Airbus SE (AIR) Earnings Call Transcript & Summary

Good day, everyone, and thanks for holding. This is the Airbus Full Year 2023 Results Release conference call, and you're welcome to it. Sharon here, and I'm the operator on this conference. Just so you know, throughout the presentation every participant will be in listen-only mode, and this conference is being recorded. 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 hosts: Guillaume Faury, Thomas Toepfer, and Hélène Le Gorgeu.

Many thanks, Sharon, and a warm good morning to everyone. You're joining the Airbus conference call covering our Full Year 2023 results. Guillaume Faury, who serves as our CEO, along with Thomas Toepfer, our CFO, will walk you through the results and take your questions. We expect this call to run roughly one hour and 15 minutes, and that figure includes the Q&A session, which follows the presentation. A webcast of this call is available too — you can reach it from our homepage by clicking the dedicated banner. A playback will be posted on our website, though we don't offer a dedicated phone replay service. Earlier today, the supporting information package went up on our website. It contains the slides we're about to take you through, plus the financial statements. During this call, forward-looking statements will be made. I'd ask you to look at the safe harbor statement shown on the presentation slide, since it applies to this call as well. Please take a moment to read it carefully. Guillaume, the floor is now yours.

Thanks, Hélène, and good day, everyone — appreciate you being on the call with us for our full year 2023 results. It's a pleasure to be here alongside Thomas, who will take you through the results and give some color on how we see 2024 shaping up. I'll start with a look at the business highlights from last year. Across our businesses, order intake was very strong, and we notably hit new records in our commercial aircraft business and in our Defense and Space division. Global air traffic is now back at pre-COVID levels. Once travel restrictions came off, short-haul flights recovered very fast, and as we had anticipated, we're now seeing long-haul flights recover in a sustained way. For commercial aircraft, this has been a landmark year, with a record-breaking level of aircraft orders and backlog, which gives us long-term visibility and clearly supports the production targets for our single-aisle and wide-body program. In Q4, we delivered 247 commercial aircraft, bringing our full year 2023 deliveries to 735 units, up +11% year on year. We delivered on our 2023 commitments and progressed on our production ramp-ups as planned. With an operating environment that remained complex and affected by supply chain challenges and geopolitical tensions, I believe this is a significant achievement.

So I really want to express my genuine thanks to our customers, our suppliers, our partners, and naturally the Airbus team, since they're the ones who delivered this. We gain from an industrial transformation that continues to expand through additional investment in our production system, and also from working closely with the supply chain. Across the past 2 years, our supply chain has acted as a constraint, and we anticipate it will keep setting the pace of our production ramp-up as we move ahead. That said, we thoroughly evaluate and aim for what I describe as the sweet spot — the optimal balance pitting demand against what our supply chain is capable of delivering, while naturally, and this matters greatly, upholding the highest safety standard in our industry. That is the foundation of our plan for 2024. Turning now to how we performed financially in 2023, our EBIT adjusted came in at EUR 5.8 billion, which mirrors our commercial aircraft deliveries, the solid results from helicopters, and the charges booked in certain space programs. Free cash flow before M&A and customer financing reached EUR 4.4 billion, driven principally by our commercial aircraft deliveries, and it also mirrors the robust performance across all businesses. These financial results, including a net income of EUR 3.8 billion, together with our confidence in future financial performance, underpin our dividend proposal for 2023 of EUR 1.8 per share.

That strong free cash flow generation—especially during the last quarter—has pushed our net cash position past EUR 10 billion. That is what supports the special dividend of EUR 1 per share we are proposing. With that in mind, let's look more closely at 2023, beginning with commercial positioning on commercial aircraft. 2023 was the year global air traffic recovered and the airline industry returned to profitability. We booked a record 2,319 gross orders, among them 1,039 in Q4, which confirms both our customers' trust and where we stand in the market. For the A220, gross orders came to 142, with 109 of those in the last quarter, and thanks to this order intake we now carry a backlog of 600 aircraft. Turning to the A320 family, we booked 1,835 gross orders—an unprecedented level—including 748 in the fourth quarter. That lifts our backlog to 7,197 aircraft, roughly two-thirds of which are for the A321. On wide bodies, we recorded 342 gross orders in 2023, among them 182, 182 in Q4, which confirms the wide-body market is recovering. Net orders came to 2,094 aircraft after 225 cancellations, which were largely anticipated and embedded in our backlog valuation as of year-end 2022, and our backlog in units stood at 8,598—so very close to 8,600 at the end of December 2023.

When you look at the group level, the value of our backlog rose to EUR 554 billion in 2023. That mainly mirrors a book-to-bill above 1 across every division, though it was partly offset by the US dollar weakening. Turning to helicopters, we booked 393 net orders in 2023, versus 362 in 2022. Those orders were nicely spread across programs, with a book-to-bill above 1 in both units and value. It takes in a standout performance in the medium segment and in services during the last quarter. In Q4, we signed an agreement with Germany covering the purchase of up to 82 military role H145M helicopters — the biggest order this platform has ever received. That contract also covers seven years of support and services. We also signed an agreement with the French Direction Générale de l'Armement, the DGA, for 42 H145 helicopters — 36 for the Sécurité Civile and six for the French Gendarmerie Nationale — plus 22 options. This contract likewise includes a range of support and services solutions. Beyond that, the DGA awarded NHI, to NHIndustries, a contract for producing eight additional NH90s in Standard 2 configuration for the French Army Aviation. All in all, 2023 was a strong year, and positive momentum continues for both civil and military markets.

To wrap up, Defense and Space. First off, we were glad to see a solid flow of orders come in across the whole year. For full year 2023, order intake came to EUR 15.7 billion, a rise of 15% year-on-year, which works out to a book-to-bill of roughly 1.4. And here too, much like in the commercial aircraft business, order intake is hitting new highs. This commercial showing validates our long-term ambition for the division and underlines how strong our products are. Notable orders booked in Q4 include Spain's order for 16 C295s, which will boost Spain's national security as well as its search and rescue capabilities. On Eurofighter, we're proud to point out that Airbus will equip 15 German Eurofighters for electronic warfare capabilities. That variant is set to be NATO-certified by 2030, and will afterward take over the role held by the Tornado electronic warfare aircraft. When it comes to unmanned aerial systems, we signed a contract with Spain for the SIRTAP, the next generation tactical UAS, unmanned aerial system. Developing SIRTAP will deliver vital experience and competencies in the field of remote carriers for FCAS, thus preparing for what lies ahead. As for FCAS, we keep moving forward on phase 1B together with our partners. We're also continuing to make headway on Eurodrone. Although we're encountering delays in some design specifications, we are now working toward completing the so-called preliminary design review later this year, so as to allow an entry into service by the end of this decade.

Regarding Ariane 6, every hot fire test required for the maiden flight has now been completed successfully. The first launch is aimed at summer 2024, contingent on clearance of certain final tests. Further charges in the fourth quarter have affected our space business, and we'll return to that. Before turning to financials, I want to update you on the transformation we launched in the division in early 2023, early last year, intended to make our organization simpler, more agile, and more customer-oriented, with greater accountability, and of course also to drive competitiveness for the division. At the end of 2023, we hit an important milestone when the social dialogue with our European and national social partners was finalized. Consequently, the new structure went live on January first this year, a few weeks ago, with three business lines: Air Power, the largest one, combining our existing military air system and the FCAS activities. Second, Space Systems, and third, Connected Intelligence. Under this new setup, roughly 15,000 employees are moving out of former central engineering and operation functions into the three business lines mentioned above, giving those the means for clear end-to-end business ownership and accountability.

So they have everything they need and the authority to act. This transformation aims at excellence all the way from bidding through to delivery, so that performance is secured going forward. Let me point to the main initiatives, which include disciplined, selective bidding to boost profitability, plus quality and operational excellence in production and engineering via specification definition, execution, and risk management, and getting the right skills and competencies in the right place. That brings some management changes, which we are putting in place right now. This transformation will also let us tackle the long-term cost structure more efficiently. Given my experience with earlier transformation programs and the long-term nature of this business, grasping the full benefits of this change will take time, but we will get there and converge toward our ambition of a high single-digit margin in the midterm. Voila! Now Thomas will walk you through our financials.

Thank you, Guillaume, and good day to everyone on my side as well. I'm looking at page six in the deck, and at this point I'd like to walk you through how we performed financially with a bit more granularity. So, as you can see, revenues for the full year 2023 rose to EUR 65.4 billion, an increase of 11% compared with the prior year, and this chiefly mirrors the greater quantity of commercial aircraft deliveries. Turning to EBIT adjusted on the top right of that page, allow me to begin by recalling our starting point, since in the 2022 financial year we were at EUR 5.6 billion, and within that figure sat a net positive impact of EUR 4.4 billion stemming from a number of non-recurring items. That came about through a favorable effect from retirement obligations as well as compliance-related matters, which were partly offset by the loss of the Pléiades Neo satellites and by international sanctions against Russia. For the full year 2023, EBIT adjusted climbed to EUR 5.8 billion, largely mirroring the greater commercial aircraft deliveries, a more favorable hedge rate, and the solid performance at helicopters, partly offset by investments aimed at preparing the future and by charges in certain space programs. Now, regarding those charges and building on what was done during the first nine months, we actually broadened the scope in the fourth quarter, and we carried out an in-depth review of our space programs.

That led to EUR 0.2 billion in extra charges stemming from updates to the estimate at completion. Now, regarding full year 2023, the charges come to a total of EUR 0.6 billion and have been booked, and they now reflect revised timelines and cost estimates, along with the reassessment of commercial risk and opportunities. If you dig into these EUR 0.6 billion of charges, roughly one-third reflect the current period, and the remainder serves to adjust past and future profits. So therefore, two-thirds is probably the right order of magnitude to be normalized if you wanna come to a clean 2023 result. And I would say, while this high-tech business, of course, always carries some risk, I now sincerely believe that we have a balanced assessment. Just as a reminder, in 2023, we made further progress on our compliance-related topics, which allowed us to release provisions for an amount of EUR 0.1 billion in the first half of the year. In terms of R&D, our expenses stood at EUR 3.3 billion versus EUR 3.1 billion in 2022, and the R&D expenses are expected to continue to slightly increase in 2024. Our full-year EPS adjusted stood at EUR 5.60, based on an average of 789 million shares, and our full-year free cash flow before M&A and customer financing was EUR 4.4 billion, reflecting the strong commercial aircraft deliveries and the pre-delivery payments collection from commercial momentum, mainly in December.

Moving to the next slide, we'll examine profitability. For full year 2023, reported EBIT came in at EUR 4.6 billion, while EBIT adjustments amounted to a net negative of EUR 1.2 billion. The details are shown in the upper right-hand portion of the slide. As you can see, this includes an impact of roughly EUR 1.03 billion negative stemming from the US dollar working capital mismatch and balance sheet revaluation, primarily reflecting the mechanical effect arising from the gap between the transaction date and the delivery date, with EUR 224 million of that occurring in Q4. It also takes in EUR 89 million tied to the aerostructures transformation, of which EUR 32 million fell in Q4 and EUR 41 million related to the A400M. Finally, minus EUR 75 million in other costs, including compliance costs, with EUR 19 million of that in Q4. Our reported EPS incorporates EUR 166 million of positive financial results, which mainly reflects a favorable impact from revaluation of certain equity investments. The tax rate on our core business remains around 27%. The effective tax rate, though, is 24% for 2023, including the tax effect on the revaluation of certain equity investments as well as a net deferred tax asset impairment.

So the net income that comes out of that is EUR 3.8 billion, and earnings per share came in at €4.80... Now if we go to the following page, we can review how our US dollar exposure is covered. During full year 2023, forwards totaling $22.4 billion reached maturity, together with the related EBIT effect, and euro conversions were also realized at a blended rate of $1.20, compared with $1.22 across full year 2022. We also put in place $20.2 billion of fresh coverage during 2023, at a blended rate of $1.13. Consequently, the US dollar coverage portfolio in total stands at $91.7 billion, carrying an average blended rate of $1.23, versus $93.9 billion US dollars at a blended rate of $1.24 as of the close of 2022. Right now that portfolio is in the process of being adjusted through some rollovers, so that it mirrors the 2024 delivery target along with the delivery profile, which we anticipate will be somewhat back-end loaded. Let's now turn to the following page, where we take a more detailed look at free cash flow. Free cash flow before M&A and customer financing came to EUR 4.4 billion in 2023, and that mirrors, on one hand, the delivery level, and on the other, commercial momentum throughout all our businesses, particularly in December, which produced healthy PDP inflows.

Conversely, carrying out our ramp-up shows up as a mechanical inventory build. And just as a reminder, the A400M keeps dragging on our free cash flow before M&A. CapEx for the full year 2023 came to EUR 3.1 billion, which mirrors the money spent on improving and upgrading our industrial system. To underpin our ramp-up, we anticipate CapEx will keep rising in 2024, though at a somewhat slower rate. The free cash flow of EUR 3.9 billion takes in M&A activities of EUR 65 million and customer financing of EUR 436 million. I would say the environment for aircraft financing is still solid, with adequate liquidity in the financial markets for our products. During 2023, the customer financing cash outflow was largely tied to the planned fulfilment of certain contractual obligations, and naturally, we could see further cash usage down the road. As you can see, our net cash position was EUR 10.7 billion at the end of December, and liquidity is still comfortably above EUR 30 billion. With that, I will hand it back to Guillaume.

Thanks, Thomas. Now let's turn to the divisions, beginning with commercial aircraft. During 2023 we handed over 735 aircraft to 87 customers, which matched our plan. Turning to how things stand across the aircraft families, on the A220 we delivered 68 aircraft, and we're continuing to ramp up toward rate 14 in 2026, while still working on the industrial maturity of the program and its financial performance. On the A320, we delivered 571 aircraft, including 317 A321s, which works out to 56% of the family's deliveries. So we're clearly above 50% when it comes to A321 deliveries. Production is moving along well toward the previously announced rate of 75 aircraft per month in 2026 — I want to stress that. In 2023, we began construction of the second A320 final assembly line capacities in Tianjin, in China, and Mobile in the US. In December, we delivered the first A321neo from the new final assembly line that we inaugurated in Toulouse in 2023, at the former Jean-Luc Lagardère site of the A380, as you may recall. On the XLR, our first customer aircraft entered the final assembly line in December, and entry into service is now expected in the third quarter later this year.

Turning to wide-body: we handed over 96 aircraft — 32 A330s and 64 A350s. We're still on track for rate 4 on the A330 in 2024 and rate 10 on the A350 in 2026. Those two programs are also unchanged in our plans. Let's now turn to Airbus commercial's financials for 2023. Revenues rose 15% year-over-year, largely driven by a higher delivery count. EBIT adjusted climbed to EUR 4.8 billion from EUR 4.6 billion in full year 2022, driven by the delivery increase and a more favorable hedge rate, partly offset by investments preparing for the future. Full year 2022 had included a sizable non-recurring positive impact from retirement obligations and compliance-related topics, partly offset by the impact of international sanctions against Russia. In 2023, we released provisions of EUR 4.1 billion tied to compliance-related topics. That was in the first half of the year. Now to helicopters. In 2023 we delivered 346 helicopters, in line with full year 2022, though with a different mix... Revenues grew 4% year-on-year to EUR 7.3 billion, reflecting overall performance across programs and services. As a result, EBIT adjusted rose to EUR 735 million, and the profit margin came in at 10%, confirming the division's solid performance over the last few years.

In 2022 as well, there were net positive non-recurring items. Looking ahead, our goal is to make that profitability sustainable, while we keep our commitment to solid program execution and ongoing improvements. Let's finish our review of the full year of 2023 with Defense and Space. Revenue rose slightly compared with the prior year, driven mainly by military assistance and CI, connected intelligence, partly offset by some updated estimates at completion assumptions on certain space programs. The decline in EBIT adjusted reflects the charges stemming from, sorry, the update of those estimates at completion, partly offset by the strong performance of the rest of the business in the period. Those changes come from a number of factors: revised timelines, cost estimates, and the reassessment of commercial risks and opportunities, as Thomas explained. On that subject, we had a bumpy ride last year, which is very frustrating, but today I believe we now have a balanced assessment across our space programs, noting that we operate in a high-tech business with complex and sophisticated products. We will keep monitoring our exposure closely. On the A400M, we delivered 8 aircraft in 2023. We are continuing development activities toward achieving the revised capability roadmap. Retrofit activities are moving forward in close alignment with the customers.

During 2023, we carried out one more revision to the contract’s estimated completion, and we recorded a net charge of EUR 41 million. There are still risks around qualifying technical capabilities and the related costs for aircraft operational reliability, around cost reductions, and around securing the overall volume in line with the revised baseline. I’d like to remind you that the full year of 2022 contained certain non-recurring items, notably those stemming from the loss of the two Pléiades Neo satellites. Before we move on now to our 2024 guidance, Thomas will provide an update on how we define free cash flow. Thomas?

Absolutely — I'm looking at page 14 of the deck. Beginning on the first of January of 2024, we're changing how we define that alternative performance measure, free cash flow, so the company can gauge how much free cash flow its operations produce. This gives a more operational perspective and is entirely in line with market practices. Under the new definition, investment in financial assets will no longer be included, which de facto brings in M&A transactions as well as investment in funds. From this point forward, therefore, we will measure and report our performance using free cash flow before customer financing. To be clear, the net cash position is unaffected, the 2024 guidance is issued on that basis, and a reconciliation of free cash flow for previous years appears in the appendix. Let me just say once more, again, that this de facto excludes M&A transactions and investment in funds.

Thanks, Thomas. Moving now to the guidance slide. In setting its 2024 guidance, the company's assumption is that there will be no further disruptions affecting the world economy, air traffic, the supply chain, the company's internal operations, or its capacity to deliver products and services. The company's 2024 guidance is pre-M&A. On that basis, for 2024 the company is targeting roughly 800 commercial aircraft deliveries, EBIT adjusted of between EUR 6.5 billion and EUR 7 billion, and free cash flow before customer financing of about EUR 4 billion. This guidance mirrors the growth trajectory we expect and the investments we are making to prepare for our future. Now, a few words about our key priorities before I take your questions. As we move through 2024, we stay fully committed to serving our customers and to the strong demand for our modern, fuel-efficient commercial aircraft, and to working closely with our global supply chain partners as we ramp up across all our programs — all our programs — with safety and quality at the heart of everything we do in a new organizational setup. To support our rising production rates, we will keep investing in, modernizing, and adapting our global industrial system. We operate in a fast-changing world where geopolitical shifts, the acceleration of innovation, and the growing importance of decarbonization are increasingly in focus, and we are working to meet the challenges and seize the opportunities ahead in those areas...

This also requires transforming our Defence and Space division, which I touched on a bit earlier. Meanwhile, we continue advancing our ambitions in digitalization and decarbonization. For our commercial aircraft hub to succeed, and for the business's future overall, digitalization is a key enabler, and it will be essential to how we design, manufacture, and operate the next generation of civil and military products, particularly through DDMS. So for me, delivering on our digital roadmap is a key priority, and we'll keep exploring strategic opportunities in this area. Turning now to the Airbus decarbonization roadmap: we've established very strong foundations and ambitions, and we're now delivering concrete progress against design action plans. In 2023, we received validation from SBTi for near-term climate targets, and we're cutting CO2 emissions in line with that trajectory. We're acting as a catalyst to boost SAF, sustainable aviation fuel, and to grow SAF usage in aviation, beginning with our own. In 2023, SAF accounted for roughly 10% of our fuel needs at Airbus for transporting aircraft components and flight testing, along with certain delivery flights of commercial aircraft and helicopters.

We've carried out several commercial demonstration flights alongside partners, and we've set up quite a few partnerships with SAF producers. On the innovation side, we're developing multiple technology building blocks for new aircraft designs — both for the next-generation single aisle, which will be able to fly on up to 100% SAF, and for the hydrogen-powered ZEROe, targeting a commercial aircraft that's ready to enter service in 2035. Not long ago we completed a successful engine fuel cell power on. We keep investigating technology breakthroughs and solutions that support both the fuel cell option and direct hydrogen fuel burn. What we're seeing from the fuel cell is strengthening our confidence in that technology. These efforts, among others, highlight how committed we are to acting in pursuit of a low carbon future, and to uniting airlines with industry players from every sector so we can shape a sustainable aviation. Last, before I hand things over for your questions, let me restate that holding our commercial positioning right across the business — and across all the businesses — and delivering on our growth potential stay our top priorities. I believe we're now ready for your questions.

We’re moving into the question-and-answer portion now. When you ask a question, please state your name and your company. Kindly keep to 2 questions per turn, and sub-questions count toward that limit. And as always, please do your best to speak distinctly and at a slower pace so that everyone on the call—especially those of us here—can follow what you’re asking. Sharon, over to you to walk the participants through how this will work.

Thanks. We’re moving into the Q&A portion now. If you’d like to pose a question, key in star one one on your phone’s keypad. Again, that’s star one one on your phone’s keypad. We’ll take the first question now. Just a moment, please. Our first question is from Robert Stallard with Vertical Research. Please go ahead.

Thank you very much, and good morning, everyone.

Morning, Robert — hello, and how are you doing?

Alright, thanks. First one's for Guillaume. I'd like to hear your thoughts on what the fallout might be from that door issue your competitor ran into recently. Then for Thomas, second thing: could you take us quickly through how you move from the 2023 free cash flow to the 2024 guidance? Thanks.

Thank you, Robert. I'll begin with the first question. Clearly, much like numerous other companies in our sector, we are watching how things unfold following that incident—the door plug event. We have no direct role in it, of course, yet our practice is always to absorb every lesson from whatever occurs across the industry, lessons of widely differing types, and this is one such case. The ramifications come in numerous forms—I mean possible ramifications. We'll be watching how the supply chain responds, how the parties involved respond, how regulators respond. So I'd call that fairly standard, this effort to draw lessons, even though the event itself is far from standard. So yes, it is somewhat early to grasp precisely what the implications will be, but it is one among numerous topics, one among numerous variables, one among numerous information sources that we attempt to draw on so we can keep improving, keep anticipating, keep challenging ourselves regarding what we do and how we do it—that's essentially how I see it. And, as you've gathered, we have no direct involvement in these events. Thomas?

Okay, so regarding the cash flow bridge, Robert, here's how I'd think about it: starting from the EUR 4.4, there's obviously one major positive in 2024, and that's the volume uplift. If you use the midpoint of our guidance — the 65 additional aircraft we'll deliver — that should produce a high triple-digit positive on free cash flow for 2024. On the other side, as you've seen, we had very, very strong PDP inflows, and so a positive working capital effect in 2023, which won't repeat. And I'd say that's probably the same order of magnitude in 2024, negative, as the positive volume effect I just described. So those two offset each other. Then there are a few minor items, which I'd characterize as slightly negative. So slightly higher taxes, a bit more cash out for R&D, as we mentioned, and that essentially gets you to the guidance we described of around EUR 4 billion.

That's really useful. Thanks. Thanks. Now let's move on to the following question. Our next question is from Tristan Sanson of BNP Paribas. Please go ahead.

Morning, Guillaume, and morning to you, Thomas. Thank you for the questions. Both of them actually concern civil aircraft. The first is about the route to 800 deliveries in 2025. Could you walk us through what sits on the critical path for that ramp-up, particularly when it comes to managing the supply chain? And what would let you land at 810 or 820 by year-end if on-time delivery gets better within the supply chain? The second one concerns a somewhat later point on the calendar. I'd like to grasp where the civil aircraft business stands today in its readiness to hit your 2026 objectives across every program. You're well ahead of plan on staffing, and you're stepping up ramp-up costs. What remains for you to do to ensure those 2026 targets can be delivered? Many thanks.

Yes, thanks, Christian. Tristan, apologies — those were two fine questions. So to put it the way I've been trying to, the 800 is about striking the right balance between really robust demand and what the supply chain can actually handle: ramping up and sustaining an efficient production system with heavy emphasis on quality and safety, which we always aim to guarantee. So the supply chain sits on the critical path. There are certain suppliers, or certain supplies from certain suppliers, that are critical, and every single year we devote an enormous amount of time to assessing the supply chain's capability as well as we can. And yes, we do have some critical paths. I'd rather not point fingers or call out the ones that are holding us back on our path. Whether we land at the 800, a bit above, or a bit below is really tied very closely to the supply chain itself and to delivery — that is, from the supply chain to Airbus. Because, as you implied, at Airbus we're already well-sized in 2024 to do more. On our production system, we're ahead of the curve. So now, on to your question about 2026.

We're putting money into hardware and into people. That's essentially what has to be done. Regarding people, on the numbers, we hired heavily during 2023, in line with or a bit ahead of our plans, though we may go into the headcount bridge a little more later on. That's broadly very much in keeping with what we set out to achieve. There's substantial onboarding, training, and qualification work that we must ensure happens so that people become fully efficient and effective in their roles down the line. That's significant work under way at Airbus, and we're also tracking, as best we can, what is going on in the supply chain. What I term hardware — the production system itself — I've spoken at considerable length over recent years about what we've been doing across our aerostructure organizations, as well as the restructuring carried out in Spain, or the changes, I should say. The investment made in the UK for our wing factories, the new FALs around the world — you know, we go from 8 FALs before COVID to 10, ultimately, and we actually have 4 new FALs in progress. Equipping all FALs for the A321, and I went through a bit earlier what we've already accomplished, and so I think we're on a trajectory as far as the production system goes.

To reiterate, our capacity to hit those 2026 goals — reaching rate 75 on the A320, rate 14 on the A220, rate 10 on the A350, and so forth. That capacity will come chiefly from how well the supply chain can keep pace with us and carry out the ramp-up alongside us, which worked well in 2023, and with roughly 800 in 2024, it will work well again. So that is essentially our plan, and we believe the 2024 plan and where we stand today on the ramp-up line up with our targets of reaching the rates I just mentioned by 2026. So yes, that ran a little long, but I think it is an important question, and it probably covers many other questions people might have, and I wanted to be clear and precise about it.

Thanks, Guillaume.

Thanks. We’ll move on to the following question now. The next question is from Phil Buller at Berenberg. Please go ahead.

Morning, and thanks for asking. I want to go a bit deeper, if I can, into what you're learning from the Boeing situation, or how your thinking is shifting on a few fronts, really. For instance, I know we remain committed to rate 75, along with the timelines for the various production increases, but there's a great deal of pressure on the supply chain, and that has been brought into question as part of the Boeing situation. So are you at all more worried, or inclined to ease some of that strain on the supply chain, whether in financial terms? And also things like the impetus — has it grown or fallen when it comes to developing the next generation single aisle in any way? And also, the special dividend versus buybacks looks like an incremental shift. I'm wondering how your thinking has basically evolved across various topics, and what lessons we're drawing from the Boeing situation more broadly? Thanks.

Yeah. Thanks, Phil. I don't think the underlying philosophy has really shifted. I mentioned this not long ago, and I'll say it again: I suppose this keeps us quite humble, and we view it as one more reminder that ours is a complicated industry, where quality and safety can never be taken for granted. You've got to keep pushing yourself, redo your plans, study things, look ahead, and be slightly schizophrenic. Naturally, there are lessons. I believe I addressed that question somewhat earlier, and one lesson — not a brand-new one — is that you keep trying to consider all the stakeholders around you and look after every single one of them. If you concentrate too heavily on one, to the harm of the others, that can create imbalance over time. We aim to strike that balance every year, every day, and I won't claim we're perfect. That's the reason we keep examining what we're doing and pushing ourselves. That's also something we continually review and talk over with our board of directors, whose job is likewise to look somewhat from the outside at what we're doing and how we're performing, and where we're placing the priorities.

That doesn’t affect the next generation or the investment we’re making to get our future ready. Right now we’re in a stage of getting digital systems ready, getting the production system itself ready, and you’ve seen that we have a high level of CapEx in those years, and we’re raising the CapEx level so we’re ready for the future. On the product side, we’re not in a phase of heavy investment in programs — we’re in a technology phase. So these are years when the pressure on R&D is probably lower than it will be over the next decade. That’s why we have some financial flexibility, and that wasn’t the case in 2020 and 2021, when we withdrew the dividend payment to shareholders so we could keep investing in products. Those were the years when we had the XLR, when we launched development of the A350 Freighter during COVID. So clearly, we’re very focused on preparing for the future. But when financial performance and visibility on the future allow it, we’re happy to pay a dividend, because that’s what we think we should be doing for our shareholders, who have been loyal to us over the years.

So, as I mentioned, we're working to strike the appropriate balance among all stakeholder groups. And I noted before—I offered my genuine gratitude to Team Airbus, since ultimately it's their efforts that make all of this possible. And I honestly believe they performed very well last year in keeping the company progressing and working to preserve that equilibrium. So that brings me back to where I started. The philosophy remains unchanged, though there's added reason to stay vigilant, to be careful about our actions, to keep pushing ourselves—that's the spirit the team will carry going forward.

I appreciate that.

Thanks. We’ll move on to the next question now. The next question is from Olivier Brochet of Redburn Atlantic. Please go ahead.

Yes, good morning, and thanks so much for taking my questions. I'd like to revisit briefly the costs you're dealing with right now that I'd characterize as somewhat non-recurring over the longer term. Inflation, the headwind, the excess staffing, the new final assembly, the startup cost, the preparation costs for the XLR — how should we think about the ballpark for all of these costs, and how do they trend in 2025, 2026, in your view? And my second question concerns shareholder returns. You just touched on it, but how are you thinking about it going forward? And specifically, how do you arrive at the decision between a buyback and a special dividend? Thank you.

Perhaps I’ll let you handle the questions. I want to make a few remarks about staffing. You referred to excess staffing. I wouldn’t characterize it as excess staffing. We hired at the levels shown in our release, and we raised Airbus’s headcount beyond what we had signaled a year earlier, so that warrants an explanation. In fact, it’s quite significant, because it’s roughly 13,700 when comparing the end of 2022 with the end of 2023. Within those figures, there are two changes I’d like to explain. First, we are consolidating additional entities relative to the end of 2022, so there is a scope change of approximately 1,700. So if you subtract 1,700 from 13,700, you get 12,000. Second, during the year, mainly in our subsidiaries responsible for aerostructures, we chose to secure skills, competencies, and stability in the workforce by transferring people who were subcontractors into employees with Airbus contracts. That was not something we had taken into account when we provided the headcount guidance or the outlook. As far as I recall, that adds another 2,300. So we arrive at around 9,500, which is more than what we had communicated.

The hiring plan is actually doing well — on track, even a bit ahead. That said, my message to the team was: don't fall behind the curve when it comes to skills and competencies. We want to stay ahead of it. Attrition in 2023 came in lower than in 2022 and lower than what we had factored in. So what appears to be a really strong excess of resources, of headcount versus what we said a year ago, is in fact a minor one. I want this understood: we will keep hiring in 2024, and we will also keep enlarging the scope of consolidated entities where we consolidate staff. So that's something to be closely monitored and shared with you as we move forward. And that has given Thomas time to prepare an answer to your more general question on costs and shareholder returns. Thomas, I hand over to you.

Okay. So on costs, I think we stated that inflation would cost us EUR 200 million in 2023. That's what has played out. My expectation is that this could carry on into 2024, perhaps a bit under that figure, though the magnitude won't be dramatically different. You also noticed R&D went up in 2023. I'd expect that to keep rising in 2024 as well, at perhaps a somewhat slower rate, as I had mentioned. But I'd say those are the two key components to keep in mind regarding cost development in 2024. Now, it's a bit hard to predict where inflation heads in 2025. I don't believe it will return to zero, but it might flatten out somewhat more in 2025. Still, I think we'll have to see when guidance comes out a year from today. Now, on shareholder return, I'd say there were a number of factors we considered. So first, what mattered to us was sticking to our word: once we surpass the EUR 10 billion threshold in our net cash position, we would examine raising our shareholder returns.

We hit that threshold, perhaps a bit sooner than we ourselves had anticipated. So basically, what we did was listen to our shareholders. There's no clear consensus, I'd say, on whether folks prefer a special dividend or a share buyback. But those are the two views, and so what mattered to us in this situation was to put something in place fairly fast and pragmatically, and also to send a clear signal that we stick to what we've said. And second, looking at the amount we consider appropriate, we felt that at this point in time a special dividend would be the better tool compared with a share buyback. So I'd say there were a number of considerations, but the most important thing for us was that we stick to what we said earlier, which is that the EUR 10 billion threshold for net cash is something we would look into before increasing returns to shareholders. However, I'd also say clearly, this is not a mechanistic exercise going forward. So while we do think the philosophy is the right one, and I think I come back to the earlier question, have we changed our philosophy on this?

Obviously not. Still, this isn’t a mechanical task where you’d forecast out for each year.

All right, that’s useful. Thanks.

Thanks. At this point, we'll take the following question. The next one is from George Zhao, who is with Bernstein. Go right ahead.