Airbus SE (AIR) Earnings Call Transcript & Summary

Good day, everyone, and thanks for holding. This is the Airbus Full Year 2021 Results Release Conference Call, and you're welcome to it. Clotilde here, and I'll be your operator for the call. I'd like to point out that throughout the presentation, everyone joining will be in listen-only mode, and we are recording this conference. Once the presentation wraps up, there will be a chance for you to ask questions. Right now, I'd like to hand the conference over to your host, Guillaume Faury, Dominik Asam, and Hélène Le Gorgeu.

Thanks, Clotilde, and good morning everyone. You're joining the Airbus Full Year 2021 Results Release Conference Call. Guillaume Faury, our CEO, and Dominik Asam, our CFO, will walk you through our results and take your questions. We expect this call to run roughly one hour and 15 minutes. That figure covers 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 posted. 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're about to take you through, along with the financial statements. During this call, we'll be making forward-looking statements. The package you received includes the safe harbor statement, and it applies to this call too. Please read it carefully. Guillaume, over to you.

Thanks, Hélène, and good morning, everyone. We appreciate you being with us for the Full Year 2021 Results Call today. It's a pleasure to be here alongside Dominik to take you through what we achieved. 2021 proved to be yet another difficult year, though it was equally a period of transition, in which our focus moved away from steering through the crisis and toward recovery and growth. During the opening months of 2021, we still needed to show our resilience amid a worldwide environment characterized by low air traffic and a general absence of predictability. As the year went on, visibility improved. We observed air traffic picking up speed rapidly once travel restrictions were removed, beginning with major domestic markets and proving the essential need to connect people and cultures across the globe. That improved visibility, along with our customers' strengthening demand, gave us the confidence to establish our ramp-up trajectory, engage our supply chain, and initiate every action needed to get ready for a strong recovery in the single aisle market. 2021 was likewise a remarkable year for Airbus, owing to the resilience and hard work of our teams in delivering outstanding industrial, commercial, and financial results. Let's now turn to our commercial aircraft deliveries and our financials, both of which show that we met the guidance we gave in October.

During Q4, we handed over 187 aircraft, which brought our total deliveries for the whole of 2021 to 611 — an 8% rise versus 2020 and consistent with the guidance we had set for 2021. This accomplishment, achieved collectively by Team Airbus alongside our customers and suppliers, makes me proud. Across the full year 2021, EBIT adjusted came in at EUR 4.9 billion, while free cash flow before M&A customer financing reached EUR 3.5 billion. These solid 2021 financial results — and in certain respects they are very strong — mirror the volume of commercial aircraft deliveries, the healthy performance of our divisions, and also our cost containment and competitiveness efforts. Even as we kept a careful grip on our cost base throughout the year, we gradually restarted activities aimed at preparing our future, and in 2022 we will step this up further. Our EBIT adjusted additionally gained from a lowering of risk exposures, which allowed us to release some provisions. Record net income of EUR 4.2 billion, along with a strengthened net cash position of EUR 7.6 billion — Dominik will address both of these later — support our proposal to bring back dividend payments going forward, amounting to EUR 1.5 per share for 2021. As we stand here today, having moved into 2022, the pandemic is not yet entirely behind us.

We’re also seeing added complexity from the worldwide macroeconomic picture—pressures in supply, logistics, and labor. Even so, we’re still meeting our production ramp-up as planned, while keeping a close watch on those challenges and managing them. Now, turning to our commercial environment: after a steep drop in 2020, and despite ongoing difficulties in 2021, the global economy bounced back. Air traffic likewise recovered gradually over the course of the year. Although the crisis isn’t finished, aviation keeps coming out of it. It’s become evident that people are eager to fly once more, and they do so whenever travel restrictions ease. Still, 2021 has also demonstrated that certain major markets stay volatile, and the Omicron variant has made clear yet again that the road to a full recovery isn’t a straight line. Those uncertainties, as things stand, don’t alter our expectation that the market will rebound between 2023 and 2025, with domestic and regional markets plainly in the lead. This is supported by our customers’ robust demand for latest generation fuel-efficient aircraft, which strengthen their competitiveness and reduce their fleet emissions. Indeed, latest generation aircraft make up only about 13% of the global fleet today, which highlights the substantial potential of fleet replacement to decarbonize commercial aviation using technologies available now.

Now I want to bring up our orders and backlog, since those numbers likewise show how commercially active we were during Q4. Across the whole of 2021, gross orders came to 771. During Q4 alone, gross orders totaled 501, and that figure covers 43 A220s, 46 aircraft from the A320 family, and 32 wide-bodies. Among those are the first orders for the A350 freighter, which, along with a number of commitments, represent a significant milestone for that program. This commercial result makes me very happy, and here at Airbus we value the strong backing of our customers, who booked new orders for 2021 in response to demand in both the passenger and freighter markets. Cancellations during 2021 reached 264. Consequently, net orders ended positive, at 507 aircraft, while our backlog in units stood at 7,082 aircraft as 2021 closed. At the group level, the value of our backlog rose to EUR 398 billion in 2021, largely a reflection of the stronger US dollar. I would also like to comment briefly on the situation we are regrettably facing with one of our customers, Qatar Airways. We reached the decision to exercise our rights and terminate two A350 to 1000 delivery slots in the A321 contract. That step came after numerous efforts to reach solutions that would benefit both sides, and our hope for an amicable resolution remains.

I also want to mention that at Airbus, the bond we have with our customers matters enormously to us, and we'll keep working diligently to serve them. Turning to helicopters: during 2021 we enjoyed a record year for bookings, with book-to-bill comfortably above one, which validates the strong campaign momentum in our home countries along with solid results from our support and services activities. Across the year, net orders totaled 414, versus 268 in 2020. That figure encompasses 52 H160 helicopters, including the firm order placed by the French DGA for 30 units of the H160 military version as the first batch under the Light Joint Helicopter program, which envisages an overall total of 169 units. We also logged, in Q4, an order for 36 H135 helicopters from the Spanish Ministries of Defense and Interior. Lastly, in defense and space, order intake for 2021 came in at EUR 13.7 billion, a rise of 15% year-over-year, equivalent to a book-to-bill of roughly 1.3. That commercial showing features key orders in our military aircraft business, among them two major contracts for in-service support of the German and Spanish Eurofighter fleets, the Indian order for 56 C295 to replace the Air Force legacy fleet, MRTT-related orders from the United Arab Emirates, the UAE, and Spain, plus the export contract with the Republic of Kazakhstan for two A400M.

Turning to space systems, we secured a contract covering the design and production of 6 Galileo second-generation satellites. During 2021, 10 spacecraft were launched by us, and deployment of the OneWeb constellation got to 394 satellites — just shy of 400. Orders came in for an additional 12 spacecraft, and notably, 20 of our satellites now take part in monitoring climate change, while another 20 are being developed. Regarding Eurodrone, we're pleased about the recent budget approval from Spain, which follows approvals by France, Germany, and Italy. Eurodrone is set to become the first product designed and developed from the outset using our new concept for digital design, manufacturing, and services. On FCAS, we keep collaborating with our industrial partners, aiming to advance to the next development phase later this year. Now, Dominik. Dominik is going to walk you through the financials.

Thanks, Guillaume, and good morning, everyone. For FY 2021, our revenues rose to EUR 52.1 billion, a 4% increase year-on-year, driven mainly by more commercial aircraft deliveries, though this was partly offset by a weaker average US dollar exchange rate. Our FY EBIT adjusted came in at EUR 4.9 billion, up from EUR 1.7 billion in 2020, a figure that had included EUR 1.1 billion of charges from impairment and write-offs brought about by COVID-19. That strong year-on-year gain in EBIT adjusted stems primarily from commercial aircraft delivery performance along with our cost containment and competitiveness efforts. It also mirrors a decrease in risk exposures, which allowed us to release some provisions. Specifically, we went back over the COVID-19 related charges and reassessed exposure levels, and that had a positive effect on EBIT adjusted, mostly in H2 of the year. Turning to research and development, our expenses for 2021 were EUR 2.7 billion, a bit under the 2020 level. R&D expenses should rise to roughly EUR 2.9 billion in 2022. Our FY earnings per share adjusted was EUR 4.33 per share, calculated on an average of 785 million shares outstanding. FY free cash flow before M&A and customer financing amounted to EUR 3.5 billion.

That figure mirrors what we achieved on keeping cash under control and a reduction in working capital, largely from better inventory levels. It also takes in the sale of one of our French sites. Overall, 2021 was a very strong year for us. During the first half we were still running cost management in crisis mode and gained from provisional releases mostly in the second half, while we steadily restarted activities aimed at preparing for the future, and that will speed up further in 2022. This covers chiefly extra spending on research and development, digitalization and cybersecurity, plus efforts supporting the single aisle ramp ups. Moving to the next slide on profitability: FY 2021 reported EBIT came to EUR 5.3 billion. EBIT adjustments net to a positive EUR 500 million in total, comprising +EUR 274 million tied to the A380 program, with EUR 84 million of that booked in Q4; +EUR 122 million gain on disposal from the sale of the French site mentioned earlier, recorded in Q4; -EUR 212 million linked to the A400M, of which -EUR 209 million fell in Q4; -EUR 38 million negative impact from foreign exchange and balance sheet revaluation, including +EUR 127 million in Q4; and EUR 331 million of other adjustments, chiefly around EUR 4.2 billion of provision releases connected to the restructuring plan and payments to supplier, by suppliers.

In Q4, we booked +EUR 285 million. The reported earnings per share figure includes -EUR 315 million from financial results. That largely comes from EUR -246 million in net interest results, along with the revaluation of financial instruments and of certain equity investments. On the core business, the tax rate sits at roughly 27%. The effective tax rate on net income is 17%, which includes the positive impact of tax risk updates and the tax effect tied to the revaluation of certain equity investments, plus a net release of deferred tax asset impairments, primarily driven by an updated business outlook. Taken together, this gives us a record net income of EUR 4.2 billion, with reported earnings per share of EUR 5.36. Turning to our hedging activities in FY 2021, $20.9 billion of hedges matured, with the associated EBIT impact at a rate of 1.20 compared with 1.19 in the prior year. Over the course of the year, we changed the phasing of our hedges by putting in place roughly $5 billion of rollovers, mostly in Q1. We also put in place $29.5 billion of forwards at a rate of 1.21, including $6.7 billion in Q4 at a rate of 1.18, mainly for the years 2022 to 2025. As a result, our total US dollar hedging portfolio, including $1.2 billion of hedges disqualified in Q1 2021, comes to $88.3 billion at an average exchange rate of 1.25, versus 1.26 in December 2020.

Let's turn to how our cash moved during 2021. Gross cash flow from operations came in at EUR 4.5 billion, which chiefly mirrors our adjusted EBIT and takes in a EUR 4.6 billion consumption of provisions tied to the restructuring plan. Working capital went down by EUR 1 billion. That largely captures lower inventory from deliveries of the final A380s plus ongoing optimization of our wide-body stock, mostly offset by contract assets and liabilities. So far this year, the A400M kept dragging on free cash flow before M&A, though to a lesser degree than in 2020. CapEx for 2021 landed at roughly -EUR 1.9 billion, a touch above 2020. For 2022, we look for CapEx of about -EUR 2.4 billion. Reported free cash flow was EUR 3.5 billion. M&A activity accounted for just -EUR 32 million, whereas customer financing brought in EUR 28 million. The aircraft financing backdrop stayed solid in 2021, with financial markets holding ample liquidity for our product. Support from export credit agencies also helped us. Looking ahead, such a low level of customer financing may prove unsustainable, and we expect to use some cash over the coming years. Our net cash position strengthened to EUR 7.6 billion at the end of December, and liquidity remains robust at EUR 28.7 billion.

During the quarterly disclosure we gave last time, we noted that in Q4 we added a year to the maturity on our EUR 6 billion revolving syndicated credit facility. Looking ahead, we'll keep taking an active approach to managing liquidity, with the goal of preserving our strong credit rating. Guillaume, over to you.

Thank you, Dominik. Moving on to commercial aircraft now. During 2021, we handed over 611 aircraft to 88 customers, and two of those were operating leases where revenue recognition doesn't happen at delivery. That delivery figure marks a gain of 45 aircraft compared with the prior year. We also gave our suppliers extra visibility in 2021, and notably we locked in the production rate for the A320 family through summer 2023, which is the middle of next year. Beyond that, we kept advancing our product portfolio, launching the A350 Freighter and making progress on the A321XLR. Let's turn now to a more detailed picture by aircraft family. For the A220, we delivered 50 aircraft. The ramp-up continues, and we remain on track for rate 14, which we expect by the middle of the decade. The pre-FAL in Mirabel is operational now and will back this ramp-up. On the A320, we delivered 483 aircraft, 221 of them A321s. We're still delivering against our production ramp-up and remain on our trajectory toward rate 65 by summer 2023. We keep de-risking that ramp-up, including by making all our assembly sites A321 ready. As for production rates past 2023, we're still in the assessment phase, and we're working alongside our suppliers to potentially enable an increase above rate 65.

Regarding the A321XLR, the first of three development aircraft entered the FAL in Hamburg in November. Starting this year, these aircraft will carry out the flight testing and type certification program, paving the way for series production and entry into service next year, in 2023. On the A330, we delivered 18 aircraft, including three MRTTs. The A330 to 800 received its 251-ton max take-off weight certification in December. As previously announced, we target raising our monthly production rate to almost three aircraft by the end of 2022. On the A350, 55 aircraft were delivered. We continue to expect to increase the A350 production rate from around five per month to around six in early 2023. On the A380, we delivered five aircraft in 2021, including the last produced A380 to Emirates. The A380 will continue to fly with our support for many, many years. Let's now look at Airbus commercial financials for the year. Revenues increased by 6% year-on-year, mainly reflecting the higher deliveries as compared to 2020. The increase in EBIT adjusted is mainly driven by the delivery performance, our efforts on cost containment and competitiveness. In addition, we relieved some provisions reflecting, among others, the good progress made on the remarketing of unplaced aircraft resulting from COVID.

One last reminder: our full-year 2020 EBIT adjusted figure contained EUR 1.1 billion in charges from impairments and write-offs that COVID-19 set off. Turning to helicopters, we handed over 338 helicopters in 2021 — 38 more than in 2020 — and that count includes the first H160 delivery. Revenues rose 4% year-on-year to EUR 6.5 billion, driven by growth in services and by higher deliveries. EBIT adjusted was up roughly 14% year-on-year to EUR 535 million, largely on the strength of support and services, program execution, and cost focus. Consequently, the profit margin for 2021 came in at 8.2%, versus 7.5% in 2020. Let's wrap up our 2021 review with defense and space. Revenues are a bit lower than in 2020, mainly because of military aircraft, partly offset by space systems. The rise in EBIT adjusted reflects continued cost containment. As a reminder, COVID-19 hit multi-year projects in 2020, which affected that year's performance. On the A400M, eight aircraft were delivered in 2021. We've carried on with development work aimed at reaching the revised capacity roadmap. Retrofit work is moving forward in close alignment with the customer. During the fourth quarter, we booked a charge of EUR 4.2 billion, chiefly reflecting updated estimates of the delivery pattern under the launch contract and the related effect on unabsorbed costs.

My apologies. There are still risks around how the technical capabilities develop and what the related costs will be for aircraft operational reliability — especially when it comes to power plants — as well as around cost reductions and around locking in export orders on time in line with the revised baseline. Let's now turn to 2022, and I'll read you our guidance for that year. In setting its 2022 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 2022 guidance is before M&A. On that basis, for 2022 the company is targeting roughly 720 commercial aircraft deliveries, EBIT adjusted of EUR 5.5 billion, and free cash flow before M&A and customer financing of EUR 3.5 billion. That guidance mirrors the growth path we expect and the investments we're making to get our future — and the future of aviation — ready. Now, a few words to wrap up and to address the key priorities. In 2021, we delivered on our commitments. We intend to do so once more this year, while, as I mentioned, we lay the foundations for what lies ahead. We will stay focused on managing our contracts and deliveries, and at this very moment, we must adapt to the impact of Omicron.

We’ll also concentrate on making our backlog even stronger throughout the businesses. At the core of what we prioritize will be increasing output for our A320 family. We keep collaborating intensively with suppliers so those plans get carried out. In addition, we unveiled a group-wide global initiative to hire roughly 6,000 new employees, which will back both the ramp-up and the company’s long-term projects and ambitions. That production increase will further be underpinned by the money we are putting into modernizing and reshaping the industrial value chain. Early this year we completed important milestones. These include launching Airbus Atlantic, our new wholly owned subsidiary in France, and reaching an agreement with social partners in Germany to set up a fully integrated aerostructures assembly company of a similar kind, due to be operational on the first of July 2022. Going forward, I’d like to highlight our upcoming A321 final assembly line in Toulouse, which will take full advantage of our most recent advances in digitalization and robotics. Transforming the company — with an ongoing emphasis on operational excellence throughout the group — is essential for getting aviation ready for what comes next. That leads me to our long-term ambition of leading the development of sustainable aerospace, which stays at the center of what we do and who we are as a company.

We've all witnessed the crucial part aerospace has played in society in recent years—linking people and cultures and fueling prosperity—and that will guarantee the investment levels needed to hit the world's ambitious climate goals. Making our industry carbon-free is vital so that aerospace keeps fulfilling this essential role. Decarbonizing air travel stands as a central pillar of Airbus's sustainability strategy, and that goal gained fresh momentum last year when the whole sector committed to achieving net-zero emissions by 2050. The so-called Toulouse Declaration, signed earlier this month by the 27 EU member states, reinforced this. At Airbus, we will keep investing and keep expanding our skills and expertise to reach this goal by maturing the enabling technology bricks and by continuing to cut our own emissions as a company. Beyond that, our industry will make sure we gain the benefits of peace, stability, and security—without which sustainability simply cannot exist.

So we're still proud to see our defense and security solutions playing a part in a safe and united world. And lastly, before we take your questions, let me say again that delivering on our guidance stays among our top priorities in 2022. Solid financial results will protect our capacity to invest in our long-term ambitions throughout our portfolio. At this point we're ready for your questions. Thank you.

We're moving into the Q&A portion now. When you ask a question, kindly 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 do remember to speak clearly and slowly so that everyone on the call, especially those of us here, can follow your question. Clotilde, please go ahead and walk the participants through the procedure.

Thanks. We're moving into the Q&A portion now. To ask a question, you can press zero one on your phone's keypad. If you'd like to take yourself out of the queue, just press zero two on your telephone keypad. We ask that participants use only handsets when posing their questions. Anyone wanting to ask something should press zero one on your telephone keypad. Our first question comes from Madame Celine Fornaro at UBS. Madame, go ahead, please.

Yes, hello, everyone. Good morning. Thank you for taking my questions. First, congratulations on the 2021 results, and it's also encouraging to see a few of the non-Airbus divisions posting what I'd call record margins. On that note, my first question concerns the defense performance in the final quarter of the year. Could you perhaps shed a little light on the dynamics there and on how sustainable that performance is? The same goes for helicopters when we think about 2022, and perhaps the midterm as well. My second question then relates to your delivery outlook of 720 deliveries. Could you also perhaps try to walk us through how you're thinking about the inventory levels you're prepared, I would say, to carry into this year relative to the levels you finished at around 2021, which came in near 100? What level do you expect to see toward the end of the year? Thank you.

Thanks, Celine. Perhaps I can address those questions. Regarding how our divisions performed — Defense and Space, and Helico — as was true again this year, they tend to be heavily weighted toward the back end; that pattern is well known. I wouldn't advise taking the Q4 results and projecting them forward. What I believe we can say is that we anticipate profitability staying roughly the same over the next year. We do see certain opportunities, gradually across a five-year planning horizon, to nudge the margin up a bit. Turning to the delivery question — 720 — and how that ties to inventories: first, yes, you're correct. We noted that we had close to 100 aircraft that were completed or nearly completed but not handed over at the end of last year, 2020. At the end of 2021, we were slightly lower — a couple handful, I'd say. Largely wide bodies that we were able to place. You'll remember we had some aircraft without placement, and we succeeded in finding homes for them. Not every one of them has been placed, so further progress lies ahead. Sorry — all of them have been placed, but not delivered. Now, in 2023 and 2024, we'll see those get delivered. That number will come down. We'll also see a modest decrease on single-aisle.

Even so, keep in mind that circumstances remain highly fluid. We must constantly align granular, customer-specific demand with what we produce. During this turbulent stretch, that will still require a fairly elevated level of such inventory, which can be reduced over time as conditions return to normal, since before the crisis—true—we carried less of these particular inventories at year-end.

Apologies — just one quick follow-up there, Dominik. At what point would you anticipate inventory levels getting back to normal? Do you think that happens toward 2023, or would that be too soon?

My guess is it might take somewhat more time, though the decline would be gradual. To repeat, we're not discussing large figures here. What we're referring to is a potential in the mid-double digits for deliveries across the coming two to three years, I would say.

Thanks.

Thanks, ma'am. Our next question comes from Mr. Tristan Sanson at BNP Paribas Exane. Go right ahead.

Tristan, are you able to hear me?

Right, at this point it's fine.

Apologies — is my audio coming through?

Yeah, it's fine at this point.

Sorry about that. This is Tristan calling from BNP Paribas. Let's start with the first question, please. Guillaume, could you share a few indications of where you're seeing the bottlenecks — the key bottlenecks that must be watched when it comes to managing deliveries in 2022? Are they at the delivery centers? On the supplier side? Or is it related to HR? That would be very useful. Perhaps this one is for Dominik. If you could give us some detail on the main moving parts of the bridge for 2022. You offered some helpful remarks concerning roughly EUR 150 million of cost increase from R&D. What other significant moving parts should we be aware of for 2022? Many thanks.

Sure. I’ll start with the first one. Hi, Tristan. Right now, and in all likelihood through the entire year, the constraint sits in the supply chain, and the situations vary widely. What’s behind those supply-chain constraints? Essentially, it comes from having been inactive for a period because of COVID-19, then needing to ramp back up in a highly complicated setting marked by elevated prices and raw-material shortages, global logistics difficulties, and extraordinary prices, incidentally. The energy picture is complicated in several parts of the world, and for several skills it is genuinely hard to locate the resources once more. At Airbus, we aren’t facing much of this HR challenge during 2022. We believe 2022 will be fine. Going forward, this will stay something to keep watching.

So perhaps starting from the bridge between the actuals — EUR 4.9 billion EBIT adjusted in 2021 — and the EUR 5.5 billion we've guided for 2022. You already touched on the R&D increases. We're raising our R&D spend to EUR 2.9 billion. That's roughly a couple hundred million. We'll also revive and speed up our digital roadmap, including the well-known DDMS project, which is crucial for our future success and competitiveness and will cut time to market. That's about another EUR 4.2 billion. And last but not least, given the challenges you mentioned, we'll invest more than we did the prior year in the ramp up securitization. Altogether, that kind of investment in the future — as we call it, and again, technically it isn't investment, it's expenses — comes to around half a billion. If I add the protection we're taking on inflation risks and the $0.02 dollar depreciation, that's another EUR half billion. Put those together and you're at EUR 1 billion. Let's not forget there's a kind of non-repetition of these releases of provisions, which are about EUR 4 billion. Taking all of that together, you can see it for the increment of aircraft deliveries — and don't forget, within that increment there are also A220s, which don't add margin.

We actually manage quite well in terms of getting those additional deliveries to add a healthy contribution margin, and that includes the mix effect. In 2021, 46% of our deliveries were A321s, and as you can see from the backlog we've disclosed, it now stands at 59% A321neo. That's going to help as well when it comes to adding margin from each incremental delivery. So that's basically how you can readily walk from 2021 into 2022.

That's really helpful context. Thanks a lot, Dominik. Appreciate it.

Much appreciated, sir. Our next question comes from Mr. Benjamin Heelan of Bank of America Merrill Lynch. Sir, the floor is yours.

Morning, guys, and thanks for that question. So, first, I have a question about the A320 production rates. You mentioned that you're still in the assessment phase for beyond 2023. When do you expect to be able to make some decisions on this? What do you view as the hurdles here? Is it demand? Is it supply chain? I think you just spoke about supply chain, so any additional color on that would be great. My second question is on the somewhat more medium term. I think in your key priorities, you note that you're focused on cash and earnings growth beyond 2022. How should we think about the margin potential of this business over the medium term, and any potential for a capital markets day at some point? Thank you.

I’ll hand question two and question three over to Dominik. Hi, Ben. It’s good to talk with you. Production rates — well, that topic is right at the top of the agenda for the first half of this year. We aim to be ready to make a decision around the middle of the year, and that timing would be the appropriate point for a decision covering 2024 and 2025. That’s the reason our target is mid-year. It will come down entirely to the balance with demand, and demand is extremely strong. If we looked only at demand, we could actually go fairly high, but we must weigh that against supply and the available supply capacities. As I mentioned earlier, this follows from assessing the entire supply chain — both its capacity and its willingness to move to higher rates. We need to examine that over time. We need the rates we contemplate for beyond the middle of 2023 to be sustainable. In brief, by the middle of this year we want to have reached a conclusion about what we will do for 2024, 2025 and beyond. Dominik, the other two?

Where margin is concerned, yes — look, we've already issued guidance for 2022, so you've got fairly solid data points to begin extrapolating somewhat from 2021 and 2022 onward into future years. Certain opportunities clearly exist for us, since a great deal of activity still weighs on 2023. Take the XLR introduction — that, of course, only delivers harvesting across the 2024 and 2025 timeframe. Then the freighter comes into service in 2025, and there we currently carry the full investment burden before we reap the benefit. On R&D, we're stepping up as well. DDMS, the project I mentioned a moment ago, is at its highest spend rate during these years, 2023 and 2024. Opportunities to expand margin do exist. I referenced the mix — the positive mix of 59% A321neo in the backlog. Now, the reason we don't want to provide specific guidance for the middle of the decade is that a couple of imponderabilities remain, and they're still quite speculative. What will wide body pricing be on open slots during that timeframe? And we have the big inflation question right now — what does it really mean over the short term?

Like I said, we're able to manage it pretty effectively, though over a longer horizon it could create a problem. You always have the matter of R&D spending. What is the product strategy? What kind of response is required to whatever the competitor is up to? That part isn't something we control. Taken all together, these things make us hesitant about committing to a truly precise figure. That said, there are elements that give us reason for optimism that there's room to reach higher margins past 2022, 2023.

So, a Capital Markets Day at some point — have you given any thought to that?

I’ll let Hélène address that point.

Dominik, that isn’t fair.

That's not fair. I'd like to do one, if we can put it that way. Again, I mean, the point is more that we've done this regularly before. Don't expect any miracles that day. One topic we really want to focus on is also the ESG-related topics. There's always a debate about defense, which is heating up at the moment. I think we need to spend some time with our investors, so yes, I'm looking for opportunities to do that.

Alright, thanks, everyone.

Thanks, sir. The next question comes from David Perry at JPMorgan. Please go ahead.

Yes. Morning, Guillaume and Dominik. Two questions from me. First, yesterday afternoon some headlines appeared on Reuters regarding Airbus carrying out a review of its defense activities. Guillaume, perhaps you could offer a comment on that if there is anything worth saying. The second one is also some press reports from a few days ago about the threat of a strike in the U.K. I believe it concerns pay policy. More broadly, in this world of high inflation, what is your pay policy going to be? Could you remind us how much will be covered, and whether any pay increases fall under the escalation clauses? Thank you.

I'll respond to those questions. Thank you. The first one, I believe, refers to the paper regarding the defense review at Airbus. Well, there isn't any major development there. Each year we carry out strategic reviews with the board covering our various business lines, and I believe that's something we will keep doing. That, I think, is what the paper concerned, so on that subject there is nothing I can say. On the strike in the U.K., well, perhaps let me step back a bit. Two very difficult years we've had. Airbus employees, I think, have truly performed excellently. As you've seen, we've decided to reinstate the dividend, and that's about moving forward now and striking the right balance among the different stakes — the short term, the midterm, the long term. Employees wanting a fair share of the results they helped create is something I respect. A solution has to be found case by case. You may recall that toward the end of last year we had a comparable situation to handle in Germany. Through negotiation we resolved that situation. Finding solutions and working together for the good of the company is a culture we have, and I suppose that's what we'll do once more in this case.

As we go forward, Dominik offered a few remarks on this. We believe we'll keep performing well in quite a few areas where there's uncertainty, but everyone has to be aligned in striking the right balance so that this remains true. Those are the sorts of conversations we typically have with our unions, social representatives, and employees, and that is exactly what we will do in the U.K. too.

Okay. Thanks. Just to clarify, if pay raises happen, what do the escalation clauses in the customer contracts allow?

Well, pay raises are happening because of the conditions we find ourselves in, and because we were extremely cautious during 2020 and 2021. It's obvious that pay will go up. What I mean is that the contracts refer to indexes, which are much broader data points, and there's no direct link between the salary moves we make in a given country or division and the way contracts shield us on inflation and how escalation gets handled. We get overall protection from the contract, and then we have to manage our costs — all of them, by the way — to make sure things stay fairly balanced. When inflation is surging very fast and reaching very high levels, that's a real challenge, and that's exactly why, as Dominik tried to explain earlier.

All right, thanks a lot.