Airbus SE (AIR) Earnings Call Transcript & Summary

Ladies and gentlemen, we appreciate you holding. You're welcome to the Airbus Full Year 2019 Results Release Conference Call. I'm Aurelia, and I'll be operating this conference. <<operator_script>> Right now, I'd like to hand the conference over to your hosts, Guillaume Faury, Dominik Asam and Thorsten Fischer.

Thank you, Aurelia. Good morning, ladies and gentlemen. You're joining the Airbus conference call covering the release of our Full Year 2019 results. Our CEO, Guillaume Faury, along with our CFO, Dominik Asam, will walk you through the results and take your questions. We expect this call to run for roughly 90 minutes. That figure covers Q&A, which we'll hold once the initial presentation wraps up. A webcast of this call is available too. You can reach it through our home page, where a special banner has been posted. A playback will be available on the website, though we do not offer a dedicated phone replay service. The supporting information package went out to you by e-mail earlier this morning. Inside it you'll find the slides we're about to take you through, plus the financial statements. During this call, we will be making forward-looking statements. The safe harbor statement is included in the package you received, and it applies to this call as well. Please read it carefully. Now over to Guillaume.

Thank you, Thorsten. Good morning, everyone, and welcome to the call covering our full year 2019 results. You saw the press release we issued earlier regarding the increase in our holdings in the A220 program, and we'll return to that topic later on. Today's call, though, concerns our full year release. It's a pleasure to be here alongside Dominik to take you through our 2019 results and give our 2020 outlook. During 2019, we made good progress despite industrial challenges and a complex geopolitical environment. In Commercial Aircraft, we achieved a record 863 deliveries, increasing our production by approximately 8%. In addition, we adjusted the deliveries guidance during the year. We showed a strong underlying financial performance in 2019. We delivered on EBIT adjusted at EUR 6.9 billion, up 19% year-on-year, and free cash flow before M&A and customer financing at EUR 3.5 billion, up 21% year-on-year. We also addressed some key fines. First, compliance. Airbus has reached final agreements with the French PNF, Parquet National Financier; the U.K. SFO, Serious Fraud Office; the U.S. Department of Justice and Department of State resolving investigations into Airbus and agreed to pay penalties of EUR 3.6 billion plus interest and costs. The corresponding charge has been recorded in our 2019 accounts.

These agreements mark a highly significant milestone for us. Second, regarding the A400M: although we rebaselined the program and achieved meaningful progress on technical capabilities, the export outlook during the launch contract phase is growing more challenging, particularly given Germany's export ban on Saudi Arabia, which has been extended repeatedly. We have revised our export assumptions for future export deliveries in the launch contract phase, and in Q4 we booked a charge of EUR 1.2 billion. While the agreement with the authorities and the A400M charge have driven our 2019 results to a net loss and will weigh heavily on our 2020 free cash flow, we remain confident in sustaining our operational improvements in EBIT and cash generation over the coming years. With this in mind, along with solid prospects for 2020, we proposed a dividend of EUR 1.8 per share, up 9% compared with 2018. In 2019, we once again delivered a strong finish to the year, thanks to a tremendous team effort. However, we cannot be satisfied once more with the back-loaded delivery profile. For 2020, we stay fully committed to taking the steps needed to position Airbus for growth that is more sustainable. At the same time, we face a heavy burden on free cash flow in 2020 stemming from the penalty payments and the consumption of compliance-related provisions.

But before we get to our 2020 guidance, let's examine 2019 a bit more closely. First, on Commercial, I want to start with a brief update on where things stand with the WTO. As a reminder, in October '19, the USTR placed tariffs on Airbus aircraft brought into the U.S. from the EU, and that affects our customers in the U.S. We kept working to handle the fallout from those tariffs. This year, the WTO is expected to give the EU the go-ahead to put tariffs on U.S. products. Whether to impose tariffs, and at what amount, is a financial decision for the EU and its member states to make. My hope is that the U.S. and the EU will reach a negotiated settlement so that further damage is avoided. Now let's look at our commercial positioning, beginning with Airbus. Demand for our products continued to be robust. Even with geopolitical and trade tensions, the global economy expanded by roughly 2.5%, passenger traffic rose by more than 4%, passenger load factors came in above 82%, and airline profitability stayed strong at around $29 billion. Naturally, we are monitoring closely how the coronavirus situation is developing so we can anticipate what impact it may have on our customers, employees and stakeholders, as well as on our aircraft production and deliveries, and so we can define cocreate contingency measures to apply if and when necessary.

During 2019, we recorded 1,131 gross orders, which highlights customer backing across every market segment. The 363 cancellations mirror particular airline circumstances in 2019 along with the A380 production stock. Net orders came to 768 versus 747 in 2018, pushing Airbus' total historical cumulative net orders past the 20,000 threshold. Although book-to-bill stayed under 1, the backlog's value rose year-on-year by roughly EUR 12 billion. Measured in units, our backlog totaled 7,482 aircraft. For the A220, we logged 63 net orders, among them new customers, which confirms the A220 as the leader in its category. Our backlog there is 495 aircraft. The A320 Family carried on its success with 654 net orders. The A321XLR drew an outstanding market response, with a backlog exceeding 400 aircraft at the close of 2019. Our overall single-aisle backlog of 6,068 aircraft underpins our long-term plan. Turning now to the A330, where we booked 89 net orders, among them orders from existing operators and the new neo lessor, our backlog is 331 aircraft. On the A350, we've logged 113 gross orders, among them some major campaigns. Net orders are 32 aircraft, with a backlog of 579 aircraft. In Helicopters, the team delivered a book-to-bill above 1 in value for the third consecutive year — a very good performance in a rather difficult market environment.

Order intake came to EUR 7.2 billion, with roughly EUR 3 billion of that from services. So even with the civil and parapublic market soft at present, we held on to our leading position in that sector. We booked 310 net orders in 2019, among them 25 Super Puma, 23 NH90s and 10 H160s. Notable services contract wins include an extension of the support contract for Australia ARH Tiger plus support contracts for the French forces. For 2020, we anticipate the civil and parapublic market staying soft, especially in oil and gas. And in military we keep seeing good prospects. Lastly, Defence and Space. Although we see substantial opportunities over the long term, book-to-bill was a disappointing 0.8 in '19. Our 2019 order intake of EUR 8.5 billion was backed by A400M service contracts and key contract wins in Space. In Defence, we have seen some acceleration on major campaigns, but as previously communicated, pinning down exactly when a contract award will come remains difficult. The FCAS, Future Combat Air System, first demonstrator contract, known as Phase 1A, was finalized and approved by the German Parliament yesterday. We also submitted the order and proposal together with our partners in 2019.

Negotiations on the contract are currently in progress. And when it comes to Space, our emphasis has been on reinforcing where we stand amid a competitive landscape. At the most recent IZA conference, we have observed a few encouraging indicators regarding budget commitments. At this point, Dominik is going to walk you through how we performed financially during the year. Dominik?

Thanks, Guillaume, and good morning, everyone. Revenues for 2019 rose to EUR 70.5 billion, an increase of 11% compared with the prior year, driven primarily by higher deliveries and a favorable product mix at Airbus, and to a smaller degree by favorable exchange rate movement. As a reminder, through the year we guided to roughly a 15% year-on-year rise in EBIT adjusted. We came in above that at EUR 6.9 billion, up 19% year-on-year, even after the revised delivery target we shared in October, which indicated approximately 20 fewer aircraft than our original target. That strong conversion of deliveries into profit came largely from the A320 ramp-up and neo premium, along with good progress on the A350, partly offset by Defence and Space performance and additional ramp-up costs. We also kept raising our investments in innovation and digitalization. Adjusted earnings per share came to EUR 6.07, based on an average of 777.0 million shares. Free cash flow before M&A and customer financing was generated at about EUR 3.5 billion, up 21% year-on-year, despite higher A220 dilution and some initial progress on linearization, particularly on trade liabilities. This mainly reflects our record deliveries and our earnings performance. Let me now move to Page 7 on our profitability.

The EBIT we reported came in at roughly EUR 1.3 billion. Adjustments netted out to a negative EUR 5.6 billion, and EUR 0.7 billion of that had already been recorded during the 9-month period. The negative adjustments break down as follows: roughly EUR 3.6 billion tied to the penalties; approximately EUR 1.2 billion for the A400M charge; EUR 221 million stemming from the suspension of Defence export licenses to Saudi Arabia, which has now been extended through March 2020; EUR 202 million in connection with A380 program costs; EUR 170 million from foreign exchange and balance sheet revaluation; EUR 103 million tied to the Premium AEROTEC restructuring plan, launched to sharpen the company's competitiveness; and a negative EUR 101 million covering other costs, compliance costs among them, partly offset by positive capital gains on the sale of Alestis and PFW. This exceptionally high adjustment level is plainly not something we're satisfied with, and we will place a very strong emphasis on bringing it down. Although we feel a great deal is now behind us, there remains work ahead in 2020 on Defence and Space restructuring, the A380 ramp-down, and what follows from the compliance settlement. And FX and balance sheet revaluation, of course, could well keep generating some volatility in our adjustments.

Earnings per share as reported takes a hit from financial results, and that's chiefly because of how financial instruments got revalued. The tax charge of minus EUR 2.4 billion stems largely from the fact that those adjustments were mostly not deductible for tax purposes. When you look at 2020, assume a tax rate of roughly 28% on the results of the core business. That leaves us with a net loss of about minus EUR 1.4 billion, and loss per share comes to roughly EUR 1.75. Turning to our hedging strategy, it gives us solid visibility into the years ahead. Our annual hedge rates are markedly better than they were a year earlier. During fiscal year 2019, we put in place $40.6 billion of forwards at an average rate of $1.20 per euro, mostly for 2022 and 2023, and at the same time $25 billion -- $24 billion of hedges matured at a rate of $1.24. We further fine-tuned the phasing of our hedges so it lines up better with our delivery profile. We rolled $4.1 billion of hedges into 2020 and roughly $7.1 billion out of 2020. Beyond that, we kept restructuring our collars, converting them into forwards. During 2019, we restructured the full amount of 2019 collars along with a significant portion of 2020 collars, which had a positive effect on the 2020 average hedge rate.

We’ve also begun hedging British pounds against the euro, and that will gradually take the place of our portfolio hedging British pounds against the U.S. dollar. Our overall U.S. dollar hedging book is now at $97.1 billion, with an average exchange rate of $1.23. New hedges will be put in place according to our policy, depending on how the foreign exchange environment looks overall. Now let’s turn to how cash moved in 2019. Gross cash from operations was strong at about EUR 7.0 billion, compared with EUR 5.5 billion in 2018, and that reflects our adjusted EBIT and record deliveries. During 2019, the substantial cash outflow from our linearization work—both on single-aisle inventory and on payment terms with suppliers—was partly offset by healthy PDP inflows and disciplined inventory management on wide-bodies. AIR was cash neutral in 2019. The effect of recognizing the penalties has been netted out in our cash bridge, from both gross cash flow from operations and the change in working capital. The A220 impact on free cash flow was around minus EUR 0.5 billion, as expected. That net cash impact was largely covered by the ACLP funding agreement with Bombardier. This funding was recognized as a financing cash flow and therefore sits outside free cash flow. A400M continued to weigh on our free cash flow before M&A and customer financing, though less than in 2018.

CapEx came in at roughly minus EUR 2.3 billion, which was stable compared with 2018. For 2020, we anticipate CapEx of approximately EUR 2.6 billion. Free cash flow as reported stood at EUR 3.5 billion. Customer financing added EUR 0.1 billion, whereas M&A activities came in at minus EUR 0.1 billion. The 2018 dividend, paid out during 2019, totaled EUR 1.3 billion. In 2019 we put a total of EUR 1.8 billion into our pensions, including EUR 1 billion of top-up funding aimed at cutting the deficit. By the end of 2019, the net pension deficit was EUR 8.4 billion, and we remain committed to funding that deficit further going forward so as to secure a funding ratio at benchmark levels. As a reminder, we adopted the IFRS leases standard on January 1, 2019, and that raised financing liabilities by EUR 1.4 billion while lowering the opening net cash balance to EUR 11.9 billion. On a comparable basis, our net cash position rose slightly, by roughly EUR 0.5 billion, to EUR 12.5 billion. Before we turn to Airbus business, I would like to give you a brief heads up. Starting this year, we will adjust our segment structure so that it reflects our internal reporting. Consequently, you should bear in mind that the bulk of our transversal activities will be folded into the Airbus segment.

Eliminations are going to be reported on their own. Starting with Q1 2020, we'll begin reporting that way. Now, handing it back to Guillaume so he can take a closer look at our businesses.

Thanks, Dominik. Turning to Airbus, we posted a robust set of results, driven by record deliveries and solid operational performance. Even with the tough and steep ramp-up we've encountered on the ACF, we achieved an industry record of 863 aircraft — 63 above 2018, which, as I mentioned, is an 8% increase. Let's examine more closely where each of our programs stands, beginning with the A220. During 2019, we handed over 48 aircraft. Our emphasis remains on lowering costs and building the backlog to underpin the ramp-up plan toward a maximum target rate of 10 in Mirabel and 4 in Mobile by the middle of the decade. At such a rate, we will be in a position — we should be in a position — to achieve operational profitability. For 2020, we aim to deliver roughly 55 aircraft. The A220 will keep weighing on free cash flow in 2020, at a higher level than the prior year. Now returning to the announcement we made earlier today: Airbus and Investissement Québec have agreed to purchase Bombardier's remaining stake in the Airbus Canada Limited Partnership, which leads the A220 program. Under the agreement, Airbus becomes a 75% shareholder of ACLP, with IQ retaining the other 25%.

This deal also covers moving the leftover A220 and A330 work packages and production capabilities over to Airbus. Airbus is going to pay a total consideration of $591 million, net of adjustments, with $531 million of that due on closing. Through this transaction, Bombardier is freed from its future funding capital requirement to Airbus Canada. Now turning to the A320. We delivered 642 A320 Family aircraft, 551 of which were neo. Inside that overall A320 delivery figure, we increased the ACF, Airbus Cabin Flex, by nearly 100 aircraft compared with last year, and almost half of those came in Q4. In 2020, we aim to more than double our ACF deliveries, with ACF Head of Versions rising in 2020. Our teams are concentrated on locking in the ongoing ACF contract and on improving the industrial flow sustainably so as to ease the burden in Hamburg. In Hamburg itself, we dedicated 2 lines -- 2 of the 4 lines -- to the ACF. We also inaugurated the new A320 structure assembly line in October to help add efficiency to our production system. In the U.S., we delivered our first ACF in 2019. We'll broaden our industrial footprint by raising the A320 Family rate to 7 per month in Mobile by the start of next year as part of this year -- as part of our plan to hit rate 63 in 2021.

Also in Toulouse, we recently revealed that we're launching a new digitalized A321 file, which is meant to rebalance the A320-A321 mix and give us more security on global single-aisle output. The first delivery of an aircraft is targeted for 2022. With 6,068 aircraft, our single-aisle backlog works out to over 8 years of production at the current rate. We're holding discussions with our supply chain about additional ramp-up past rate 63, and we already see a clear route to raising the monthly production rate by another 1 or 2 in each of the 2 years following 2021. Turning to the A330, we delivered 53 aircraft, 41 of them neos. In light of overall wide-body demand at present, we've reviewed our production planning and will adjust A330 deliveries starting in 2020 to roughly 40 aircraft annually. Over time, we'll work to adjust the program's cost base to match this new production plan. Regarding type certification for the A330-800, we expect some news very soon. Moving on to the A350: we delivered 112 aircraft, and we now have 33 A350 operators. We hit our breakeven target in 2019, and we'll keep making progress on recurring cost convergence as we enhance the program's performance.

Turning to rates. In light of where the market stands right now, our intention is to remain in the 9 to 10 range. Moving to the financials, revenue growth mirrors greater deliveries, which include 551 A320neo and 112 A350 aircraft. The 32% rise in EBIT adjusted shows, on the A320, solid results powered by more deliveries and neo premiums, with the neo share climbing to 86% across the whole of 2019. Partly countering that gain were extra ramp-up expenses tied to the ACF. For the A350, we handed over 19 additional aircraft in total compared with 2018. R&D came in higher, at EUR 2.4 billion, in line with expectations. The rise over the prior year stems chiefly from the DDMS ramp-up. Execution and competitiveness will stay our focus, and we will meet the commitments we have made to customers. Let's now turn to Helicopter. Flat revenues were underpinned by services growth, which offset weaker deliveries. The 4.6% margin gain in EBIT adjusted largely mirrors a bigger services contribution, along with reduced R&D, tempered by a less favorable delivery mix. Our 2019 results demonstrate how resilient the business is in a market that is still soft. We keep managing performance, and the building blocks are in place ahead of an expected market recovery. Lastly, Defence and Space.

Sales held roughly flat compared with a year earlier. Adjusted EBIT reached EUR 565 million, down 40% from the prior year. The main drivers are weaker performance in Space plus the steps we took to support sales. Keep in mind that 2019 reported EBIT carries an adjustment of minus EUR 221 million tied to the extended halt in German Defence export licenses to Saudi Arabia, while 2018 benefited from the net capital gain on the sale of the Airbus DS Communications, Inc. business in the U.S. Now, where do things stand on the A400M? During 2019 we handed over 14 aircraft, matching the most recent delivery schedule, which lifted the in-service fleet to 88 aircraft. Last year we also hit several important milestones on the path to full capability. These include deploying paratroopers simultaneously, certifying combat offload operations, and dry contacts for helicopter air-to-air refueling. Through 2020 we will keep pursuing development work aimed at the revised capability road map. Retrofit work is moving forward according to the plan agreed with the customer. As I said before, we revisited the A400M export assumptions in Q4, which produced a charge of EUR 1.2 billion. The A400M is now projected to absorb roughly EUR 2 billion in cash in total through mid-decade.

For the last 3 years, order intake and financial results at Airbus Defence and Space have been affected and have come in below what we set out to achieve. So we are aiming at a restructuring program to tackle our cost structure and bring profitability back to a high single-digit margin. We began talks with our social partners in December and anticipate a restructuring charge this year. Guidance. In forming the basis for its 2020 guidance, Airbus presumes the world economy and air traffic will expand consistent with prevailing independent forecasts, which presume no major disruptions, including from the coronavirus. The current tariff regime is to stay unchanged. Airbus 2020 earnings and free cash flow guidance is before M&A. Airbus therefore targets around 880 commercial aircraft deliveries in 2020. On that basis, Airbus expects to deliver an EBIT adjusted of approximately EUR 7.5 billion and free cash flow before M&A and customer financing of approximately EUR 4 billion, before a minus EUR 3.6 billion for the penalty payments and a negative mid- to high triple-digit million euro amount for the consumption of compliance-related provisions for tax and legal disputes. The Board of Directors will propose a dividend of EUR 1.8 per share, up 9% versus last year. That dividend reflects the positive evolution of the 2019 underlying performance and our 2019 cash generation.

This also underscores how confident we are in the financial results we'll deliver going forward, along with our continued dedication to growing the dividend steadily and giving shareholders better returns. So in 2019, a great deal has been left behind us: compliance investigations; the A400M rebaselining; the end of the A380 program and Emirates' A350 order; the A220 ramp-up and the buyout of Bombardier's stake that has now happened; the creation of the Future Combat Air System, a major accomplishment for what lies ahead; the management transition; and the rollout of the transformation platform meant to get Airbus ready for its next chapter. We likewise moved toward a financial profile that is more linear. The cash our underlying business generates in 2020 will help meet the compliance-related obligations estimated for that year. As Dominik said, we'll keep funding our pensions up to benchmark levels. And we have to look for opportunities in nonorganic growth. All of this will be done while safeguarding our investment-grade credit rating. And although A400M, A220 and compliance will keep weighing on our free cash flow, the business backs our cash conversion target of 1. Now, a few words to close. 2019 was a year in which we made progress on a number of topics within an environment that has grown more complex because of Brexit, tariffs and trade bans, and that should continue into 2020.

We established the basis for the next phase of a stronger, more sustainable Airbus, and we will keep building on that. During 2020, we will boost the single-aisle delivery flow's efficiency even more, including the ACF ramp-up, so the program's full potential can be captured going forward. A key priority for us is making production linear. We realize the coronavirus will add some difficulty to that. We will keep improving the A350 product's profitability as well, while at the same time addressing the A330 cost base, given the rate adaptation consistent with wide-body customer demand. For the A220, the emphasis stays on commercial momentum and on securing further cost reduction. In Helicopters, we will keep leveraging the military and services business while positioning the company for a future recovery in the civil and parapublic market. At Airbus Defence and Space and Premium AEROTEC, we will take the steps needed to restore profitability. We will maintain our investment in digitalization and innovation to get ready for what lies ahead. Program execution and meeting our commitments to customers remain our focus, and will continue to be, clearing the path toward stronger financial performance and free cash flow growth, with quality, safety, integrity and compliance always at the forefront.

Let’s move on to the questions you’ve sent in. Thanks.

Thanks, Guillaume. <<operator_script>> Aurelia, you have the floor — kindly walk the participants through the procedure.

<<operator_script>> Our first question comes from Ben Heelan at Bank of America.

Starting with my first question, which concerned A320 rate increases: could you help us grasp where those aircraft will be built, and how we ought to think about the split between the A320 and the A321 as part of those increases? Then, second, on Defence and Space — I believe the statement made clear that it's Space where the weakness is mainly showing up. How should we be thinking about that as we go forward?

Ben, I appreciate those questions. Let me begin with your first one. So, the A320 Family is going to keep being built at the primary sites where production happens at present. In Hamburg, we have 4 final assembly lines that can handle both A320s and A321s. There are 2 assembly lines in Toulouse, and those are A320 only. As we previously announced, we've established a new final assembly line that will serve as an A320 and A321 line, which gives us added flexibility in our capacity to expand as the A321 share rises going forward within the single-aisle segment. We also have the 2 assembly lines in Tianjin and Mobile, and on those lines we're continuing to increase the rates as well. That's the reason -- and this underpins the objective of reaching rate 63 per month in total for the A320 Family by 2021, and also of raising the rate, as I mentioned, by 1 or 2 points of rate during 2022 and once more in 2023. So I trust that addresses your question. Turning now to the mix of A320 versus A321, Dominik, as you're aware, roughly 30% of deliveries in 2019 were A321s. And within the backlog, we hold a considerably larger percentage of A321.

We'll keep increasing the share of A321s going forward. Do you want to take the one on Defence and Space?

Yes, absolutely. So, what you've observed is a pretty sharp drop in profitability at Defence and Space. Order intake, too, came in well under the revenue line once again. As things stand, the working assumption is this — let's take it as a stress test and suppose that a lot of the white elephants sitting in our pipeline simply don't come through, and imagine that roughly EUR 8.59 billion is the floor, the rock bottom point we could reach. What changes would the cost base need so that return on sales gets back up to a high single-digit margin? That's going to take a couple of years. So this year, don't expect much improvement, since the restructuring has only just begun. Next year, gradual improvement. And after that, in year 3, if you will, thanks to the restructuring, we intend to be back at that high single-digit margin we've had in the past.

Our next question comes from Tristan Sanson at Exane BNP Paribas.

This is Tristan calling from Exane. I'll stick to 2 questions, then. My first one concerns your capacity to give the market mid-term visibility. As you'll recall, at last year's Paris Air Show you said a few conditions had to be in place — things like Brexit, resolution of the SFO case, and finishing our operating planning exercise — before you could offer mid-term visibility to The Street. My guess is that quite a lot has changed in the environment since that point. Could you tell us which new conditions would now need to be met for you to make that kind of commitment? That's question one. Question two: could you give us an update on how the cash flow pattern for the A400M program will look going forward?

When it comes to capital allocation, I believe the first thing worth doing is examining how cash flow has developed — or maybe I should begin with the target capital structure we're aiming for. We're genuinely happy with the rating position we currently hold. Going back, or dropping down, to something like a BBB rating strikes us as a bit of a slippery slope for a business such as ours, which carries a lot of PDPs from the customer. Our customers really need us to serve as a safe haven. And if capital markets ever tighten somewhat when it comes to vendor financing, we'd very much like to be in a position to support that as well should the need arise. That's why we're really comfortable with the rating category we sit in today. Turning to cash flow, you saw last year brought in EUR 3.5 billion, and we also noted that EUR 1.8 billion of pension liability funding has to be deducted, and then there's a dividend to be paid for last year. Taken together, you can see that this essentially washes it out already. Then for next year — sorry, I mean the current year, 2020, that's what I'm referring to now — we are extremely burdened by the fine and its consequences, and the EUR 4 billion guidance on the operating side is already essentially eaten up by that.

And of course, we want to keep the dividend policy going as well, which is very much built around net income and a 30%, 40% share of net income. And since we now have all the fine-related topics already on our balance sheet, that means, of course, we would like to maintain the dividend policy, so there is a clear commitment to maintain the dividend policy, increasing dividend. But it's also clear from the kind of cash bridge I gave you that we have no room in 2020 to think about shareholder returns in terms of share repurchases.

The next question concerned cash flow for the A400M.

On the A400M cash flow: for 2019, we'd previously guided that we wanted to get to roughly EUR 0.5 billion, and that roughly EUR 0.5 billion is now sliding into next year. Last year, we did better than that. In 2018 it came in under EUR 1 billion, so somewhere between those 2 figures. So I think it'll be EUR 0.5 billion for a few more years — maybe 3 years — and then taper off. That gives you the approximately EUR 2 billion we've talked about.

Alright, if I may — the first response was quite useful, though it wasn't really what I asked. What I was trying to get at is when, basically, you'd be in a position to hold the Capital Markets Day, which would let us gain somewhat more visibility into the earnings trajectory for each of your programs as well as the midterm ambition you have for the group. And — I'm not asking for timing, but rather the conditions that would need to be gathered for you to be able to hold that kind of effort, if you want to.

Honestly, I can't give you an exact answer on that. As you've observed, a great deal was resolved during 2019. Regrettably, Brexit is still a risk. We believed a no-deal Brexit had been ruled out. Given how the negotiations now stand, that's not entirely certain. The WTO situation is also quite fluid. SFO, PNF — all of that now lies in the past. In my view, bringing it to a close and shifting into the next phase was a very important goal for the team, and it has been achieved. So I believe we owe you a more exact response to that question. Going forward this year, we again expect plenty of matters to be resolved. Yet we see a clear path on operations, on linearization, on the single-aisle ramp-up and on our program's profitability. So perhaps that question gets answered somewhat later. But it's noted, Tristan, thank you.

Celine Fornaro from UBS has the next question.

Let me begin with the first one, and that ties back to a remark Guillaume made near the end, where you said the business can still support a cash conversion target of 1x — and I take it you meant at group level. So should we read from that, that Airbus Commercial...

Yeah, this is Dominik. So a cash conversion of 1 is definitely what the group is aiming for. There are 2 caveats that we've pointed out. The first is the A400M — we've now given you the cash sizing on that, and it's still weighing on us going forward. It's clear that in 2020, I mean, we've got the compliance topics ahead of us, and those are also putting pressure on cash conversion in 2020. And then there's the J-curve on the A220. The program is logged — it's ramping. I mean, you've seen that we delivered, I think, 48 aircraft last year. When you consider the rate potential, you can see it ought to rise from the middle of the decade to 160, 170-ish. That's a really steep ramp, and that ramp consumes cash, so there's also a substantial cash requirement, which for 2020 will actually be in the high triple-digit million dollars. So those are the 2 things we still have to get behind us, but after that, we should have the group at a cash conversion of 1.

Celine, my apologies — the call dropped. Operator, could we move on to the following question, please?

Absolutely. Our following question comes from Christophe Menard at Kepler Cheuvreux.

Two questions. First, regarding the cut in A330 production rate: could you walk us through the reasons — I imagine it's largely demand — but why go from 50 down to 40, and how sustainable is that level going forward? Second, on pension funding, when do you expect to make contributions and how much do you actually intend to pay or fund over the coming years — and what timing do you have in mind?

Yes. So I’ll handle the first one, and, Dominik, you can take the second. Yes, regarding the A330, beyond the delivery numbers, it’s key to keep in mind that many aircraft handed over in ’19 were in fact built in ’18. You’ll recall there were delays to the neo’s entry into service tied to engine problems. So the underlying output is more linear and more stable than what the deliveries show. Now, coming back specifically to your question about 2020 and then 2021: yes, that is essentially demand-driven. We want — and we’ve already said this a few times before — to have a production level that reflects demand going forward, rather than finding ourselves in an overcapacity situation. And what we’ve stated on the A350 and on the 330 reflects how we understand the market’s capacity and mainly reflects the backlog — the backlog’s capacity and the market’s ability to take aircraft in good conditions. That’s essentially what we believe is the right delivery level to match the current market environment and the success of our product, because we had a very strong booking record last year on those products.

We’re still quite confident, though we want to be in line with what the market is expecting. Dominik, anything on the pension?

Yes. Regarding the pension, we currently have a defined benefit obligation—the DBO—of roughly EUR 21 billion at year-end, along with a deficit of approximately EUR 8 billion. We've stated that our aim is to reach benchmark level. Looking at the benchmark levels across the mix of countries we operate in, funding should sit at perhaps around 80%. So, running the numbers, based on the funding ratio we have today, that would call for roughly another EUR 4 billion at prevailing interest rates. Naturally, interest rates may shift. And should they rise again at some point, the deficit would shrink fast, but if that doesn't happen, we have to put money in. The plan, then, is essentially to do this gradually across several years. As for the pace, you saw last year that we contributed EUR 1 billion. If interest rates remain at current levels, a comparable pace could continue until the gap is closed and we hit that 80% funding ratio.

And Celine Fornaro is back on the line with us.

Celine, we’re not getting any audio from you. I’m not sure whether our voices are coming through to you.

Hi there. Is my voice coming through?

Yes, we can hear you now. That's better.

All right, all right. And I can hear you perfectly well. Here we are, then. So I did get the response regarding free cash flow conversion, and I appreciate that. And I guess, on that point, Dominik, your assumption was a neutral Defence contribution once A400M is excluded, which is likely already an improvement compared with the situation we've generally experienced?

If you consider the cash we referred to, over time it ought to be better than neutral. What I mean is, we're doing the restructuring so that Defence and Space also improves gradually. We'll take the time to get to a much better cash conversion.

Alright, so my second question is about an update on those A320 delays that a few U.S. airlines brought up last week, and also how things are going with the A321 ACF. And when it comes to Head of Versions, how much does that go up in 2020 versus 2019? And regarding the A320 delays, maybe you'd like to say something about some GTF issues that have been flagged too?

That's a lot of questions rolled into one, Celine, and I'll try my best to address them. Regarding the A320 and A321 ACF, you'll recall we viewed this as a major risk or challenge back in 2019. Well, essentially, we succeeded in ramping up ACF during the second half of 2019 in line with the revised plan, I should say, and we delivered roughly 100 more ACF in 2019 than in '18. So that represents a very, very substantial ramp-up, with plenty of Head of Version. As a result, I feel far more comfortable about that challenge going into 2020. Even so, it's yet another ramp-up wave, since we aim to roughly double the count of ACF planes delivered in 2020 versus 2019. So when it comes to mix, to complexity, to the standard of the planes we deliver, this is actually considerably higher. We're also raising the rate -- sorry, the share of the A321 within the family. So this is progressing, I mean, quite well relative to where we stood a year ago, obviously. And we've gained considerable comfort. But we want to ramp up the A320 Family further at a pace that lets us fulfill our plans and deliver as we expect.

In terms of producing the neo, we are actually running about 6 months behind relative to a great many contractual commitments we've made to customers, and we expect to catch up over the coming year or 1.5 years. So this isn't something that gets resolved in 2020; instead it will steadily improve. Success on our products, along with the complexity of the ramp-up, has made us a victim of that success, but we believe we're concentrating on this effectively. And I must say I'm pleased with what the team has achieved, particularly during the second half of 2019. We keep facing difficulties with engines and with service. The GTF situation is well known and transparent, and it is weighing on our ability to deliver most planes in H1, since a lot of production goes to MRO to support our customers and to ensure we give priority to aircraft already handed over to customers and to those customers who need to fly. But this too has been normalizing over time, and we're making headway on that front as well.