's quite, I would say, usual in terms of trying to take the learnings even if this event in itself is not very usual.

So yes, it's a bit premature to understand the exact implications, but it's 1 out of many topics, 1 of many parameters, 1 of many sources of information that we're trying to use to always be better, to always anticipate, to always challenge ourselves on what we do, how we do it, and that's basically the way I look at it. And as you have understood, we are not directly involved in this event.

Thomas?

Yes. So maybe on the cash flow bridge.

The way I would look at it, Robert, is if you start from the EUR 4.4 billion, there is, of course, 1 big positive in 2024, which is the volume uplift. If you take the midpoint from our guidance, which is the 65 additional aircraft that we will deliver.

And that, of course, should result in a high triple-digit positive on the free cash flow for 2024. On the other hand, you've seen that we did have very, very positive PDP inflows and therefore, a positive effect in working capital in 2023, which will not repeat itself.

And I would say that is probably the same order of magnitude as in 2024 negative as the volume effect positive that I was just describing, so the 2 are equaling out each other. And then you have a couple of minor items, which I would say are slightly on the negative side.

So slightly higher taxes, a little bit of higher cash out for R&D, as we mentioned, and that then essentially brings you to the guidance that we were describing of around EUR 4 billion.

The first 1 is on the deliveries past to 800 units this year. Can you explain to us what is on the critical path of this ramp-up in terms of especially supply chain management?

And what could allow you to be at 10 or 20 at the end of the year, so on-time delivery improves in the supply chain? The second question looks a bit later in the time line.

I wanted to understand what is today the level of the preparation of the civil aircraft business to reach your 2026 targets on your programs. You are quite ahead of plan in terms of staffing and you're accelerating ramp-on costs.

What is left to be done on your side to make sure that you can deliver on these 2026 targets?

Thank you, Tristan, for the 2 good questions. So as I try to explain the 800 is trying to reach a good balance between a very strong demand and the ability of the supply chain to do the ramp-up and to support an efficient production system with a high focus on quality and safety that we always want to guarantee.

So supply chain is on the critical path. We have a number of critical suppliers or critical supplies from certain suppliers, and we spend a hell of a lot of time each and every year trying to best assess the capability of the supply chain.

And we have indeed some critical paths. I don't want to blame or highlight the ones that are slowing us down on our path.

The ability to reach the 800 or slightly more or slightly less is actually very much linked to the supply chain itself and the deliveries from the supply chain to Airbus, because actually we are, as you suggested, in 2024 already, well sized at Airbus to do more. We are ahead of the curve when it comes to our production system.

So now on to your question for 2026. We're investing in hardware and people, that's basically what we need to do.

On the people side, when it comes to numbers, we recruited a lot in 2023, in line or slightly ahead with our plans, but we might explain a bit later the bridge on headcount. That's basically quite consistent with what we wanted to achieve.

There's a lot of onboarding, training, qualifications that we need to ensure for people to be fully efficient and effective on their jobs later. So that's an important work that we're doing at Airbus, and we are monitoring as well what's happening in the supply chain as good as we can.

And what I call hardware, which is the production system itself. I have been quite extensive in explaining over the past few years what we've been doing in our Aerostructure organizations as well as the restructuring we've done in Spain or the changes, I would say, the investment we've done in the U.K.

for our wing factories. The new funds around the world, we go from 8 filed before COVID to 10 ultimately, and we have actually 4 new files ongoing, enabling all files with A321s, and I explained a bit earlier what we already achieved.

And therefore, I think we are on our trajectory when it comes to the production system. So again, the ability to reach the objectives in 2026, to be at rate 75 on the A320, to be at rare 14 on the A220, to be at rate 10 on the A350 and so on.

This ability will mainly come from the ability of the supply chain to do the ramp-up with us. And that's been successful in 2023, and with around 800 in 2024, that would be also successful.

So that's basically the plan that we have and we think that the 2024 plan and where we are today on the ramp-up is consistent with our targets to be at the rates I was mentioning before by 2026. Sorry, I was a bit long, but I think that's an important question that maybe captures a lot of other potential questions and I wanted to be clear and precise on that one.

I'd like to dig a little bit deeper if possible on the learnings you're taking from the Boeing situation or how your philosophy is evolving on several fronts really. For example, I know that we're still committed to rate 75 and the time frame for various production increases.

But the supply chain is under quite a lot of pressure, and that's been called into question as part of the buying situation. So are you in any way more concerned or minded to relieve some of the pressure on the supply chain, be that in financial terms?

And also things like the impetus, has that increased or decreased to develop a next-generation single aisle in any way? And also the special dividend over buyback seems like an incremental shift.

I'm wondering how your philosophy has evolved basically on various topics and what learnings we're taking from the buying situation more broadly?

Yes. Thank you, Phil.

I think the philosophy itself has not changed. I said recently, and I will repeat that, I guess, this is making us very humble, and we see it as another reminder that we are in a complex industry where quality, safety is never a given.

You have to constantly challenge yourself, rework your plans, analyze, anticipate, and be a bit schizophrenic. Of course, there are learnings.

I think I tried to answer to that question a bit earlier and it is not a new learning is that you're trying to constantly look at all the stakeholders around you and take care of each and every of your stakeholders. If you focus too much on 1 at the detriment of others, that can lead to imbalance over time.

We're trying to find that balance each and every year, each and every day, and I don't pretend we're perfect. That's why we are constantly looking at what we are doing and challenging ourselves.

That's something that we are also constantly reviewing and discussing with our Board of Directors, whose role is also to look a bit outside in at what we are doing and how we're performing, where we put the priorities. It has no impact on the next generation and the investments we are making to prepare our future.

We are in a phase of preparing digital systems, preparing the production system itself. And you've seen that we have a high level of CapEx those years, and we are increasing the level of CapEx to be ready for the future.

When it comes to products, we are not in the phase of high investment of programs, we are in the phase of technologies. So we are in years where the pressure on R&D is probably lower than what it will be in the next decade.

And that's why we have some financial flexibility, and it was not the case in 2020 and 2021, where we withdrew the payment of a dividend to shareholders to be able to continue to invest in products, the years where we had the XLR, where we launched the development of the 350 freighter in COVID. So clearly, we are very focused on the preparation of the future.

But when the financial performance and the visibility on the future allows, we're happy to pay dividend, because that's what we think we want to be doing to our shareholders, which have been loyal to us over the years. So that's, as I said, trying to find the right balance between all stakeholders.

And I said earlier, I expressed my sincere thanks to Team Airbus, because at the end of the day, they are the ones making all of this happen. And I sincerely think they did a great job last year to keep the company moving forward and trying to maintain that balance.

So I closed the loop, no change on the philosophy, but 1 more reason to be alert, to be mindful of what we do, to constantly challenge ourselves, and that's the mindset of the team moving forward.

Yes. I wanted to go back 1 second on the cost that you are currently facing and that are somewhat, I would say, nonrecurring in the long run, inflation headwind, the excess staffing, new final assembly, the start-up cost, preparation costs for the XLR.

How should we think of the ballpark for all of these costs? And how do they trend in '25, '26, do you think?

And the second question is on shareholder returns. You just mentioned it, but how do you think of it going forward?

And in particular, how do you come to the decision between a buyback and a special dividend?

Maybe I let you take the questions. I'd like to say a few words on this stuff here.

You said excess staffing. I would not agree with the excess staffing.

We hired in the numbers that you see in our release, and we increased the level of head count at Airbus more than what we had indicated a year ago and, therefore, that deserves an explanation. Actually, it's very significant because it's 13,700 or so comparing end of 2022 and end of 2023.

In these numbers, there are 2 changes I'd like to explain. One is we are consolidating additional entities compared to end of 2022.

So there's a change of scope whose size is roughly 1,700. So if you take the 13,700 minus 1,700, you are at 12,000.

And then we have decided over the year, mainly in our subsidiaries in charge of Aerostructures to secure skills, competencies, and stability in the staff. To transfer, to hire people that were subcontractors into people with Airbus contracts.

And that's not something we had considered when we gave the guidance on head count or the perspective. And that's an additional 2,300 as far as I remember.

So we're coming around 9,500, which is more than what we had communicated. Actually, the hiring plan has been doing well on track, slightly ahead, but that was my guidance to the team, to say, don't be behind the curve on skills and competencies.

We want to remain ahead of the curve, and we had less attrition in 2023 than what we had in 2022 and what we had factored. So what looks really like strong excess of resources, of head count compared to what we said a year ago, is actually a minor one, and I want this to be understood, as we will continue to hire in 2024, and we will continue as well to enlarge the scope of consolidated entities where we consolidate stuff.

So that's something to be closely monitored and share with you as we move forward. And that has given time to Thomas to prepare answer to your more general question on the costs and shareholder returns.

Thomas, I hand over to you.

Sure. Well, maybe on the cost side, I think for 2023, we said inflation would hit us with a couple of hundred million, that is also what has materialized.

I would expect that could continue in 2024, maybe slightly less than that, but the order of magnitude will not be significantly different. And you also saw that our R&D was increasing in 2023.

I would also expect that this will continue in 2024 at maybe a slightly lower pace, as I had indicated. But I would say those are the 2 main building blocks that you should have in mind when you think about the cost development in 2024.

Where inflation will go in 2025, it's a little bit difficult to say. I don't think it will go down to 0 back, but it could level off a little further in 2025.

But I think to be seen when we come out with the guidance in a year from today. Now on the shareholder returns, I would say there was a number of considerations that we went through.

So first of all, what is important to us is to stick to what we said, which is once we exceed the EUR 10 billion threshold of our net cash position, we would look into increasing our shareholder returns. We have achieved that threshold maybe slightly faster than what we had anticipated ourselves.

And therefore, simply, what we did is we listened to our shareholders. I would say there is no clear view on whether a special dividend or a share buyback is preferred.

There's the 2 views. And therefore what was important for us in this situation was to implement something relatively quickly and pragmatically to also send a clear signal that we stick to what we have said.

And secondly, if you look at the amount which we deem appropriate, we felt that a special dividend would be the better tool relative to a share buyback at this point in time. So I would say there was a number of considerations, but the most important thing for us was that we stick to what we said earlier, which is the EUR 10 billion threshold for net cash is something that we would look into before increasing our returns to shareholders.

However, I would also clearly say this is not a mechanistic exercise going forward. So while we do think that the philosophy is the right one, and I think I'll come back to the earlier question, have we changed our philosophy on this, clearly no, but it's not a mechanistic exercise that you should project into the future for every year.

First question, Howmet this week talked about 56 per month on the A320 builds as part of its guide. So I was just wondering, what is your rate of production now, and is 56 an average rate that you can produce over the course of this year.

And second, related to that, could you explain the shift in the 321 XLR entry from Q2 to Q3? And what does your guide assume about the deliveries in H2?

And if the entry gets delayed by PMI, can you easily substitute other models in place of that?

So when it comes to the ramp-up of the A320, we've delivered 571 in 2023, supporting the 735 planes. I confirmed that we are on trajectory for the rate 75 somewhere in 2026.

And the share of the A320 Family will remain very strong in 2024 and will contribute to around 800 deliveries. So I don't want to comment on monthly or quarterly production rates, because they are not really making sense, especially at the time where we are putting in place new final assembly lines, transitioning some from A320 to A321s.

So that's something I've said already and I want to stick to. When it comes to the XLR, no significant change to customer deliveries from the slight delays that we have observed going from Q2 to Q3 for the entry into service, that's now coming very short term.

So we are obviously in close contact with our customers for the deliveries. And again, around 800 deliveries for this year are factoring in this XLR entry into service scenario.

So that's what I think should best answer your question at least to the best of my possibilities.

I wanted to ask about the geared turbofan, and if you can give us a bit of an update on how you're seeing that progressing in '24 and '25?

Yes. Ben, thank you for the question.

So on the GTF, as you remember, we are facing 2 main issues. The 1 that is the time on wing and the pressure it puts on availability of parts and ability to keep the fleet flying.

This has led, over the last 2 years, to Airbus and Pratt & Whitney revising the ramp-up plans and making sure they could serve as best as possible our airline customers. That's the first point.

The second 1 is the more recent what I call recall programs for the metal powder issue, and that goes on track with the assumptions that were laid out by Pratt last year. So I would say, no significant change -- no change compared to what we had discussed over the past calls and the past quarters except that the recall campaign is happening as it has been structured, organized, and I would see it as a rather positive news given the size and the importance that it has for the industry.

But we are going through that difficult time of having a lot of planes grounded and the engines being inspected and retrofitted. So that's an important phase, but that's going on track.

Okay. And then can I ask about the A350, because my understanding was it was broadly breakeven as a program in around 2022.

So can you help us understand a little bit how the profitability on that program has progressed in '23, and how you see that progressing in '24?

Thomas, I hand over to you. Short progress, how can we characterize it?

Well, I would say, the A350, of course, is a program that is profitable and that has reached profitability as we ramp up the program to rate 10. As we said, net profitability will increase.

I would not dive deeper into the individual contribution margins per aircraft. But I can say, we're happy with 2 things.

The ramp-up part is progressing and also the profitability that we've reached for the A350 program.

But 1 point, Ben, maybe to help in this answer. In 2023, we are not yet on the ramp-up of the A350 at file and delivery.

I don't remember exactly the number of deliveries in 2022, but it was roughly the same as what we did in 2023. And 2023 was 64.

So I think we are very close to that number in 2022 as far as I remember. So we don't yet see the impact of the growth in deliveries that is coming, that is starting in '24, and will obviously increase significantly in '25 and '26 to reach the 10 per month at Station 40 by 2026.

So the recovery or the profitability of the A350 program comes as well, obviously, from volumes and the volumes have not really been there yet last year, but the terms of the statement of the forward-looking profitability of the A350, the perspective, they remain the same.

I have 2, please. The first 1 is on Airbus commercial and quite unusual topic.

Services are actually becoming non-negligible in terms of the share of revenue. So could you share a bit how we should think about growth going forward there and the impact of margin?

Are you profitable in this activity? Or is it still an investment area?

And the second one, sorry if I missed that number, but what's your ambition for head count growth in Airbus Commercial in 2024, please?

Do you want to say a few words on services?

So what I can tell you is that in our service business, we have made good progress in terms of profitability, and we're very happy with it. So I think there is good progress.

We will -- I think if you compare us to other companies in the space, the service share is relatively low, and it will not increase by such a big step, because we're putting a great emphasis not on growing the revenues, but really profitable growth for service business. And that is, I think, what you will see in the future.

And therefore, I would say services, we're very pleased with the profitability that we have reached so far. It will, however, not, in terms of revenues, be a big growth factor or such a big growth factor for 2024.

And we have, in our services business in Airbus Commercial, actually support and services activities, and we've put a lot of priority on the support to our customers during the last years for quite obvious reasons. So we'll keep growing the services part, the 1 that creates revenues and margin.

Indeed, on that part, we are satisfied with what we do. We are not communicating on the turnover and profitability of services yet.

That's maybe something we could be doing moving forward. But still, that goes well compared to our own expectations.

And the level of booking in 2022 and 2023 have been growing, so that will support growth on the services. Please remember as well that we have services in helicopters, that's roughly 50% of the whole turnover.

So that's another significant service business. And we have as well services across our business lines in Defence and Space.

So it's a bit scattered. We are not communicating on the overall size of the services, but it starts to be really significant at Airbus at group level, I would say.

Headcount. Yes.

So are we giving a guidance this year? I'd like to refrain a bit from this, and I'd like to understand better the way we will consolidate other entities and be more accurate on my predictions when it comes to head count.

We are going significantly slower, however, on the recruitment. We have slowed down very significantly, sort of reducing by half or so the speed of equipment as we are on track, as we have hired a bit higher last year, a bit faster than what we were anticipating.

And as we are starting to see the year 2026 stability in front of us in some of our activities, which are significantly upstream in the supply chain -- in our own internal supply chain. So as we move forward to '24 and '25, we'll keep hiring, but at a slower pace.

And we might answer the question on numbers a bit later in the year with a more precise view on what it means to avoid falling in the trap we found ourselves going into 2023.

I had 2. The first one, you mentioned the backlog, which is quite significant now.

Could you comment on the pricing of that backlog? And if there is any inflection point to expect in future years around the pricing?

And second question is on actually capital allocation. Could you reexamine or tell us what your M&A priorities are in 2024, if you can speak a bit more on this.

So on pricing, I had the opportunity to answer that question several times last year, and I think the fourth quarter has not significantly changed the perspective. Our pricing on the A320 Family is holding, and I would say, performing reasonably well.

But we are booking planes now for the next decade. So that's a pricing impact that will fall into the P&L in many, many years to come.

We are delivering those years' planes that have been ordered and contracted many years ago. It's a bit of a different situation on the widebodies.

We are indeed in a quite more short term and very aggressive competition with our dear competitor, and we wanted to take benefit of the current period with very strong products at Airbus to grow our market share, to improve our position on widebodies. That's what we have accomplished last year.

So we're quite satisfied with what we've done. But indeed, campaign by campaign, this is quite aggressive and the pricing of the widebodies remain quite under pressure.

When it comes to the M&A priorities, I'd like to maybe make a few statements. We don't want to be distracted on what we do.

We want M&A opportunities or decisions to contribute to the very core strategy of Airbus and our existing business lines, divisions, activities. Still there's a lot of things ongoing around us.

There are risks here and there that sometimes lead us to make some quite defensive M&A decisions, but also a lot of opportunities. We are in the phase of digitalizing and decarbonizing our products and services for the future.

That's core to what we do, and that leads to contemplating M&A transactions in the field of digital. We are in due diligence for BDS, the BDS business of Atos, that's something that is ongoing.

We won't take any decision that is not in the best interest of Airbus, to be extremely clear. And the due diligence is here to check that there is a strategic fit and we understand better the business lines and would we come to a positive conclusion on that 1 that everything related to transaction prices would be okay.

But we're also looking at potential investments here and there on the sustainable aviation fuel side because we want to play that role of catalyst. We are not an energy player, of course, but that's something that we take as an opportunity to make good investments and to enable the business we have in commercial and moving forward on other activities.

So there are very targeted things that we look at very carefully and we want to stay very disciplined when it comes to the financial discipline. But obviously, we are in a fast developing world environment with perspectives, and that's what we're looking at carefully, but seriously.

Two-part question, if I could. The first deal, maybe can you elaborate a little bit on your confidence in rate 75 in 2026 on the A320 Family?

And what's the risk -- where are the bottlenecks? And how do you view the risks today that could sit further to the right?

And then second, can you maybe just reset us on incremental margin assumptions on that program as you move up in rate over the next few years?

Thank you, Ken. So I'll take the first part and maybe Thomas, you respond to the incremental margin.

So we are on that path on our plan for the so-called rate 75 by 2026. The main enablers that Airbus are in place or are making good progress, I was very happy that we delivered the first A321 from the A321, the new file in Toulouse last year.

The progress made on the new file in Mobile and in Tianjin is completely on track. The second A321 file that we have launched in Toulouse will be ready in 2025, 2026, as far as I remember, maybe 2026.

I think that's the latest 1 to come to the party for rate 75. And then we'll hand down the 2 A325s that we have as well in Toulouse.

So we are well placed. We have managed to hire.

You might remember that I was really worried with hiring and talent and competencies just moving out of COVID, but when it comes to Airbus, we find people in the right quantity and with the right skills. It's probably deserving more training and onboarding that we used to do in the past, but that works as well.

So I would say, the risks are more, as I said earlier, external factors, the risk on the supply chain, and that's where we're putting a lot of priority last year or this year to understand the bottlenecks and debottleneck before it becomes a drag on the ramp-up. We are in a fast-changing environment.

The geopolitical changes are something we are also trying to understand better and proactively address, because these are other risks. And I would say, the geopolitical nature of the geopolitical risks and then the nature of our business is really something that is very carefully monitored, because that's probably in the risks that you were willing to address, the ones on which we have little grip.

And therefore, we need to work better on resilience. That's something we launched in COVID.

We're spending money, and that's not something we are too specific on, but we're spending money to improve the resilience of the supply chain, to improve the resilience of our business. The diversity on the plants, on the files, on the sourcing is something that serves that resilience.

And overall, I would say, these are more the traditional risks in a more complex environment than new risks that we see around the corner. Therefore, I am confident with the rate 75.

Absent a crisis like COVID or global crisis of that nature, there will be up and downs. We'll be facing some difficulties here and there, obviously, but I think we are on the right track.

Then in terms of the margin. So I think complementing what Guillaume just said, of course, we are in the middle of the ramp-up.

Once we have achieved a stable rate of 75, that stability should also have a positive effect on the margin, because the stability brings then also efficiency. I would say, by the middle of the decade, once we have reached that state to assume an incremental margin of, I would call it, around EUR 15 million, 1-5, per aircraft is probably the right ballpark number.

But again, we like to say around, and I think that also, of course, I mean, caters for some uncertainty that we have until then, but I think the ballpark number is what you should have in mind when you think about it.

Firstly, in the past -- I just wanted to give you an opportunity to talk about on the longer-term implications for margins. In the past, Airbus has said that you'll get back to 2019 margins when you get back to 2019 deliveries.

I wanted to give you the opportunity to either reiterate or update that as you see fit. And secondly, on helicopters, could you just go into a little bit of more detail for me just so I can better understand why the margins were so strong, especially in Q4?

Is that kind of a single delivery batch in there that we should think about, or -- I'm essentially trying to understand how sustainable that strength is given the underlying industry strength?

So I'll take the 1 on helicopters. Well, Q4 has been very strong at helicopters.

Unfortunately, our deliveries were very backloaded in helicopters, even more than in commercial. That's not something we like to have.

And that contributed to the overall margin in the year. So you should not see Q4 in isolation.

I really recommend to look at 2023 as a whole, but also as 2023 as a good basis for the development of the division. And you've seen the development in turnover and in margin percentage over the past years.

And as I said in my preliminary words, that's really something we want to keep doing. And we think the business, the market has the potential to secure that trajectory having in mind that services are strong at helicopters and that contributes to stabilizing the performance over the years, it's less sensitive to deliveries of helicopters than what we have, for instance, in commercial, because the services share of the Airbus Helicopters turnover is roughly 50%.

On the margins and the opportunity to reiterate or not the statement...

Yes, the way I would look at it is the following. So first of all, of course, we don't want to give a super precise guidance beyond 2024.

I think 2024 is the focus that we have today. Now to your question, will we reach the same percentage guidance in terms of return on sales once we've reach the same deliveries as in 2019?

I would say that since then, things have, in terms of the environment, slightly evolved, in the sense that we are in a high inflation environment. So mechanistically, you, of course, have cost increasing that partly we are able to pass through to our customers, and therefore, that has an impact on the margin.

What I would say though is that I can reiterate that once we are back to the same deliveries as in 2019, our EBIT in absolute terms should also match what we were printing in 2019. Again, the margins might be affected by an inflation environment, which, of course, we did not foresee when we made that statement.

But I would say, directionally, we stick, of course, to the view that once we're back to the deliveries of that year, we should also be in the same ballpark in terms of the profitability.

And you're, of course, talking about commercial there rather than the entire group?

Yes.

I think it was the group margin that we indicated 2 or 3 years ago, that would be back to where it was. But I'm not sure it makes a big difference.

It doesn't make a big difference. And I think the statement that was made at the time, it wasn't me personally, I think that relates to the entire group and not specifically to the commercial business.

That was a mindset of the segment at that time .

Thank you. This closes our conference call for today.

If you have any further questions, please send an email to Philippe Gossard or myself, and we will get back to you as soon as possible. Thank you.

And we are looking forward to seeing or speaking to you very soon.

Thank you, Helene. Thank you, everyone.

Have a good day.