WEBVTT - Airbus CEO Guillaume Faury Talks Earnings, Space Unit

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>Airbus reporting earnings today, beating estimates with us ADR is

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<v Speaker 2>up almost four percent.

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<v Speaker 3>It's commercial on.

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<v Speaker 2>Helicopter divisions drove that beat despite higher costs, and it's

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<v Speaker 2>space unit which racked up almost one billion dollars in

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<v Speaker 2>charges in the first half. Joining us now for more

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<v Speaker 2>on this is Gimfouri, CEO of Airbus GM. Thank you

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<v Speaker 2>so much. I know it's quite late where you are,

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<v Speaker 2>so thank you for joining us. I just want to

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<v Speaker 2>start on the space issue and get to that root

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<v Speaker 2>cause you mentioned one entrant in the marketplace really mess

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<v Speaker 2>things up. Can you give me more color into what

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<v Speaker 2>that is.

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<v Speaker 4>So we have programs which are under our long term

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<v Speaker 4>estimate that completions, and we have underestimated the risks that

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<v Speaker 4>we have embarked when we signed a contract or when

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<v Speaker 4>we launched the programs. So we have had to record

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<v Speaker 4>charges in our space program earlier this year. Actually, we

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<v Speaker 4>inform the market in June of our channel and that's

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<v Speaker 4>where we are in space.

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<v Speaker 3>So we have launch a turn around the programs.

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<v Speaker 4>We are focusing on those programs but also turning around

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<v Speaker 4>the business itself. So that's an important activity. For me

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<v Speaker 4>this year and for my team to focus on the

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<v Speaker 4>recovery of space and against the backdrop of challenging business

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<v Speaker 4>environments in space.

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<v Speaker 2>So no color into what that new mentionrant is, is there.

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<v Speaker 3>Exactly? Okay, just one.

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<v Speaker 2>More point on this. As you look at the different

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<v Speaker 2>options for that part of the business, how long is

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<v Speaker 2>that's going to take until you find the right solution.

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<v Speaker 3>As I said, it's several programs.

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<v Speaker 4>Some of them will be fixed in the couple of

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<v Speaker 4>months or quarters to come. One of those programs is

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<v Speaker 4>the longer one is over almost a decade, implicating in

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<v Speaker 4>investment in development, industrialization, production, and then deliveries of satellites.

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<v Speaker 4>And this this will take by.

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<v Speaker 3>Far more time to be fixed.

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<v Speaker 4>We will have a better understanding of the lever of

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<v Speaker 4>charges and the impairment that we need to take on

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<v Speaker 4>this particular forum by the.

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<v Speaker 3>End of this year.

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<v Speaker 1>All right, del I do want to talk about the

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<v Speaker 1>commercial side of this business. You have issues over there though,

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<v Speaker 1>I think issues that any of your competitors would love,

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<v Speaker 1>and that's a lot of demand, but you're still dealing

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<v Speaker 1>with a lot of supply chain issues that is limiting

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<v Speaker 1>what you can actually deliver. When do you think those

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<v Speaker 1>supply chain issues will be sorted out.

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<v Speaker 4>Actually, we are in a phase of steep ramp up.

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<v Speaker 4>As you rightly said, we have a lot of demand. Actually,

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<v Speaker 4>we have a backlog of roughly eight five hundred planes

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<v Speaker 4>and there is a lot of demand for short term deliveries.

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<v Speaker 4>So we're trying to find the right speed of romp up.

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<v Speaker 4>That is a compromise between a very strong demand and

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<v Speaker 4>contractual obligations that we have taken and the ability of

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<v Speaker 4>the supply chain to deliver on that. Unfortunately, we have

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<v Speaker 4>to adapt to the weaker link of the chain to

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<v Speaker 4>the slower ones, and it's not always the same. In

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<v Speaker 4>twenty twenty two, we had plenty of difficulties with small

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<v Speaker 4>and mid sized suppliers, plenty of different reasons.

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<v Speaker 3>That's behind us now.

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<v Speaker 4>We had a successful twenty twenty three and this year, unfortunately,

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<v Speaker 4>we're hit by suppliers that are delivering systems that arrive

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<v Speaker 4>late in the final assembly line, so we have limited

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<v Speaker 4>ability to react to their own difficulties. So we are

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<v Speaker 4>now focused on fixing those issues before we can continue

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<v Speaker 4>to ramp up efficiently, up fully for twenty five and

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<v Speaker 4>twenty six. So that's a bit of a case by

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<v Speaker 4>case situation to be.

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<v Speaker 1>Managed with regards to those suppliers that are either coming

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<v Speaker 1>in later or just not meeting the obligations, and somewhere

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<v Speaker 1>or another are you getting cost or price concessions as

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<v Speaker 1>a part of that.

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<v Speaker 4>We have contractual arrangement with them, and they don't deliver

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<v Speaker 4>on time, they're obviously under the risk of liquidated damages.

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<v Speaker 4>Now we are also open to finding other ways.

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<v Speaker 3>Of dealing with the situation when that makes sense for us.

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<v Speaker 4>But indeed they are penalized when they are not able

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<v Speaker 4>to deliver on time and when they lead to us

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<v Speaker 4>being not able to deliver to our airline customers that

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<v Speaker 4>really need the planes.

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<v Speaker 3>So that's the situation we're in.

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<v Speaker 4>We prefer to get part some times than being compensated, obviously,

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<v Speaker 4>but when it is the case, that's.

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<v Speaker 3>What it is.

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<v Speaker 2>Yeah, what is your level of competence that you can

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<v Speaker 2>monitor all the supply chain in real time and that

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<v Speaker 2>there won't be more surprises like the Leap engine that

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<v Speaker 2>come down.

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<v Speaker 3>It's a big challenge.

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<v Speaker 4>We can't be monitoring one ordred percent of the supply

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<v Speaker 4>chain with the same degree of depth and of energy

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<v Speaker 4>of focus of teams, So we have organized during COVID

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<v Speaker 4>what we call watch towers, where we are where we

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<v Speaker 4>are reviewing, where we're scanning, sessing all of our suppliers

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<v Speaker 4>based on risk. We determine the one that are the

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<v Speaker 4>most likely to cause issues and problems, the weaker ones,

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<v Speaker 4>and then we're.

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<v Speaker 3>Focusing our efforts on those ones. Now, when it's.

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<v Speaker 4>About engine makers, for instance, that are late at the moment,

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<v Speaker 4>they have themselves very deep supply chain, They are very structured.

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<v Speaker 3>And they are in a complex business.

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<v Speaker 4>So we cannot do the business of engine makers as

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<v Speaker 4>we are on aircraft OEM.

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<v Speaker 3>But you're trying to yet to alleviate.

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<v Speaker 4>The consequences, to mitigate the consequences of their own difficulties.

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<v Speaker 4>But we can't be monitoring the whole supply chain ourselves.

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<v Speaker 2>Let's go to the defense side of the business per

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<v Speaker 2>a moment and talk about supplying demand there, because it

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<v Speaker 2>feels like the path of this resistance is going to

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<v Speaker 2>be more European spending on defense no matter who wins

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<v Speaker 2>the White House in the United States in November, Can

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<v Speaker 2>you take more orders for your defense areas right now?

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<v Speaker 4>Yes, we can. Indeed, Europe is in a different situation

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<v Speaker 4>since February twenty twenty two with the attack of Russia

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<v Speaker 4>and Ukraine.

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<v Speaker 3>That's a very different.

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<v Speaker 4>Environment when it comes to security, when it comes to defense,

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<v Speaker 4>and indeed the European countries, most of the European countries,

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<v Speaker 4>have decided to spend more money for security and defense

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<v Speaker 4>and we can take more orders. Actually, we have seen

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<v Speaker 4>an increase of the order intake in twenty twenty three

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<v Speaker 4>compared to previous years, and we have a good start

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<v Speaker 4>in the.

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<v Speaker 3>Year twenty twenty four.

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<v Speaker 4>So that's a different situation than compared to commercial. We

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<v Speaker 4>have available slots and capacity and we can take more orders.

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<v Speaker 1>Indeed, do you think you're going to see more business

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<v Speaker 1>on the defense side, that is from non European nations.

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<v Speaker 4>We have a good flow of business from export countries.

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<v Speaker 4>That's very important for Airbus. We are mainly living from

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<v Speaker 4>export orders and contracts.

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<v Speaker 3>It's the case as well in defense.

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<v Speaker 4>Now we have up and downs from one year to

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<v Speaker 4>the other one and I would see the main array

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<v Speaker 4>of growth for defense business coming from European countries more

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<v Speaker 4>than from the rest of the world. But there will

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<v Speaker 4>be also some good export contracts.

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<v Speaker 3>Here and there.

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<v Speaker 4>So that's basically the situation other stable on export and

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<v Speaker 4>significant growth for our own countries.

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<v Speaker 1>How much discussion have you had with world leaders or

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<v Speaker 1>at least their representatives of these world leaders, who of

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<v Speaker 1>course are contending with the issue of how to deal

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<v Speaker 1>with some of these military contracts and at the same

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<v Speaker 1>time keep some of that sensitive information that goes into

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<v Speaker 1>that sensitive technology away from there would be AVER series

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<v Speaker 1>or their perceived AVER series. What are those discussions like, Yeah,

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<v Speaker 1>we have.

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<v Speaker 4>A constant dialogue with our governmental customers, the European countries

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<v Speaker 4>but as well countries outside of Europe on how to

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<v Speaker 4>do business, what kind of information can be exchanged, the

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<v Speaker 4>confidentiality of activities. And we are also under the regime

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<v Speaker 4>of export licenses that are very important in our industry,

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<v Speaker 4>and we can only export with the approval of the

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<v Speaker 4>countries from where we are exporting, and that's very much

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<v Speaker 4>related to the nature of the relationship they have with

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<v Speaker 4>the countries we want to export to. So that's a

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<v Speaker 4>complex construct. It's not unique to Airbus. We are working

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<v Speaker 4>under the same regime those days. With the quite tense

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<v Speaker 4>geopolitical situation around the world, that's something that is taking

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<v Speaker 4>more time, more effort, and.

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<v Speaker 3>That that's gained in terms of importance. Yeah, before I

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<v Speaker 3>let you go.

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<v Speaker 2>When we keep hearing from airlines and their earnings, it's

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<v Speaker 2>all about capacity. They've got to take out capacity. They

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<v Speaker 2>have to take out capacity. At some point do they

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<v Speaker 2>go to you and say, Hey, just kidding, we don't

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<v Speaker 2>need those plans. They have to take out capacity.

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<v Speaker 4>Our airline customers are facing strong demand themselves, so indeed

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<v Speaker 4>they want planes. They want planes as much as we

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<v Speaker 4>can deliver, but we are limited by our supply chain

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<v Speaker 4>issues and constraints. It's not specific to our bus as

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<v Speaker 4>you know. So we are working hand in hand to

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<v Speaker 4>trying to find the best way to satisfy their needs.

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<v Speaker 4>And then there's no general statement. It's a case by

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<v Speaker 4>case discussion, depending on the priorities, the ability to deliver

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<v Speaker 4>the particular situation that comes with this airline on that

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<v Speaker 4>airline in the US.

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<v Speaker 3>In your in Asia. Each and every situation is different.

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<v Speaker 1>Hey, gairl we only have about thirty seconds, but I

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<v Speaker 1>do want to just get your thoughts on the interest

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<v Speaker 1>rate environment. We've got a big FED meeting here in

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<v Speaker 1>the United States, and there's been a lot of speculation

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<v Speaker 1>about whether other global central banks will start to cut

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<v Speaker 1>rate in a meaningful way this year. Does that affect

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<v Speaker 1>you or at least affect your outlook?

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<v Speaker 3>It has an impact. It's a moderate impact for us.

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<v Speaker 3>But we've been in a.

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<v Speaker 4>Rather complex environment in terms of inflesh, in terms of

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<v Speaker 4>interest rates, and that makes the life of companies more difficult.

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<v Speaker 4>We need to be able to anticipate, we need certainty

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<v Speaker 4>and visibility. But having the rates going down is going

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<v Speaker 4>to be a positive news for us.

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<v Speaker 3>And obviously this is something we are monitoring.

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<v Speaker 1>All right, Gio, I really appreciate you taking time for us. Gianbari,

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<v Speaker 1>there is the Airbus CEO