Airbus SE (AIR) Earnings Call Transcript & Summary

Ladies and gentlemen, thanks for joining us. This is the Airbus Full Year 2022 Results Release Conference Call, and you're welcome. Melanie here, handling operations for this call. Just so you know, everyone will stay in listen-only mode throughout the presentation, and we're recording this conference. Once the presentation wraps up, you'll have a chance to pose questions. Right now, I'd like to hand things over to your hosts: Guillaume Faury, Dominik Asam, and Hélène Le Gorgeu.

Thanks, Melanie. Good morning, everyone. You're joining the conference call for Airbus's full year 2022 results. Our CEO, Guillaume Faury, along with our CFO, Dominik Asam, will walk you through the results and take your questions. We expect this call to run approximately 1 hour and 15 minutes, and that figure includes Q&A, which will follow the initial presentation. The call is being webcast as well. You can reach it through our homepage by clicking the dedicated banner. A playback will be available on the website, though we don't offer a dedicated phone replay service. The supporting information package went up on our website earlier today. It contains the slides we'll now take you through, plus the financial statements. During this call, we'll be making forward-looking statements. I'd ask you to refer to the safe harbor statement appearing in the presentation slides, which applies to this call as well. Please read it carefully. Guillaume, over to you.

Thank you, Hélène, and good morning to all of you. I appreciate your joining us early today for the call on our full year 2022 results. It's a pleasure to be here in Toulouse alongside Dominik to walk you through what we delivered. Once again, 2022 brought us a difficult operating climate. On one hand, the past year emphatically showed that flying is something people want to do, even when ticket prices are higher. Carriers have gone back to planning their fleets for the long term and are getting ready for growth over the long term. Given that, with demand visibility over the long term reconfirmed, we made the decision last May to raise output on our A320 family to a rate of 75 per month by the middle of the decade. On the other hand, 2022 was likewise a year marked by numerous disruptions, largely caused by the combined effects of COVID and the Russian invasion of Ukraine. International sanctions, along with the energy crisis, worsened tensions that already existed around logistics, materials, components, and skilled workforce as well. Our supply chain, confronting these fairly harsh conditions, did not bounce back as quickly as we had expected. We were forced to adjust how we operated and the related production plan for the year, which ultimately brought us to what we announced in December. I must say, last year was a rather frustrating situation.

Clearly, we weren't happy with how many aircraft we ended up delivering. In Q4, as you know, we handed over 226 commercial aircraft, which brought our total deliveries for the full year 2022 to 661 aircraft. That's an 8% rise versus 2021, but it's roughly half of the increase we originally had in mind. When I get to our guidance, you'll see this means reaching what we'd planned to do in 1 will take us two years. Even so, we hit our financial targets. For the full year 2022, our EBIT adjusted came in at EUR 5.6 billion. That EBIT adjusted figure reflects our deliveries, but also our competitiveness efforts, and it got a further boost from the overall positive effect of non-recurring elements. Our free cash flow before M&A and customer financing was EUR 4.7 billion, EUR 4.7, and it was helped by a favorable foreign exchange rates environment as well as a strong positive phasing impact from working capital. These solid financial results, with net income of EUR 4.2 billion, along with confidence in our future financial performance, underpin our dividend proposal for 2022 of EUR 1.80 per share. Going into 2023, we're seeing strong demand across all areas of our business, while at the same time we're up against persisting supply tensions.

For this year, we anticipate that our delivery schedule for commercial aircraft will once more be weighted toward the latter part of the year. Given the geopolitical and macroeconomic turbulence that continues, there are still risks of additional disruptions. Before we turn to our commercial environment, I should note that the 3-year probation period under the Deferred Prosecution Agreement with the French Parquet National Financier — the so-called PNF — along with the UK SFO and the U.S. Department of Justice, came to an end on the 31st of January, 2023, which was a couple of weeks ago. We are waiting for the authorities to formally determine that Airbus has complied with the terms of the DPAs and to close the prosecution against Airbus in line with each country's procedural requirements. Airbus will keep meeting its obligations under the consent agreement, which has been extended until October 2023, as mutually agreed with the U.S. Department of State. I would also add that over the past years, we have put in place across the whole company a strong culture and governance when it comes to ethics and compliance, and we will maintain this and keep developing it going forward. Let's now turn to our commercial environment. During 2022, commercial air traffic kept recovering, with domestic and regional markets in the lead. International traffic has been gradually narrowing the gap, which strengthens our confidence in the outlook for the wide-body segment.

Demand for air travel rebounded more quickly than we had anticipated over the summer, and that pattern was confirmed by the robust activity seen around the close of the year, when worldwide traffic was already running near prior levels. China's reopening of late is turning out to be a powerful positive catalyst for air traffic as it steadily recovers. Every region ought to converge on normalized levels now. Let me take you back over our orders and backlog for the year. We logged 1,078 gross orders in total, 222 of them in Q4. In wide bodies, 63 orders were booked, 24 of them freighters, and we made further headway on remarketing our aircraft, which confirms the growing commercial momentum in wide bodies. Cancellations came to 258, only 49 of which fell in Q4. Those cancellations across the year had largely been foreseen and were already reflected in our backlog valuation as of year-end 2021. Consequently, net orders were positive, at 820 aircraft, and our backlog in units stood at 7,239 aircraft at the end of December 2022, including 6,093 A320 family aircraft. More than 6,000 for this family. Our net book-to-bill is well above 1, which shows how strongly our customers desire our well-positioned and diversified portfolio.

Once again, the big Air India order we were honored to receive earlier this week made that clear — and obviously, as of the end of December 2022, it isn't reflected in our order book yet. We're really honored by this order. At group level, our backlog in value rose to EUR 449 billion, close to EUR 450 billion in 2022, mainly reflecting our book-to-bill above one as well as the strengthening of the US dollar. Our robust and diversified backlog would support the company's resilience in case macroeconomic conditions were to deteriorate. Looking at helicopters, in 2022, we booked 362 net orders, compared to 414 in 2021, with a book-to-bill above 1, both in units and value. Orders are well spread across programs and include 12 H160s, for which we secured customers on all targeted segments. 2022 was a solid year, I should say a good year, with ongoing market recovery and positive momentum on both civil and military markets. In Defense and Space, 2022 turned out to be a difficult year in a complex geopolitical and macroeconomic environment. Russia's attack on Ukraine had consequences that spread to many sectors and businesses. One of the direct consequences is the loss of access to the Russian Soyuz launchers.

Meanwhile, Ariane 6 has slipped again, and Vega-C is grounded for now — sorry — after the launch failure in December. Taken together, during 2022 Europe lost the bulk of its ability to reach space. That hit our space business directly as well. Beyond that, throughout our Defence and Space division, higher inflation weighed on our long-term contracts, especially the A400M program, and supply chain disruptions affect us too. There were also successes, and significant ones. The ESM — European Service Module — that Airbus built carried NASA's Orion spacecraft safely around the Moon and back home. We won major orders, including the FCAS, Future Combat Air System, demonstrator phase 1B, and Eurodrone, two key defense programs for the decades ahead. Those will be vital for Europe's security and strategic autonomy. We also booked other orders that will likewise matter to our future business, including the contract to deliver 20 latest generation Eurofighters to the Spanish Air Force, plus the renewal of twocontracts for in-service support of the Spanish fleet; the order from the Republic of Indonesia for two Airbus A400M and services becoming effective, which makes Indonesia the 10th operator of this aircraft; and the contract to provide two high-performance optical earth observation satellites and services to follow.

That really shows how much faith our customers place in this company and in what we make, and it lifts our order intake to EUR 13.7 billion, which works out to a book-to-bill of roughly 1.2. There you have it. Dominik will now walk you through the financials.

Thanks, Guillaume. Good morning, everyone. For fiscal year 2022, our revenues rose to EUR 58.8 billion, a 13% increase year-on-year, driven mainly by a higher number of commercial aircraft deliveries, greater contributions from our divisions, and the appreciation of the US dollar. Our fiscal year EBIT adjusted grew to EUR 5.6 billion, up from EUR 4.9 billion the year before. That year-on-year improvement in EBIT adjusted comes mainly from the increase in commercial aircraft deliveries, partly offset by a slightly less favorable hedge rate compared with fiscal year 2021. It also includes certain non-recurring elements. As you may remember, during the first nine months we booked a non-recurring positive element of EUR 4.4 billion tied to retirement obligations, partly offset by a EUR 1 billion negative impact stemming from international sanctions against Russia. In Q4, we made progress on our compliance-related topics, which let us release provisions amounting to EUR 0.3 billion, while the loss of two Pléiades Neo satellites produced a negative impact of EUR 0.2 billion. Although we kept benefiting from our competitiveness efforts, investments in preparing the future — in particular our decarbonization efforts and ramp-up — are now showing up in our cost base.

You can see this especially clearly when you look at R&D spending: EUR 3.1 billion in 2022 compared with EUR 2.7 billion in 2021. Adjusted earnings per share for the fiscal year came in at EUR 5.15, calculated on an average of 787 million shares. Free cash flow before M&A and customer financing for the fiscal year reached a record EUR 4.7 billion, helped by working capital upside and appreciation of the U.S. dollar. Let's move to the next slide on profitability. Reported EBIT for fiscal year 2022 was EUR 5.3 billion. EBIT adjustments came to a negative EUR 0.3 billion in total, and that includes a EUR 308 million positive impact from foreign exchange mismatch and balance sheet revaluation, of which minus EUR 41 in Q4. EUR 28 million was tied to the A380 program, of which minus EUR 5 million in Q4. Minus EUR 477 million was tied to A400M, of which EUR 258 million negative in Q4. Minus EUR 82 million was tied to the Aerostructures transformation in France and Germany, of which minus EUR 34 million in Q4. Minus EUR 79 million came from other costs, including compliance costs, of which minus EUR 35 million in Q4. Reported earnings per share includes minus EUR 250 million of financial results, mainly reflecting minus EUR 232 million of net interest results.

There's also a negative effect coming from revaluing financial instruments, plus a positive effect from revaluing some equity investments. On the core business, the tax rate remains near 27%. For net income, the effective tax rate stands at 19%, which includes a net release tied to deferred tax asset impairments. Net income comes out at EUR 4.2 billion, and earnings per share are reported at EUR 5.40. Now let me move to how we cover our U.S. dollar exposure. As a reminder, the forwards portfolio and the euro conversions appear together, both for volumes and the rates attached to them. The mark-to-market numbers, by contrast, relate solely to the floored instruments. None of the mark-to-market applies to euro conversion deals that we have entered into. During fiscal year 2022, $20.3 billion of forwards matured, carrying an associated EBIT impact, and euro conversions were realized at a blended rate of 1.22, compared with 1.21 in fiscal year 2021. That volume takes in $6.2 billion during the fourth quarter at a blended rate of 1.23. We also put in place $16.4 billion of new coverage in fiscal year 2022 at a blended rate of 1.16, and of that, $3.5 billion came in Q4 2022 at a rate of 1.07, mainly covering the years 2023 through 2025.

So because of that, our total coverage portfolio in US dollars sits at $93.9 billion, with an average blended rate of 1.24, versus $98.3 billion at 1.25 at the close of 2021. Right now, we're adjusting that portfolio by putting some rollovers in place, so it reflects the most recent ramp-up trajectory along with our delivery targets for 2023. Now let's turn to how cash evolved during fiscal year 2022. Gross cash from operations came in at EUR 5.5 billion, which mostly mirrors our EBIT adjusted. Working capital went down by EUR 1.4 billion. That figure includes a positive phasing effect stemming from the timing of receipts and payments, PDPs among them, and it's helped along by a strong US dollar. The A400M kept dragging on our free cash flow, though to a lesser degree than in fiscal year 2021. CapEx for fiscal year 2022 was roughly -EUR 2.5 billion, compared with -EUR 1.9 billion in fiscal year 2021. We're expecting CapEx to edge up slightly in 2023. Reported free cash flow was +EUR 4.3 billion, and that includes M&A activity of -EUR 210 million, mainly tied to the acquisition of ZF Luftfahrttechnik in Helicop, while customer financing cash flow came to -EUR 146 million. Going forward, you may see us use more cash, even if, on the whole, the aircraft financing environment stays solid, with enough liquidity in the financial markets for our products.

In Q2, we paid the 2021 dividend, which came to EUR 1.50 per share, or EUR 1.2 billion overall. Regarding our pensions, for the full year 2022 we contributed EUR 4.6 billion. When the surplus in our UK schemes is factored in, the net pension deficit came to €2.9 billion as of December 2022 — that's a EUR 4.2 billion decrease over the course of 2022, driven mainly by rises in interest rates. At present we are taking advantage of the higher interest rate environment in order to lower how sensitive the pension deficit is to interest rates, and also to other parameters like inflation credit spreads and volatility in equity markets. As of the end of December 2022, our net cash position was €9.4 billion, and our liquidity position has grown stronger still, to €31.6 billion. If we look back over the past three years, we have succeeded in weathering numerous challenges to our balance sheet, among them the pandemic and the DPA payment, and we closed 2022 with a net cash position that exceeded our net pension deficit by €6.5 billion. With that positive note, I'll hand things back to Guillaume.

Thanks, Dominik. Moving to commercial aircraft. During 2022, we handed over 661 planes to 84 customers. If we look at things by aircraft family: for the A220, 53 aircraft were delivered. We're continuing to ramp up and remain on track for rate 14, which we envisage by the middle of the decade. For the A320, we delivered 516 aircraft, 264 of which were A321s. To match supply, we've adapted the ramp-up trajectory. We're now progressing toward a monthly production rate of 65 aircraft by the end of 2024 and 75 in 2026. We continue to make progress on the ground work to secure rate 75, and all our sites are now A321 capable, including our final engines. On the A321XLR, we expect entry into service to take place in Q2 2024. No change. On wide body, 92 aircraft were delivered, of which 32 were A330s and 60 were A350s. On the A330, we increased our monthly production rate to around three at the end of 2022, as per our plan, and we now target reaching rate four in 2024. On the A350, we're now at a rate of around six aircraft per month in order to meet growing demand for wide-body aircraft.

Following a comprehensive feasibility review conducted alongside our suppliers, we have now made the decision to aim for a monthly build rate of nine A350s, with that target scheduled for attainment at the close of 2025. We are likewise glad that an amicable settlement has been reached with Qatar Airways, and it will allow us to move ahead and collaborate once more as partners. That covers agreed terms concerning delivery of 50 A321neos along with 23 A350s. Now let's turn to Airbus commercial financials for 2022. Year-on-year revenues rose 15%, largely a reflection of a greater quantity of deliveries plus the strengthening of the US dollar. EBIT adjusted climbed to €4.6 billion, up from €3.6 billion in 2021, which reflects the higher deliveries and was helped by certain non-recurring elements, partially offset by a less favorable hedge rate relative to 2021. Non-recurring elements included positive impacts from retirement obligations and compliance-related topics, partly offset by the impact stemming from international sanctions against Russia. Turning to helicopters, during 2022 we handed over 344 helicopters, which is six more than in 2021. Year-on-year revenues grew 8% to €7 billion, mainly reflecting expansion in services and the favorable mix in programs. EBIT adjusted rose by roughly 20% year-on-year, reaching €639 million. Non-recurring elements, including the positive impact tied to retirement obligations.

So the profit margin ended up at 9.1% for 2022. I'm happy with how solidly the division performed and with the strong execution of our programs. Great job, helicopters. Now let's wrap up our look at 2022 with Defense and Space. Revenues were up 11% year-over-year, driven mostly by higher volume in military aircraft and Eurodrone. The drop in EBIT adjusted mostly mirrors the impairments tied to the December loss of two Pléiades Neo satellites, the Vega-C crash, and the Ariane 6 delays, along with the effect of rising inflation. That's partly offset by higher volume in military aircraft, the Eurodrone ramp up, and a positive impact from retirement obligations booked in Q1. On the A400M, 10 aircraft were delivered in 2022. We're continuing development activities toward hitting the revised capability roadmap. Retrofit activities are moving forward in close alignment with the customer. During 2022, an update of the contract — the so-called EAC, Estimated Completion — was carried out, and an additional charge of EUR 4.5 billion was recorded. This mostly reflects updated assumptions, including inflation and risks tied to the remaining SOC3 contractual development milestones that still need to be achieved. 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.

So, for Defense and Space overall, the external environment stayed tough, which meant disappointing results in 2022. Quite a few headwinds. Now, moving to our guidance — let me read it out. When setting its 2023 guidance, the company assumes there will be no further disruptions to the global economy, air traffic, the supply chain, the company's internal operations, or its capacity to deliver products and services. The company's 2023 guidance is before M&A. On that basis, for 2023 the company is targeting roughly 720 commercial aircraft deliveries, an EBIT adjusted of about EUR 6 billion, and free cash flow before M&A customer financing of approximately EUR 3 billion. This guidance mirrors the adjusted growth path of our commercial aircraft business, factoring in the timing of pre-delivery payments, the investments we're making to get ready for our future, and the difficult operating conditions we keep confronting. That brings me to our key priorities, which, incidentally, are unchanged. This year, more than ever, our top priority is ramping up commercial aircraft production, including the single-aisle aircraft, as we move toward rate 75 in 2026. In this tough environment, we'll work closely with our suppliers so production matches suppliers.

At the same time, we’ll keep pursuing the long-term transformation of our company. That effort is now becoming more short-term and mid-term in nature as we digitalize and decarbonize our processes, products, and services. The geopolitical disruptions of 2022, above all the war on Europe’s doorstep, made plain the need for a strong and sovereign Europe, especially in defense and high-end technologies. We take pride in contributing to Europe’s ambition by playing a leading role in major defense programs, notably the Eurodrone, the Tiger MkIII, and the Future Combat Air System, all of which made significant progress last year. On sustainability, as we highlighted at our most recent Airbus Summit, we strive to set the sustainability agenda for the aerospace sector. That is our priority, and it is my priority. Our focus now is to move, together with a broader aerospace ecosystem, from ambitions to actions. Last year, we defined near-term reduction targets for Scope 1, Scope 2, and Scope 3 emissions. I’m pleased to announce that our targets have now been approved by the SBTi, the Science Based Targets initiative. This is an important milestone, since these objectives going forward will shape decision-making at every level of our company. I’ll share more on this topic during our annual press conference right after this call.

We’ll be right here with you. In the past year, we also achieved tangible advances in our roadmap toward meeting those goals. I’d like to touch on a few of the key points. Where SAF — Sustainable Aviation Fuel — is concerned, we kept pushing forward with efforts to expand its production and uptake, as shown by our landmark partnership with Qantas and our recent MoU with Neste, among the biggest SAF manufacturers globally. When it comes to hydrogen, we’re continuing to bring our novel technologies to maturity as we prepare for a hydrogen-powered aircraft to enter service by 2035. Under what we call the ZEROe program, we announced work on a hydrogen-powered fuel cell engine. At the same time, we entered a partnership agreement with CFM to test a direct combustion engine running on hydrogen. That said, over the near term, cutting aviation’s carbon footprint begins above all with substituting thousands of older planes with our newest-generation fuel-efficient models, which already let airlines substantially lower their emissions and use SAF in large volumes. Those aircraft are already certified to operate on 50% of SAF. Decarbonization isn’t just a challenge — for us, it’s a very significant opportunity. Before we open things up for your questions, let me say a few words about Dominik. Dominik, working alongside you over these last 4 years has truly been a pleasure and a privilege — I believe the 2022 figures, despite every difficulty, reflect the very important and crucial contribution you made to this company.

To sum up, working alongside you has truly been a pleasure. I wish you the very best in your upcoming role at SAP. Until then, we’ll be doing the roadshows as a team. That said, I’m feeling a little emotional about this—sorry about that. I suppose I’ll now pass things over to you, Hélène.

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 too. And as always, please do remember to speak clearly and at a slow pace so that everyone on the call, ourselves especially, can follow what you're asking. Melanie, please go ahead and walk the participants through the procedure.

Thanks. We’re moving into the Q&A portion now. Ladies and gentlemen, to pose a question, kindly press star one one on your phone’s keypad. Our first question is from Daniela Costa at Goldman Sachs. Madam, the floor is yours.

Hello, and good morning. Thanks so much for taking my question. I'd like to zero in on the free cash flow guidance, and I have two questions tied to it. First, could you expand a bit on the headwinds and tailwinds that add up to the EUR 3 billion this year, since that figure is somewhat under what the market had anticipated — are there any one-offs, or anything the market may have overlooked there? Related to that, I believe you've said before that once you get to a net cash position, potentially in the neighborhood of EUR 10 billion, you would think about an extra distribution to shareholders, potentially through a buyback. I'd like to know whether there are any updates to that thinking, given where your balance sheet stands now and the cash you expect to generate this year might put you in that position. Thank you.

Yes. Thank you, Daniela. Perhaps I'll begin with the free cash flow headwinds. I think you also need to view this against the backdrop of 2022. Remember that at first, back in 2022, our expectation was that we would land at a lower figure. We ultimately came in EUR 1.2 billion above the original guidance. We enjoyed a sizable tailwind there, particularly on contract assets, and also very favorable timing on accounts payable. Those two items each contributed a positive EUR 3.3 billion in 2022. Well, now you're seeing somewhat of the reverse of that. When you look at the cumulative picture across those two years, it's in fact fairly near a cash conversion of one. We remain committed to our pledge that across the five-year planning horizon, from 2022 through 2026, cash conversion will be 1, as we already stated at the Capital Markets Day. It's that working capital swing, notoriously hard to predict and volatile, and of course it hasn't been made any simpler by some deliveries on the PDP side shifting to the right.

Thanks, Dominik. On getting to EUR 10 billion in net cash, we're sitting at EUR 9.4. During the first half of the year, the dividend payment will take place. You can see what we're expecting for 2023 when it comes to free cash flow. I need to say again what we mentioned, I believe, earlier in the prior year. That's a conversation we anticipate having more in 2024 than in 2023, and we'll have it once we reach that point. I'm pleased with how 2022 turned out, since the free cash flow and net cash position at year-end were considerably stronger than what we had anticipated right at the start of the year.

That's very clear, thank you so much.

I appreciate it.

Our following question is from Robert Stallard at Vertical Research. Robert, the floor is yours.

Thank you very much, and good morning, everyone.

Good morning, everyone.

I have a couple of questions. To start with, Guillaume, regarding the ramp target you revised: considering all the difficulties you encountered in 2022, how confident are you that you and your supply chain are now able to deliver on that updated plan? Second, some reports have suggested that the supply chain isn't the only area facing challenges — Airbus is also dealing with some internal process difficulties. I'd like to know whether you could address that too. Thank you.

Yes. Good morning, Robert. We did indeed need to revise our ramp-up plan—absorbing the lessons and confronting the hard realities of the supply environment we find ourselves in. To be clear, in 2022 the situation has been driven mainly, if not solely, by the extremely complex and poor supply environment. That is really what we had to confront. At this point, I mean, our target now is to deliver a 720 by the end of 2023, which means it will have taken us two years to accomplish the ramp-up we had expected to complete in one year when we entered into 2022. That's not something we like. That's the fact—we have built the plan for 2023 based on the facts and today's situation and all the headwinds we see in the supply chain. We believe this situation should ease progressively moving forward. We have designed our ramp up for 2023 based on the today's situation of supply, and therefore, we believe in that in that trajectory. That's a trajectory that is facing the brutal fact of the very bad environment we're in. On the second point, I don't know exactly where things came from on those reports. We need to deliver in spite of the adverse environment we're in, and that's basically the situation we're in.

Yes, certainly, a great deal of the supply-side trouble has to be offset through our own adjustments, through reshuffling whenever a crisis crops up in one place or another. When vendors of either small or very large equipment inform us that they cannot deliver what they had planned within a particular quarter, that means a substantial amount of adaptation work. If the issues do not necessarily originate in internal operations, then we must locate the fixes internally. That is the message I passed to my management earlier this year, and it is perhaps what set off some remarks externally. It simply means confronting the reality that the environment is tough, and so considerable effort is required to offset the impact, to be creative, and to keep finding ways to adapt our production plannings to the crises emerging here and there. That is what we did in 2022. We increased output by roughly 50 aircraft more in 2022 than in 2021. What we expect for 2023 is much the same pattern. We are aiming for 60 aircraft more, slightly under 60 relative to what we achieved in 2022, and we genuinely believe that is achievable given the current environment.

That answer is somewhat lengthy, yet it's probably the single most important question regarding our 2023 guidance.

That is great, and I appreciate it a lot.

Our following question is from Doug Harned at Bernstein. Doug, you have the floor.

Thank you, and good morning. I'd like to stay on the topic of supply chain challenges affecting the A320. First, looking back at last year, for a large part of it, engines seemed to be the primary problem when it came to delays in building and delivering aircraft in the A320 family. From what we understand, that situation has now changed, and a broader range of suppliers—possibly in Europe—may be the source of difficulty. So my first question is whether you could help us grasp how you are currently managing the supplier landscape, since it might differ somewhat from what you faced through much of last year. My second question concerns the strong demand for the A320 family: we would presume that when delays occur, the timing of deliveries gets pushed back, and you may have escalators that are frozen or some penalties owed to customers, some compensation. Could you help us understand whether there is any material issue there regarding margins connected to the delays?

Alright, thank you. Regarding how supply looked in 2022, we did face a significant number of delays when it came to engine deliveries during the first half of the year, and that was true with every engine manufacturer. As a result, we ended up, well, revising our production planning multiple times, and that made Q2 and Q3 extremely challenging on the delivery front, since we were genuinely short of engines. Then in Q3 and Q4 — I mean, in Q4 the engine makers returned to that revised planning, and we saw stability during the second half of the year. Problems showed up everywhere. We had trouble with the supply chain stemming from a shortage of electronic components, very far down the chain, which hit a great many of our Tier 3 and Tier 4 suppliers and consequently reached us at a later point. There were plenty of difficulties bringing workforce back on board after COVID, locating the skills and competencies needed, which slowed the ramp-up at a number of suppliers. We also dealt with logistics problems worldwide and raw material supply. Once again, it's a lengthy list of troubles that hit the entire supply chain, not just the engine makers. That is what caused us to revise the planning multiple times over the year, return to the market with revised guidance on two occasions, and arrive at the figure you saw at year-end.

Things have pretty much leveled off. I'm not claiming the supply chain situation has improved—I'm simply saying that, in my view, it has quit getting worse. We expect gradual improvement as we go forward, though we aren't banking on the supply chain fully recovering over the near term. Challenges will persist into 2023. That is what our guidance reflects, engines included. Certainly, when delivery runs into trouble and obstacles, we must manage the backlog in a very hands-on way. As you can see, we now expect to hit rate 65 by the close of next year—a full year behind the target we had when 2022 began. Worldwide, we keep putting capital expenditure into getting our production systems ready for rate 75, all of them A321 capable. That work is underway right now. Yesterday we had the chance to tour Toulouse, in the Jean-Luc Lagardère building, where the new A321 line is; it will be completed by 2026. We keep working to raise output to rate 75 as fast as possible. For this year, we're relying on the supply chain to deliver according to our plans—and these are revised plans, which makes things far, far simpler.

We are continually negotiating and talking with customers so we can replan and make it work on our side. Dominik, perhaps you'd like to add a few words about this? No.

Well, sure — given the deferral, those conversations are happening. The main thing that has to be settled individually, case by case, is what counts as an excusable delay. We mentioned engine delays, and those genuinely are excusable. Sorting that out is the job for this year, and it's a really big focus for us this year to readjust. As you'll remember, customers asked us back in 2020 to rephase in a major way because of COVID, and we went along with those requests. Now we have to deal with what that COVID impact did to the supply chain, and then the Ukraine crisis after it.

Thanks, Dominik.

Thanks.

Olivier Brochet from Redburn has the next question. Sir, go right ahead.

Yes, morning Guillaume, morning Dominik. I've got a couple of questions. The first concerns the Chinese final assembly line. Deliveries came in extremely low across December and January. How are you viewing the path to improvement, and at what point do you expect things to get back to normal on that front? The second is about the A321 final assembly line extensions you referred to, which are now, you know, underway. When does entry into service happen for the different lines in Mobile, Toulouse and Tianjin, please?