Airbus SE (AIR) Earnings Call Transcript & Summary

Welcome to the Airbus Half Year 2026 Earnings release conference call. I am Laura, the operator for this conference. Please note that for the duration of the presentation, all participants will be in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. At this time, I would like to turn the conference over to Jean-Christophe Henoux, Head of Investor Relations. Please go ahead.

Thank you, Laura, and a very warm welcome to everyone joining us today to dive into our half year 2026 results. I mean, [indiscernible] Amsterdam with our CEO, Guillaume Faury; and our CFO, Thomas Toepfer. They are here to break down the numbers and take your questions. This call is planned to last 1 hour, including Q&A and the replay plus transcript will be available on our website. Also on the Airbus website, you can already find today's presentation and the detailed financial statements. Before we start, let me remind you that we will be making some forward-looking statements. I encourage you to take a look at our safe harbor statement in our presentation slides. So please have a quick read. And with that, let's get things started. Guillaume, the floor is yours.

Thank you, and good evening, ladies and gentlemen. As said by JC, we're here in Amsterdam with Thomas to run you through our H1 2026 results. Let me start by saying that we were very happy to see many of you at the occasion of the [indiscernible] and at our 2026 business update last week. Today, we returned to our quarterly disclosure cycle with the presentation of the H1 results. . Before that, I want to spend a moment to share my thoughts with all those affected by the devastating wildfires in Europe and also in Canada. From our side, we are focused on doing our share, keeping our helicopters, aircraft and firefighting solutions working to ensure they can best assist where they are most needed. While the global landscape remains complex and fast changing, we maintained a strong upward trajectory across our civil and defense businesses. to meet the rising demand. Our immediate focus is on steady execution and ramp-up. Our commercial account deliveries that we achieved in Q2 are at a record number of 237 aircraft. This brings our H1 deliveries to 351 aircraft as compared to 306 last year. I'm pleased with the progress made by team Airbus and by the entire ecosystem, we are actually where we wanted to be and that confirmed our trajectory. This is directly reflected in our financial results with EBIT adjusted standing at EUR 2.7 billion and the free cash flow before customer financing at minus EUR 0.1 billion following a strong inflow in the second quarter. Our 2026 guidance remains unchanged. So let's now look at our commercial environment. starting with commercial aircraft business. So recently, the passenger profit declined slightly due to the Middle East conflict and higher oil prices. also the rate of contraction appears to be easy. We have not seen any order cancellations or deferral requests and the demand for our aircraft remains strong. Looking at our long-term trajectory, the commercial momentum we observed at Farnborough underscores the robust demand across the entire product portfolio, product and services portfolio. During H1, we booked 886 gross orders. On the A220, we booked 178 gross orders as we welcome the landmark order from [indiscernible] 150 A220s that's a very strong endorsement of the A220 by Air Asia. Looking at the A320 family, we booked 605 gross orders. This brings our backlog for the A320 family to 7,467 aircraft, of which approximately 75% are for the A321. Moving to the widebodies. On the A330, we booked 37 gross orders, including the latest order from Scondinagan Airlines, SAS for 18 A330. And finally, on the A350, we booked 66 gross orders as the family continues to evolve, the [indiscernible] 1000 ULR, the ultra-long range, the world's longest range aircraft recently completed its first line. And you saw yesterday the record breaking of the flight of over 24 hours, actually, to be precise, 24 hours and 24 minutes. Meanwhile, the A350 freighter remains right on track for its first flight by the end of this year. Net orders amounted to 821 aircraft, including 65 cancellations, which were largely embedded in our backlog valuation at the full year. Our backlog in units stood at 9,222 aircraft at the end of June of this year. Moving to helicopters. In H1, we booked 215 net orders compared to 171 in the first half of 2025. During the [indiscernible] Air Show, Airbus Helicopters signed a contract with the Ministry of Internal Affairs of Romania under the European initiative safe, secure election or Europe. This acquisition for 12-meter old helicopters includes 7 H160 and 5 H145. Earlier this year, 2 subsidiaries of the Vietnam elicopter Corporation placed an order for 3 Airbus H225 helicopters and it's important because it supports the ongoing expansion of their oil and gas offshore operations with this helicopter. Overall, we continue to see good momentum on all our platforms in both the civil and military markets and we remain fully focused on delivering on expectations. Finally, on Defense & Space. Here, we continue to see a very strong commercial momentum across all business lines. with order intake reaching EUR 9.3 billion in the first half. On air power, the commercial performance is driven by several important contracts across the portfolio. Notably, we observed good traction related to the C295 with 6 orders year-to-date, including 4 from finance. On A400M, 7 NATO nations have launched a strategic initiative to establish a multinational A400 fleet. And meanwhile, Airbus is working closely with the French Air Force and the French security deploying the A400M fire fighting kits to support during the ugly wildfires that we see currently in the southwest of France. Moving to Space Systems. Airbus was selected to develop and produce 2 advanced next-generation radar instrument for the Copernicus Sentinel 1 NG constellation as well as the Aeolus 2 wind sensing satellite. Importantly, we continue to foster partnerships and collaboration notably with European start-ups to benefit from their increased speed and agility in the defense sector. We are also advancing AI applications across the sector and beyond, not only through the recent partnership with [indiscernible]. That's it for me. Now Thomas will take you through our financials.

Yes. Thank you very much, Guillaume. And hello, ladies and gentlemen, welcome to the call. I'm now on Page 6 of the presentation, and I'd like to take you through our financial performance. So as you can see on the left-hand side, our H1 2026 revenues increased to EUR 33.2 billion. That's up 12% year-on-year and it's mainly reflecting higher commercial aircraft deliveries as well as a higher contribution from our Defense & Space division, partially offset by the weaker U.S. dollar in 2026 as compared to the first half of last year. On R&D, and you can see that on the right-hand side, our expenses slightly increased versus H1 of last year, and they stood at EUR 1.5 billion. And let me just remind you that our R&D expenses are expected to increase in 2026 including to support the defense portfolio acceleration. If you turn the page, we can come to EBIT adjusted. So our H1 2026 EBIT adjusted increased to EUR 2.7 billion from EUR 2.2 billion in the first half of last year, and that increase reflects the higher commercial aircraft deliveries, a strong performance in Defense & Space, partially offset by a less favorable hedge rate. And let me now come to the EBIT adjustments, which you have on the right-hand side of the page in which we are broadly neutral overall in the first half of this year. And as you can see, they included a positive EUR 124 million impact from the dollar working capital mismatch and balance sheet revaluation, mainly reflecting the mechanical impact coming from the difference between transaction date and delivery date, of which positive EUR 166 million in the second quarter. Secondly, a negative EUR 123 million related to the integration of the former Spirit Aerosystems work packages, of which negative EUR 91 million in Q2 and then again, a positive EUR 60 million linked to the Airbus Defense and Space workforce adaptation plan where we released a provision where the plan is proceeding as intended and out of the provision release EUR 46 million concerned Q2. And finally, a negative EUR 43 million of other costs, including M&A, of which negative EUR 27 million in the second quarter. So this takes our H1 2016 EBIT reported to EUR 2.7 billion, so almost the same number as the EBIT adjusted. The financial result was positive EUR 186 million and mainly reflects the revaluation of certain equity investments and of the participations held in the venture capital funds managed by Airbus benches and these are partially offset by the revaluation of financial instruments and the evolution of the U.S. dollar. The tax rate on the core business continues to be around 27%. The effective tax rate for the half year is roughly 26%, including the tax effect on the revaluation of certain equity investments, partially offset by the effect of the French surtax. And for 2026, we expect the French surtax to be broadly in line with 2025, which, as you recall, was roughly EUR 0.2 billion. So with all of that, the net -- the resulting net income is EUR 2.2 billion, with earnings per share of EUR 2.84 and our H1 2026 EPS adjusted stood at EUR 2.61 based on an average of 789 million shares. So let's go to Page 8 and on to our U.S. dollar exposure in H1 2026, $11 billion of forward matures with the associated EBIT impact and euro conversions realized at a blended rate of $1.21 versus $1.18 in H1 2015, and in the first half of 2026, we implemented USD 9.5 billion in new coverage over a 5-year horizon with a mix of instruments, including colors. The blended rate of $1.22 for this first half additions reflect, in particular, the least favorable rate of our colors, which are primarily weighted towards the outer years of our hedging horizon. So as a result, our total U.S. dollar coverage portfolio in U.S. dollar stands at EUR 74.3 billion with an average branded rate of $1.22 as compared to USD 75.8 billion at $1.22 at the end of 2025. So now on to a more detailed look at the free cash flow on Page 9. Our free cash flow before customer financing was negative EUR 1.2 billion in the first half of this year. And this outflow was mainly driven by the change in working capital and notably, it, of course, reflects the same inventory buildup to support our ramp-up across our businesses. As you can see in our CapEx in H1 of this year was negative EUR 1.5 billion. and to support our ramp-up and the successful integration of the former Spirit Aerosystems work packages, we expect our CapEx to continue to increase in 2026. The free cash flow was negative EUR 1 billion, including customer financing of positive EUR 4.1 billion and just as a general comment, we continue to see a diverse and competitive finance landscape in the first half of this year, and currently, we expect sufficient liquidity to support our 2026 deliveries. So with all of that, as you can see on the right-hand side of the chart, our net cash position stood at EUR 8.4 billion at the end of June, also reflecting the dividend payment as well as the acquisition of Unica, slightly offset by the strengthening dollar environment, and overall, our liquidity remains strong, above EUR 30 billion. And with that, I would like to hand it back to Guillaume.

Thank you. So coming to the divisional highlights and starting with commercial aircraft. In the first half, we delivered, as already said, 351 aircraft to 77 customers. I am pleased where we stand at the end of H1 with a good -- it's not a very good second quarter that allowed us to recover from the low deliveries we had in Q1. Looking at the situation by aircraft family. On the A220, we delivered 44 aircraft. The ramp-up is ongoing, and we continue to target a monthly production rate of 13 aircraft in 2028. So that's no change compared to what you know. . On the A320, we delivered 271 aircraft, of which 167 A321s, representing 62% of the deliveries for the A320 family. The administrative delay that affected the delivery of nearly -- nearly 20 aircraft to Chinese customers has been resolved and aircraft have been delivered and the panel quality issue is largely behind us as anticipated. Our production rate trajectory remains unchanged. As a result, again, no change for the A320. We expect to reach rate of between 70 and 75 aircraft a month by the end of 2027, stabilizing at rate 75 thereafter. On wide bodies, we delivered 36 aircraft, of which 10 A330 and 26 A350s that makes 36. On the A330, no change, we target to reach rate 5 in 2029 to meet customer demand. And on the A350, no change either. We continue to target rates 12 in 2028. Our target ramp-up rates for our widebodies have not changed, even though the strong market demand could support even more. Now let's look at the financials for our commercial aircraft business. The revenues increased 15% year-on-year, mainly reflecting the higher deliveries, increased services and partially offset by the U.S. dollar depreciation. EBIT adjusted increased to EUR 2 billion from EUR 1.7 billion in H1 2025, driven by the higher deliveries and partly offset again by a less favorable hedge rates. Looking at helicopters. Next page, in H1 2026, we delivered 144 helicopters, which is 6 more than in the first half of 2025. Revenues were broadly stable at EUR 3.7 billion, reflecting a slightly less favorable delivery mix in the first 6 months. As a result, EBIT adjusted stood at EUR 240 million reflecting a solid performance from programs, offset by higher R&D expenses. And let's complete our review with Defense & Space. Revenues increased 9% year-on-year to EUR 6.3 billion, driven by higher volumes across all business units. This includes deliveries of 400 in the first half, which is plus 2% compared to the first half of 2025 a -- this resulted in an EBIT adjusted of EUR 487 million, supported by favorable cost phasing, improved profitability and higher volumes. Let me highlight that the yearly performance is somewhat front loaded to manage expectations. On to our guidance, which remains unchanged. As the basis for its 2020 guidance, the company assumes no additional disruptions to global trade of the world economy, air traffic, the supply chain, its internal operations and ability to deliver products and services. The company's 2026 guidance is before M&A and includes the impact of currently applicable tariffs. On that basis, the company targets to achieve in 2026, around 870 commercial aircraft deliveries and EBIT adjusted of around EUR 7.5 billion and the free cash flow before customer financing of around EUR 4.5 billion. We will conclude with our key priorities, which have not changed since the last quarter. And since the Farnborough Air Show, we remain highly focused on ramping up across all programs, utilizing our strong portfolio to deliver to our commercial and military customers. We will continue to be guided by the core pillars of Airbus that underpin our company, safety, quality, integrity, compliance and security [indiscernible] to me against a complex geopolitical backdrop, we draw strength from our global footprint and our multiyear diverse backlog. I see strong momentum now and ahead of us as we embark on the phase highlighted at the business update. With a clear focus on advancing our sustainability ambition, we will continue to deliver profitable growth while driving our key priorities forward. And now on this positive note, I hand over to you, JC, to open the Q&A.

Tank you Guillaume and Thomas. In order to allow an efficient Q&A session, let me set a couple of guidelines. First, please introduce yourself and your company before you dive in. Second, we ask you to limit yourself to 2 questions so that we can keep things fair for everyone in the queue. And finally, a small favor for the speakers, please try to keep a steady pace and speak clearly. It ready help us and everyone listening in to fully capture your questions. And now, Laura, could you please explain the Q&A procedure for participants?

[Operator Instructions] We have a first question from Ross from Morgan Stanley. Please go ahead.

So the first 1 on the Defense margin in Q2, very strong above 10%. Were there any one-off in that number. You obviously mentioned profit is a bit front-loaded this year. If you could maybe just explain exactly what's driving that and your expectations for margins through the second half. And then moving to commercial. I know you don't tend to like speaking about monthly production rates. But can you maybe just give us a broad sense of where you are on the core A320 and A350 programs at the moment? It looks as though you're maybe around the 60 on the A320 and 6 on the A350. And so when should we expect the next rate break?

So I'll start by the second one. And as you have rightly noticed, I don't like to be commenting on monthly production rates. I more believe in, well, at least quarterly production rates, if not surely one -- so we're in ramp-up trajectories. That's what comes to me. We delivered a number of aircraft in the first half of the year that is very consistent with the trajectory. We managed to recover in Q2 the missing deliveries of Q1 for a number of reasons I indicated in my introduction. And that's really what matters from my perspective. Please consider we're on the trajectory we need for this year and with the midterm targets. And on defense margins, Thomas, any one-off, what do you say about the Q2 margin.

Well, Ross, I was sure that you would spot that. So -- the way I would characterize it, no, there is no specific one-offs in H1 or in Q2. However, as I said many times also at other occasions, never overinterpret a single quarter in terms of margin trajectory. Indeed, I would say -- the first half for defense was a semester where many things just aligned very positively. So we had the the export of the A400M, for example, we are planning to increase R&D, but that has not fully materialized yet. Same is true for headcount. There will be an increase, but it has not materialized so much in the first half. So I would say it's just many things coming together that produced a very good margin despite the absence of any, let's say, accounting one-off, but I think we should not get ahead of ourselves. So it's not indicative for a continuation of that margin in the second half of the year. But of course, we feel it's a good sign that we're on track to the midterm target that we have communicated for defense last week.

We have a question from Benjamin Heelan from Bank of America. Please go ahead. .

Yes. I hope you're both well. in First question was on the A400M and Guill, you mentioned the announcement around the multinational force. Could you give us a little bit of guidance and color about what that could mean potentially from an order perspective? And then secondly, on Spirit, you've owned the business now for a while. Can you just give us a bit of an update what are you seeing? And how is that business performing? Where are you on the trajectory to driving the improvements there for the 350.

Thanks, Ben, and I think yes, I can say we are both well and I hope you're well, too. A400M, yes, it's a good endorsement of the A400M when it comes to the European needs for Airlift, Actually, we see a good momentum on A400M on different fronts, and that's really what matters to me. So we feel confident with the short-term, midterm trajectory for the A400M. And we also here good feedbacks on the A400M where it is used in operation, and I was really happy with the first feedback from operations of the the test, the use of the A400M for firefighting operation. That's something we were targeting, and we were considering now for a few years, but that's now something that has been that has been tested in real conditions. So good momentum for A400M. The multinational force is indeed for us a good opportunity. It follows the path of the MRTT, where we have the same pattern, the same frame, and that gives a lot of satisfaction to the European countries, which are part of the of the multinational force. So I see it as a real strong potential for use of A400M.

Some on Spirit, I would say, I mean we owned the business since December 8 last year. No real major surprise. And that means we also confirm the financial assessment for what it means for 2026 and 2027, namely a negative low triple-digit EBIT impact this year, but a high negative triple-digit impact in terms of cash flow. Why is cash flow so much more negative because we are front-loading the investments that we have to make. Secondly, working capital is an issue. We want to build some buffer stock. We are paying our suppliers in time to stabilize the supply chain. And of course, the integration costs also flow into the cash flow. So quite frankly, no change with respect to what we have given you as financial indication earlier this year at the full year call. And the other thing that I would say also no change in terms of integration, it progresses well, of course, challenging in both key locations. But I would say it's in line with our ramp-up ambitions that we have for the A350 and the 220. So therefore, nothing to report that is off track with respect to the ramp up.

We have now a question from Milene Kerner from Barclays.

I have also 2 questions, please. The first one on the free cash flow. Your guidance implies around EUR 5.7 billion of free cash flow in the second part of this year. Last year, you generated 6.2% on lower delivery volume and your inventory are nearly at EUR 7 billion higher than what they were at the end of December. Excluding the Spirit impact, can you help us reconcile what is preventing a higher level of cash flow this year? And then my second question is on FX and hedging. Last year, you mentioned that you were looking to optimize your hedging policy and potentially introducing more options. And yet the EUR 9.5 billion of new hedges you added in were again stock around EUR 1.22. Can you update us where you are in that process and whether we should expect any change in the hedging strategy going forward?

Okay. So I think those 2 questions go both to me.

So they are too difficult for me to us. And I'd like to hear the answer of the first one.

So on the first one, I think what I said for the EBIT in the single quarter also applies for cash flow. So cash flow, of course, is not only -- is not always fully linear. So we were very pleased with the positive EUR 1.3 billion that we in Q2. But again, things are not super steady. I think with what we have achieved in the first half of the year, we are on a good way for the full year in terms of the guidance, but I would also say, let's not get ahead of ourselves. Inventory buffer is an important thing because we have to cater for the ramp-up not only for 2006, but then also we want to have a much smoother transition into 2027. And secondly, as you indicated, Spirit, a lot of the things in terms of cash flow are still ahead of us. So I would say the numbers that we're seeing are consistent with the guidance for the full year cash performance of the company. On the second one, the hedging policy. Indeed, we have said that we have also used options. That was what I was referring to when I said we have also implemented colors in our hedging strategy. These colors are reflected with the least favorable rate. So meaning using color does not necessarily leads to a, let's say, optically better hedge rates in the portfolio that we have because we give you the most conservative number. But of course, they provide the optionality that if the dollar is strengthening, that we can exercise those colors at a more favorable rate. And by the way, that's also what we have already been doing on a small scale in the first half of this year, which encourages us to increase or to go down that half even further and increase the share of options or colors, as you might call them, in our total portfolio. So again, I think the optics of what I've given you the 122 maybe doesn't fully reflect the optionality and the opportunity that we have here. And currently, I would say we are pleased with what we're seeing, and we will continue that hedging policy to gradually, but no fundamental change. I think that was also your question.

The next question comes from Chloe Lemarie from Jefferies.

I have a first one on the number of gliders. Previously, you said you were no longer building any. So I'm just checking whether this is still the case? And if you had any of your inventory at the end of the first. And the second question is a follow-up on Ben's question on Spirit. I was wondering if you'd be able to maybe refine the range of the low 3-digit million impact you mentioned for the full year or at least share -- would it look like so far in H1, please?

So maybe on the spirit, no, I think I would leave it here with the guidance in terms of spirit impact. So therefore, I think no further comment on this one. And maybe Guillaume, you take it on the gliders.

We have no gliders in the sense of aircraft not being delivered solely because of engines. So we are in a normalized situation. We don't have buffers of engines. So we don't have engines ahead of what we need from Front & Whitney. But we don't have aircraft not delivered because of missing engines. We have a few other reasons why we don't deliver engines, aircrafts without engines, but I would not call them gliders in the sense of aircraft ready to deliver, but not delivered because of engines. So that's an important information in the [indiscernible],

I can just maybe on [indiscernible] it's still to do with some remaining final issue that you're selling the process of [indiscernible] made interiors?

Panel is behind us, if that's the question. [indiscernible] issue is behind us it's resolved. Okay.

The next question comes from Sam Burgess from Goldman Sachs.

Firstly, coming back to 400, -- do you see any potential for additional countries to join that initiative? And is it mainly about shared service and support or following on from what Ben was saying, do you see demand for incremental orders? And then the second question is just whether there's any additional color you can offer in terms of the discussions with Pratt? And any update you can give us there in terms of '27 and '28 picture.

So the short answer to your second question is I don't have much more to say than we we think we'll continue to get from rate witness for '26, '27 and beyond the number of engines that have been finally agreed and which are the current basis for the 2026 delivery guidance and consistent with the midterm targets that we have given before. So nothing very significant to report with Pratt, except that we continue to negotiate the dispute when it comes to the outcomes of the revised downwards number for '26 and '27. When it comes to the A400M, yes, indeed, there could be more countries joining the initiative for the international European force, the premium sharing. I'm not in the details of this. So I know it's open for other countries, but it's already very significant. And yes, indeed, it opens -- well, it's consistent with the market dynamics that we see on the A400M. It's slowly moving, but it's moving in the right direction for more customers ordering A400M. So that's something that we will be happy to report as things move forward. But as you know, with military customers, we are not commenting on -- well, not civil customers either, but even less with me are customers, we are not commenting before things become official from the customer perspective because it's different matters. So good momentum, good hope for more orders moving forward and a very concrete multinational force that is something that is actually public already.

Next question comes from Olivier Brochet from Rothschild & Co.

I have 2 small ones, actually. The first 1 is -- in the press release, you called out Airbus Venture and the revaluation there. Could you maybe give us a bit of color on what drove that revaluation? What assets are behind that? And the second one, another detail is you recently made the acquisition of small component manufacturing company in Spain, Massa. Could you just share the rationale of why you did that? And if there is anything else to happen in Aerostructure for the company?

Yes. Let me maybe start with Masa. And I think what I would say is that it's not indicative of any change in our strategy with respect to vertical integration, to be very clear. We are happy with the way how we are integrated in our supply chain and how the split of work is. So therefore, the thing is not to be overinterpreted. But there's always some time situation where as such an acquisition from a more defensive perspective can make sense. So can be a succession problem or it can be other things. And here, we felt it would be good if we are in control of this business. But again, I would say no strategic change of direction to be interpreted into the acquisition. Secondly, yes, on Airbus Ventures, we have invested in -- Airbus Ventures exists since a number of years, and they are investing into various start-up companies in the field of aerospace and that has been a successful journey so far. And so therefore, as part of the normal recurring revaluation of the portfolio, we're recognizing also the gains that they have in their portfolio. But of course, I should clearly say those gains have not been realized to the biggest extent, but those are gains in terms of valuation and not yet in terms of cash returns.

Thomas, is this related to the space industry by any chance?