Airbus CEO Guillaume Faury Talks Earnings, Space Unit

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Airbus reporting earnings today, beating estimates with us ADR is up almost four percent.

It's commercial on.

Helicopter divisions drove that beat despite higher costs, and it's space unit which racked up almost one billion dollars in charges in the first half. Joining us now for more on this is Gimfouri, CEO of Airbus GM. Thank you so much. I know it's quite late where you are, so thank you for joining us. I just want to start on the space issue and get to that root cause you mentioned one entrant in the marketplace really mess things up. Can you give me more color into what that is.

So we have programs which are under our long term estimate that completions, and we have underestimated the risks that we have embarked when we signed a contract or when we launched the programs. So we have had to record charges in our space program earlier this year. Actually, we inform the market in June of our channel and that's where we are in space.

So we have launch a turn around the programs.

We are focusing on those programs but also turning around the business itself. So that's an important activity. For me this year and for my team to focus on the recovery of space and against the backdrop of challenging business environments in space.

So no color into what that new mentionrant is, is there.

Exactly? Okay, just one.

More point on this. As you look at the different options for that part of the business, how long is that's going to take until you find the right solution.

As I said, it's several programs.

Some of them will be fixed in the couple of months or quarters to come. One of those programs is the longer one is over almost a decade, implicating in investment in development, industrialization, production, and then deliveries of satellites. And this this will take by.

Far more time to be fixed.

We will have a better understanding of the lever of charges and the impairment that we need to take on this particular forum by the.

End of this year.

All right, del I do want to talk about the commercial side of this business. You have issues over there though, I think issues that any of your competitors would love, and that's a lot of demand, but you're still dealing with a lot of supply chain issues that is limiting what you can actually deliver. When do you think those supply chain issues will be sorted out.

Actually, we are in a phase of steep ramp up. As you rightly said, we have a lot of demand. Actually, we have a backlog of roughly eight five hundred planes and there is a lot of demand for short term deliveries. So we're trying to find the right speed of romp up. That is a compromise between a very strong demand and contractual obligations that we have taken and the ability of the supply chain to deliver on that. Unfortunately, we have to adapt to the weaker link of the chain to

That's behind us now.

We had a successful twenty twenty three and this year, unfortunately, we're hit by suppliers that are delivering systems that arrive late in the final assembly line, so we have limited ability to react to their own difficulties. So we are now focused on fixing those issues before we can continue to ramp up efficiently, up fully for twenty five and twenty six. So that's a bit of a case by case situation to be.

Managed with regards to those suppliers that are either coming in later or just not meeting the obligations, and somewhere or another are you getting cost or price concessions as a part of that.

We have contractual arrangement with them, and they don't deliver on time, they're obviously under the risk of liquidated damages. Now we are also open to finding other ways.

Of dealing with the situation when that makes sense for us.

But indeed they are penalized when they are not able to deliver on time and when they lead to us being not able to deliver to our airline customers that really need the planes.

So that's the situation we're in.

We prefer to get part some times than being compensated, obviously, but when it is the case, that's.

What it is.

Yeah, what is your level of competence that you can monitor all the supply chain in real time and that there won't be more surprises like the Leap engine that come down.

It's a big challenge.

We can't be monitoring one ordred percent of the supply chain with the same degree of depth and of energy of focus of teams, So we have organized during COVID what we call watch towers, where we are where we are reviewing, where we're scanning, sessing all of our suppliers based on risk. We determine the one that are the most likely to cause issues and problems, the weaker ones, and then we're.

Focusing our efforts on those ones. Now, when it's.

About engine makers, for instance, that are late at the moment, they have themselves very deep supply chain, They are very structured.

And they are in a complex business.

So we cannot do the business of engine makers as we are on aircraft OEM.

But you're trying to yet to alleviate.

The consequences, to mitigate the consequences of their own difficulties. But we can't be monitoring the whole supply chain ourselves.

Let's go to the defense side of the business per a moment and talk about supplying demand there, because it feels like the path of this resistance is going to be more European spending on defense no matter who wins the White House in the United States in November, Can you take more orders for your defense areas right now?

Yes, we can. Indeed, Europe is in a different situation since February twenty twenty two with the attack of Russia and Ukraine.

That's a very different.

Environment when it comes to security, when it comes to defense, and indeed the European countries, most of the European countries, have decided to spend more money for security and defense and we can take more orders. Actually, we have seen an increase of the order intake in twenty twenty three compared to previous years, and we have a good start in the.

Year twenty twenty four.

So that's a different situation than compared to commercial. We have available slots and capacity and we can take more orders.

Indeed, do you think you're going to see more business on the defense side, that is from non European nations.

We have a good flow of business from export countries. That's very important for Airbus. We are mainly living from export orders and contracts.

It's the case as well in defense.

Now we have up and downs from one year to the other one and I would see the main array of growth for defense business coming from European countries more than from the rest of the world. But there will be also some good export contracts.

Here and there.

So that's basically the situation other stable on export and significant growth for our own countries.

How much discussion have you had with world leaders or at least their representatives of these world leaders, who of course are contending with the issue of how to deal with some of these military contracts and at the same time keep some of that sensitive information that goes into that sensitive technology away from there would be AVER series or their perceived AVER series. What are those discussions like, Yeah, we have.

A constant dialogue with our governmental customers, the European countries but as well countries outside of Europe on how to do business, what kind of information can be exchanged, the confidentiality of activities. And we are also under the regime of export licenses that are very important in our industry, and we can only export with the approval of the countries from where we are exporting, and that's very much related to the nature of the relationship they have with

That that's gained in terms of importance. Yeah, before I let you go.

When we keep hearing from airlines and their earnings, it's all about capacity. They've got to take out capacity. They have to take out capacity. At some point do they go to you and say, Hey, just kidding, we don't need those plans. They have to take out capacity.

Our airline customers are facing strong demand themselves, so indeed they want planes. They want planes as much as we can deliver, but we are limited by our supply chain issues and constraints. It's not specific to our bus as you know. So we are working hand in hand to trying to find the best way to satisfy their needs.

In your in Asia. Each and every situation is different.

Hey, gairl we only have about thirty seconds, but I do want to just get your thoughts on the interest rate environment. We've got a big FED meeting here in the United States, and there's been a lot of speculation about whether other global central banks will start to cut rate in a meaningful way this year. Does that affect you or at least affect your outlook?

It has an impact. It's a moderate impact for us. But we've been in a.

Rather complex environment in terms of inflesh, in terms of interest rates, and that makes the life of companies more difficult. We need to be able to anticipate, we need certainty and visibility. But having the rates going down is going to be a positive news for us.

And obviously this is something we are monitoring.

All right, Gio, I really appreciate you taking time for us. Gianbari, there is the Airbus CEO