Airbus SE (AIR) Earnings Call Transcript & Summary

Good day, everyone, and thanks for holding. This is Sharon, and I’ll be your operator for the Airbus Q1 2024 Results Release Conference Call. I’d like to point out that throughout the presentation all attendees will be in listen-only mode, and this call is being recorded. Following the presentation, there will be a chance for you to ask questions. Right now, I’ll hand the conference over to your hosts, Guillaume Faury, Thomas Toepfer, and Helene Le Gorgeu. Please go ahead.

Thanks, Sharon, and good evening, everyone. You're joining the Airbus Q1 2024 results release conference call. Guillaume Faury, our CEO, and Thomas Toepfer, 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 presentation. This call is also being webcast. You can access it through our homepage by clicking the dedicated banner. A playback will be available on our 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 walk you through, along with the financial statements. During this call, we'll be making forward-looking statements. I'd ask you to refer to our Safe Harbor statement, which appears on the presentation slide and applies to this call as well. Please read it carefully. And now, Guillaume, over to you.

Thank you, Helene. Good day, everyone, and thanks for being with us on today's call covering our Q1 2024 results. Thomas and I are in Amsterdam to take you through the numbers. It has been almost three months since we got together for the full year results. At that point, we pointed to the continued difficult operating climate, and since then no signs of relief have appeared — in particular where geopolitical friction and supply chain difficulties are concerned. Against that backdrop, supply chain is still what sets the tempo for the ramp up, and we work in close partnership with our suppliers. Our production systems keep receiving investment, and we stay watchful so that bottlenecks are actively handled. Our efforts went into quality and execution, especially the essential onboarding and qualification of a skilled workforce. The robust commercial momentum we see on wide body aircraft supports our choice to lift the A350 production rate to 12 aircraft a month in 2028. During Q1, 142 aircraft were delivered, up 12% year on year, broadly in line with our plan. So let me remind you that, as was the case last year, we anticipate a backhand loaded delivery profile.

Adjusted EBIT came in at €0.6 billion, driven notably by commercial aircraft deliveries as well as investments aimed at preparing for the future and supporting our ramp up. Free cash flow before customer financing was minus €1.8 billion, in line with inventory buildup as we ramp up across programs. And our guidance for the full year 2024 is still unchanged. So let's turn now to our commercial environment. We took 170 gross orders in this quarter. For the A320 family, we booked 96 gross orders, lifting our backlog to 7,177 aircraft. Of those, roughly two thirds are for the A321. Turning to wide bodies, we recorded 74 gross orders, including 33 from Korean Air. We're also happy about a recent announcement from VietJet and Japan Airlines, plus one just earlier today from Indigo, confirming growing commercial momentum in the wide body segments and the airlines' confidence in our modern, fuel efficient aircraft. Consequently, with no cancellations during the quarter, our backlog in units came to 8,626 aircraft at the end of March 2024. On helicopters, in Q1 we booked 63 net orders versus 39 in Q1 last year, mainly in the light and medium segments.

We're also quite happy about how much confidence our customers showed in our products and services at this year's Heli-Expo. At this edition of Heli-Expo, we announced 40 firm orders and 115 commitments covering a range of our multi-mission helicopters from customers around the world, including the framework agreement signed with the helicopter company in Saudi Arabia. During the quarter, we also signed a contract with Skyco Leasing in China for six H175 helicopters, plus a follow-on order placed by the Japan Coast Guard for three H225 helicopters. We keep seeing positive momentum in the civil and military markets. Looking ahead, we're focused on securing new business opportunities in both our home countries and the export markets. In line with this ambition, we have recently announced the partnership with the Tata Group to establish an H125 final assembly line in India. This new manufacturing facility will serve the Indian civil market and export to some of the neighboring countries. Finally, in Defense and Space, we started the year with a solid order intake of €2 billion in the quarter. This includes the extension of previously signed contracts for F-100s and services. While on air power business line and following the latest order of the Republic of Kazakhstan, we are proud to highlight that the C-295 has now reached a total of 300 orders.

The bulk of the additional orders we booked in Q1 are tied primarily to space systems. As for the launcher business, we're clearly eager about the first Ariane 6 flight that's slated to occur somewhere between June 15 and the close of July 2024 — that is, within this year. Without question, that represents a key milestone for 2024, and it matters not just to our company but equally to Europe and the continent's autonomous access to space. So with that, Thomas will now walk you through the financials.

Okay, thanks Guillaume, and hello everyone—welcome to the call. I'm on Page 6 of the presentation, and I'd like to walk you through how we performed financially. As you'll see, revenues for Q1 2024 rose to €12.8 billion, which is up 9% year-on-year, and that mainly reflects the higher number of commercial aircraft deliveries. On R&D—you'll find it on the upper right-hand side of the page—our expenses went up slightly versus Q1 of 2023, and they came in at €0.7 billion. Looking ahead, we still expect our full-year R&D to increase slightly compared to last year. If you turn the page, you'll see that our Q1 2024 EBIT adjusted fell to €0.6 billion from €0.8 billion in Q1 2023, and that reflects the higher commercial aircraft deliveries, but also a €0.01 hedge rate deterioration. It also reflects investments to prepare the future and the decrease in helicopters from a particularly strong Q1, which we had last year. And it also includes the planned impact from the increased Airbus employee share ownership plan, whose record participation outlines our employees' commitment to our ambition. And this ESOP plan resulted in a year-on-year expense increase of slightly above €0.1 billion.

As you can see, reported EBIT for Q1 2024 came in at €0.6 billion, and over on the right-hand side, the total level of EBIT adjustments is shown — they were broadly neutral, and they included negative €13 million. That impact stems from the dollar working capital mismatch and balance sheet evaluations, plus a positive €51 million tied to the gain on the Airbus OneWeb satellites, which is linked to the recent acquisition of the remaining 50% of the joint venture, and it includes negative €6 million of other costs, including some compliance costs. The financial result was a positive €229 million, mainly reflecting a positive impact from the revaluation of certain equity investments, and the tax rate on the core business continues to run at around 27%. Now, the effective tax rate in the quarter is 34%, and that is driven by a net deferred tax asset impairment. The resulting net income was €0.6 billion, with reported earnings per share of €0.76 per share. And our Q1 2024 EPS adjusted stood at €0.59, based on an average of 788 million shares. Now, if you turn the page to Page 8, you can see our U.S. dollar exposure coverage. In Q1 2024, $4.5 billion of forward matured with associate EBIT impact, and Euro conversions were realized at a blended rate of $1.23 versus $1.22 in Q1 2023.

Also during Q1 2024, we put in place $4.2 billion of fresh coverage at a blended rate of $1.12. Consequently, the total portfolio we hold in U.S. dollar coverage now amounts to $91.4 billion, carrying an average blended rate of $1.22, versus $91.7 billion at a rate of $1.23 as of the close of 2023. Now, as we noted in the full year 2023 disclosure, this quarter we made adjustments to that portfolio by carrying out certain rollovers so as to reflect the 2024 delivery target along with its delivery profile, which we anticipate will be back-end loaded. Next, let's examine our free cash flow in greater detail on Page 9. Free cash flow before customer financing came in at minus €1.8 billion for the first quarter, and this outflow, as you can observe, was principally caused by the working capital change, including the planned inventory build-up stemming from execution of our ramp-up plan. The A400M, for your information, kept weighing on our free cash flow, and CapEx in Q1 2024 was minus €0.5 billion, which reflects investment in enhancing and upgrading our industrial system. To underpin our ramp-up, we anticipate that CapEx will keep rising during 2024, though at a slower pace than in the prior year.

Free cash flow came in at minus €1.8 billion, and customer financing had almost no effect on that figure. On that subject, I can tell you the environment for aircraft financing is still solid, and financial markets currently offer enough liquidity for our product. So overall, as the page shows, our net cash position was €8.7 billion at the end of March. And our liquidity is still above €30 billion. Now, let me wrap up this financial section of the presentation before I hand things back to Guillaume, and I would say that although Q1 was affected by certain items that won't recur in the quarters ahead — for instance, the costs tied to the employee share ownership plan — going forward we're focusing on what matters most, with a sense of priority and efficiency, so that overall I view these results as in line with our objectives for the year. And with that, I'd like to hand it back to Guillaume.

Thanks, Thomas. Let's begin by reviewing commercial aircraft. During Q1, we handed over 142 aircraft to 45 customers. Looking at the picture across aircraft families, for the Q2 we delivered 12 aircraft, and we're still on track toward a monthly production rate of 14 aircraft in 2026, while continuing work on the program's industrial maturity and its financial performance. For the A320, we delivered 116 aircraft, including 62 A321s, which made up 53% of deliveries for the family. We're progressing toward a rate of 75 aircraft per month in 2026, and we still expect the XLR to enter service in Q3 this year. We delivered 14 widebodies, including 7 A330s and another 7 A350s, and we've decided to raise the A350 production rate to 12 aircraft a month in 2028, as mentioned earlier, superseding the rate 10 in 2026, and on the A330, we continue to target rate 4 in 2024. Now let's turn to the financials for the commercial aircraft business. Revenues rose plus 13% year-on-year, mainly reflecting the higher number of deliveries. The EBIT adjusted fell to €0.5 billion from €0.6 billion in Q1 — so the €0.6 billion euros in Q1 2023 last year, with the increase in deliveries being offset by a slightly less favorable rate, as Thomas explained, and investments to prepare the future, such as the increase in workforce and R&D expenses.

There's also an impact coming from the employee share ownership plan. Turning to helicopters: during Q1 we handed over 50 helicopters, a figure that is 21 lower than what we saw in the first quarter of 2023. Revenue fell 9% year-on-year to €0.5 billion, which mirrors the reduced delivery volume, partly compensated by services. That shows up in our EBIT adjusted, which came down to €71 million. The employee share ownership plan effect is included there as well. Let me also remind you that the Q1 2023 performance was especially strong in helicopters, both on programs and services, so it sets a high bar for comparison. Now let's wrap up the Q1 review with Defense and Space, where revenue grew 4% year-on-year, driven mainly by the air power business and partly offset by less favorable phasing in space systems. The EBIT adjusted there also mirrors lower profitability in space systems, notably tied to the so-called EAC, estimate at completion updates, carried out in the second half of last year. For Q1 2024, including the impact I mentioned related to the employee share ownership plan, as with the two other divisions, and on the A400M, we have delivered one aircraft so far in 2024. We're continuing development activities aimed at reaching the revised capability roadmap.

Work on retrofits is moving forward, closely aligned with customers. We recognized no net material impact during the first quarter, and risks persist around qualification of technical capabilities and the costs tied to them, around aircraft operational reliability, around reducing cost, and around securing overall volume in line with the revised baseline. Let me now remind you of the guidance we issued in February, which is unchanged. In setting its 2024 guidance, the company assumes there will be no further disruptions to the world economy, to air traffic, to the supply chain, to the company's internal operations, or to its ability to deliver products and services. So allow me to repeat the company's 2024 guidance. This is before M&A. On that basis, the company is targeting roughly 800 commercial aircraft deliveries in 2024, EBIT adjusted of between €6.5 billion and €7 billion, and free cash flow before customer financing of about €4 billion. To wrap up on our key priorities, they are unchanged since the full year. In the meantime, we had the chance to address them in greater detail during the workshops and in our recent interactions. Fundamentally, we stay focused on ramping up across all our programs, since we are fully committed to serving our customers and meeting the strong demand for our products.

In doing that, we will keep leaning on the fundamental pillars that support all of our work as a business — namely safety, quality, integrity, compliance, and security. For our teams, our customers, and every one of our stakeholders, I regard those as paramount. And I can’t stress enough how critical it is that we meet this responsibility each and every day. To underpin the ramp-up, we will keep collaborating closely with partners across our global supply chain and keep adapting and investing in our worldwide industrial system. At this point, I want to touch briefly on the situation with Spirit Aerosystems, a key supplier for us. Together we are working to secure sourcing for the Airbus work packages that they currently handle. That involves support from our teams in defining a more sustainable path forward, operationally as well as financially. Given the possible consequences of a takeover of Spirit by another party, specifically Boeing, we confirm that we are in the early stages of discussions regarding a range of options. Those discussions are confidential, and at this stage we really have no further comments to offer. And now, Helene, over to you for the Q&A.

Yes, we’ll begin the Q&A portion now. When you ask a question, please state your name and your company. Kindly keep it to 2 questions at a time, and that counts sub-questions as well. And as always, please keep in mind to speak clearly and at a slower pace so that everyone on the call—especially us—can follow your question. So, Sharon, please go ahead and walk the participants through the procedure.

Thanks. At this point we'll open things up for questions. <<operator_script>> We're going to take our first question now. It comes from Ben Heelan at Bank of America. Go ahead, please.

Yes, thanks. Good evening, everyone, and thanks for taking my question. First, I'd like to discuss the guidance and how we ought to think about the phasing of EBIT across the rest of the year. Also, could you give us some detail on how confident you are in the EBIT guidance for this year? Thank you.

Okay, I'll take that question. The way I'd describe it, Ben, is that Q1 definitely wasn't a very strong quarter. But it was heavily impacted by certain effects that won't recur during the remainder of the year. And I believe we provided a few indications, chiefly this employee share ownership plan, which had an adverse impact of more than 100 million. That definitely won't recur. In addition, naturally, there was some cost impact from the hiring we carried out last year, plus the effect of the hedge rate. So our view is that, for the remainder of the year, last year we essentially generated €5.1 billion during the remaining months. To reach the midpoint of the guidance, we'd need to deliver approximately a billion more. Where would that come from? First, naturally, from the higher deliveries we anticipate for the full year. Again, taking the midpoint of our guidance, that's approximately 50 aircraft, and you're familiar with how to convert that into an EBIT. The second favorable factor that will, naturally, assist us is the fact that, remember, we incurred the negative charges on space.

The figure was €600 million, though we consistently noted that just €400 million of it actually pertains to 2023. So €400 million is what you'd reverse. Conversely, we released €100 million of provisions last year. That leaves a net amount of non-recurring charges this year of approximately €300 million for you to keep in mind. Beyond that, naturally, we anticipate a degree of performance improvement across the divisions, which should also factor in. On the somewhat negative side, we've consistently pointed out that R&D expenses would rise modestly versus the prior year. We indicated an expected slight drag from FX rate movements. We likewise anticipate inflation affecting us in 2024 at a level equal to or perhaps marginally below what we experienced in 2023. Bringing everything together now, along with our efficiency push — specifically to offset part of the inflation we clearly observe — that ought to get you to approximately €1 billion additional in 2024 across the year's remaining nine months compared with last year. Once more, the major positives are, naturally, the roughly 50 extra deliveries at the guidance midpoint plus the absence of last year's one-offs repeating.

Thanks, Thomas — that was really clear. I’ve got one follow-up as well, on defense. Could you help me get my head around the loss there? My understanding, going from the Q4 report, was that many of the troubled contracts had already been provisioned for in 2023. So were there fresh charges this quarter? Can you walk us through, from an underlying performance standpoint, what keeps weighing on the defense and space business?

Thanks for asking that. To put it plainly, when we mentioned on our call that it ties back to the EACs, what we mean is this: the EAC adjustments we booked during the second half of last year naturally carry a one-time impact, but beyond that, they leave the contract on a somewhat lower path than it followed in the first half of 2023, before those EACs were affected. So basically, once you bring in fresh assumptions on timeline and fresh assumptions on cost, that keeps pressing modestly on the EACs. So to be fully clear, that's the meaning behind what we stated on the call. As for the remainder, I'd describe it as mostly phasing. At times certain contracts land somewhat sooner, at times somewhat later. So I'd say there aren't other significant effects beyond a mildly negative phasing that showed up in 2024 compared with last year.

All right, that's very clear. Thanks.

Thanks. We'll move on to the following question now. The next one is from Olivier Brochet at Redburn Atlantic. Go ahead, please.

Hello there, Guillaume and Thomas, and good evening. Thanks for taking my questions. I'll go with two, please. First, regarding the final assembly line over in Toulouse, plus the extensions in Mobile and Tianjin, could you bring us up to date on where things stand and how the ramp is going, and so forth? Second, on the A220, with the contract negotiations in Canada, if those were to stall, would that have any effect on the full year guidance deliveries — albeit cash, please? Thank you.

Yes. Thank you, Olivier. So, an update on the files for the A320 family production system. Things are moving forward at a good pace, and there is only good news to report. You may recall that we delivered the first A321 from Toulouse to Pegasus Airlines slightly ahead of schedule at the end of last year. And so, we keep moving forward. We have delivered four, five, six more now at the beginning of this year from that line. I'm not specific on the number, but it is moving forward quite fast now. We are in the ramp-up of the production, and the construction work of the U.S. and Chinese files as well, with readiness of the full production system by 2026, consistently with the rate 75 in 2026. So, only good things to report, I would say, on that front. And the second question, that is linked to the A220, no, there is no impact expected on the guidance for each year <<inaudible>> of the recently shared. Well, tensions to come to an agreement on the salaries and the compensation for this year for employees. It's being managed at this point, no impact expected on the Fourier guidance.

Alright, could I follow up regarding the Toulouse line? At what point do you expect to hit full rate?

I’ll admit right now that I’m not certain on this particular point. With the first A321 line, we’re seeing a significant increase this year. So we probably won’t be too far from hitting cruise speed around the middle or the end of next year, I’d guess. As for the second line, if I recall correctly — just off the top of my head — it starts service in ‘26. That means it won’t be running at full capacity until ‘27, but that should still be enough to support the rate 75, as I mentioned before. So please treat that as a rough response to your question, off the top of my head.

Alright, thanks a lot.

Thanks. Let's move on to the following question. Our next one is from David Perry at JPMorgan. You have the floor.

Yeah. Thanks, Guillaume and Thomas. I have two questions, please. First, just on your tone, Guillaume. I'm trying to get a sense of what you're actually saying about the supply chain. You open with a fairly conservative sentence in the release. I mean, is it somewhat worse than you perhaps thought a couple of months ago? And I'm wondering whether there are any new issues compared with those you discussed at length on the roadshow just a month or two back, in particular, whether you're encountering any pushback from the engine companies. And then also, on the widebody environment, I mean, you've had some very, very nice orders, or I think there are reports of additional orders coming as well today. Are these coming in at better pricing than you were thinking a couple of months ago? Thank you.

Yes. Thanks, David. Well, regarding my tone, and as I mentioned about the supply chain, it isn't getting better. So I'm saying it is not improving. Essentially, we face many problems, and when you take them one by one and in isolation, each is manageable, yet the overall environment is a difficult one. So that's essentially our point. It doesn't necessarily stem from engines. My view is the engine picture is fairly stable, perhaps even slightly better. But we do find new cases here and there that we must handle, along with quite a few tough situations. So this isn't the kind of thing that would alter our guidance. Our guidance stays the same, though the environment remains hard. And we're dedicating lots of people from our teams to work through these situations alongside our suppliers and partners, as I mentioned earlier on this call. On widebody, well, in fact, I'm glad about where we stand. I believe roughly 18 months ago, we told you we were observing an uptick in orders, with large and rather strong kinds of campaigns. We're seeing that our products, particularly the A350, though not solely that one, are truly competitive in the market, that the product performs very well in service, that the A350's reputation is rising substantially and in a very positive way, and this is indeed the kind of thing that should gradually assist with pricing.

However, I wouldn't say we're at a point yet that I'd describe as back to normal. We're still emerging from a very tense and difficult situation, and the environment remains highly competitive. That said, the fact that we're ramping up and have chosen to raise the rates by 2 points by 2028 shows we believe we can fill the pipe with solid orders going forward. So I expect this will keep getting better over time, though it's still challenging right now — probably improving little by little, step by step.

That's really helpful. Thanks a lot.