Airbus SE (AIR) Earnings Call Transcript & Summary

Good day, everyone, and thanks for holding. This is the conference call marking Airbus's release of results for the first half of 2022, and I appreciate your joining. My name is Philippe, and I'll be your operator on this call. I'd like to point out that everyone attending will be muted for the whole session, which is also being recorded. Once the presentation wraps up, you'll have a chance to pose questions. Right now, I'll hand things over to your speakers — Guillaume Faury, Dominik Asam, and Hélène Le Gorgeu. Over to you.

Thanks, Philippe, and good evening, everyone. You're joining the Airbus Half Year 2022 Results Release conference call. Guillaume Faury, our CEO, and Dominik Asam, our CFO, will present our results and take your questions. We expect this call to run about an hour. That includes Q&A, which we'll hold after the initial presentation. There's also a webcast of this call. 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 we don't offer a dedicated phone replay service. The supporting information package was emailed to you earlier today. It contains the slides, which we'll now walk you through, plus the financial statements. During this call, we'll be making forward-looking statements. The package you received also includes the safe harbor statement that applies to this call. Please read it carefully. Now I'll hand over to Guillaume.

Thank you, Hélène. Good evening, ladies and gentlemen, and thanks for being with us today. Dominik and I are here in Amsterdam to take you through the results for H1 2022. During H1, we operated within a complex environment, and that will continue through the second half of the year. At this moment, the war in Ukraine continues to rage. The fallout from the geopolitical situation that has resulted has increased uncertainty, including regarding energy supplies. Logistics and supply chains have stayed disrupted, and at the macroeconomic level, elevated inflation rates are now something we face. Against this backdrop — this complex backdrop — we delivered 297 aircraft, 155 of them in Q2. Our EBIT adjusted came in at EUR 2.6 billion, reflecting our deliveries and our ongoing push on competitiveness. It also contains the non-recurring positive element of EUR 4.1 billion tied to retirement obligations booked in Q1. That is partly offset by a EUR 0.1 billion negative impact from international sanctions against Russia, which shrank relative to Q1 as we achieved good progress remarketing some aircraft. Our free cash flow before customer financing was EUR 2 billion. To respond to strong and sustained demand, we keep ramping up toward a monthly production rate of 75 in 2025 for our A320 Family, as previously communicated.

Looking at the near term, the supply chain difficulties we're facing mean we've had to modify the ramp-up steps for 2022 and 2023, and our target is now to hit rate 65 in early 2024 — roughly six months afterward compared with what we targeted before. When it comes to 2022, we've revised our delivery guidance, and we now aim to hand over approximately 700 commercial aircraft. Both the EBIT adjusted guidance and the free cash flow guidance stay unchanged, and they're anchored by the strong financial performance in H1. We'll return to that point later. Now let's turn to our commercial environment. Fundamentals in the sector are still solid, and we're seeing a number of encouraging signals. Air traffic worldwide keeps recovering in nearly every region. Chinese domestic traffic, though still affected by the COVID situation in that country, has begun to improve as travel restrictions get progressively lifted — and in a non-linear way. Earlier this month, four of our Chinese airline customers placed a large order covering 292 A320 Family aircraft, which shows their strong endorsement of our products and confirms the growth potential of the region. Those orders are the successful result of long and extensive discussions that began prior to the pandemic. They'll be added to the backlog once all the relevant criteria have been satisfied.

Looking past air traffic, what we're seeing is that supply is the current bottleneck in the air travel market. The demand has returned far more strongly and far more quickly than a lot of people anticipated, ourselves included, and airlines and airports simply can't keep up with it. For some time we've been stating our expectation that commercial air traffic would get back to pre-COVID levels somewhere between 2023 and 2025, and that domestic and regional markets would be first to get there. That is now taking place, and in some regions it's taking place more quickly than anticipated. Turning to the demand side for aircraft, customer demand remains strong in our view. Their appetite for the newest generation of fuel-efficient aircraft gives this additional support. Our estimate is that new Western narrowbody aircraft accounted for just 20% of the global fleet at the end of 2021. That makes the case even stronger for ramping up production and enabling fleet replacement. Order book. Let me take you back over our orders and backlog in H1. We booked 442 gross orders in total, and 402 of those were single aisles. On wide-bodies, 40 orders were booked, 20 of them freighters, and we made further progress on remarketing aircraft, which confirms the growing commercial momentum on wide-bodies. Cancellations came to 183, and only 13 of those fell in Q2.

The H1 cancellations had largely been expected and were already reflected in the backlog valuation we held as of year-end 2021. Consequently, net orders came in positive, at 259 aircraft, and by the end of June 2022 our backlog in units stood at 7,046 aircraft, among them 5,829 A320 Family aircraft. At Farnborough we logged 85 orders. Those orders, along with the one announced in early July from our four customers in China, are not yet reflected in the order book as of the end of June. Turning to helicopters, we booked 163 net orders in H1 2022, versus 123 in H1 2021. Orders are spread well across programs and include 14 Super Puma. Beyond that, in Q1 2022 OCCAR awarded us an order for the Tiger MkIII program. We are seeing recovery in the light helicopter segment, and in light of the current market environment, we expect the oil and gas market to improve over the mid-term. On the whole, we continue to observe positive momentum for campaigns in our home countries. Last, in Defense and Space, our order intake in H1 was EUR 6.5 billion, equivalent to a book-to-bill of around 1.3. In the second quarter, orders booked totaled EUR 3.3 billion.

That covers the agreement to supply 20 of the newest Eurofighter jets to the Spanish Air and Space Force, replacing a portion of its older F/A-18 fleet. With this deal, the Spanish Eurofighter fleet will reach 90 aircraft. The additional orders are mostly tied to military aircraft and Connected Intelligence. Regarding FCAS, just as I said three months ago, our commitment to the program remains total, and its significance is sharply clear when times are tough. We're continuing to push toward starting phase 1B before this year ends, which is the next milestone for this key European defense program to succeed. Turning to the space business, today's economic and geopolitical climate is weighing on the commercial momentum of our space products, and let me remind you that we can no longer access the Soyuz launchers. At this point, Dominik will walk you through our financials. Dominik?

Thanks, Guillaume, and good evening, everyone. Revenue for the first half of 2022 came in broadly flat at EUR 24.8 billion. H1 EBIT adjusted likewise held roughly level versus a year earlier, at EUR 2.6 billion. That figure takes in the non-recurring positive item of EUR 4.4 billion tied to retirement obligations that we already booked in the first quarter. The hit from international sanctions against Russia booked in Q1 has come down somewhat, to EUR 0.1 billion, thanks to solid progress we've made remarketing certain aircraft. A less favorable hedge rate compared with the first half of 2021 largely cancelled out the net positive effect of those two non-recurring items. We keep gaining from our competitiveness work during the first half, while advances on ramp up and on getting ready for the future are starting to show through in our cost base. Turning to research and development, expenses for the first half of 2022 were EUR 1.3 billion. We still anticipate R&D expenses hitting EUR 2.9 billion by the close of 2022. First half earnings per share adjusted came to EUR 2.40 per share, on an average of 787 million shares.

For the first six months, free cash flow prior to M&A and customer financing came in at EUR 2 billion, which mirrors our deliveries and takes in a favorable contribution from working capital. Moving to the following slide, let's look more closely at profitability. Reported H1 2022 EBIT stood at EUR 2.6 billion. Adjusted EBIT overall was a net -EUR 0.1 billion. That figure contains a EUR 226 million favorable effect from foreign exchange mismatch and balance sheet revaluation, with EUR 36 million of that positive in Q2; -EUR 218 million tied to the A400M, of which -EUR 217 million fell in Q2; -EUR 33 million connected to the Aerostructures transformation in France and Germany, of which -EUR 36 million came in Q2; -EUR 7 million linked to the A380, of which +EUR 4 million was in Q2; and -EUR 34 million in other costs, compliance costs included, of which -EUR 29 million landed in Q2. Reported earnings per share take in 107 million of positives from financial results. That largely mirrors the favorable net effect of revaluing certain equity investments, partly offset by revaluation of financial instruments and by -EUR 136 million in net interest results. On the core business, the tax rate sits at roughly 27%. The effective tax rate applied to net income is 31%, which takes in deferred tax asset impairment, partly offset by the tax effect from revaluing certain equity investments.

Net income came in at EUR 1.9 billion, and earnings per share were EUR 2.42. Now, some more detail on our exposure to the US dollar. Let me restate our hedging policy, which has been in place for a long time. Our priority first is to raise the amount of natural hedging, so on the cost side we favor procurement in US dollars. For whatever exposure remains, we actively run a hedging portfolio with forwards. When a customer asks, we also put euro conversion agreements in place. On the euro conversion deals, we chose to give you more detail because the agreements we signed rose substantially in the first half of this year, thanks to favorable market conditions. To be specific, roughly 70% of the coverage put in place in H1 2022 comes from euro conversions, compared with only about 5% in 2021. At the close of 2021, our euro conversion portfolio was a bit under $10 billion, at a US dollar exchange rate close to the one on our hedging portfolio at that point. During the first half of this year, we put in place $8.7 billion of euro conversion agreements at a rate of 1.19, chiefly for 2025 through 2028. As of the end of June, our euro conversion portfolio is $18 billion at an average rate of 1.23.

Turning now to the hedging portfolio for H1 2022: $9.3 billion of hedges matured, with associated EBIT effects at a rate of 1.22, compared with 1.18 in H1 2021. In addition, we put in place $3.6 billion of forwards at a rate of 1.18, mainly during Q1 2022. Consequently, the total US dollar hedging portfolio now sits at $82.2 billion, at an average hedge rate of 1.25. Next, let's turn to how cash evolved during H1 2022. Gross cash from operations came in at a positive EUR 2 billion, largely reflecting our EBIT adjusted before the non-cash impact tied to retirement obligations. Favorable timing on cash receipts and payments during the first half was partly offset by the inventory build needed to support the A320 Family ramp-up and the deliveries expected in the second half of the year. The A400M continued to weigh on free cash flow before M&A, though to a lesser degree than in the first half of 2021. Customer financing cash flow in the first half was a cash outflow of -EUR 290 million, and further cash usage is possible going forward. All in all, the aircraft financing environment remains solid, with financial markets holding sufficient liquidity for our products. Capital expenditures for the first half of 2022 came to roughly EUR 4.7 billion, versus EUR 4.8 billion in the first half of 2021.

Looking ahead to 2022, our capital expenditure is projected at roughly EUR 2.4 billion. The free cash flow we reported, EUR 1.6 billion, takes into account M&A activity involving EUR 19 million of cash out. During Q2, we paid the 2021 dividend, which came to EUR 1.50 per share, or EUR 1.2 billion altogether. On the pensions side, EUR 4.4 billion was contributed during the first half of 2022. With that said, the sharp drop in our net pension deficit, from EUR 7.1 billion down to EUR 2.9 billion, mainly mirrors how quickly interest rates have risen, and that effect was partly offset by negative returns on our pension assets plus higher inflation assumptions. By the close of June, our net cash position was EUR 2.7 billion. Liquidity stayed robust, at EUR 27.6 billion. In June, we repurchased part of our bonds that mature between 2024 and 2028, totaling EUR 1 billion, in order to bring down gross debt, which optimizes the balance sheet and gives us added financial flexibility. Then on the 5th July, we took another step to strengthen liquidity by raising our undrawn revolving credit facility from EUR 6 billion to EUR 8 billion and extending its tenor to five years, with two one-year extension options.

This facility's pricing got a boost from better conditions in the loan market, and it remains tied to sustainability criteria. Looking ahead, we'll keep taking an active approach to managing our liquidity, with the goal of preserving our strong credit ratings. Sorry, I just heard that I read the wrong number. The cash position was EUR 7.2 billion, not EUR 2.7 billion. EUR 7.2 billion. Now back to you, Guillaume.

That comes to EUR 7.2 billion, which is an improvement.

Yeah.

EUR 7.2 billion is a figure I prefer a lot more. Thanks, Dominik. Turning to commercial aircraft, during H1 2022 we made deliveries.

Ladies and gentlemen, we’re having a minor technical problem. Please stay on the line. I’ll get the speakers reconnected. Thank you for waiting. Ladies and gentlemen, apologies for this disruption. We’re still waiting on the speakers. We’ll be back shortly. Please stay on the line. Ladies and gentlemen, thank you for waiting. Speakers, please go ahead.

Yes. It seems the line dropped, and I attempted to reconnect, so hopefully I'll pick up roughly from the point where we lost the connection. I was in the middle of thanking Dominik and then turning to commercial aircraft to explain essentially that during H1 we handed over 297 aircraft to 60 customers, including two operating leases with no recognition at delivery. The net delivery figure for the year to date, 295, reflects a decrease of two aircraft that had previously been booked as sold in December 2021, since a transfer proved impossible because of the international sanctions. Turning to how H1 2022 looked by aircraft family, on the A220 we handed over 25 aircraft and are continuing to ramp up. We remain on track for rate 14, which we envisioned by the middle of the decade. On the A320, we handed over 230 aircraft, including 118 A321. Our production is advancing toward rate 75 per month in 2025, and as I already mentioned, in light of the present supply chain difficulties, we now target rate 65 in early 2024, hence roughly half a year afterward compared with the earlier goal. The A321XLR's first flight occurred on the 15th June, which was clearly a significant milestone toward the entry into service that is anticipated in early 2024.

Regarding wide-body aircraft, we handed over 42 units — 29 of them A350s and 13 A330s. As we said before, we're still aiming for an A330 output rate of nearly three per month by the close of 2022, and for the A350, roughly six per month in early 2023. On the wide-body side, we're working with our suppliers to examine whether additional rate hikes are feasible, so we can satisfy rising market demand as international air travel picks back up. Turning now to Airbus Commercial's financials for the first half of 2022: revenues are roughly flat versus a year earlier. EBIT adjusted was roughly flat as well. Keep in mind that this figure contains the non-recurring favorable effect of retirement obligations booked in Q1, partly offset by the effect of international sanctions, which shrank in Q2 thanks to solid progress on remarketing certain aircraft. The combined favorable effect of those two non-recurring items was mostly canceled out by a hedge rate less favorable than in H1 2021. Moving to helicopters: we delivered 115 helicopters in H1 2022, matching H1 2021. Revenues rose versus a year earlier, driven mainly by services growth and a favorable program mix. EBIT adjusted likewise incorporates non-recurring items recorded in Q1, among them the favorable effect tied to retirement obligations.

Let's wrap up the H1 review with defense and space. The year-on-year revenue growth comes primarily from the military aircraft business and from the Eurodrone contract that was signed in February. The decline in EBIT adjusted is largely a reflection of the impairment tied to Ariane 6's delay, the effect of rising inflation in certain long-term contracts across the divisions portfolio, and the fallout from international sanctions, partly offset by the positive impact linked to retirement obligations booked in Q1. On the A400M, we handed over four aircraft during the first semester. Development work continues as we move toward the revised capability roadmap. Retrofit activities are moving forward in close alignment with the customer. During the second quarter, we booked a charge of EUR 2 billion, mainly reflecting the effect of updated inflation assumptions on the launch contract. Risks remain around qualification of technical capabilities and the associated costs on aircraft operational reliability, on cost reductions, and on securing export orders in time as per the revised baseline. Now, let's move to the guidance slide. As I mentioned earlier, we have updated our commercial record delivery target for 2022 to reflect the current challenges we see in the supply chain. Let me read our guidance, our updated guidance.

Based on its 2022 guidance, the company is assuming there will be no additional disruptions to the global economy, to air traffic, to the company's own internal operations, or to its capacity to deliver products and services. The company's 2022 guidance is before M&A. On that basis, for its 2022 guidance, the company now aims to deliver around 700 commercial aircraft in 2022. The company keeps its target of around EUR 5.5 billion of EBIT adjusted and around EUR 3.5 billion free cash flow before M&A customer financing. Given the ongoing disruption of global supply chains, plus the continuing war in Ukraine and the related international sanctions, we are still operating in a period of uncertainty and volatility. I suppose that comes as no surprise to you, but that is the world we're living in. That leads me to our key priorities. The top priority remains the production ramp-up of our A320 Family, which is moving forward in a complex and challenging environment. Our Airbus teams are fully engaged with our suppliers and with the partners, and where needed, we will keep adapting and reshaping our supply chains to the evolving situation. To support our A320 Family production ramp-up towards rate 75, as well as our capacity to produce the growing portion of A321 variants, we will continue to invest in our industrial footprint.

Meanwhile, we're also advancing the transformation of our industrial operations. Following the creation of our new aerostructure subsidiary in France earlier this year, Airbus Atlantic, the German aerostructure company has now begun operations as of first of July, and the restructuring of the detailed parts business in Germany is currently underway. I'm also very pleased about the recent go-live of what we call Airbus Protect, a new Airbus subsidiary that now unites the company's capabilities in cybersecurity, safety, and sustainability-related services. Regarding our order backlog, we stay focused on filling the skyline for the commercial business in the out years. On the different side of our business, we remain ready to support our governments and their allies in this complex geopolitical situation. Our European roots and long-standing experience in European cooperation are valuable assets when it comes to supporting strategic collaboration and cooperation in defense. Let me now update you on our sustainability journey, which is the other top priority of Airbus. In particular, on our commitment to decarbonize the aviation sector and our ambition to reach net zero by 2050. Last year in 2021, we were the first aircraft manufacturer to disclose the Scope 3 emissions of our products in operations.

So at this point we've gone one step further on that path: we've set out midterm reduction goals covering Scope 1, Scope 2, and Scope 3 emissions, and we've submitted those targets to SBTi so they can be independently assessed and validated. I'm really glad to be able to tell you about this. When it comes to our Scope 3 emissions — meaning the emissions produced by products while they're in use, USP, which make up the largest share of our total emissions — we've pledged a 46% cut in greenhouse gas intensity by 2035. Setting our own targets isn't enough on its own; obviously, decarbonizing our sector will only happen through a collective push and by investigating and deploying a variety of technologies at the same time. With that said, what we announced recently at Farnborough really highlights our ambition to activate and to lead our industry along the road to net zero. That covers a wide set of concrete initiatives. Let me walk you through them. There's the launch of a new flight test demonstrator with CFM, which will help mature advanced open fan technologies — a key enabler for bringing fuel burn down. Then our investment in a leading investment fund for hydrogen infrastructure, the launch of a new hydrogen demonstrator that will deepen how we understand hydrogen combustion and the constraints that come with it, and our commitment to explore, jointly with a number of major airlines, the opportunities offered by direct air carbon capture technologies.

Our company's purpose is rooted in decarbonization and innovation throughout our portfolio, and those priorities will keep shaping our strategy going forward. At this point, we're ready to take your questions. Thank you.

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, sub-questions included. And as always, please speak clearly and at a slower pace so that everyone on the call, ourselves especially, can follow what you're asking. Philippe, over to you to walk the participants through the procedure.

Thanks. So, everyone, if you'd like to pose a question, key in zero one on your phone's keypad. Should you want to drop out of the queue, you can hit zero two on that keypad. We ask that participants rely solely on their handsets when posing a question. Our first question comes from Olivier Brochet at Goldman Sachs. The line is yours.

Good evening, and thanks so much for taking my questions. The first one is fairly straightforward, I suppose. Could you walk us through the mechanics of cutting the full-year delivery guidance by 20 aircraft while still keeping the full-year EBIT guidance intact? What I'm really getting at is this: what else in the business has improved, perhaps, that gives you confidence you can still deliver that 5.5 billion of EBIT? That's my first question. The second one is for Dominik. Earlier you said the hedge book went from EUR 87 billion at the first quarter down to EUR 82 billion now, at the end of the second quarter. I just wanted to understand the reasoning behind not necessarily adding to the hedge book during the second quarter, despite the favorable environment. Could you follow on from that and walk us through how the hedging policy works, along with the euro conversions you mentioned earlier, and therefore any changes you might be making to adapt to the current environment? Thanks very much.

Alright. Starting with how we offset the EBIT hit from attrition, since we’re losing roughly 20 deliveries. As we said, we got a better result on a few of the aircraft that couldn’t go into Russia, in terms of where we placed them. Some opportunities came up that let us place those aircraft at prices better than we’d expected. Second, although we are raising the cost base, the rollover of resources is in fact somewhat delayed—a bit of a phasing matter—simply because the labor market is very tight, and those are the two main blocks that basically explain how we were able to maintain the EBIT guidance. You may ask why we can also maintain it on free cash flow when we lose 20 aircraft, because the cash impact is, of course, much bigger than the EBIT impact. The answer there is that, basically, we also have good PDPs, and we’ve been harvesting some solid order intake with PDP, the cash tied to it. Second, some of the parts we couldn’t take in also provide something of a cash flow relief—but that’s not good cholesterol, so to speak, because we want to ramp. Those are the reasons we can still hold to the yearly guidance.

Regarding the hedge book.

On the hedge book — sure. What we’ve got is a group of orders where we talked with customers during the second quarter, and actually beginning at the end of the first quarter, about their desire to switch deliveries that were originally quoted in dollars over to euros. As you can imagine, all that volatility in the dollar has created some anxiety among customers, so they’re keen to lock in a specific price in euros — that’s what we refer to as euro conversions. Initially you quote in dollars, and afterward, when the contract is signed, you meet with the customer and essentially fix the dollar rates as they stand at that moment. Since activity on that front has been unusually high, we’ve now added transparency around the euro conversions, as they’ve grown more material. You can work out the math on the total portfolio going forward. There is one distinction. You asked about the hedging policy. If you essentially don’t do these euro conversions, we simply have customers denominated in US dollars. Over several years, we gradually average in the hedge rate. Say a delivery is five years away — then we begin hedging a little in the first year, a little in the second, third, and fourth, so that we’re quasi fully hedged by the time we reach the final year for that aircraft.

So when you look at the euro conversions, you're essentially hedging that order — but only that order, for the entire amount or for all the deliveries. A number of these deliveries can sit quite far out in the future. As you're aware, there's an interest rate differential between the dollar and the euro, and that causes forward rates to typically reflect a weaker dollar compared with the spot rate. That's another factor you need to factor in. These tend to be longer-dated contracts, and we now integrate them more into our hedge portfolio so we can arrive at a solid view. Incidentally, there's one more aspect of the euro conversion that's interesting: if an order were to disappear, the hedge would disappear along with it. As you remember, back when we had COVID, the problem was that we had to roll a great many hedges because customers were deferring to the right. In a scenario like that, the euro conversion carries a particular advantage.

Alright, thank you so much.

Thanks. We’ll take the next question from Benjamin Heelan at Bank of America. Go ahead, please.

Good evening, everyone, and thanks for the questions. My first one concerns the revised ramp plan. Could you say a bit about how you feel this has been de-risked now that you've pushed things out? We were just at Farnborough. We heard feedback that conversations were taking place with engine manufacturers and the supply chain. So how de-risked does this plan feel? And going forward, where are the choke points despite this slower ramp up? Any color around that would be great. Then back to the question about the cost base, Dominik, I think you mentioned the cost base beginning to increase. The guidance implies a fairly material step down in margins, particularly in Airbus commercial. In the second half of the year, you were doing low teens. It looks like it's gonna step down into the kind of high single digits in the second half of the year. Could you talk a bit about why that is and what the key risks are there? Thank you.

Hi Benjamin, thanks for those questions. The ramp-up plans, in fact, represent a de-risking effort, and we think they now strike a sound balance between the risks and the opportunities — and between what we can realistically deliver given everything we obtain from suppliers, from the conversations we're holding with them, and especially, though not exclusively, with engine makers. That is based on how we currently read the environment we expect going forward. That's why I kept stressing volatility and uncertainty. Should conditions improve somewhat, that's welcome news. Should they deteriorate somewhat, we'll need to keep adapting further. It captures the best judgment we're able to form about what we believe is realistically achievable going forward. Hard to add much more detail. We regard it as reasonably solid, yet the environment remains rather challenging, and using that familiar crystal ball is fairly difficult these days — it appears to have stopped working so well. Joking aside, I'd call it robust. I believe it mirrors what we're capable of, though it rests on our present reading of this ecosystem, this environment, the industry's state, the logistics picture worldwide, the labor market conditions in various places, and the capacity of suppliers individually — particularly the more critical ones — to ramp up.

You nailed it—I think there have been plenty of conversations with the engine manufacturers over the past few weeks, Farnborough included, to get the best possible read on what they can realistically deliver too. Cost base, Dominik?

Regarding the remaining to-do cost base, you can already observe this, and when you compare Q1 with Q2, there's a fairly significant cost increase taking place. That also lines up with the headcount figures. Across the full half year, we've actually come in a bit below the equivalent period a year earlier, since we're still somewhat gaining from the base effect, so to speak — headcount was reduced in the prior year, but at this point it's steadily ramping and picking up speed during the second half. I mean, all of that ramp challenge doesn't necessarily mean we're able to hire fewer people; rather, we genuinely need to commit more resources to ensure we can deliver the aircraft. In addition, on research and development and other projects that were deferred through COVID, we'll increase the pace, and that accounts for the effect you've been pointing to here.

Alright, that's very clear. Thanks.

Thanks, and our next question comes from Andrew Humphrey at Morgan Stanley. Go ahead, please.

Hello, and thanks so much. I have a couple of questions about the commercial backlog and mix. First, when we look at the delivery skyline for 2025 and 2026 from Cirium, it's clear that orders have been placed—even after accounting for cancellations—that would support a rate above 75 for 2025 and 2026. That kind of overbooking is something airlines do, in our view. I'd like you to speak a bit about whether that gives you added flexibility, for instance in allocating orders where mix could offset cost pressures, and whether it serves as a broader signal of reasonably solid pricing support. The second question concerns mix more generally. We've obviously seen very strong profitability performance this quarter. You've pointed to many of the reasons, especially the remarketing of those Russian planes. Are you observing a generally more favorable mix? We see the A321 growing as a share of the order book, which is clearly supportive. Are there other factors you're seeing that are fairly supportive for margins overall?

Dominik, would you like to handle the second question?

Right.

Alright. Hi, Andrew, and thank you for that question. So, demand for the single aisle is genuinely very strong. It backs up our plans to increase to rate 65 at the start of 2024, and after that to 75, and to hold at 75. With today's order book, we have the control and the visibility we need to carry out this ramp-up to rate 75. It's on that basis that we made that decision and announced it with the Q1 results. We see that as a positive thing, and that's also why I say — I mean, today the markets are, at least for Airbus, in the single aisle segment for us, limited by supply. Hence how important it is to be able to do this ramp-up, and all the effort, the time and the sweat we put into the supply chain, because that's truly where the priorities sit right now. Dominik?

Sure. On the question of what could drive margin expansion ahead, and you brought up the A321 mix — that does indeed help, since we’ve observed an increase in the A321 share. In the last fiscal year, roughly 43% of deliveries came from the A321 and the neo, the A320neo, and that figure has already climbed past 50% in the first half, while the backlog stands at 59%. That reflects a path toward a larger A321 share. Now, what sits in the backlog, we can no longer touch. While one might be tempted to think that with some near-term deliveries we could charge more for those, that isn’t really actionable because, frankly, as you said, we are essentially sold out. If you look at delivery slots past 2027, 2028 and perhaps even into the 2030s, I think we need to adopt more of a two-cycle mentality. For customers, placing orders that far out is quite difficult. That leads me to another factor with a meaningful effect on margin going forward, namely inflation. We have certain inflation assumptions built into our planning. We see that in the financial markets, implied inflation rates appear to suggest a mean reversion down to about 2%.