Safran S.A.

Good morning, everyone, and thank you for joining us for our full year 2023 earnings call. I know you are also busy with other announcements today.

I'm here with Pascal. Let's go straight to our key highlights on Page 3.

In 2023, Safran benefited from its strategic positioning in growing markets and especially on commercial aviation. Narrowbody air traffic recovered 2019 levels from early 2023 and ended the year in excess of 108% of 2019 level.

Regarding the widebody traffic recovery is lower with ASK 10% below 2019 level at the end of 2023, but with expectation to fully recover by the end of this year. These good trends support OE ramp up and demand for services across all of our businesses.

We post today's strong results meeting or exceeding our guidance. Our teams have demonstrated remarkable agility, I really want to outline that, significantly increasing deliveries through a challenging supply chain environment and successfully facing inflationary pressures.

We delivered 1,570 LEAP engines, representing a significant step-up of 38%. Civil aftermarket increased by 32.9%, ranging now above 2019 level.

We achieved good progress on Aircraft Interiors' turnaround with [indiscernible] at Cabin and in-flight entertainment in full year and at Seats for Q4. We improved our operating margin by 100 basis points year-over-year, reaching 13.6%.

And finally, on cash, we generated nearly EUR 3 billion of free cash flow. 2024 is set to be another strong year.

We expect a further margin expansion at group level and continued strong cash generation. I am also pleased today to announce that we will hold our next Capital Markets Day on the 5th of December at Safran University in Paris, and we hope you will be able to join us for this Cap event.

Turning to Slide 4. Let me give you an overview of Safran's remarkable financial performance in 2023.

Revenue is up 22% at EUR 23.2 billion. Each of our 3 divisions achieved substantial revenue growth.

Recurring operating profit is up 31% at EUR 3.2 billion, exceeding our guidance despite inflationary pressure. Recurring operating margin expanded by 100 basis points, reaching 13.6%, a strong performance in this environment.

Free cash flow is up 10% at EUR 2.9 billion, exceeding our expectation. It was supported by downpayments and cash collection on Rate-Per-Flight-Hour contracts.

Based on this good set of results, we are proposing to shareholders a EUR 2.2 dividend per share for 2023, up 63% compared to last year, reflecting our confidence in the future. Turning to Slide 5.

Let me share with you some of our main business successes since we last spoke. We signed a series of contracts worth $1.2 billion with the world's largest international airlines, Emirates, at the Dubai Airshow.

Contracts include best-in-class business class seats for Emirates' new A350, 777X-9, 777-300 fleet. At leased price value, it is a $1 billion deal for our Seats business.

Safran will also provide galleys for A350 and 777-9 and some connectivity solutions. I mean, Safran's agnostic SatCom connectivity solution for A350, A380 and 777-9.

In addition, Safran will supply wheels and carbon brakes for their A350 fleet, landing gear component repair, retrofit, MRO support. On civil engines, with more than 2,500 LEAP ordered in 2023 for a total backlog of 10,675 engines, CFM is the engine of choice for airlines.

Our win rate for the A320neo in 2023 has been above 75%, even higher than in 2022. To name some of our latest announcement, Air Arabia ordered 240 LEAP-1A engines, easyJet more than 300 LEAP-1A engines.

Both deals include a multiyear service agreement. We signed an agreement with Xiamen Airlines in China to purchase LEAP-1A engines to power 40 Airbus aircraft and services agreements for their LEAP-1B and CFM56-7B fleets.

We also signed LEAP services agreement with Fly Dubai to cover 222 LEAP-1B engines, Air Cairo to cover 28 LEAP-1A engines, Akasa Air announced 2 weeks ago in India to cover 300 LEAP-1B engines. We also announced a multiyear contract with PTC Industries from India to provide titanium casting parts for our LEAP engines.

Safran's ambition is to develop a comprehensive aero engines ecosystem in India, strengthening our global supply chain built for the LEAP production ramp-up. On Nacelles, we signed Nacellelife services contract with Saudia, TARMAC Aerosave for Airbus fleet and EgyptAir for their A330ceo thrust reversers.

On military engines, Safran Aero Boosters in Belgium has signed an agreement with BMT -- BMT Aerospace signed an agreement to partner on the F-135 engine for the F-135 jet fighter on one side, and the French Defense Procurement Agency has announced an order for 42 aircraft, Rafale. So a continued successful trajectory for the Rafale aircraft.

On Slide 6, an update on our climate strategy road map and our achievements in 2023, where we devoted nearly EUR 900 million in research and technology, of which around 75% dedicated to environmental efficiency. First, on our technological road map, we have started first wind tunnel test with ONERA, the French aerospace research center, with 1 to 5 scale demonstrator of the future Open Fan.

This disruptive architecture is a key pillar of the CFM RISE technology demonstration program. We've run a successful test campaign with Airbus, was performed on an A321neo using 100% sustainable aviation fuel to assess the impact of SAF on aircraft technology and environment using different type of SAF.

We performed a successful firing test of the first hydrogen combustion-based turboprop engine, small one, for general aviation at ArianeGroup premises. And EcoPulse aircraft demonstrator made its first hybrid electric flight.

Safran supplied the turbo generator, electric thrusters, high-voltage power harnesses and power distribution units. Then on CO2 emission.

We inaugurated one of our largest self-consumption photovoltaic power plant in France at Safran Nacelles in Le Havre. We entered into a 12-year virtual renewable power purchase agreement for our U.S.

sites that will start in 2026 and cover 100% of our needs in the U.S. And we held the Supplier Day at Paris airshow to get our 400 top suppliers behind our decarbonization strategy.

To manage and deploy sustainability action plan, I have appointed a Chief Sustainability Officer at Executive Committee level. We are committed to deliver on our nonfinancial objectives.

I'm proud to announce Safran has been given an A score, the highest level, by the global environmental nonprofit, CDP, recognizing the group for its leadership in corporate transparency and performance on climate change. Let me now hand over to Pascal for more details on our 2023 results.

Thank you, Olivier, and good morning, everyone. I will be commenting, as usual, the adjusted accounts for which a bridge from consolidated statement is presented in Page 8.

The adjustments remain the same either relating to FX or PPA. As usual, the numbers are called in the table, EUR 2.2 billion, represents a change in mark-to-market of instruments, hedging future cash flows recorded in financial income in 2023.

It is a pure accounting entry with no cash impact. On Slide 9, the euro-dollar rallied in a tunnel of 1.05 to 1.10 during the course of the year.

We took advantage of this favorable environment to further hedge our currency exposure going forward. Thanks to the current composition of our hedge portfolio, we are able to improve by another cent the hedge rate for 2024 and going to 1.12, which compares to 1.13 in 2023.

2027 is now fully hedged with a hedge rate target ranging from 1.12 to 1.14. I remind you, by construction, we decided to cap the annual estimated net exposure at $13 billion from 2025 onwards.

Page 10 provides a summary of the income statement. Beyond sales and EBIT which I will detail thereafter, let me comment other P&L items.

The increase in share profits from joint venture is mainly attributable to CFM Materials, the joint Safran-GE company involved in selling CFM56 used parts and Shannon Engine Support, a joint Safran Aircraft company leasing engines. One-off items amounted to EUR 511 million.

An impairment loss of EUR 327 million has been recognized against Cabin and Seats goodwill to reflect the late execution in their turnaround. We believe we now have the right business outlook to sustain the balance sheet.

We also booked EUR 105 million of impairment charges for several programs, most of that was already booked in H1. Financial income, return on cash investments exceeded the cost of debt and generated a positive EUR 112 million of financial interest.

In addition, FX revaluation of some positions in the balance sheet, notably on provisions, had a EUR 66 million positive impact. Tax rate comes at 25.6% and net income to the parent stands at EUR 2 billion, representing EUR 4.85 per share, which is up 76% from last year.

Turning to revenue. Revenue stood at EUR 23.2 billion, which is a solid 24% organic growth or 22% when we take into account the negative translation impact on a weaker [indiscernible] compared to last year.

Each quarter contributed to the growth. Service activities were up 25% organically, mainly driven by the solid civil aftermarket business, which was at 32.9%, as Olivier said.

OE was up 22% organic, driven by the OE narrowbody ramp-up and notably higher LEAP engine deliveries year-over-year. It is a noticeable achievement considering persistent supply chain constraints.

Also, the net impact in revenues in material or change in scope reflects the divestment of Cargo and Catering activities from Safran Cabins and the acquisition of Thales Electrical Systems within Equipment & Defense. On operating income, we posted a strong improvement of recurring operating income at EUR 3.2 billion, up 27% organic, exceeding our guidance.

Margin improved by 100 basis points to 13.6% of sales. Main drivers were growth in services across the board, notably civil aftermarket and OE ramp-up in equipment, but also in Propulsion that benefited from an elevated LEAP spare engine ratio.

Inflation was much higher than anticipated initially and was close to EUR 1 billion as it has been partially absorbed thanks to pricing power and cost control. As expected, we invested more in R&D, but the EBIT impact remains stable as a percentage of sales.

At last, at the holding level, we have a negative EUR 100 million recurring operating loss was recognized compared to EUR 36 million in 2022. This increase was mainly driven by personnel expenses including management long-term incentive plans.

Moving now to our performance by activities and starting with Propulsion. Revenue was close to EUR 12 billion, up 27% organic.

OE revenue was up 33%. We've delivered 434 more engines than last year at 1,570 LEAP engines.

High thrust engines and helicopter engine deliveries were also up, and M88 deliveries, the Rafale engines were, as expected, down with less export sales. Services revenue was up 23%, essentially driven by civil aftermarket, and let me provide some color on that.

Growth was primarily driven by spare part sales, notably on CFM56. Volume of show visit was north of 2,000 year-over-year and even slightly more than we initially anticipated.

Revenue per show visit increased, mainly driven by pricing with high single-digit catalog list price increase last August, but also thanks to a heavy work scope. Now on high thrust engine spare parts, it was more limited in terms of gross rate due to slower traffic recovery and supply chain constraints.

Better momentum is now expected in 2024 regarding high thrust engines per part sales. Services contributed significantly to growth with a growing share of LEAP revenue per flight hour contracts with, I remind you, a conservative approach to margin recognition.

Recurring operating income at EUR 2.4 billion was up by 35%, mainly driven by civil aftermarket but also supported by a high portion of LEAP spare engine deliveries. Recurring operating margin at 20.1% represent more than 2 points of expansion in margin, and we are now able to reach our 2025 ambition 2 years in advance.

For 2024, we intend to maintain this operating margin level above 20%, thanks to expected civil aftermarket growth and further margin upside is limited by the LEAP OE ramp-up and the spare engine ratio is expected to be normalizing and we also expect to have higher share of LEAP RPFH contracts. Equipment & Defense.

Sales reached EUR 8.8 billion, up 17% organic. OE revenue was near 13%.

This division, as you know, is exposed to the widebody market with lower traffic growth and lower production ramp up compared to what we experienced in the narrowbody market. The growth was driven by increased deliveries in landing gears, electrical systems and avionics, notably the FADEC for the LEAP engines.

Still low volumes on nacelles due to downward revised demand from airframers. And defense is positively contributing to growth, notably thanks to the guidance systems.

Services revenue were up 24% with a strong recovery across the board. Recurring operating income at EUR 1 billion was up 9%.

Operating margin at 11.2% was slightly down compared to 2022, impacted by inflation and supply chain constraints. In 2024, we are expecting some margin improvement, thanks to OE ramp-up and services as well as the lower inflation impact.

Finally, some good news on Aircraft Interiors. Sales came at EUR 2.5 billion, up 33%, which is a robust growth made of 4 consecutive quarters of below 30%.

Nevertheless, we are still 23% below 2019 revenue. OE was up 25%, strong growth in Cabin, custom cabin floor to floor.

In Seats business, OE contribution was driven by higher economic class seats deliveries year-over-year. When you look at the business class seat deliveries, they were down year-over-year, but Q4 showed a sequential improvement.

However, development and certification processes require further improvement. On the service front, revenues were up 52%, benefiting from strong growth both in Seats and Cabin.

We've made some progress in the turnaround of Aircraft Interiors, Cabin being breakeven for the full year leveraging its manufacturing footprint and optimization and supported by a robust growth in services and, to a lesser extent, by OE deliveries. The IFE business was also breakeven for the full year, driven by the OE ramp-up.

And at last, Seats reached operating breakeven for the fourth quarter with notable improvements in engineering process and production costs starting to bear fruit. The division posted a loss of EUR 116 million, which is only a small improvement from last year, all coming from the Seats business.

The 2024 objective for the division is to be back to the black. Free cash flow came out at EUR 2.9 billion, up nearly EUR 300 million from 2022, exceeding our expectations.

This performance is driven by a couple of reasons. We had a continued positive contribution of working cap, more than EUR 700 million, supported by deferred income increase notably thanks to the RPFH contract in civil and helicopter engines.

We also enjoyed significant customer advanced payments from Rafale export contracts as well as for the LEAP, and this was partially offset by increasing inventories to ensure minimal disruption of deliveries to customers in the supply chain constrained environment. And cash CapEx was up by EUR 450 million to further grow our production capacity.

Looking at the net cash position. Safran was net cash positive at the end of 2023, EUR 374 million.

Beyond the free cash flow, we paid a dividend of EUR 1.35 per share, nearly EUR 600 million. We repurchased for EUR 1.5 billion worth of our own shares, 11.2 million shares held in treasury shares, and we had a net cashout impact from M&A of nearly EUR 200 million.

Safran is fully deleveraged and enjoys a strong balance sheet. Regarding capital allocation and shareholder returns on Slide 18.

For the fiscal year 2023, Safran proposed to its shareholders a dividend of EUR 2.2 per share, up 63% compared to the dividend paid in 2023 and representing a 40% payout ratio on an adjusted net income, excluding goodwill impairment for Aircraft Interiors. An update on share repurchase programs.

In 2023, we repurchased 11.2 million of shares for a total amount of EUR 1.5 billion. We have now fully completed the hedging of the potential division of the 2027 convertible bonds and the employee profit sharing scheme in the form of free share grants that we decided back in 2023.

We have started the liability management transaction to hedge the potential division of the 2028 convertible bonds. In Q1 this year, we intend to repurchase up to EUR 450 million of shares to complete the hedging of the potential dilution of 2028 convertible bonds.

You know that the last AGM authorized a maximum purchase price set at EUR 175. And looking at the share price now, you can imagine that we are on the [indiscernible] on this program.

So, so far, to date, we have already executed about 1/3 of this program. So we need now to wait for the next AGM to set up a new purchase price in case we remain at that level.

We also intend to launch a EUR 1 billion program for share cancellation, which we announced last year in July to be carried out across 2024 and 2025. Olivier, back to you.

Thank you, Pascal. Let me now give you some insights on Slide 20 about how we foresee the environment for 2024.

We expect underlying market trends to remain strong with air traffic growth rate normalizing now that we have recovered pre-COVID level and customer demand continuing. Our backlog provides visibility and confidence to keep growing our business.

Our main assumptions are the following: LEAP OE engine deliveries to increase by 20% to 25%; civil aftermarket revenue in dollars up around 20%, driven by growth in spare parts with CFM56 shop visits approaching their peak and RPFH engine improvement. We expect even higher growth in services fueled by LEAP RPFH contract.

Key watch item remains supply chain production capabilities, as you know, an industry-wide challenge. Safran expects to achieve for full year 2024 revenue around EUR 27.4 billion, recurring operating income close to EUR 4 billion, representing another 100 basis point margin improvement, and free cash flow around EUR 3 billion.

In closing, on Slide 21, I would like to focus on a few key priorities. We remain totally focused to meet customer demand by managing the ramp-up in OE deliveries despite supply chain constraints at [indiscernible] is our top priority.

We will continue to support our customers' growing demand for services. We expect to bring Aircraft Interiors back to the black.

We will continue our clear and ambitious research and technology road map to tackle the greatest challenge of our industry of decarbonization. And last but not least, we are focused on our growth trajectory, managing the CFM56 LEAP transition, increasing operating profit, expanding margin and cash.

Thank you for your attention. We are ready to answer any question you may ask.

Olivier, a couple of questions for you on the LEAP. The recent halt in the 737 MAX production ramp, does that have any impact on your projection for cash breakeven on the OEM side of this program?

And then secondly, does this, on the other side of the equation, also help the aftermarket on the CFM56?

So Robert, 737 MAX, as you know -- well, first of all, we look at that with humility. And I want to reiterate that flight safety and quality system is by far our first priority and our very first focus.

And this is true for everybody and the airframers as well. So a lot of humility.

As you know, the FAA has decided to launch an audit at Boeing that will last 6 weeks, should end by the end of Feb. And FA has also decided to suspend to post, let's say, the rate increase plan from Boeing on the MAX.

So as far as -- so far, as we speak, Boeing has not yet changed their production plan. So we'll see what happens when the audit of the FAA will end, and we expect that then maybe Boeing will tell the suppliers about their production plan.

So we can expect there could be an impact, but I cannot quantify it today because it all depends on when the FAA will waive their decision to suspend the rate increase of the MAX. So I cannot quantify today.

So it may have an impact, but it's too soon to answer. Aftermarket, it is true that the air traffic is very strong.

Be aware that basically today, when we look at the overall narrowbody fleet flying today worldwide, only about 30% of these fleets is based on new generation aircraft, meaning A320neos and 737MAX. So meaning that 70% of the current fleet flying today narrowbody is basically mainly based on the previous generation aircraft and mainly those powered by CFM56.

So as a matter of fact, demand is very strong. So air traffic is growing on one side.

And basically the ramp-up of CFM is paced by supply chain, not by demand, but by the supply chain capability to follow, and therefore, maybe less fast than basically hoped by everybody. So as a consequence, yes, it has a positive impact on basically previous generation aircraft flying, especially those powered by the CFM56.

So yes, this overall situation is tension between a very strong demand and a struggling supply chain basically is a tailwind for us on the aftermarket.

First question on the 20% civil aftermarket growth. You mentioned 2024 CFM56 shop visits approaching peak.

I just want to make sure, is the peak still expected in 2025 at around 2,300? And as the LEAP becomes more material, I mean do you have any color you could share around the volume of shop visits?

I mean, is 200 to 300 incremental shop visits this year a fair assumption? And then second one on margins.

Could you just provide some of the major walking pieces from EUR 3.2 billion in '23 to EUR 4 billion in '24. It looks like you're going to have hedging benefits, the $0.01 improvement about EUR 100 million.

Last year, you talked about the cost headwind about 950. What's the comparable basis this year?

George, I will take the first question. I will let Pascal answer the second one.

We said we are approaching the peak. We still expect a growth that I would quantify as a mid- to high single-digit growth on the number of visits, on the volume of shop visits, CFM56 in 2024 versus 2023.

And yes, we expect the peak to occur probably in 2025, so still a growth on the volume. There is going to be a price increase probably early August.

And usually, we stand 3 points -- 3 to 4 points above inflation level. That's what we've done.

And that's what everybody should expect that we'll continue to do and we expect a stable work scope. So that leads us to this 20% number.

Now I have to highlight and outline that the LEAP RPFH contract is part of this index. And we'll have a growing share of this index as basically -- in 2024 versus 2023.

So it's important that you take that into account because, as you know, we don't post any margin on LEAP RPFH contract as a preclusion up to 2025, as already mentioned by Pascal in our last Capital Markets Day.

George, on the bridge '24 versus '23, the margin tailwinds and headwinds. I will start with inflation, which is expected to be, let's say, 2x less what it was in 2023, meaning more or less EUR 500 million.

This is a growth impact. In order to offset that impact, we have accumulated effect of price escalation, plus the improvement in hedge rate by another EUR 0.01 in 2024.

Looking at the tailwinds for 2024, number one will be against civil aftermarket, despite the fact that spare parts will grow less than average 20% and services, notably RPFH services, will grow more than this average. Recovery in interiors where we expect to be back to the black and some increase, I'd say, 1 point margin increase, in the equipment branch.

On the headwinds front, I would mention the LEAP volumes. We are expecting more installed LEAP engines being delivered this year.

As you know, there is a unit loss per engine sold to the airframers. And then you can add a couple of increases in profit sharing and R&D.

George, another question I did not answer on used parts. Used parts, still not meaningful.

The number of aircraft powered by CFM56-5Bs and 7Bs that have been retired in 2023 still low. It's around 150 aircraft that have been retired, so just slightly above 2022.

So not much. And so basically, the feeding of the U.S.

-- of the used parts market is still not totally there.

Two questions, if I may. Just firstly on CapEx, we saw quite a significant increase in CapEx in FY '23.

Just how should we be thinking about CapEx growth going forward next year? And just second, on working capital.

Inventory is understandably high given supply chain is still constrained. How much of that increased stocking is kind of prudent stocking to guard against supply chain disruption?

And should we expect to see that unwind when supply chain starts to ease?

Sam, on your CapEx question, we are in a phase where we are investing a lot in our -- building up our capacity for MRO activities, notably to repair the LEAP engines. As you know, we are moving from a time and material business model on CFM56 to rate per flight hour contracts.

We used to have a low market share in our repair solutions for the CFM56 and we need to grow this capacity. This is why you still notably an increase of EUR 450 million cash CapEx increase in 2023.

You would expect that to continue as we further build capacity in India, in Morocco and we expand our capabilities across Europe as well. On the inventory front, it's true that the inventory turns did not improve year-over-year in '23 compared to 2022.

It stands at about 140 days. This is not the ultimate target we have in mind in terms of inventory turns.

It has been difficult to improve inventory turns in 2023 because we had to build inventory -- safety stocks notably for titanium. We continue to supply to VSMPO, and this source could stop at any time depending on the potential sanctions.

So we continue to build safety stocks. We have some difficulties to supply some of the raw materials.

So this is why we tend to have safety stocks all over the place. The supply chain difficulties also have an impact in terms of the value of inventories.

It is fully offset in our working cap by deferred payments on the RPFH and advanced payments from the Rafale export contracts. Moving forward, we would expect to improve inventory turns in 2024 and 2025 to approach a more standard level for our industry.

First one is on aftermarket. And apologies if I missed it, I wanted to take a chance of getting a ballpark number in terms of Leap shop visits for this year versus what probably was surely a low base in 2023.

And the second question, still on LEAP, if you could share an update on how time on wing is trending and how the progress that you're making on durability fixes such as on the HPT are also evolving?

On the first one, Victor, we say that we have achieved shop visit north of 2,000 events in 2023, which was our target. And the actual number is even slightly higher than we initially anticipated.

On LEAP shop visit, there's going to be a few hundreds in 2024, which are all part of our rate per flight hour contracts. So -- but there's a strong ramp up on LEAP shop visit as well.

And this is why basically we have to build up, let's say, a strong capacity for maintenance repair and overall of our LEAP engines. Time on wing, yes, we've been progressing on the durability fix.

We plan to bring market for retrofit and line fit our durability fleet in 2024, let's say, for first for LEAP-1A and then for LEAP-1B. So -- and this will bring a strong improvement in harsh environment.

I reiterate the fact that it is our policy and very strong focus to keep our airline customer flying. We do everything to ensure that there is no aircraft on ground due to LEAP engine issues.

We've been able to keep that, and it is our goal to continue to have that way. And this is why, by the way, there has been, let's say, a boost in the pool of spare engines to ensure that we can keep our customers flying.

This is a strong differentiation which is the main reason, I guess, for -- one of the main reasons for the fact that LEAP is a preferred option today in the marketplace.

I have 2 questions and a quick follow-up. The first one, your competitor is soon bringing an upgraded engine, the Advantage to market with further fuel burn and maybe even solving its durability trouble.

Can you share with us some elements of what CFM does on the LEAP to maintain its competitiveness against that? And second question, can you comment on the pricing for all these service agreements that you've signed during the year maybe compared to what you had in backlog at the start of 2023?

And a follow-up, just to confirm, there are no expectations of any material time and material business on LEAP in 2024?

Olivier, first of all, our win rate on the A320neo is north of 75%. So basically, we don't feel threatened.

I'm once again talking with a lot of humility. And yes, we can expect our competitor will basically recover at some stage, but we don't feel under pressure on the competitiveness of our engine compared to the competitors.

So yes, we always look at ways to continuously improve the performance, including on fuel burn of our engines and bring that market by small steps. This is a normal business.

But there is no -- there is not a big, let's say, upgrade package to be expected soon on the LEAP engine, simply because basically our priority is really serving our customer needs in terms of ramp up and focus on that. And as I said, bringing to market our durability kit.

This is our main priority. The durability kit is our main priority, well ahead of any potential fuel burn performance improvements.

Pricing, of course, we are focusing on basically improving with time, let's say, the commercial conditions for us on the services contract. This is part of basically our strategy to smoothen the transition between CFM56 and LEAP.

So yes, indeed, basically we take into consideration the environment, which is more inflationary than it used to be before COVID and basically focusing on making sure we improve, let's say, our pricing. Once again, we are not chasing market share.

We are absolutely not under pressure to increase market share. 75% is even higher than what we would expect.

We are basically starting to see some time and material on -- so we have started to do some time and material services offers for the LEAP engines. So meaning now we, yes, indeed, we are pushing into the market time and material offers, which is an alternate to rate-per-flight-hour contracts, especially for those airlines having [indiscernible] on one side.

And also in the course of 2023, we have signed agreement with 5 third-party shops, 3 within airlines or subsidiaries of airlines and 2 independent shops which basically are licensed by CFM. So they are licensed shops.

And we will basically ensure that we will make sure that basically they get into the LEAP maintenance market. We'd like to make sure that the market basically opens up to third-party players on the LEAP maintenance.

This is part of our strategy.

That's very clear. When you say some time and material offers now being pushed into the market, does it -- when does that materialize in your revenues, if you...

It will be material in 2024, Olivier.

I wanted to ask another one quickly on LEAP. Obviously, you're recognizing the shop visits that you do in 2024 at 0 margin.

But how are you seeing and how are you expecting the actual underlying profitability of those shop visits? And how do you see that progressing, if there's any color that you can give there?

Secondly, I wanted to ask on equipment. You've talked about margin expansion in 2024.

Is there any reference that you can give in terms of how much you see? I mean, obviously, at the Capital Markets Day you talked about 100 basis points.

Is that a level that's achievable? Or will it be lower than that?

And then finally, on M&A, obviously, there were some issues with the Collins deal. I was just wondering if there's an update in terms of the general pipeline and how you're seeing the M&A environment and if your strategy there has changed at all.

Okay. Ben, I can provide some color on the LEAP service agreements.

Olivier mentioned that the pricing conditions were better every day. We manage a book of a bit more than 50 RPFH contracts and we manage the underlying margin.

I can confirm that it's up in '23 compared to 2022. Every new contract that we add to the book is relative in terms of margins.

We also take the opportunity when we add more engines to an existing contract to try to renegotiate the pricing conditions to our favor. And then the fact that the rate increase of the LEAP-1A, LEAP-1B is pushed to the right is a positive for our book of service agreements contracts because all these engines will include the 2 fixes that will be implemented in '24 and '25.

So it is another way to improve the underlying margin of our book. So I can confirm that pricing conditions are better and the underlying margin is also improving over time.

The second question on the equipment in margin, yes, I will confirm that I would expect more or less 1 point of margin improvement in 2024, mainly driven by, I would say, more production in the widebody market on 787, 777, A350, so rate increase in widebody. The fact that the widebody traffic is still to recoup its 2019 levels will be positive as well for service contracts, notably in landing gears, for example.

So all in all, it's a 1 point improvement. It's still below what we were aiming at when we talked at the Capital Markets Day.

Remember that the target was nearly 15%. So we'll be behind plan by 2025 for sure.

Ben, on the M&A and the Collins deal on flight controls, we've filed a protest in Italy against the decree that has been issued by the Italian authorities. And the seller, RTX Collins, has filed a protest as well.

So that's on one side. And on the other side, we have engaged into a dialogue with the Italian authorities to capture their concerns, and we've basically committed to respond to their concerns.

And of course, we are going to privilege and to favor, let's say, a positive outcome with the Italian authorities. So work in progress on that one.

We have not changed our M&A policy. We are still ready if opportunities are coming by.

If it makes sense economically wise, technologically wise, strategically wise, we will look at them. We are talking mainly about bolt-on acquisition, medium size on, let's say, typically on the equipment side and the defense side.

If it makes sense economically and strategically, of course. So no change on the policy.

I've got 3, please, first to [indiscernible]. First one, could you just tell me -- remind me the commonality between a LEAP-1A and 1B and what lead times you would need to transfer production from one to the other if that was ever needed.

The second one is in 2023, are you willing to tell us on the LEAP aftermarket, on new contracts what percent was LTSA? What percent was T&M on new contracts booked?

The third one, a bit more philosophical, if I may. You've got your CMD on December 5, which is exciting news.

GE has its CMD on March 7. I think many of us will be listening to the GE event.

Are there any material differences you're aware of in your accounting, in particular, on LEAP LTSA that we just need to be wary of in terms of any read across from GE to Safran that may or may not be there?

David, I will take the first one. There's just a few -- a handful of parts that are common to the 1A and the 1B, okay?

This is the same engine architecture. This is the same engine technology.

But the size of engine is not the same. So when we look at the commonality between 1A and 1B, there is almost not.

So this means that we cannot switch short-term production from 1A to 1B or from 1B to 1A. Part of our supply chain is common, part of the supply chain is differentiated.

So there is no optionality from us to switch from one to the other in the short term, I mean, 2024. When we look at a more long-term horizon.

Of course, we can plan depending on, let's say, the potential changes of the demand between both airframers. But our priority will always be to serve both and to make sure we can meet both airframers demand.

By the way, I mean, we've agreed with Airbus on the volume of LEAP that they need for 2024, and they did not ask for more, okay?

Okay, David. Looking at what airlines requires in 2023, it's very well oriented towards RPFH contracts.

Nevertheless, what we do at CFM level with our partner, GE, is to provide us an alternative T&M contracts. And from time to time, for some airlines, we simply could time and material and not RPFH.

So I won't quote a number in percentage, but I would say that we are now able to sign a couple of T&M contracts, which is a good move towards what we ultimately would like to achieve in terms of proportion between T&M and LTSA. Now on the Capital Markets Day.

We are very well aware that GE will speak on March 7, which is quite a few months, if not quarters, before our own Capital Markets Day. We have no inside information on how they will affect the market and how they will account for LTSA contracts.

What I can see from their public communication is that on the OE side, usually, they communicate on breakeven, which includes both OE and services, which differ from what we do at Safran. Because when we communicated on a gross margin breakeven for the LEAP, it was purely on the OE side.

On LTSA accounting, I don't know what I will say. But on our side, you know that we are being conservative, not to recognize any margin up to 2025.

And then our intention is to only gradually release the margin which is the underlying margin in our book. I have no idea what GE will do.

Will they release a full margin or not? I have no idea.

So I know what we do. I don't know what they do, and we will listen carefully in March 7, as for you.

A couple of quick ones. The first one, I wanted to get your view on the organization of production in the LEAP and the flexibility that you have here.

We don't know what's going to happen to Boeing's production rate. But if you have some flexibility here, you explained you don't have so much a commonality with a LEAP-1A and you can't really relocate production.

But what usually do you do when you have a bit of room in your personal line? Do you build spare engines?

Do you build spare parts? Do you build spare parts for other type of engines?

So how could you consider if at some point you have some flexibility here, how you could reorient production? Second question is, I wanted to understand on the Seats business that has reached breakeven on Q4, how you progressed on the certification of widebody cabin and whether the bulk of [ head of version ] have been certified and delivered or whether there's still some work to be done.

And a very quick one, if you can comment on the KPIs of the CFM56 MR market in terms of turnaround time, parts supply. Are you happy with the current level?

And what type of progress you expect here in 2024?

Tristan, as I said, there is a very low level of commonality between 1A and 1B, and therefore, you can expect there is no flexibility short term to switch from one to the other, as I already mentioned, okay? Of course, there's more flexibility between installed LEAP deliveries and spare engines.

We can have some flexibility in the allocation of deliveries to airframers versus basically deliveries to airlines for spare engines on 1B and on 1A. So once again, our agility is more medium term.

So starting 2025, 2026, depending again on basically the evolution of the demand on both sides. On Seats, yes, indeed, we have reached breakeven as we've basically expected in Q4.

This is due to a combination of factors. But especially, we have delivered much more business per seats in Q4 than what we did in, let's say, Q1, 2 and 3.

You probably are aware that this is -- in the presentation that the number of business class seats that we will have delivered in 2023 is about half of what we've delivered in 2022. It's not a market trend.

It is just a question of phasing of business class seats program. We had strong deliveries in 2022 with one given customer in the U.S.

That basically have been completed. And basically, with the shift of certification that we are facing on new programs in 2023, yes, indeed, the deliveries have been more backloaded in Q4.

All the transformation plan on engineering and certification, as you can expect, will mainly apply to new programs. On the one that were already launched, basically we are basically managing as best our development plan and our development planning and certification planning.

Turnaround time for CFM56. Basically, yes.

Like for every shop in the world, it has deteriorated since COVID as a consequence of a struggling supply chain. And so today, we -- basically, we are more in the 90 days range whilst basically pre-COVID, for the best shop in the world, we're more at 65, 70 days of turnaround time.

So yes, indeed, it has deteriorated because they are here and there missing parts that we are waiting for.

And so you have a target of improvement for '24?

Yes, of course. We have a target to get back to a nominal level of 65 to 70 days on CFM56.

But once again, same answer as Pascal provided on inventory. This will normalize when the supply chain will normalize.

It's as simple as that. Because when you basically deliver an engine or an equipment like landing gear or an asset or whatever, one missing part is enough to prevent you to deliver.

So basically, it's all about -- and our team are focused on that. They are doing a great job chasing the last missing parts.

So it's all about chasing the last missing parts.

Thank you very much. Thank you for your attention in a busy day.

Bye-bye.

Have a good day. Bye-bye.

.