Airbus SE (AIR) Earnings Call Transcript & Summary

Good day, everyone, and thanks for holding. This is Sharon, your operator, and I'd like to welcome you to the conference call marking Airbus's release of its Half-Year 2024 results. I should mention that throughout the presentation, everyone joining us will be muted, and this call is being recorded. Once the presentation wraps up, we'll open the lines so you can ask questions. Right now, I'll hand things over to your hosts — Guillaume Faury, Thomas Toepfer, and Hélène Le Gorgeu. Please go ahead.

Thanks, Sharon. Good evening, everyone. You're joining the Airbus Half-Year 2024 Results Release Conference Call. Guillaume Faury, our CEO, and Thomas Toepfer, our CFO, will walk you through our results and take your questions. We plan for this call to run about an hour. That includes Q&A, which we'll hold after the presentation. There's also a webcast of this call. You can reach 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 take you through, plus the financial statements. During this call, we will make forward-looking statements. I'd ask you to refer to our Safe Harbor Statement, which appears in the presentation slides and applies to this call as well. Please read it carefully. And now, Guillaume, over to you.

Thank you, Hélène. Good day, everyone, and we appreciate your participation in today's call covering our H1 2024 results. Thomas and I are indeed in Amsterdam to walk you through what we've delivered. A month has passed since our previous discussion. At that time, we covered the greater financial exposure related to our space activities, along with the weakened operating conditions and the particular supply chain difficulties and problems affecting our commercial aircraft division. During that session, the company revised its 2024 guidance and modified the A320 Family ramp-up path, reaffirming Rate 75, though now set for 2027. We'll go through our H1 performance in detail, and Thomas will handle the closing remarks, but before that, I'd like to offer additional insight into the two matters that drove the guidance revision. Let me begin with our space business and the charge taken in H1 2024 — its nature, its scope, and what triggered it remain the same as in the guidance update from a month ago — and in particular, I'll explain why this charge wasn't already spotted back in 2023. As agreed last year under our transformation plan — our space transformation plan — we brought in new leadership with pertinent expertise on both the business and finance fronts, and I should add, on the management front as well.

The person now leading space is a leader with a strong track record. That's Alain Fauré, who has held a range of roles at Airbus. I'm well acquainted with him, and he has a deep command of the space business. The individual now heading finance ran the cost containment effort through COVID, and back then, the transformation program in helicopters. So at that point I worked alongside Bruno Travert on the helicopters turnaround. As part of the plan we settled on at the time, the freshly appointed management team kicked off wide-ranging technical reviews of our space programs, and those involved a complete, what we term, bottom-up assessment or reassessment of the key critical programs, with stronger risk sizing and timelines evaluation. And as mentioned earlier, one major program still has to be fully assessed and has only been provisioned through a top-level approach. The deep work carried out by the teams produced the technical findings and the resulting estimates at completion, EACs, so the corresponding estimate at completion updates. The main revised assumptions are, above all, the project schedules, the time required to get there, the economic conditions, the reviewed risk assessments, along with cost overruns tied to our own operations as well as costs originating from the supply chain.

Essentially, this comes down to evaluating where those programs are headed. For H1, the booked figure is EUR 989 million, which aligns with what was announced on the 24th of June and mirrors the closing and audit process. The charges are largely confined to telecom and navigation, with only limited spillover into observation programs. Let me also take a step back. The space business has undergone significant changes. Market conditions have shifted, as we've witnessed heightened competition from some disruptive new entrants—and notably, one disruptive new entrant in particular. We failed to balance risks and rewards appropriately in the contracts we signed between 2018 and 2021. That covered, for instance, signing major development programs that had substantial technological gaps to close without the appropriate contractual terms and the right organizational structure in place to support them. Now, turning to the actions and the path ahead. Above all, we are tackling the affected programs and their difficulties, so we are focused on them. We've also put in place a highly selective bid/no-bid strategy, which includes requiring a higher technological maturity threshold and an assessment before any firm proceedings. This new approach is already beginning to show in the average profitability of last year's binding offers.

This isn't entirely new—we actually did something along these lines last year. Beyond that, we've restructured how we organize ourselves internally, including governance and controls. Specifically, we've established what we refer to as end-to-end integrated program teams spanning the entire value chain, bringing engineering, procurement, and operations together with smaller units. We've also kicked off a short-term cost containment effort as well as a midterm competitiveness plan. At the same time, as I mentioned before, we're assessing every strategic option in light of the situation—things like restructuring, which is in fact already underway, portfolio review, cooperation, and potential M&A. Some of these could be combined. That covers space. Let's now move to commercial aircraft and how we protect our ramp-up trajectory along with the new assumptions under current operations. To begin, we've been ramping up and backing our suppliers ever since the pandemic. We're in the ramp-up. We've gone from a 2022 situation where a large number of suppliers had various issues to one now where a small number of large suppliers face certain specific issues. I view 2023—meaning the success of 2023—as evidence of the progress achieved since we emerged from COVID.

But first, we're improving how well we can see the supply chain, in both granularity and depth. We've carried out thorough assessments of supplier capacity to address the bottlenecks, and we're also targeting the critical indirect suppliers. Second, our dedicated organization of supply chain experts has grown significantly in numbers and in quantity and quality since 2021, to reinforce very strongly our on-site supplier support and through what we call JIPs, which are joint improvement plans with the critical suppliers. Finally, we have a cross-division task force fully in motion to leverage our supply chain intelligence and mitigate potential impacts from the degraded geopolitical context. We've been able to contain and manage several crises. That includes, for example, the semiconductors and various logistics disruptions, demonstrating our significantly improved resilience. But when we are hit, like more recently, by equipment that is reaching us that is going to Airbus at the end of the final assembly line or during the final assembly line, we have by far less ability to react and to compensate. That's what's happening with engines. They come very late in the manufacturing process, or landing gears. Those come also in the fall, or seats, which by nature are installed at the end of the customization.

That's the reason we saw a short-term hit with very little warning or advance notice as of late. When it comes to our own operations, especially our aero structure business, we now have two priority areas: shortfalls in raw materials and detailed parts, and on the other side, bringing the remaining production units together. Our efforts are producing results. Our recent choice to shift Rate 75 to 2027 provides key suppliers with the extra time required to meet our production planning requirements, and it eases pressure on most suppliers by allowing them a little more time. We'll now examine these particular issues. As we presented last month, we saw a substantial volume of missing parts, primarily on engines, on cabin and equipment, and on Spirit AeroSystems work packages. On engines, the 2024 and 2025 volumes line up with our suppliers. To evaluate the performance problem at engine manufacturers, we have joint improvement plans reaching down to the elementary parts bottleneck and covering both the line fits and the airlines' in-service demands with a high degree of transparency. That doesn't mean we always receive what we want on schedule, but at minimum we have that high degree of transparency and cooperation with our engine manufacturers.

When it comes to equipment, certain suppliers have been performing below what we had hoped for, and we do have — again — JIPs, joint improvement plans, with top management attention, together with Safran and Honeywell. Where cabin is concerned, the supply is mostly managed directly by the airlines, but last year we set up a cabin readiness organization to strengthen the support we give to both our customers and our suppliers. To meet demand, that scope is now expanding so we can keep making the interfaces easier and secure on-time integration of cabin elements in our final assembly lines. Last but not least, on Spirit AeroSystems, earlier this month we signed a binding term sheet to secure the future of the major Airbus work packages. Our target is to close the deal in early 2025. Together with Spirit, we are working to secure the critical ramp-up investments over the medium and long term. And to support the transition phase and secure immediate operations, we have deployed more than 100 people from the Airbus workforce. Still, the challenge remains high. And before we return to the normal course of our presentation, after these few comments on space and commercial, let me stress that this is ambitious, continuous work, and that our teams and partners are devoted to delivering successfully on the plan.

That said, let's turn now to the commercial side of things, beginning with commercial aircraft. Demand is still robust. During the first half of the year, we took 327 gross orders and logged 17 cancellations. For the A320 family, gross orders came to 197, which lifts our backlog to 7,128 aircraft. Of that total, over two-thirds are for the A321 — over two-thirds for the A321. Turning to wide bodies, we logged 130 gross orders, among them 33 from Korean Air and 30 from IndiGo. We're also happy about the recent announcement at the Farnborough Airshow — sorry — which confirmed in particular the solid momentum of our wide body family and which once again underscores the confidence placed in our products and our leading position in long-haul air travel. Consequently, our backlog in units stood at 8,585 aircraft as of the end of June 2024. There is work ahead of us. On helicopters, in H1 2024 we booked 233 net orders, versus 131 in H1 last year. During this quarter, we landed a record order of 38 H225 helicopters plus 6 options with the German Ministry of the Interior for the Federal Police, the Bundespolizei. We also signed orders for the H145 in both its civil and military versions, notably with Belgium, UK, and Brunei, along with additional H175 orders placed by our lessor customers.

All right, so bookings were solid overall. Positive momentum is still evident across both the civil and military markets, and our attention stays on winning new business opportunities in the home countries as well as in export markets. Moving to order intake booked at Defence and Space: it came to EUR 6.1 billion in H1 2024. On the air power side, this notably reflects services contracts. I'd like to point out that Eurodrone has cleared the PDR — the preliminary design review — which lets it move toward the following milestone, the CDR, or critical design review. And as was announced in July, Saudi Arabia has signed a contract for 4 additional MRTTs, which will be recorded in the backlog once all the administrative work, or paperwork, is complete. In our space system business, Airbus will design and build two telecommunication satellites for Eutelsat, enabling in-orbit reconfiguration of coverage area capacity and communication frequencies. So we continue to make progress in space as well while we recover the situation. And let me congratulate ArianeGroup, the European Space Agency, and all partners on the first Ariane 6 liftoff — a resounding success that lets Europe regain its independence and sovereign access to space. That's good news in the space business sometimes. But now, Thomas, we'll take you through our financials.

Thanks so much, Guillaume, and good day to everyone joining the call. I've turned to page 9 now, and I'll walk you through how we performed financially. As you'll note, revenues for H1 2024 rose to EUR 28.8 billion. That's a 4% gain versus a year earlier, driven mainly by the count of commercial aircraft deliveries and by greater volume in our air power business. Over on the right-hand side, you can observe that R&D spending went up compared with the first half of last year, reaching EUR 1.6 billion. Even so, for the full year we still anticipate that our R&D for the whole year will rise only slightly relative to last year. Let's now turn to the following page, page 10. As you'll see there, EBIT Adjusted for H1 2024 fell to EUR 1.4 billion, down from EUR 2.6 billion during the first half of last year. That decline chiefly mirrors the charges booked in our space business. I'll return to that point in just one minute. The greater commercial aircraft deliveries are countered by investments made to prepare the future, including R&D expenses and the workforce increase that brings temporary overstaffing. Let me also remind you of the planned effect of the larger Airbus employee share ownership plan, which we booked in the first quarter and which touches every division — recall that it produced a year-on-year rise in expense of just slightly above EUR 0.1 billion.

And just for your records, so the figures line up: keep in mind that the first half of 2023 got a lift from the progress we achieved on our compliance topics, which let us release provisions amounting to EUR 0.1 billion in commercial aircraft. That first quarter also included revised assumptions on certain long-term contracts in our space business, which produced a charge of EUR 0.1 billion. Let me now take a moment on the extra EUR 989 million charge we booked on our space business. To start with, as Guillaume mentioned, it aligns with the earlier announcement, and it mirrors the closing and the audit process. Since these are long-term contracts, we have reworked the past, the present, and the future profitability, and so only part of the charge actually relates to the current period. What that means is roughly one-third reflects current-period profitability, while the rest adjusts the past and the future profits. In other words, two-thirds is probably the right order of magnitude to normalize in your models. This same mechanic also explains why this charge has only a partial cash impact in 2024. So as you can see, the H1 2024 EBIT reported came in at EUR 1.5 billion.

If you look up at the top right, that's where the EBIT adjustments are shown. Those came in slightly positive, and they contained a EUR 19 million effect from the dollar working capital mismatch and balance sheet revaluation, and EUR 32 million of that was in Q2. There's also the EUR 51 million tied to the gain on Airbus OneWeb Satellites, which relates to buying the remaining 50% of the joint venture and which was booked in the first quarter. On top of that, there is -EUR 5 million of other costs. Turning to the financial result, it came in at -EUR 108 million, largely reflecting a negative effect from revaluing certain equity investments. The tax rate on the core business is still around 27%. But as you'll have seen, the effective tax rate is 46%, which takes in the effect of the net deferred tax assets impairment as well as the tax effect from the revaluation of certain equity investments that I mentioned when we discussed the financial results. Net income comes out at EUR 0.8 billion, with reported earnings per share of EUR 1.04. For H1 2024, our adjusted EPS was EUR 1.38, on an average of 790 million shares.

Let's turn to the following page, page 11, and take a look at how our U.S. dollar exposure coverage stands. During the first half of this year, forwards totaling $10.4 billion matured, with the related EBIT impact and euro conversions realized at a blended rate of 1.21, compared with the same rate in the first half of 2023. Also in the first half of 2024, we put in place $9.5 billion of new coverage at a blended rate of 1.11. Consequently, our total US dollar coverage portfolio in US dollars sits at $90.9 billion, with an average blended rate of 1.22, versus $91.7 billion at 1.23 dollars at the end of 2023. Right now our portfolio is being adjusted through some rollovers, so that it reflects the latest ramp-up trajectory as well as our delivery target for 2024. With that, let's take a more detailed look at our free cash flow. I'm now on page 12. Our free cash flow before customer financing came in at negative EUR 0.5 billion in the first half. That outflow was primarily driven by the change in working capital, including the planned inventory build-up stemming from execution of our ramp-up plan. The A400M kept weighing negatively on our free cash flow, and our first half 2024 CapEx was negative EUR 1.3 billion.

What you're seeing here is the money we've put into improving and upgrading the industrial system. As we ramp up, CapEx should keep rising in 2024, though at a somewhat slower rate. Free cash flow came in negative at EUR 0.6 billion, with a small effect from customer financing. The environment for financing aircraft, I can tell you, is still solid, and right now there's enough liquidity in the financial markets for our products. On the right-hand side you can see those effects: net cash stood at EUR 7.9 billion at the end of June, after we paid a dividend and special dividend totaling EUR 2.2 billion. Liquidity is still around EUR 30 billion. Let me just say our approach to shareholder returns is unchanged, and we still believe EUR 10 billion is the right net cash level for the group. With that, I'll hand it back to Guillaume.

Thank you, Thomas. Let's begin the business review with commercial aircraft. During H1, we handed over 323 aircraft to 65 customers. Turning to the situation by aircraft family, on the A220 we delivered 28 aircraft, and we're continuing toward the monthly production rate target of 14 aircraft in 2026 while still working on the program's industrial maturity and its financial performance. Here, let me note that in line with agreements in place and as anticipated, the company and Investissement Québec agreed to provide shareholder financing for the Airbus Canada Limited Partnership. On the A320, we delivered 261 aircraft, of which 147 were A321s, representing now 56% of deliveries for the family. As recently announced, we have adjusted our A320 ramp-up trajectory to reflect specific supply chain challenges, and the production rate of 75 A320 aircraft a month is now expected in 2027, as I explained at the beginning already. For the A321XLR, we are very pleased with the recent EASA type certification we received. This is for the CFM engine version. This is a key milestone paving the way for the entry into service at the end of this summer. It's an incredible aircraft, really going in the direction of decarbonization, as it means 30% lower fuel burn and fewer to advantage per seat and per mile compared to previous generation competition aircraft for the same segment.

During the period, 34 wide bodies were delivered by us: 13 A330s and 21 A350s. For the A330, we still aim for rate 4 this year, and for the A350, rate 12 in 2028. Now let's turn to the financials of the commercial aircraft business. Revenues rose 4% year-on-year, largely due to a somewhat higher delivery count. EBIT Adjusted fell to EUR 2 billion from EUR 2.3 billion in H1 2023, as the delivery increase was offset by investments in our future, particularly R&D and hiring of skilled workforce that is temporarily producing overstaffing. That is even more the case given the ramp-up is slightly slower. Given persistent supply chain pressure and the overall complex economic environment, we introduced an improvement program within our commercial aircraft business. Named LEAD, it concentrates on core business activities — so really also on performance and efficiency, and on securing our industrial ramp-up without, of course, compromising quality, safety, compliance — I mean the very basics of what we do. Turning to helicopters, in H1 2024 we delivered 124 helicopters, which is 21 fewer than in the first half of last year. Revenues were EUR 3.2 billion, broadly stable year on year despite lower deliveries and reflecting a solid performance in services.

Adjusted EBIT fell to EUR 230 million, which mirrors those weaker deliveries along with a somewhat different program mix. Let me finish the H1 review with defense and space. Revenue was up 7% versus a year earlier, driven chiefly by the air power business and partly offset by the latest updates to estimated completion assumptions in space systems. EBIT Adjusted captures the EUR 989 million in charges Thomas laid out earlier, tied mostly to revised estimates at completion on telecommunication, navigation, and observation programs. On the A400M, four aircraft were delivered in 2024. We're carrying on with development work aimed at reaching the revised capability roadmap. Retrofit work is moving forward in close alignment with the customer. No net material impact was booked in the first half of 2024, and risks persist around qualification of technical capabilities and the related costs for aircraft operational reliability, around cost reduction, and around securing overall volume in line with the revised baseline. And I suspect you've already heard those lines a few times. Now to guidance — let me remind you of what we issued in June. For the 2024 guidance basis, the company assumes no further disruptions to the world economy, air traffic, the supply chain, the company's internal operations, and its ability to deliver products and services.

For 2024, our guidance excludes M&A and therefore also excludes whatever comes out of the due diligence currently underway with Spirit AeroSystems. On that footing, for 2024 we're aiming at roughly 770 commercial aircraft deliveries, EBIT adjusted of about EUR 5.5 billion, and free cash flow before customer financing of approximately EUR 3.5 billion. This is unchanged from the guidance we gave in June — I believe on the 24th of June, so a bit over a month back. I'll wrap up with our key priorities, which are on page 19, and I suppose none of them will come as a surprise. Every one of those priorities sits front and center in how we push the business forward. Our teams stay focused on delivering our plan to satisfy customer demand, together with the transformation at Airbus Defence and Space. And to be clear, on space, we will not look away from that situation until it is fixed. Nor will I look away from it until it is fixed. And I think Hélène is ready now to take questions, right?

Yes. Our Q&A session begins now. When you ask a question, please state your name and your company. Kindly keep to two questions per turn, sub-questions included. And as always, please speak clearly and slowly so that everyone on the call, especially those of us here, can follow your questions. Sharon, please go ahead and walk the participants through the procedure.

Thank you. We're moving into the question-and-answer portion now. Should you wish to pose a question, kindly press star 11 on your phone's keypad. That's star 11 to ask a question. We'll take your first question now. Just a moment, please. And the first question is from Ben Heelan of Bank of America. Please go ahead.

Good evening, everyone, and thanks for making time for us. I appreciate you taking the questions. My first one concerns those reports about restructuring, along with what you said regarding restructuring within the commercial business. Could you provide a bit of detail on what you're actually aiming to accomplish through that? Are there any cost savings figures you're able to share, and what kind of benefit will that deliver to the margin in the second half of the year? That's my first one.

Well, Ben, honestly, this aligns entirely with what I told you a quarter back—that the company is wholly concentrated on efficiency and on the ramp-up—and now we've formalized that into a program for commercial. So I wouldn't describe it as a restructuring program. In my view it has two principal areas of focus. One is plainly ensuring everyone is laser-focused on the ramp-up, since that is, of course, the single biggest factor of success for 2024, but also beyond. The second area is efficiency. So we're just making sure we're not overspending, that resources stay in line with our deliveries, that our cost base remains under control, and that we're not distracted by projects left and right that aren't really necessary to keep the company on a path of success. And therefore, it's not a restructuring program. There are also no specific costs tied to it. It is simply, I would say, refocusing our activities on what really matters. And the effect will be that this helps us achieve our 2024 targets, but also, of course, beyond that, be on the right trajectory with respect to the ramp-up and also the financial profitability.

Understood, that's very clear. My second question, then: clearly a great deal of hiring took place in the commercial business during Q2 — I believe it was more than 4,000 people. And as a business you're now at 155,000 people. So how should we think about headcount going forward? My understanding was that from a headcount standpoint, we've more or less hit the scale the business requires to support the ramps. You've mentioned carrying a lot of excess costs while waiting for those ramps to come through. So how should we think about hiring and headcount from here?

Okay, when we discussed the full year 2023 headcount figures, we mentioned that we'd likely hired more than our plans called for, since we had overestimated how much attrition would occur, and we wanted to be absolutely certain we weren't setting up our own bottlenecks. But at that time we also said we would clearly slow the pace of hiring in 2024. Now, looking at the numbers, you'll notice that at the half year we had 154,549 FTEs as our active workforce. That's an increase of roughly 6,600 compared with year-end. It sounds like a large figure, but you should keep in mind that it includes the first-time consolidation of our India business, which brought 3,400 heads. Those people were already part of our cost base through charges or recharging. So essentially they were resources we were already using, but they hadn't been consolidated into our headcount figure. So once you strip that out, you'll see it's a very moderate increase of a little over 3,000. That, of course, still reflects some impact from contracts we concluded at the end of 2023, but I think it clearly shows you that we are decelerating and that we're very, very selective about the headcount we bring in, to keep it in sync with our ramp-up targets.

All right, thanks.

Thanks. The next question is from Milene Kerner at Barclays. Please go ahead.

Yes. Good evening, and thanks for taking my question. I have two, please. First, on your implied H2 performance at commercial aircraft: if I base it on your EUR 5.5 billion guidance, the implied pre-R&D EBIT for the extra 28 airplanes you'll deliver in the second half versus last year comes out north of EUR 20 million per plane on an organic basis. Could you comment on what will drive that? And related to this, I wonder whether you can share a bit more detail with us on how your cost works out through Q3 and Q4, including overhead cost and the productivity you mentioned earlier following Ben's question. Then my second question was on your delivery outlook beyond 2024. Obviously, I'm not expecting you to give delivery guidance for next year or 2026, but based on your current production rate and targeting a rate of 75 by 2027 on the A320 and 12 by 2028 on the A350, that would imply an annual CAGR of low double digits based on the program delivery share that you had last year. So based on this, is it fair to assume low double digit delivery growth per annum after this year?

Thanks.

Thank you. The second question was a bit hard to follow, so perhaps I'll begin with the first one. Basically, what you're getting at is how to think about the remaining work for the back half of this year and what to assume for deliveries. So I'd say the bridge I'd offer you is this: in the second half of 2023, we delivered an EBIT Adjusted of EUR 3.2 billion. To reach the midpoint of our guidance for this year, we'd be at something like EUR 4.1 billion. So yes, we have roughly EUR 4.9 billion left to do. What are the main building blocks? First, taking the midpoint again, that's a delta of 28 aircraft that we'll deliver more. I'd say you can just plug in the usual number you have in your models. So I'd say there's no additional assumption of higher profitability, but you use the number you've always used. And then please keep in mind, we already had charges on space, where, of course, the assumption is that they won't recur. They were EUR 0.6 billion, but we said, "Please only normalize EUR 0.4 billion out of that." And taking those two together already gets you to the EUR 0.9 billion uplift that's needed in the second half of the year.

Of course, there's some fluctuation, naturally. As I mentioned, R&D expenses will be somewhat higher, and there's likely to be a bit of inflation. On the other hand, the LEAD program we've launched ought to offset that. So those factors will mostly cancel each other out. That means the two major building blocks are the ones I provided, and that's basically the bridge for what remains to be done in the second half.

Thanks. Yeah, my second question was really just to get a sense of, I mean, how we ought to be thinking about your delivery, I mean, past this year. And if we actually take what the CAGR is that your production target implies on the A320 and on the A350, I mean, that CAGR comes in at low double digits. So is it a fair assumption that we should be plugging into our model for delivery growth next year and in 2026?

Okay, I'll take that one, perhaps. As you can appreciate, we're not going to provide guidance for 2025. So at this moment, in July, I don't believe it would be very fitting to, yes, comment on the per-annum growth for 2025. But certainly, the delivery count we must achieve with a Rate 75 by 2027, a Rate 12 on the A350 by 2028, and the ramp-up on the A220 produces a number of deliveries that has to rise from where it will land this year — let's say 770 — to whatever you can calculate for the end of 2027 or the end of 2028, using reasonable assumptions. That provides an indication of how fast growth will be. And if I recall correctly, the increase in deliveries last year was 11%, I believe. It isn't always double digit, though at times it is. So that gives a sense of what we have already accomplished and where we are heading. We're spending a lot of money investing in the ramp-up and in the supply chain as well. So it has to pay off one way or another. And the ramp-up plans we have are backed by thorough analysis of the supply chain's capabilities and its ability to carry out the ramp-up.