Airbus SE (AIR) Earnings Call Transcript & Summary

Thanks, Clotilde. Good morning, everyone. You're joining the conference call on Airbus's full-year 2020 results. Guillaume Faury, our CEO, and Dominik Asam, our CFO, will present the results and take your questions. We expect this call to run about one hour and 30 minutes. That figure covers the Q&A, which we'll hold once the initial presentation is done. There's also a webcast of this call. You can reach it through our homepage, where a special banner has been set up. A playback will be available on the website, though we don't offer a dedicated phone replay service. The supporting information package went out to you by email earlier this morning. It contains the slides we'll now walk you through, along with 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. Guillaume, over to you.

Thank you, Thorsten, and good morning, everyone. Welcome to the call on our results for the full year 2020, and we appreciate you being with us today. Alongside Dominik, we'll walk you through the financial figures. The past year proved difficult for Airbus and for aerospace overall, and it was nowhere near what we had originally anticipated for 2020. We needed to respond and adjust. From early in the year, we put actions in place to steer through the COVID-19 crisis. The first priority was safeguarding people's health and safety, and at the outset that was genuinely hard. During March, we moved to strengthen our liquidity further and promptly kicked off steps to contain cash. Come April, we rebalanced our industrial setup by cutting our rates by roughly 40%, as I'm sure you recall. That 40% reduction against our earlier plans let us bring production and deliveries into line during the second half of the year. We also began resizing our commercial aircraft operations so our global workforce could fit the new reality and so we could tackle our cost structure over the long term. Thanks to these actions, we made headway toward a better financial and industrial equilibrium in the latter half of 2020. Amid this rather unfavorable market, we collaborated closely with our customers, and through that shared effort we handed over 566 aircraft in 2020, among them about 150 planes delivered via what we call e-deliveries, one of the solutions we created to help customers receive their aircraft.

The delivery figure we achieved for the full year shows how production and deliveries were balanced as the year went on. Along with other steps taken early in the crisis, that also comes through in our financial performance. For full-year 2020, our EBIT adjusted stood at EUR 1.7 billion, and that includes EUR 1.1 billion of charges related to COVID-19, booked mainly in the first nine months. EBIT reported came in at -EUR 0.5 billion, which includes a EUR 1.2 billion restructuring provision. Full-year 2020 free cash flow before M&A customer financing was -EUR 6.9 billion, and that figure includes penalty payments of EUR 3.6 billion made in the first quarter. In the fourth quarter, free cash flow before M&A customer financing reached +EUR 4.9 billion — a significant achievement, since most of the risks we had seen weighing on the fourth quarter largely did not materialize. We delivered a solid 225 aircraft in the fourth quarter. We also gained from the good free cash flow performance at our divisions, Airbus Helicopters and Defence & Space, which added strongly to the group's resilience during 2020, the first year of this COVID-19 crisis. As a result, the net cash position at the end of the year was EUR 4.3 billion.

EPS came in at -EUR 1.45. No dividend will be put forward for 2020. On the whole, the financial results we achieved in 2020 confirm that the package of actions we implemented has worked and produced a result consistent with what we had anticipated. All through the year, we showed our resilience alongside our employees, our customers, our suppliers, and our industry partners, and with backing from our governments. Now, as we have moved into 2021, it is evident that this crisis has not ended and will probably keep being a reality for the whole year. Yes, we are seeing headway on vaccination campaigns, but new variants of the virus are circulating. At the same time, tighter lockdowns are being kept in place or even more stringent travel restrictions in numerous parts of the world, and worldwide traffic figures remain at low levels. This shows that we are still operating in a complex, volatile, fast-moving environment, and we anticipate that this volatile situation will keep affecting our business and it generates uncertainties. The road to recovery is not necessarily a straight line. So we must stay humble and in all likelihood show our resilience once more. In this complex and uncertain situation, we are issuing guidance for 2021, which is meant to offer some visibility.

Let's move on now to where we stand commercially. To begin on the commercial side, I'd like to offer a few remarks about what has taken place during the final days of 2020. Starting with WTO: our view remains that the US tariffs, along with the tariffs, produce a lose-lose outcome. In our judgment, the moment has come to pursue a negotiated settlement. Turning to Brexit, the possible disruption of a no-deal scenario has been averted, and we are glad to keep working alongside our numerous stakeholders in a spirit of collaboration and long-term partnership. Now let's examine the commercial aircraft environment closely. Global air traffic hit a low point in April last year, and after that domestic travel began a slow recovery that lasted until after the summer, though the pace differed greatly from region to region. That recovery stalled during the last quarter. International traffic stayed weak all year long. On the whole, passenger air traffic, as measured in RPKs, fell by 66% in 2020 compared with 2019, according to IATA. As new virus variants have appeared, many countries have tightened travel restrictions even further. The most recent IATA forecast also predicts that, in all likelihood, there will be no meaningful improvement in passenger volumes before Q3 2021. Airlines will keep suffering.

A lot of these companies are going to keep burning cash through the bulk of this year. We'll keep a close eye on their financial health. Overall, we think 2021 is going to be another tough year for the industry. Our expectation remains that the market will come back between 2023 and 2025 relative to the 2019 numbers, with domestic and regional markets recovering first. International traffic, which is mostly flown by wide-bodies, will likely stay weak for a longer stretch and won't get back to pre-COVID levels for several years. Back in January, we provided an update on production rates in light of the market environment. Production rates are going to stay lower for longer. On the A320, rates will rise gradually from 40 aircraft per month at present to 43 in the third quarter and 45 in the fourth quarter of 2021, which is a slower ramp-up than the 47 aircraft per month from July that we had anticipated before. On the A220, rates will go from four to five aircraft per month starting at the end of Q1 2021, and wide-body production should stay stable at current levels. Now let's turn to our orders and deliveries in 2020. We booked 383 gross orders in 2020, comprising 360 single-aisle and 23 wide-bodies. Even with the scale of this crisis, we saw just 115 cancellations in 2020, and we need to watch that trend carefully as we go forward.

Net orders came to 268 aircraft, and that figure includes 141 A321s, 37 of which are XLRs. In units, our backlog is still above 7,000 planes. At group level, the value of our backlog dropped to EUR 373 billion in 2020. What that means is that, in value terms, only about 10% of the backlog we lost by year-end 2029 is tied to the COVID-19 crisis. Turning to helicopters. During 2020, we held on to our leading position in the civil and parapublic market despite the current environment. Over the past year, we booked 268 net orders, including 31 NH90s for the German Bundeswehr, recorded in Q4, and 11 H160s following the certification of this helicopter by EASA last July. Key services contract wins include a firm contract for the development of an upgraded version of the NH90 for the French Special Forces and a support contract with NASA for its fleet of H135 helicopters. In 2021, we see good momentum for campaigns in our home countries, especially in public services, while the commercial market will most likely remain soft. In Defence and Space, in 2020, our order intake increased to EUR 11.9 billion. This represents a book-to-bill above one and an increase of 39%, mainly driven by major contract wins in military aircraft.

When it comes to our military aircraft business, we signed a contract in November covering delivery of 38 new Eurofighter aircraft to the German Air Force. That order from Germany strengthens our standing in ongoing campaigns too — for instance in Spain, where the aim is replacing its legacy F-18s, and likewise in Switzerland and Finland. Regarding FCAS, after the Spain industry contract was officially signed, the three partner nations are moving toward a formal cooperation agreement. The 18-month joint concept study within phase 1A of the demonstrator portion is also making headway. The 2021 objective is for FCAS to move into the preliminary demonstrator development phase covering the next generation fighter and the remote carrier aircraft. On Eurodrone, we made further progress in negotiations with OCCAR. Our belief is that European defense budgets — both national and European — will back the path toward building European sovereignty, and Airbus has the ambition to play a major role in this endeavor. Growth in space systems order intake came mainly from telecommunication satellites along with Earth observation and science. In telecom satellites, we are seeing an upturn following a low market in recent years, albeit within a very competitive market environment. As has been the case in recent years, the space market will keep undergoing significant transformation in the near term, and in 2020 it showed signs of recovery from a low market.

And now I’ll hand things over to Dominik, who’ll walk you through the financials. Dominik?

Thank you, Guillaume, and good morning, everyone. Revenue for fiscal year 2020 fell to roughly EUR 50 billion, a 29% decline compared with the prior year, as the challenging market conditions weighed on our commercial aircraft business and we handed over approximately 34% fewer aircraft year-on-year. Our fiscal year EBIT adjusted came down to EUR 1.7 billion. That figure mirrors the reduced commercial aircraft deliveries along with certain idle costs. We have carried out the steps required to resize our cost base for the new production levels, and those benefits are showing up as we put our plan into action. Fiscal year EBIT adjusted additionally includes EUR 1.1 billion in charges booked for impairments and write-offs brought about by COVID-19. During 2021, our emphasis will be on making the cost adaptation more lasting and on improving our trajectory for earnings and cash growth in the periods after 2021. R&D for 2020 declined by EUR 0.5 billion, leaving it at EUR 2.9 billion. We intend to hold R&D at a comparable level in 2021 so that our competitive positioning is protected as we move forward. Adjusted earnings per share for the fiscal year came in at EUR 1.36, based on an average of 783 million shares. Free cash flow for the fiscal year, before M&A and customer financing, was -EUR 6.9 billion, including +EUR 4.9 billion in Q4.

For Q4, our free cash flow shows the solid delivery level achieved during the quarter, along with how the divisions performed, plus the gains we got from keeping a sharp focus on managing working capital. Moving to the next page, on profitability: reported EBIT for fiscal year 2020 came in at -EUR 500 million. EBIT adjustments amounted to a net -EUR 2.2 billion, and that figure included -EUR 1.2 billion tied to the group-wide restructuring plan, -EUR 385 million connected to the A380 program cost — with -EUR 27 million of that booked in Q4 — a -EUR 480 million impact from foreign exchange and balance sheet revaluation, of which -EUR 106 fell in Q4, and -EUR 149 of other costs, compliance costs among them, with -EUR 21 recognized in Q4. Reported earnings per share takes in -EUR 620 million of financial results. That mainly mirrors interest results of -EUR 271 million, an RLI impact and other financial results of -EUR 157 million — stemming largely from changes made to the French and Spanish contracts to align with the interest rate and risk assessment benchmarks the WTO deems appropriate — and also a net -EUR 149 million tied to Dassault Aviation. It further includes the impairment of the loan to OneWeb that was recognized in Q1. The tax rate on the core business stands at around 27%.

The effective tax rate on net loss comes in at -3.5%, driven by impairments of deferred tax assets in certain tax jurisdictions and on certain investments. That gives us a net loss of -EUR 1.1 billion, and loss per share was reported at -EUR 1.45. Moving on to hedging activities. In FY 2020, $17.1 billion of hedges matured at a rate of 1.19 with an associated EBIT impact. During the year, we adjusted how our hedges are phased by carrying out rollovers mainly in Q3. We also put in place $4.5 billion of forwards, including $0.6 billion in Q4, mainly to redesignate hedges that were disqualified from other aircraft type families. $3.5 billion of hedges were disqualified during the fiscal year, with maturity dates mainly from 2022 and beyond. Following the full finalization of our significant rollover campaign, which addressed around EUR 40 billion of hedges, we have reestablished the hedge rates in our portfolio, and those will evolve going forward with volume. As a result, our total hedging portfolio in US dollar stands at $81 billion, with an average hedge rate of 1.26. Now let's turn to our cash evolution in fiscal year 2020. Our gross cash from operations of EUR 3.1 billion mainly reflects our EBIT adjusted before COVID-19 related charges.

During Q1 2020, we made the EUR 3.6 billion penalty payment. Our working capital, when you exclude penalties, is up by EUR 4.6 billion, which mainly mirrors a reduction in trade liabilities, whereas inventory is stable compared with a year earlier. That largely mirrors the phasing effect stemming from how we adapted our production rates. In Q4, working capital carries a positive inventory effect, since we succeeded in lowering the count of undelivered aircraft. Timing of payments and receipts partly offset that effect. Year to date, A400M kept dragging on our free cash flow before M&A, though to a lesser degree than in 2019. CapEx for the fiscal year stands at roughly -EUR 1.8 billion, which is EUR 0.6 billion below 2019 as a result of project prioritization. Looking at 2021, we anticipate CapEx will be at a level similar to 2020. Reported free cash flow came in at -EUR 7.4 billion. M&A activities were negative EUR 0.6 billion, chiefly tied to buying Bombardier's remaining stake in ACLP for EUR 500 million during the first quarter. Customer financing added roughly EUR 0.1 billion on the positive side. Given today's market conditions, such a low level of customer financing might not be sustainable, and we expect to use some cash over the next few years.

Our plan is to offset that cash use through outside funding sources, with backing from the Export Credit Agencies. During 2020, we carried out a range of actions aimed at keeping our liquidity strong as we steered through the crisis. We showed we can bring in liquidity, whether by obtaining credit facilities from financial institutions or by issuing debt securities on favorable terms, owing to our solid credit rating. When the crisis hit, our net cash position fell from EUR 12.5 billion at the start of the year to EUR 3.6 billion by the close of Q1. So we moved quickly to secure a EUR 15 billion supplemental liquidity line, ensuring our operations could continue smoothly. Step by step, we have termed out that supplemental liquidity line, which is now down to EUR 6.2 billion. Because of our strong credit ratings, we were able to keep interest expense at EUR 0.4 billion in 2020 and to lengthen the maturities of our funding sources through new bond issuance. In Q4, we upsized and extended our EUR 3 billion revolving credit facilities, which now total EUR 6 billion. Although we held a net debt position across Q2 and Q3, our operational performance in Q4, combined with our cash containment and adaptation measures, let us return to a net cash position of EUR 4.3 billion at the end of December.

At year-end, our liquidity position—counting available credit facilities—was above EUR 30 billion. As we look toward 2020 and past it, we'll keep a strong liquidity position in place, which will support us as we keep navigating the crisis and set us up for growth once conditions get better. Guillaume, back to you.

Thanks, Dominik. Turning to commercial aircraft. During 2020, we handed over 566 aircraft to 87 customers — nearly 300 fewer than the prior year. In December, we delivered 89 aircraft and succeeded in trimming the number of undelivered aircraft further. Looking at the full-year 2020 picture by aircraft family, on the A220 we delivered 38 aircraft. Compared with similar-size aircraft during the crisis, the A220 fleet has posted a high utilization rate. Looking ahead, we anticipate a ramp-up that is slower than first expected. That will affect the learning curve and result in slower unit margin improvement, thus positioning our breakeven target. Sorry — thus postponing our breakeven target. On the A320, we delivered 446 aircraft, nearly all of them neos. We delivered the 500th China-built A320 family aircraft, drawing on our global industrial footprint, and the A321XLR development remains on track. Industrialization and the start of widespread parts production for the first A321XLR is underway across Airbus sites and throughout the supply chain. Entry into service is planned for 2023. Let's move on to wide bodies. On the A330, we delivered 19 aircraft. The A330 to 900 251 tons was certified in October. On the A350, we delivered 59 aircraft, and on the A380, four aircraft were delivered.

There are still a handful of aircraft left to hand over, and we're winding down the way we planned. All told, we handed over 77 wide-body passenger jets plus 5 MRTTs. Our view hasn't changed that the wide-body rebound is going to take considerably longer, so we need to be ready to keep A350 and A330 output at levels that are low relative to pre-COVID times. What matters most to us right now is reshaping the fixed cost base so those programs can be profitable again at the reduced rates. Turning to Airbus commercial's financials for the year. Revenue chiefly mirrors the drop in handovers, down 297 aircraft versus the prior year, split into 206 single aisle and 91 wide bodies. EBIT adjusted chiefly mirrors fewer handovers and weaker cost efficiency. It also carries EUR 1.1 billion of charges tied to COVID-19. Some more detail on Helicopters. During 2020, revenue rose 4.1%, helped by a favorable product mix effect along with growth in services. We handed over 300 aircraft against 332 in 2019, among them the first five-bladed H145. EBIT adjusted climbed roughly 12% versus the prior year to EUR 471 million, driven by strong governmental activities, dependable program execution, and reduced R&D. Consequently, the profit margin came in at 7.5% for 2020, versus 7% in 2019.

All in all, Airbus Helicopters turned in a robust 2020 showing while COVID-19 was raging, which gives Airbus resilience and shows this business is still a key piece of our portfolio — and not merely because I log plenty of hours in helicopters. Moving on to Defence and Space. Revenue there chiefly mirrors reduced volume plus the effect of COVID-19 on business phasing, mostly within Space Systems. The top-line decline at Space Systems also mirrors weaker order intake over recent years. EBIT adjusted largely mirrors cost containment and reduced R&D, partly offset by COVID-19's impact, among other things on the launcher business. On the A400M military transport aircraft, nine units were handed over in 2020. In December, the Belgian Air Force received the first of seven A400Ms. Notwithstanding difficulties caused by COVID-19, every A400M delivery planned for this year has been accomplished, and we are making solid headway on the capabilities roadmap, with the flight test campaign covering low-level flight and aerial delivery capabilities. Development work will carry on toward reaching the revised capability roadmap. Retrofit work is moving forward in tight coordination with our customers. Risks persist around development of technical capabilities and related costs concerning aircraft operational reliability — especially with respect to power plants — around cost reduction, and around locking in export orders on schedule per the revised baseline.

Moving to the guidance slide. As I mentioned, given this complicated, volatile, and unpredictable environment, we're providing guidance for 2021, and the goal is to give you some visibility. I'll read it out. In setting the basis for its 2021 guidance, the company assumes there will be no additional disruptions to the global economy, to air traffic, to the company's internal operations, or to its capacity to deliver products and services. The company's 2021 guidance is stated before M&A. On that basis, the company is targeting to reach at least, in 2021, the same number of commercial aircraft deliveries as in 2020, EBIT adjusted of EUR 2 billion, and break even free cash flow before M&A and customer financing. In light of the global business environment, no dividend will be proposed for 2020. That decision is intended to strengthen our financial resilience by protecting our net cash position and to support our ability to adapt as the situation evolves. Now, a few words to wrap up and to address key priorities. 2020 was an extraordinarily difficult year. Our full-year results show that, overall, we believe we made some correct decisions early in the crisis, working closely with all our stakeholders, and that we carried them out effectively throughout 2020. Since the COVID-19 situation began, the health of people has been the priority.

The pandemic remains active, so this situation will continue. Since a lot of uncertainty persists in 2021, we aim to stay very humble. We are determined to show our resilience yet again and to safeguard our competitive positioning. As a result, our priority for this year is to deliver aircraft in line with the agreements we have with our customers, and we will keep watching our customers' circumstances closely, case by case. We will also complete the rollout of our restructuring plan. Even with all the uncertainty and complexity around us, those of us at Airbus want to be ready for the moment the market recovers. Not if, but when. We want our industrial partners ready for that moment too. Our priority will be to further reinforce the industrial setup and industrial flow, both to prepare for a possible rapid ramp-up of the existing portfolio — mainly the single aisle after COVID — and to prepare for the next generation of aircraft. That means transforming our industrial value chain further still. We will move toward a more streamlined industrial system and a higher density flow approach, in which every actor contributes greater value within a simpler chain, reliably and competitively.

Down the road, this is going to help raise quality, boost competitiveness, and strengthen sustainability across the entire ecosystem. From that angle, and looking ahead to how decarbonized aircraft will be architected in the future, aerostructures assembly sits at the core for Airbus. We've begun rethinking the entire logistics and planning space. Quick, nimble planning and re-planning abilities paired with strongly reactive logistics are, naturally, essential for an industrial system that is resilient and robust—especially in an environment that is highly volatile and changing fast. Over the long term, our ambition is stronger than ever: to lead the development of a sustainable global aerospace sector. So we will safeguard our capacity to invest in decarbonized technologies, which keeps us well-positioned to tackle future challenges successfully and sustainably. Naturally, our key priority will be delivering on our 2021 guidance, but we will also concentrate on our earnings and free cash flow growth trajectory beyond 2021. Together with Dominik, we're now ready to take your questions.

We’re moving into the Q&A portion now. When you ask a question, please say who you are and which company you’re with. Kindly keep it to 2 questions per turn, and that counts any sub-questions as well. As always, do remember to speak clearly and at a slower pace so that everyone on the call—especially those of us here—can follow what you’re asking. Clotilde, if you would, please walk the participants through how the procedure works.

We're going to start the Q&A portion now. Our first question comes from Benjamin Heelan at Bank of America, Merrill Lynch. Please go ahead, sir.

Yes. Good morning, everyone. Thanks for taking my question. I hope all of you are doing well. I have two questions. First, regarding the guidance. You've guided toward at least flat deliveries, and you only announced a production increase roughly a month ago. Based on my numbers, it appears that if you were to achieve flat deliveries, you wouldn't unwind any of that finished product inventory that you hold as of the year-end. Could you speak a bit about what the upside is there? I just find it surprising that you would be comfortable announcing a production increase while still believing you were going to finish 2021 with a sizable amount of finished product. That would be my first question. The second question concerns EBIT. For the year, the guidance looks to me, at flat deliveries, like around EUR 2 billion of EBIT. You delivered EUR 2.6 billion in the second half of 2020, so your run rate is well ahead of that. You also have this significant charge that you mentioned in your prepared remarks as well, which impacted, I believe, primarily Q2. To me it either seems very conservative, or it seems as though something else is going on in EBIT.

Could you elaborate a bit on what’s behind that EUR 2 billion EBIT guidance? Thanks.

Good morning, Ben. Straight to the point as usual, I see. No surprise there. Maybe I'll handle the first one, Dominik, and you take the second?

Alright.

Yeah, our guidance is for deliveries to be at least flat, and that really isn't at odds with our production schedule. It could come across as somewhat contradictory. The thing is, we're issuing guidance in a highly uncertain environment. We're giving guidance for 2021, but as I mentioned in my introduction, we're also getting ready for the ramp-up in 2022. Right now, the tipping point is very uncertain during the year, with a tougher situation at the start, and that's what we're seeing around us today. Things aren't developing the way we expected. There's also potentially better news for the second half of the year, given the news flow on the vaccines, the vaccination campaigns, and it's really hard to make an assessment in this environment. We wanted to provide guidance, and we have to provide guidance that gives, as I said, some visibility in a very dynamic and uncertain environment. That's the reason we're giving that guidance, which reflects what we believe we can reasonably achieve based on what we know today. Dominik, anything to add, or do you want to go to the second question?

Let me address the second question directly. Yeah, what you're pointing to is probably this: if we add back the COVID charges we took in 2020, EBIT ought to be higher at constant production rates. That said, a few things deserve emphasis. First, we've essentially pushed the A220 ramp to the right, and now we genuinely have to work through that J-curve, which will cost us an increment in the low triple-digit millions. You've also seen on the hedge rate chart that rates slip a bit further by another couple hundred million, and we have to absorb that. The largest piece is a set of initiatives where we did cut costs, but not in a way that was very sustainable, and now, because of completing what remains of the restructuring, we must make those savings genuinely sustainable for the years ahead. Among these items is a huge drop-off in variable compensation that will need to be normalized in 2021. We've essentially taken travel down to zero, and some activity will need to resume. And frankly, we've postponed certain projects that are necessary but could be delayed for a while.

These costs have largely been removed from the P&L as of 2022 and going forward, since at that point we'll benefit from the full-year impact of the decrease in our restructuring.

Understood—thank you.

Much appreciated, Sir. The following question comes from Madame Céline Fornaro of UBS. The line is yours.

Good morning, everyone, and thanks for taking my questions. I hope all of you are doing well. My first question is also about the cash movement in the guidance, since we just touched on the other elements. Could you give us more color on the various moving parts for cash in 2020, and most importantly, Dominik, what prepayment assumption or unwinding of prepayment are you currently taking, and also on the inventories for the wide bodies and the unwinding there? My second question concerns the restructuring of the group. Perhaps you could give us more detail on the progress there, and what the latest reduction or employment reduction numbers are that we should be expecting? You referenced around 15,000 before, but also the tailwind from 2022 that you actually would expect to enjoy on a sustainable basis. Thank you.

Absolutely. Free cash flow really is the trickiest subject, since there are so many puts and takes for us to weigh. As you pointed out, the PDP flows are actually one key item. With our customers, we've been through a very thorough rescheduling exercise. You may have noticed that contract assets and liabilities overall were still slightly positive across the full fiscal year. Basically, we managed to hold on to the PDPs. We didn't release them, and for good reasons — to protect future deliveries. Some aircraft we deferred to the right. What this means is that customers now have a bit of breathing room, so to speak, because they'll have to pay the PDPs depending on the delivery date, and as we push things to the right, the PDP inflow will gradually decline, so 2021. That will be the biggest headwind, I'd say. If we're talking a significant billion number, right? We're not talking EUR 1 billion — we're talking more than that. What will improve, of course, is the cash out we suffered from the trade liabilities, which is very much tied to the rate adaptation, -40% in rate.

That is now in the past, and whether or not we re-ramp — and when we do — that will provide a certain offset for us. As for the inventory question, it's the one that colleagues here already raised during this call: how much can we actually deliver? If we can ship some of the finished goods, that could give us a boost on inventory. In that guidance, we've essentially made no firm statement suggesting we will bring it down while deliveries are at least flat. We would in fact be in a similar position to the one we had entering the year. That hinges very much on customer interaction regarding the second COVID wave and on how the vaccine arrives. This is quite clearly tied to the deliveries. Those are the three cash flow topics. On restructuring, the commercial target was roughly 15,000, and remember there was also a Defence and Space program at 1,900. I can say that, very roughly, these measures — long-term partial furlough along with support through R&D and what we call CORAC and LuFo in Germany and France and other countries — would let us reach 1/3 of that number, to a large degree paid by government.

Those people can be retained without carrying the complete burden in the P&L. Once you subtract that, the total program — Defence and Space plus the 15,000 commercial combined — comes to roughly 11,000 that truly need to come out. To date we've cut 3,600. That leaves another 7,500 still to go, which is the point I made earlier: that 7,500 continues phasing in gradually during 2021, and only in 2022 will we reap the benefit of a full year of cost reduction. That then lets us offset the portion of 2020's cost savings that isn't sustainable. So that's the big picture of how we're working to hold the cost base flat throughout this restructuring.

Thanks, Dominik. And once more, nice work in 2020, everyone.

Thanks, Céline.

Thank you, madam. Our next question comes from Mr. Chris Hallam at Goldman Sachs. Please go ahead.

Good morning, everyone, and thanks for taking my question. I have a couple of things to ask. First, I was just wondering where your ambition stands right now regarding the timing for the 10 per month target on the A220, and whether that level is still the right one we would need to reach in order to show a reasonable margin on that project. Second, Dominik, I think you mentioned a bit earlier that higher project spend in 2021 is one of the year-over-year bridges, the year-over-year headwinds. Is that included within the R&D line? And if it is, what is the expectation for R&D within the Airbus division?

Regarding the A220, I noted that the J-curve has been pushed to the right. Naturally, COVID-19 has set off an enormous effort to reduce costs even more on the A220. I believe we used to say that the program's break-even point sits at roughly a solid utilization level at both Mobile and Mirabel, and if you run the numbers, that comes to about 150 aircraft plus. I think we can lower that somewhat, but as for how long it will take to reach it, we believe it's the middle of this decade. I'd say we're moving it to the right, though perhaps by a year, but that remains to be seen. On the 2021 project, this isn't really R&D so much — it's truly about compliance-related matters, controls matters and things we genuinely must do, very much IT-related matters, where we were very strict in 2020. Our systems need to be made more robust. Again, the intention isn't to let that persist, but really to eliminate it through the restructuring benefits we're going to carry out in order to preserve the cost position we achieved in 2020.

Got it, thank you.

Thank you, sir. The next question comes from Mr. Olivier Brochet with Credit Suisse. Sir, please go ahead.

Yes. Morning, Guillaume, Dominik — and well done on the year. Truly impressive, all things considered. My first question concerns the ramp-up: how is it going, and in particular, on the areas that caused trouble for the ACF in the past, can you confirm those have gone away, or that no new risk areas have appeared? Second, a remark Guillaume made about aerostructures being core for Airbus intrigued me — that is a fairly strong statement. I get that. Does it imply there might be M&A on your side in that field?

Thank you, Olivier. Yes, indeed. I'll go into what I mean regarding aerostructure. On the ramp-up — and thanks for raising that question, since we're viewing 2022 and 2023 with real appetite. We believe we'll be in a ramp-up phase once again, and we intend to be ready for it. The difficulties we faced in 2019 and 2018, and ultimately, which were mostly tied to the ACF version of the A321, are truly behind us now. In fact, they had already been put behind us by Q1 2020, and we were on the verge of celebrating when the pandemic struck. My view is that we must stay very prudent, because the supply chain is probably the area where we need the sharpest focus right now — especially given all the rundown that happened in 2020, and all the steps suppliers had to take so they could adapt to the new situation, and we are truly concentrating our efforts there. We did that last year, and we'll do it even more this year, examining where the potential bottlenecks for the ramp-up could appear as we move forward. The risks of the past are, I believe, now well controlled, well balanced or mitigated, but I certainly wouldn't call us risk-free for the years ahead — quite the opposite.

It really comes down to hard work. On the aerostructures side, I wasn't implying that we'd pursue big M&A deals. Incidentally, in my view the bulk of aerostructure output — not the whole of it, but the bulk — sits inside our subsidiaries, Stelia and Premium AEROTEC. What I'm getting at is that this is core, so our focus will be on boosting competitiveness, as I laid out in my introduction, simplifying the global setup and improving logistics. We'll also direct our efforts toward aligning this with our ambition to cut the company's CO2 impact. In our view, aerostructures are core as well from the standpoint of forthcoming aircraft architectures and digital design and manufacturing, where the link between design and production systems is going to be considerably deeper. So we think it makes more sense to treat aerostructures as core as we move toward new architectures and, in all likelihood, more integrated protection systems too. That, in a nutshell, is what my remarks were meant to convey.

That's quite straightforward. Thanks a lot.

Appreciate that, sir. Our next question comes from Mr. Tristan Sanson of Exane BNP Paribas. Go right ahead.

Yes, good morning, everyone. Thank you for taking my questions. I have two detailed ones — not especially strategic, so apologies, Guillaume — regarding your delivery guidance for this year. First, could you remind us how many finished aircraft sit on the balance sheet? I believe it was 135 at the end of September. So what does that figure look like now, at the end of December? Second, you've said 566 deliveries, stable, is the level you think you should at least reach this year, and you made that helpful point that this assumes no tailwind from releasing inventory — yet that appears to sit even below where production rates stood at the end of 2020, and that's before counting any benefit from the A220 and A320 ramp-up you announced for this year. If the recovery in the end market comes fairly quickly and goes well, what do you think is the maximum number of aircraft you could deliver in 2021? Thank you.

Sure, it's a tough question, honestly, but let me attempt to simplify it. During the fourth quarter, we kept lowering how many planes we hold in inventory. We finished a bit under three digits, so just under 100. Well, the key issue is when does the inflection point arrive? That remains uncertain. We think it's fair to state it will be no lower than the delivery level of 2020. As you can observe from the production planning, we're fairly transparent about production rates—there is some upside on the supply side, yet demand will constrain us in 2021 once more, just as it did in 2020. That's really the area where we want to have—not room to maneuver, but visibility and prudence—and ensure we aren't issuing guidance at a time when circumstances will shift and we can't meet our guidance under reasonable conditions. That's roughly the situation we face. It isn't an easy one. We believe it's preferable to provide guidance that offers, as I said, some visibility, and we'll see going forward how things develop. Regrettably, we're issuing that guidance at a moment in the year when the near-term situation is growing tougher rather than better, and so that's the very paradox of the situation we're in, and hence the guidance we have provided.

Alright, thanks — that makes sense. I follow the reasoning, though when it comes to the maximum number at this point, it's still too soon to say what the best possible performance in 2021 might be as far as the number of aircraft goes.

On the production side, the best number — though I'm not certain that's the correct term — there is upside, and simply looking at the production rates would give you a sense of the potential upside. Again, let's stay very prudent. In 2021, demand is going to be the limiting factor for the market. As you've observed, the production rates, especially for the single aisle, rise at the end of 2021. Preparing for and anticipating the growth we see arriving in 2022 — which, at this point in 2021, looks really secure and robust — matters far more than the slight content to the end of 2021. That's the situation we're in. A ramp-up lies ahead of us, but the very short term isn't of that nature, and estimating the tipping point appropriately is very difficult for us. That's the situation we're in.

That’s genuinely useful. I appreciate your feedback.

Appreciate it, sir. Our following question comes from Jeremy Bragg with Redburn. The floor is yours.

Good morning, everyone. I have two questions, if I may. First, regarding structure: can you attach a euro figure to the restructuring? For context, Boeing has stated it will take out $5 billion in structural cost as 26,000 employees leave the company. Also, could you tell us how much government support you are receiving right now? And how much of that would be incremental? That is my first question. My second question concerns customer financing. Dominik, you suggested it is low but may not remain so. Could you quantify that with some figures? Clearly, during the last downturn we were concerned about it, and the Export Credit Agency intervened. In the one before that, you and Boeing ultimately had to fund a considerable number of deliveries yourselves. Thank you.

Okay, I’ll pass it over to Dominik for the answers. There’s one part of this situation I want to share with you. The complexity we’re dealing with also applies here—we talked about deliveries, but structure is the same story. We want to adjust to the new situation, but we don’t think we’re adjusting to a new situation that will remain this way. What we see is that beyond the pandemic, there will be a return to growth and significant growth, and there will be some catch-up relative to the pre-COVID-19 situation. We don’t want to hinder our capacity to move forward, to innovate, to deliver, and to succeed in the future. We are taking cost out. We are clearly adapting to COVID-19. We have not hesitated to do that, but we want to do it in a way that is compatible with this ambition for the future. Now, with that said, Dominik, I’ll hand it over to you for the answers to the one and two questions.

Regarding restructuring, as I mentioned earlier, roughly 7,500 positions are left to address across both Defence and Space and Airbus Commercial. The provision still set aside for that stands at EUR 1.2 billion. From that figure, you can roughly work out the cost per employee. We've also said that this kind of accrual typically exceeds one year's salary, and you can locate some data in various Airbus reports on what the average salary comes to. Let's say it sits in the low EUR 100,000 plus range if you load it fully with all those social charges. That gives you a fairly clear picture of what remains to be done on restructuring and the associated cost improvement. Don't forget that on top of this, you have gains from cutting general procurement — whether through subcontractors, temporary workers, or simply reductions in general IT spend and all such items. All of this comes on top. On the customer financing side, quantifying it is really difficult. First, I should stress that we don't intend to do more than what we need to do. We are not a bank. We are a manufacturer. With a strong balance sheet and rating, we can, if need be, make our balance sheet available to some degree, but in principle we don't like doing that.

Yeah, I'd say Export Credit Agencies are our largest source of support at the moment, and they've already been extremely helpful in 2020. The share of aircraft deliveries financed through Export Credit Agencies has risen from 2% to 10%. We're hoping this is just the beginning of that trend. Predicting it is genuinely difficult, but under these challenging conditions, we could see something like EUR 1 billion plus on an annual basis, which is obviously much more than what we've done in recent years. During the last few years we've released money. That's the sort of indication I want to give, but again, with the major caveat that it's very hard to judge, because we would of course try to syndicate. It also depends heavily on how strong the financial markets are.

I appreciate that.

Appreciate it, sir. The next question comes from Mr. Christophe Menard at Deutsche Bank. The line is yours.

Yes, good morning. I have a couple of questions, and thanks a lot for taking them. First, regarding the midterm cash conversion targets at Airbus: when do you expect to be in a position to go back to those targets that you referenced previously? And the second one is whether you could share your views on the aircraft financing market in 2021 — is it improved or harder compared with what you saw in 2020? Thank you.