Airbus SE (AIR) Earnings Call Transcript & Summary

Good day, everyone, and thanks for holding. This is the conference call for Airbus’s Nine Months 2021 Results Release, and I’m Clotilde, your operator. I’d like to point out that throughout the presentation, everyone attending will be in listen-only mode, and this call is being recorded. Once the presentation wraps up, you’ll have a chance to ask questions. Right now, I’ll hand things over to your hosts, Guillaume Faury, Dominik Asam, and Hélène Le Gorgeu. Please proceed.

Thanks, Clotilde. Good morning, everyone. This is the conference call for Airbus's Nine Months 2021 Results Release. Guillaume Faury, our CEO, and Dominik Asam, our CFO, will present our results and take your questions. We expect this call to run for roughly an hour, including the Q&A, which we'll hold after the initial presentation. The call is being webcast as well. You can access it through our homepage, where a special banner has been set up. A playback of this call will be available on the website, though there is no dedicated phone replay service. The supporting information package was emailed to you earlier this morning. It contains the slides, which we will now take you through, as well as the financial statements. During this call, we will be making forward-looking statements. The package you received contains the safe harbor statement, which applies to this call as well. Please read it carefully. Now over to Guillaume.

Thank you, Hélène, and welcome aboard. Good morning, ladies and gentlemen, and thanks for being with us today for the call on our nine months 2021 results. It's a pleasure to talk with you once more, having enjoyed meeting several of you on our road show in New York shortly before the summer break. Dominik and I will take you through the financial results, and we're proud to do so for the first time as a company that belongs to two European prime indices, the CAC 40 and the DAX 40. Let's begin with commercial aircraft deliveries. During Q3, we handed over 127 aircraft to customers, one of which was an operating lease. That brings our year-to-date delivery total to 424 aircraft, versus 341 aircraft in the first nine months of 2020. We believe we are on track to meet our 2021 delivery guidance of around 600 commercial aircraft. Our nine month EBIT Adjusted came in at EUR 3.4 billion, against -EUR 0.1 billion in the first nine months of 2020. That mirrors our commercial aircraft deliveries, of course, along with our work on containing costs and on competitiveness. Our Q3 EBIT Adjusted gained from a decrease in risk exposures, which let us release some provisions.

During Q3, we started to observe growth in our cost base as we move back toward more normal business activity and begin ramping up A320 production. For the nine months, free cash flow before M&A and customer financing came in at EUR 2.3 billion, and that figure included a strong positive working capital funding impact. Operationally, we increased the A320 Family monthly production rate as planned, and our supply chain is now fully engaged in the ramp-up. Following roughly 18 months at stable rates, we are handling isolated supplier issues as we ramp up in line with our plan. Given the global recovery—sorry about the noise this time—given the global recovery, we are watching potential risks to our ecosystem closely, including resource availability. We keep working closely with our suppliers, striving to make sure the right industrial and supply chain capabilities are in place. At the same time, we are focused on the long-term competitiveness of our industrial operations, particularly the transformation of our aero structure assembly value chain. On that topic, we continue to pursue solutions together with our social partners. Regarding guidance, our full-year commercial aircraft delivery guidance remains unchanged.

After the financial results for our first nine months, we are lifting the guidance for the whole of 2021 on EBIT Adjusted and on free cash flow before M&A and customer financing. Let's turn now to our commercial environment. As everyone is aware, the crisis isn't finished yet, but the aviation sector has begun to come out of it. During Q3, worldwide air traffic recovered further, extending the favorable trend observed since the start of the year — and I say that with caution. Domestic travel stands at 70% of its pre-crisis level. International air traffic remains at low levels, yet we have witnessed some genuine progress, especially in Europe and North America, which ought to get additional support from the U.S. reopening to vaccinated EU passengers on the North Atlantic. Key markets, though, can still be volatile. Take China, which shed more than 50% of its air travel activities in the space of one month over the summer, and then bounced back. Given our recent choices to launch the A350 Freighter derivative, allow me to add that the air cargo market has stayed well above pre-crisis levels. Overall, we still expect the market to recover between 2023 and 2025, with domestic and regional markets plainly in the lead on the recovery.

Let me now walk you through our orders and backlog. Across the nine months, we booked 270 gross orders, and 256 of those were single aisle. During Q3, we recorded orders covering 105 aircraft, among them 7 A330neos. Year to date, cancellations came to 137, with just 10 of them in Q3. Those nine-month cancellations were for the most part expected and had already been reflected in our backlog valuation at year-end 2020. Consequently, net orders came out positive, at 133 aircraft, while our backlog in units stood at 6,894 aircraft. Turning to vertical lift. In September, we unveiled plans for the CityAirbus NextGen. I couldn't be more excited about it. This is a new fully electric vehicle aimed at sustainable urban air mobility. Airbus is drawing here on several years of research and demonstrator development as it plans a first prototype in 2023, which paves the way towards certification in 2025. On helicopters, during the nine months 2021 we booked 185 net orders, against 143 in the nine months, 2020. In Q3, we logged several orders in the light segment. For 2021, we observe good and positive momentum for large campaigns in our home countries. Lastly, in defense and space, our order intake for the nine months 2021 reached EUR 10.1 billion, which represents a 23% increase year-on-year.

Just in the third quarter, we took in orders totaling EUR 6.6 billion. That figure covers the Indian Air Force's order for 56 C295 aircraft, which will replace its older fleet, along with renewed support and spares contracts for the German and Spanish Eurofighter fleets, and the Republic of Kazakhstan's order for two Airbus A400M, making that country the ninth operator of the type. With this new export deal, A400M orders now stand at 176 units in total. I'd like to use this moment to underscore the vital part our Airbus military aircraft played during the recent evacuation in Kabul, Afghanistan — 25 A400M from seven customer nations took part, along with nine A330 MRTT tankers from six different operators. That once again made clear just how critical these aircraft have become for our customers and, more broadly, the part our defense solutions play in safeguarding people's lives and delivering humanitarian relief. Consistent with the United Nations Sustainable Development Goals, it also shows how we add to safety, stability, and prosperity around the world through defense and security solutions that advance the rule of law, freedom, and democratic values. On space systems, Q3 orders included the remaining portion of the contract to design and manufacture six Galileo second-generation satellites.

Momentum also remains solid in our satellites segment. In August, the second satellite belonging to the Pléiades Neo Earth observation constellation launched successfully, and that lets us begin delivering to customers in the very high-resolution market. Regarding FCAS, we warmly welcome the signing of the third implementation agreement covering the demo phases known as IB and II, which once again signals backing from Spain, France, and Germany for this program. Airbus takes pride in its role in the future combat air system, which is essential for safeguarding national sovereignty as well as European strategic autonomy in operational, technological, and industrial capabilities for the twenty-first century. In addition to FCAS, and after the recent German federal elections, we are glad to note that German political parties continue to share a broad commitment to reinforcing European cooperation, defense included. On Eurodrone, we keep moving toward signing the contract with OCCAR. At this point, Dominik will walk you through our financials. Dominik, over to you.

Thanks, Guillaume, and good morning, everyone. Revenues for the first nine months of 2021 rose to EUR 35.2 billion, a 17% increase compared with a year earlier, largely because we delivered more commercial aircraft. EBIT Adjusted climbed to EUR 3.4 billion across the nine months of 2021, versus -EUR 0.1 billion in the same period a year before, which had carried EUR 1 billion of charges from impairments and write-offs brought on by COVID-19. That sharp improvement in EBIT Adjusted year-on-year stems chiefly from how many commercial aircraft we delivered, together with our cost containment and competitiveness work. It also mirrors a lower risk exposure, which let us release some provisions back. For instance, we went back over the COVID-19 related charges and re-evaluated how much exposure remained, and that helped EBIT Adjusted. Meanwhile, during Q3 we observed activity progressively picking up, and that pickup should speed up further over the months ahead. Turning to research and development, our expenses over the first nine months fell 6% year-on-year. For the 2021 full year, we now anticipate research and development expenses somewhat below those of 2020. Certain expenses we had earlier planned for 2021 will instead land in 2022, and next year we will step up our R&D.

For the nine months, adjusted earnings per share came in at EUR 2.95, calculated on an average of 785 million shares. Free cash flow before M&A and customer financing over those nine months reached EUR 2.3 billion. That figure mirrors what we have done to contain cash and also takes in a sizable favorable phasing effect in working capital, a portion of which we expect to be neutralized during Q4 2021. Overall, across the nine months we recorded a solid count of commercial aircraft deliveries, and we concentrated on competitiveness while still running our costs in crisis mode through H1. Activity started picking back up in the third quarter, with additional acceleration anticipated in the fourth quarter. During the nine months, we likewise gained from a favorable hedge rate as well as from some provision release. Moving to the next slide now, on profitability. As I mentioned, EBIT reported for the nine months of 2021 was also EUR 3.4 billion. EBIT adjustments totaled a net positive of EUR 0.1 billion, comprising EUR 190 million tied to the A380 program, 45 million of which was booked in Q3, a -EUR 165 million negative impact from foreign exchange mismatch and balance sheet revaluation, with only EUR 5 million of that in Q3, plus EUR 43 million of other adjustments, including compliance costs, of which -EUR 6 million fell in Q3.

The earnings per share we report includes negative EUR 172 million in financial results. That largely mirrors net interest results of negative EUR 233 million, partly offset by positive EUR 63 million tied to Dassault Aviation. On the core business, the tax rate stands at roughly 27%. For net income, the effective tax rate comes in at just 21%, which takes in the impact of tax risk updates along with the tax effect from revaluing certain equity investments, partly offset by deferred tax asset impairment. Net income lands at EUR 2.6 billion, with reported earnings per share of EUR 3.36. Turning now to hedging. During the nine months 2021, hedges worth $15.4 billion matured, with an associated EBIT impact at a rate of 1.19 versus 1.20 in the same period last year. For the full year 2021, our expectation is an average hedge rate of 1.21, compared with 1.19 in 2020. Consequently, we anticipate the hedge rate across the remaining three months will be less favorable, both year-on-year and when set against the nine-month 2021 average. In nine months 2021, we put in place $22.8 billion of forwards at a rate of 1.22, and of that amount $12.1 billion came in Q3 2021 at a rate of 1.21, mainly covering the years 2022 through 2025.

That gave us better average hedge rates for those years. Our overall U.S. dollar hedging book, which includes $1.2 billion of hedges that were disqualified in Q1 2021, now totals $87.1 billion at an average hedge rate of 1.26, compared with $81 billion, also at 1.26, in December 2020. Let's now turn to how our cash moved across the nine months of 2021. Gross cash from operations came in at EUR 2.7 billion, driven mainly by our EBIT Adjusted and incorporating a EUR 4.5 billion provision consumption tied to the restructuring plan. Working capital declined by EUR 4.8 billion. That figure takes in a significant positive phasing effect from the timing of receipts and payments, partly offset by inventory build in the divisions that reflects the delivery profile. Year to date, the A400M kept dragging on our free cash flow before M&A, though to a lesser degree than during the nine months of 2020. Capital expenditures for the nine months were roughly negative EUR 1.2 billion, broadly in line with the nine months 2020 level. For 2021, we still expect capital expenditures of about EUR 2 billion in cash out. Free cash flow reported stood at EUR 2.3 billion. M&A activities came to only -EUR 14 million, while customer financing brought an inflow of EUR 62 million.

On the aircraft financing side, conditions are still solid, and there is enough liquidity in the financial markets for our products. Support from export credit agencies also gave us a boost. Turning to free cash flow for fiscal year 2021 and, in particular, our working capital, we anticipate that the nine-month phasing effect will be partly neutralized during the fourth quarter, and that we will see an impact from the ramp-up on our single-aisle. The position had improved to EUR 6.7 billion by the end of September, and our liquidity remains strong, standing at EUR 27.7 billion. In light of the rise in our net cash position and our robust liquidity, we chose not to renew the undrawn EUR 6.2 billion supplemental liquidity line, which came to maturity in September. Meanwhile, we pushed out by one year the maturity of our EUR 6 billion revolving syndicated credit facility. Looking ahead, we will keep taking an active approach to managing our liquidity, with the goal of preserving our robust credit rating. Now, back to Guillaume.

Thanks, Dominik. Let's begin with commercial aircraft. During the first nine months of 2021, we handed over 424 aircraft to 74 customers, and one of those was an operating lease with no revenue recognition at delivery. Looking at the nine-month 2021 picture by aircraft family, starting with the A220, we delivered 34 aircraft. Our production rate, which stands at five per month right now, should rise to roughly six per month in early 2022, and a monthly rate of 14 is envisioned by the middle of the decade. To support the A220 ramp-up, a pre-FAL is being built in Mirabel, and it is targeted to be operational in early 2022. On the A320, we delivered 341 aircraft, 155 of which were A321s. We are working to secure the ramp-up, and we remain on our trajectory to reach rate 65 by summer 2023. Modernization of the A320 Family FAL in Toulouse is progressing well and should be operational by end of 2022. On the A321XLR, the main component assemblies — namely the wings from Broughton, the nose forward fuselage from Saint-Nazaire, and the rear fuselage from Hamburg — are planned to enter FAL Hamburg in the coming days. Let's move to wide-bodies. On the A330, we delivered 11 aircraft in the first nine months.

I'm glad to tell you that we anticipate raising our A330 output rate from roughly two to nearly three planes a month on average by the close of next year. We also handed over 36 A350s, and we now expect to lift the A350 production rate from about five per month currently to roughly six in early 2023. Regarding the A380, we delivered two aircraft during the first nine months. In October, one additional A380 went to Emirates, and we are set up to finish deliveries by the end of this year. Now let's turn to Airbus commercial financials for the nine months. Revenues rose 21% year-on-year, largely mirroring the higher deliveries versus 2020, which, as you recall, was heavily affected by COVID-19. The rise in EBIT Adjusted is primarily fueled by delivery performance along with our work on cost containment and competitiveness. Moreover, we released some provisions reflecting, among other things, the good progress achieved on remarketing unplaced aircraft. Finally, let me remind you that the nine months 2020 EBIT Adjusted included EUR 1 billion of charges stemming from impairment and write-offs triggered by COVID-19. Turning to helicopters, in the first nine months of this year, we delivered 194 aircraft in total, 25 more than in the nine months 2020.

Sales rose 14% from a year earlier to EUR 4.1 billion, with services growth and greater deliveries both contributing. Of note, we handed over more Super Puma helicopters than in the comparable period a year ago. EBIT Adjusted climbed by over 30% compared with the nine months 2020, reaching EUR 314 million this year, supported by services, program execution, and reduced R&D spending stemming from completion of certification for the H160 and the new five-bladed variant of the H145 in 2020. Moving now to Defense and Space. Top-line figures are roughly flat against the nine-month 2020. The rise in EBIT Adjusted largely mirrors our cost containment and competitiveness work across the first nine months of 2021. On the A400M military transport aircraft, four units were delivered during the first nine months of 2021. Development work has carried on toward meeting the aircraft's revised capability roadmap. Retrofit work is moving forward in close coordination with customers. Risks persist around development of technical capabilities and related expenses tied to aircraft operational reliability — particularly concerning power plants — as well as around cost reductions and around locking in export orders on schedule per the revised baseline. Turning next to the guidance slide.

Even though the conditions we’re operating in remain pretty hard to predict, the results from the first nine months let us lift the 2021 guidance. I’ll go through the updated 2021 guidance for you now. In setting this 2021 guidance, the company is assuming there will be no additional disruptions affecting the global economy, air traffic, the company’s own operations, or its capacity to deliver products and services. This 2021 guidance excludes M&A. Against that backdrop, the company has revised its 2021 guidance upward and now aims to reach, in 2021, roughly 600 commercial aircraft deliveries — unchanged — EBIT Adjusted of EUR 4.5 billion, and free cash flow before M&A and customer financing of EUR 2.5 billion. As I normally do, let me close by recapping our main priorities. First, beyond handling our deliveries and backlog as agreed with our customers, we’ll keep up our efforts and our commitment to securing the planned ramp up of our A320 Family, since demand is very strong. Simultaneously, we’re making more progress on modernizing and transforming our commercial aircraft industrial operations. That covers digitalizing our development, production and logistics processes, greater use of robotics at our production sites, and simplifying our industrial setup by bringing aerostructure assembly back to the core of our company while getting ready for what comes next.

With ramp-up and transformation underway, we anticipate more hiring, centered on bringing in the right capabilities to back our plans. Regarding the leadership position we hold in cutting emissions across our industry, we're glad about the extra momentum created by the Airbus Summit, which lately gathered a broad spectrum of global decision makers in Toulouse. That event reinforced the idea that, first, decarbonization within our sector can only come about through an unmatched joint effort among all industry stakeholders, together with supportive government policies. On that point, we applaud the IATA commitment to bring the worldwide air transport industry in line with the Paris Agreement and to reach net zero carbon emissions by 2050. Second, the summit confirmed that what lies ahead is likely a multistep process. It begins with swapping old planes for new ones that emit less carbon, then moves to greater use of sustainable aviation fuels, synthetic fuels included, and finally advances toward more disruptive technologies such as a hydrogen-powered aircraft. If you weren't able to follow the event, I'd encourage you to go to our Airbus website, where the replays are available. Lastly, let me stress that delivering on our updated 2021 guidance remains a priority.

Throughout the crisis, as we have observed, robust performance and a solid balance sheet let us keep up our capacity to put money into our long-term goals throughout the portfolio. At this point, we are prepared as a team to take your questions. We appreciate your attention.

We're moving into the Q&A portion now. When you ask a question, state your name and your company. Kindly keep it to 2 questions per turn, and that counts sub-questions as well. And as always, please speak clearly and at a slow pace so that everyone on the call, ourselves included, can follow your questions. Clotilde, go ahead and walk the participants through the procedure.

Thanks. We’re moving into the Q&A portion now. If you’d like to ask something, press 01 on your phone’s keypad. Should you want to drop out of the queue, press 02 on your phone’s keypad. To repeat: to ask a question, it’s 01 on your phone’s keypad. Our first question comes from Mr. Tristan Sanson with Exane BNP Paribas. Sir, the floor is yours.

Yes, good morning, everyone, and thanks a lot for taking my questions. This is Tristan from Exane. My first question concerns the delivery trajectory for this year. Recently you have been delivering below your production rates in August and September, at 40 units. For October, there won't be a material pickup. From what we observe, demand for your aircraft remains strong, particularly since you have a strong rated commitment on A320neo demand. You don't have major disruption in the supply chain, and we are still expecting the inventory release to happen. Could you explain the dynamics a bit — what is going on, and why you don't yet start to release that inventory? That's the first question. For the second one, I will ask about your margin ambition after a few quarters of strong performance and another upgrade of your full year margin trajectory. How do you view the midterm potential for commercial aircraft profitability?

Hello, good morning, Tristan. I believe Dominik is going to handle the second question. I'll begin with the first one. Yes, you noticed a discrepancy — a gap between production and deliveries, primarily in September and October, and it will very likely be somewhat similar in nature, although it reflects a different situation. First, on the customer side, we have aircraft ready for delivery that haven't been delivered yet, and we need to work on that during November and December to get them handed over. Also, as I said on the earlier call, or attempted to explain a little this morning, there are production issues with a number of suppliers, which are causing planes to require outstanding work. Aircraft that are close to being delivered but not fully finished. They've gone through the assembly line, yet they need to be fully finished before delivery happens. That isn't unusual. If you recall, we had some similar issues in the early phases of the ramp up. We need to get on top of it, and we intend to deliver the vast majority of those planes by the end of the year. That's why we maintain the guidance of 600 planes, because we think we can achieve it. I hope that's clear.

Dominik, could you take the second part of that question?

Regarding the margin ambition, perhaps I should start by explaining that the guidance for EBIT Adjusted has moved up slightly, and what the components are, so you can judge what that means for the margin ambition. I mean, first of all, we mentioned that there is some R&D phasing topics, so where certain costs that we wanted to incur this year might slip into next year. That's part of it, the low triple-digit million amount. There were some Q3 non-recurring items. I mentioned some provision releases. Recall we had billion-ish provision and other charges which were COVID related in predominantly in June last year, and they related to topics like inventory write-offs, some vendor financing issues, writing off certain buildings. To a certain degree, we were able to release some of that, but again, only a low triple-digit million EUR amount. Then what rests is really a relatively minor change to what we've guided. Don't overestimate that EUR 0.5 billion and let it fall through to the margin ambition, basically, because it's predominantly phasing and non-recurring items. That means we are not changing our margin target, where we said that when we are back to the rates of 2019, we want to deliver the EBIT margin we had in 2019.

When you consider how the rate profile works, that could translate into a specific rate increase. You're free to speculate about the timing, so perhaps 2023 — pick whatever number you like. Keep in mind that year still carries ramp-up costs. It also carries the R&D expenses for the A321XLR. There are a number of items from which we believe we can reap benefits later. This isn't truly the long-term margin ambition; rather, it's simply a sort of intermediate milestone that we're guiding toward here.

All right, I appreciate those remarks. Thank you, sir. Our next question comes from Madame Celine Fornaro at UBS. Go ahead, please.

Thanks for taking my questions. There are just two from me. The first one has to be about the supply chain constraints and some of the color you gave here on the outstanding work, and whether that's probably related to things such as interiors and, you know, reworking of interiors, if you're seeing, you know, shifts in what customers are demanding. Also on the supply chain, if you could give us some color on the number of suppliers you currently have on watch and whether that figure has gone up relative to, you know, the June-July period. And also if, you know, how you plan to support and assist those suppliers through this ramp up, when it comes to hiring staff or materials, purchasing, particularly since you have slightly raised, your, you know, target number for Q2 2023, and how should we interpret that? Thank you.

Good morning, Celine. Regarding how many suppliers are on watch, we haven't moved much versus the close of H1. There have been some shifts in the makeup of the suppliers we're monitoring. Certain ones have gotten their situation under control. Others are struggling perhaps more than we had anticipated from the early stages of the ramp up. My view is that we face no systemic problem with commodities or with suppliers in that area. We simply have a certain number of difficulties in the early stages of the ramp up, and a rather small count of suppliers sits at the root of the challenges we face right now. We believe that, over time, this will be managed, and so our trajectory for the ramp up stays unchanged. How do we intend to help? Actually, we don't intend to help. We've been helping throughout the COVID-19 crisis, and I'd say in a big way. A lot of resources, Airbus resources, have been engaged. Well, it's mainly about support on site, finding workarounds when difficulties arise, adapting our production plans, and the short-term mix, when we run into difficulties here and there. The consequence of this is that sometimes we must pull planes out of the month's delivery plan, to deal with the situation and get them back on trajectory afterward.

Yet we believe this is something we can handle during the final months of the year. That is the reason our guidance remains unchanged. So to a certain degree, that was anticipated. You may recall that at the close of H1, I was fairly cautious regarding the challenges we were encountering as we came out of what I refer to as 15 months of hibernation. That is exactly what is taking place. On the whole, the supply chain is where it needs to be. We observe progress happening as anticipated, and when it comes to particular difficulties, we are on top of them. Our focus is strong. We are holding the supply chain to the requirement that they remain on track for the ramp up and address those individual cases. So that is essentially how I see things at present.

Thanks, Guillaume. I just want to ask a quick follow-up about that modest bump in rates for stations 40 through 65 — how are we meant to interpret it? Does it signal even more confidence on your part regarding demand, and in how you expect the order book to develop?

Okay, regarding that particular detail, it aligns closely with what we've previously stated. Going forward, we'll likely provide less detail on rates than we did during the COVID-19 crisis, when we felt strongly that giving suppliers that level of detail was extremely important. We'll return to the sort of rate guidance we offered prior to COVID. I wouldn't interpret this specific number as an indicator of confidence in demand. That said, yes, demand for our products is very strong, and it grows stronger each day, particularly for the A320 Family. That's the reason we're reaffirming the ramp-up trajectory. Supply is the primary driver. Supply determines how quickly we ramp up, because from our standpoint, demand will support exceeding 65. As you're aware, we're looking at 70, 75 going forward, since we anticipate very robust demand for the A320 in the latter half of the decade.

I appreciate that.

Thanks, madam. Our next question comes from Mr. Christophe Menard of Deutsche Bank. Please go ahead.

Yes, good morning, and thanks for taking my question. Specifically on the robust demand for aircraft, I was hoping you could provide a bit more detail regarding how airlines' decarbonization strategies are affecting the replacement cycle during the latter half of the decade, and whether that has shifted over the past two years in terms of demand and what they have communicated to you. My second question concerns the material shortage. Could you also tell us whether magnesium is beginning to become a problem or an issue when it comes to supply for your aluminum raw material?

Thank you, Christophe. The decarbonization impact — yes, how significant it is, I think that's hard to gauge. Questions keep coming up more and more. We're spending increasing amounts of time on it during the bid process. What we clearly see is that this subject is growing for our customers. How much weight do they ultimately give carbon when making decisions? That's likely quite varied and not simple for us to evaluate. When it comes to choosing new aircraft, replacing older ones, and the attention they pay to their financial and non-financial equations going forward, it's completely clear that decarbonization matters more, and versus two years ago this has shifted. I think that really is a fact. On magnesium, I know our teams have it on their radar. I'm not aware of any major disruption or shortage on our side stemming from this particular commodity. I can't say more. That's beyond my pay grade, if I may put it that way, but as a specific topic today at Airbus it isn't very high, though it's among the things we're monitoring.

To follow up on that, could you verify whether magnesium is in fact part of the aluminum alloy on your aircraft?

Yeah. Yeah, but it's mostly aluminum, and then there are other elements within the aluminum. There are various types of aluminum. How much? I mean, I believe those are quite small percentages. Again, if you'd like to dig into that question, we need to address it with a specialist. When it comes to the percentage of magnesium in our aluminum, I'm not a specialist. Sorry about that.

Not at all, no issue. Thanks so much. Thanks.

Thanks, sir. The next question comes from Milène Kerner of Barclays. Milène, please go ahead.

Yes. Hello, this is Milène Kerner at Barclays. Thanks for taking my question. Regarding costs in the Airbus segment, Guillaume, you said there was a rise in the cost base. I was wondering whether you could clarify how large the cost impact was this quarter relative to Q2. Your guidance implies that this cost will keep increasing in Q4. Could you help us understand the scale and what will drive that increase? As Dominik, you noted that part of your growth guidance comes from lower costs than what you had previously anticipated. Thank you.

Sure, glad to offer some color on that. On OpEx, what we report in SG&A and R&D really shows up quarter by quarter. Regarding the R&D guidance we provide, we're now saying it will be slightly below last year's level. Looking at what we achieved across the first nine months, it's evident there's a substantial Q4 impact that we're not to the right, but it's building and ramping there. We want to revive that part of the business so we're truly prepared for the future, and we'll push further on that. This will keep going. With SG&A, we of course try to hold the line much more tightly. Some activities have also been pushed to the right that we need to get underway, such as on IT projects, and to drive productivity ahead. From that angle, there's a gradual rise. Of course, last but not least, we need ongoing support on the production side. We don't put a detailed number on that, but it's weighing somewhat on gross margin ahead. You brought up the working parties we need in order to truly sustain the ramp, and that's something you also see flowing into our financials, and it's all captured in what we've guided for the EBIT Adjusted for Q4.