Avio SpA

MIL:AVIO

Earnings Call Transcript 2021-Q2

[Operator]

Good afternoon, this is the Chorus Call conference operator. Welcome, and thank you for joining the Avio 2021 First Half Results Conference Call. [Operator Instructions]

At this time, I would like to turn the conference over to Mr. Giulio Ranzo, CEO of Avio. Please go ahead, sir.

[Giulio Ranzo, executive]

Thank you very much, and thank you, all, for joining the first half results call. I hope you all the presentation we uploaded on the website. So I would jump then, actually, to Page 3 and our agenda. I will cover an initial part with highlights, and then the main event of the first semester. And then Alessandro Agosti, our CFO, will go over the details of the financials. And then I'll come back to cover a bit of the outlook for 2021 and beyond.

So jumping on Page 4. If I have to summarize what happened in the first semester, I would say we have suffered a softer economic performance as a consequence of the effect of the failure we suffered in November, which caused us to work a lot to resume flight. But we improved our order backlog and that is extremely important because it means visibility is increased and so it's stretching us towards the future.

So during the first quarter, we worked a lot to restore full flight worthiness in our activities of assembly, integration and testing. Following the failure we suffered in November, we put together with the European Space Agency a plan to cover flights number 18, 19 and 20 to make sure they will be perfectly flight worthy. And so we aggressively worked on that, especially in the first 4 to 5 months. As a consequence of that, we had a very significant slowdown in the first part of the year, and the progress on development activity. Amidst, of course, a persisting COVID-19 set of challenges then you can imagine in conducting our operations, that certainly did not help.

At the same time, we accumulated new orders for Vega E development, which was something already announced, but of course we negotiated the contract and we closed that pretty well, while we worked on the first anticipated part of the contract. And also we received a contract for the propulsion systems of the ASTER missile that was actually beyond our expectations in size. As a result of that, we also started to hire people, more resources, to strengthen our ability to deliver in operations according to very strict flight worthiness procedures and also to prepare to execute on this incremental backlog. Because if we now want to accelerate and try to recoup some of the time we have unfortunately lost and spent on restoring our capabilities, then we need to have more people on the ground. And so we restarted hiring people. So backlog ended at EUR 835 million, up 13% with respect to year-end. Revenues were down 24% and EBITDA was down 47%.

Towards the end of the year, we'll talk more about that, we will suffer softer economic performance. We cannot completely recover in the second half of this year. But as I said, we will likely exit 2021 with an improved business visibility. And so we hope to be with a backlog between EUR 850 million and EUR 900 million. On revenues anywhere between EUR 300 million and EUR 330 million, which means pretty much having a visibility equivalent to 3 years, which is a good visibility to plan for the future and to ensure we restore a growth path as we used to have pre-failure and pre-COVID effects. So EBITDA should fall anywhere between -- EBITDA adjusted between EUR 35 million and EUR 37 million, down 16% versus last year.

So in terms of the outlook, I think the key takeaways are that Vega and Ariane launch activities are back on track. We executed 2 launches with Vega this year, rapidly in sequence, and we'll cover that. We are preparing for the Vega C maiden flight in the first quarter of 2022 and for the maiden flight of Ariane 6 anywhere between the second and the third quarter of '22. The P120 production -- the P120 motor production is ramping up as expected in preparation of course of the Vega C and the Ariane 6 maiden flights and the subsequent commercial flight already booked.

The news in the last very few weeks is that the European Space Agency member states have voted a resolution to secure for Ariane and Vega a good portion of the European government loan demand until the end of the decade. That is very important when you launch new programs, knowing that your government will certainly buy a certain number of launches. It helps prepare the future. So it was an extremely positive news over the last few weeks.

And then new development opportunities, new -- potential for new contracts in development activities emerged, when Italy loaned each portion of the European recovery plan, so quite a substantial amount of resources will be the devoted to space. And among this, there would be resources for access to space that we will reach and this opens up a new incremental opportunity that wasn't there. So all in all, if I have to summarize, the first quarter as the negative of a softer economic performance, but the positive of a much better visibility in our restored credibility on delivery.

So jumping to Page 6 with the key highlights. As I said, we performed 2 missions in sequence with Vega, both of which were for Airbus, primarily with their Pléiades Neo constellation, a very innovative earth observation type of satellite. It's a mini constellation of 2 to 4 satellites. So in a matter of about 3 months, we launched them both very successfully. And in combination with these main payloads, we leveraged our technology for multi-payloads delivery in orbit. We launched 5 more auxilliary payloads on the 18 flight and 4 more auxiliary payloads on the 19 flight. So that's good because it has established, let's say, a systematic way of doing multi-payload delivery, of being flexible, adding customers even at the last minute. And that has also optimized revenues, which obviously helps in this very [ confident ].

Now we have one more flight scheduled by the beginning of November. And then immediately after, we will jump on the launch pad to prepare for Vega C. It will take time, until probably the end of the first quarter to prepare for the launch set up, the launch pad with all the new systems we have prepared to support Vega C. It will be very exciting. The hardware will be shipped at the beginning of November, so it will be a very intense time preparing for the main flight.

In terms of development activities, we are currently running hardware-in-the-loop preparation activities of the maiden flights, so running, let's say, a simulation of the mission. And we are conducting the formal ground qualification review, which is basically the last review process with the European Space Agency prior to flight.

With Vega E, we signed a development contract in July. We have signed an initial portion of it earlier on, but this is EUR 120 million, more or less, contract that will cover the development of the cryogenic [ upper stage ]. So very important because in parallel, we also completed the construction of our propulsion test facility, which will be instrumental for us for the development of Vega E because this is where we set our new liquid oxygen methane engines. So the facility is completed. It's currently under commissioning and parts are being shipped to the site to be assembled, such that by year-end, we should be able to fire test the first article of the M10 fully integrated engine. So that will be a very important milestone we really look forward to reach.

On Page 7, we reviewed also our performance. And I can say we have established a better-than-average reliability track record. On the right side of the page, you see the performance of many launches across their first 19 missions. This is a way to compare launch performance on a like-for-like basis in a way. And you do can see Vega has performed 19 missions with 2 failures. So therefore, failure rates on average of about 10.5%, which is slightly less than the average of the peer group. So as time goes by, of course, these statistics consolidate, but I think we are now back where we want it to be. We definitely look forward to execute more flight in sequence with good success. But I think this was important to regain customer confidence across the board and make sure that will support also the commercial activity.

This was done by implementing a massive set of over inspections across the activities of manufacturing, assembly, integration and testing. We have devoted a lot of time to redesign the process very accurately, to train resources properly and make sure that everything is checked extremely well. What is good about it is that the performance of the last 2 slides were exceptionally good in terms of orbital injection accuracy, extremely accurate, which means that we have a product that once we integrate properly as we should, is extremely performing -- extremely well performing, and we are very, very encouraged by that.

On Page 8, we show the advancement of Vega E, as just I just anticipated. Here you see when I signed the contract back in July. Vega E will be very exciting as a program. It will give yet another dimension of performance and flexibility by 2026. I remember -- I remind everyone that this launcher version will feature the reduction from 4 to 3 in terms of propulsion stages. So it will be greatly simplified with respect to recurrent legacy version. And we feature a liquid oxygen methane upper stage, which would be more capable so will provide more performance and more flexibility. And ultimately, this will result in a lower cost per kilogram from 4 to 2 stage, which means reaching another dimension in terms of market competitiveness.

What you see on the right side are the different parts of the engines being readied for assembly at the test facility, which you see in the bottom of the page, which is now being commissioned. And then by year-end, we'll start filing the engine for testing at this facility. This is an extremely important milestone. If you look across the different set of competitors, what really matters is when you can measure the performance of your systems on ground prior to flight. And so this facility will be instrumental to do that.

On Page 9, a quick recap of where we are with Ariane. So Ariane 5, as you know, is on -- is phase-down part. It has flown once this year, and we'll have 2 more flights by year-end. So it has successfully flown on July 30. I was there, great flight. Then there would be another double launch GTO in October. And then by December, by mid-December, Ariane 5 will launch the James Webb Telescope, a major, major event for the European launches. This is a very precious stage, a very precious payload for Ariane definitely. Meanwhile, the Ariane 6 launchpad has been completed. I think it's being inaugurated this week or next. And so everything is being ready for an Ariane 6 maiden flight in the second half of 2022.

So that's our set of key highlights for what happened in the first semester. As you can imagine, it was very intense, but it allowed us to restore credibility and move back on a growth path after a very painful first part of the year.

Maybe Alessandro, you can follow with the details of the financials.

[Alessandro Agosti, executive]

Yes. Thank you, Giulio. Good afternoon, everybody. So we move to Page 11. We have summarized our key financials. As you can see, backlog continues to grow, positive 13% since year-end vis-a-vis a 10% positive increase in full year 2020, up on 2019. In the first month of 2021, as Giulio said before, the activities required to implement the recommendation issued by independent inquiry commission following the failure last November, required a significant effort with the consequent postponement of certain development activity originally expected in the first half of 2021 on particularly in Vega C and Vega E launches with effect on the revenues and margin associated with these activities. This was the main factor causing the lower results in half year 2021 with respect to half year 2020. However, this is a postponement of results, not a loss. We will recover this development activity in the second half of 2021 and beginning 2022.

Revenues were also influenced by expected Ariane 5 results, only partially balanced by the ramp-up of Ariane 6 in this first semester. As you can see here, decrease in EBITDA is mainly attributable to the reduction of course in revenue and lower absorption industrial fixed cost, which has been only partially offset by the phase-out activities on Ariane 5 and the containment of general administrative expenses. The higher decrease on EBIT, more or less a couple of million, is due to the increase of depreciation related to previous year's CapEx, particularly on the production of P120 engine.

Between reported and adjusted figures are included in nonrecurring costs of about EUR 2.4 million, substantially in line with prior semester were EUR 3 million, mainly due to return to fly and COVID-19 costs. Net result is substantially in line with EBIT due to the limited impact of financial expenses and taxes as usual.

So we move to Page 12. We have reported some details on net order backlog, which continues to grow. In the semester, we had EUR 230 million of order intake. Basically, about EUR 100 million for development and industrial activity on Vega C and Vega E and EUR 80 million to cover production activities for around a decade with respect to the booster -- ASTER-30 booster production in tactical business.

Even considering revenue, which as you know, download the backlog in line with last year's semester, the backlog would have increased anyway by 8 -- about 8%, 10% in the semester, thanks to this new intake of higher than EUR 200 million.

So we move to Page 13. We have reported revenues affected by the slowdown in Vega C development activities. On the right side of the chart, we have reported revenue by line of business and on the right side by production development. Vega had a decrease in the production for 2 suppliers as we commented before and in development of our postponement of the Vega C activity. Ariane showed a decrease in development for the delay basically of the transition of -- to Ariane 6. The mix between production and development remain as you see, substantially unchanged.

On Page 14, we have reported the main sources and uses. Net cash position, as you know, a seasonal trend. And typically, the trend tends to decrease in the middle of the year and raise again towards year-end due basically to the dynamics of the working capital. However, in this semester, the contribution working capital is better than last year semester due a stable collection profile versus slowdown in activity as described before.

So we move to Page 15. We have reported the bridge on the cash between end of 2020 and June. As you can see, the operating cash flow about EUR 15 million basically for CapEx and nonoperating cash flow includes a dividend distribution assumed last May, following the approval of 2020 results.

Finally, on Page 16, we have reported the same on nonrecurring cost by nature. As you can see, the most -- the main part is represented by the cost for return to flight for VV18 and the COVID protection devices and other related costs.

I give back to the -- the floor to Giulio for opportunities and outlook for the rest of the year.

[Giulio Ranzo, executive]

Thank you, Alessandro. So following the review of the first half, we thought it'd be useful to provide some view of what follows. So -- what we do in this section is we review the outlook not only for 2021, but the rest [ directionally the years beyond ].

So on Page 18, first of all, some details on the European Space Agency resolution adopted by all of the 22 European member states upon, obviously, the very imminent first flight of Vega C and Ariane 6, the member states have decided to award Ariane 6 and Vega C a minimum amount of launches every year to be used for European government payloads. So what they have agreed is that they will secure 4 launches every year for government purposes for Ariane and 2 launches every year for Vega C. So that you can consider a minimum annual volume guaranteed in a way that will apply from 2025 onwards. Now keep in mind that between now and 2025, most of the capacity is already in backlog for both Ariane and Vega and as such, this model applies very well to the portion of the backlog that goes beyond our current visibility. So allow me to say that this resolution is extremely important in securing longer-term visibility with respect to what we have so far.

Not only that, the European member states agreed on a package of support to maintain operational activities beyond the minimum annual volumes, to provide option, of course, for much larger flight rates for each of Ariane and Vega C. And this is extremely important to reach, let's say, the annual flight rate that we have in our targets that are obviously way beyond these minimum levels.

What is interesting to note is what is on the right side of the page, which is the European Space Agency forecast for European institutional nations. As you can see in the period 2025 to 2030, so towards the end of the decade, they estimate anywhere between 4 and 5 government payloads for Ariane, which matches pretty well with the guaranteed launch demand. While they forecast around 4 launches every year for Vega, which is twice their guaranteed demand. Now this is important because it means that regardless of commercial opportunities and export, which we will obviously pursue in priority, there will be a portion of market that is way more accessible to us than others and that is there, will be there and will be fueled by the many programs that the European Space Agency and the different state agencies in Europe, including the European Commission have already launched and for which they already have visibility towards the end of the decade. So that supports, in our view, a pretty good growth towards the end of the decade if we successfully execute, of course, on our programs as discussed.

In fact, on Page 19, if we look more broadly at the launch demand, not only for European government purposes but in general all around the world for government and commercial purposes, we have reported here the expectation for all total mass at launch. And we have started back from 2015, when we started -- I remember when I started as the CEO of Avio, we had a -- it was back in 2015, and we had an expectation for 2020 for the total mass at launch to reach about 350 tons in a year. Now in 2020, the actuals well exceeded the expectation that we had back then. And in fact, in 2020, the actual mass at launch exceeded 500 tons. Now looking towards 2025 and 2030, we now have an expectation to double this -- the size of this demand to about 1,000 tons every year by the end of the decade. I hope we will observe exactly what we have seen in the past that we will most probably even exceed this demand growth.

Now why that? Because in certain segments of this demand, let's say by use case, we see higher growth, in particular, in the telecom industry, in science and exploration and in earth observation. We tend to see a very clear trend towards an acceleration of growth with respect to just what we used to forecast a few years ago. And this is very important for us because if you think about it, the telecom business has been historically the business of Ariane, in which Ariane has been quite successful. Today, this business is being let's say, shared with a number of competitors, but the pace of growth is such that there will probably be way more opportunity than in the past.

Science and exploration has also been traditionally our captive core business with the European Space Agency. And earth observation, which happens to have the largest expectation for growth rate has been the everyday business for Vega. So all in all, I think that the prospect for the demand in the business has improved in the very last 12 to 24 months and the pace of growth has probably grown quite substantially. On top of this, so I would say the expectation for growth is good on the production side, on the delivery of launchers in general. But now let's review what happens also on the possibility to generate revenues with customers to develop new technology, new rockets and so on.

So on Page 20, I report a very brief summary of what has been communicated so far in Italy on the application of the European Recovery Plan. The European Recovery Plan is obviously a European-wide initiative to support countries to grow after the effect of the pandemic. Italy is the largest recipient of the European Recovery Plan in Europe and has devoted substantial resources to space, order of magnitude EUR 2.4 billion in the period of 2022-2026.

The Italian Space Agency has been tasked to identify where to invest these resources, and they have communicated that they have 4 main areas of investment that they are looking at. One is satellite telecommunications for IoT and quantum communications. One is the earth observation where they intend to build a high revisit rate earth observation constellation for national purposes and protection of assets. Then they have one initiative in in-orbit servicing, which is a segment that is presently developing and is quite attractive. And then they have a fourth area of interest, which is called space factory that partly addresses the digitalization of industrial production, but largely addresses the development of new green high-thrust engines and demonstrators, which is essentially the core of what we do and is fully complementary with the programs we're actually doing within the European Space Agency.

So in the bottom of the page, we have tried to gauge where we hold most interest in this type of program. In earth observation, we will not have a direct development activity. But the earth observation constellation needs to be launched. And so we think we have a pretty good chance of playing a crucial role in the launch of this Italian earth observation constellation in this period of time. In the supposed space factory initiative, we definitely have an opportunity to have a complementary budget to accelerate the development of our liquid oxygen methane technologies. And then within in-orbit services, we can probably do more along the lines of what we have already started doing with the Space Rider program within the ESA framework.

So we think that, all in all, this program is well executed. And if we succeed in capturing this opportunity, shall provide incremental opportunities with respect to what we just used to have a year ago. And so that is definitely important in combination with the prospects for the production business.

So if we put this all together and we look at the guidance for 2021 on Page 21, we have summarized the key elements of the expected guidance for the year. We expect to increase the backlog even further, okay, anywhere between EUR 850 million and EUR 900 million, depending on how things go. I wouldn't be very picky on the number. Some orders may leap a few weeks, may not fall within the year. Doesn't matter. But the expectation for sure, is of a growing trend on the -- of order backlog for the many reasons we have said before.

Revenues this year will fall anywhere between EUR 300 million and EUR 330 million. We try to catch up on the progress of development activities, but we will not be fully in the position to recover all of the ground that we have unfortunately lost in the first half of the year by executing so many activities for resuming the flights. As a consequence of that, EBITDA reported will fall anywhere between EUR 30 million and EUR 32 million. We expect a charge of about EUR 5 million in nonrecurring costs. So this means that the adjusted EBITDA would be anywhere between EUR 35 million and EUR 37 million. This obviously is with no recurring costs, will contain part of the cost incurred for restoring and resuming flights working and partly to address the COVID-19 different challenges we have in running operations under pandemic. As a result of that, we will have a net income anywhere between EUR 10 million and EUR 12 million with some marginal effect of financial charges and taxation, which, as you know, are typically very low in our accounts.

2021, just because of what we have said, is not very important at the end of the day because, as we know, the play is well beyond 2021. And I would say it's also well beyond 2022 and 2023. So it is important we spend some time to think about what will happen beyond 2021. We probably try to be more precise with you towards the end of the year. But at this stage, I'd like to give you at least some qualitative points around what we expect beyond 2021.

So on Page 22, we observe that, first of all, the strong backlog and cash position helped at growing the business back at pre-COVID level all across the period 2022 and 2023. Between 2022 and 2023, there's nothing from a commercial point of view that can change, the best thing is the numbers because most of it is already in backlog. Actually, probably 95% of it is in order backlog. So it will stay without a [ busy ] in execution to regrow the revenues and consequently also the profits back to pre-COVID and pre-failure levels, okay, back to probably 2018 or so.

Meanwhile, the market and the commercial opportunities are growing more than anticipated. As we have seen, the market will be twice the current size by 2030. So we have a fantastic window of opportunity to build more backlog for the period beyond 2023. And as I said, we are currently teaching commercial opportunities beyond 2024. So we think that in that range, between 2024 and 2030, there will be positive surprises for incremental growth.

Along this path, it is very reassuring to know that there is a secure European institutional demand guaranteed across the decade on which we can build to actually fuel this incremental growth that I'm talking about. On top of it, the National Recovery Plan will start sometime in 2022, and will provide incremental and unforeseen opportunities for accelerating on technological development all across the period 2022-2026. So if we have to go after these incremental opportunities, we also necessarily need to increase the pace of investments, improve the technology, improve capacity and so on. And these resources from the recovery plan will be instrumental to reach this growth. So a lot of work, but a lot of opportunity at the same time.

Now last and absolutely not least, at the end of 2022, that will be the next European Space Agency Ministerial Council that will vote new resources for new development contracts in the period, let's say, 2023-2025. So this will be the occasion to capture further contract and extend the product road map beyond 2025, actually.

And so in complement to all we have said before regarding also the recovery plan, all this should build a package that I would call it growth to 2030, which is pretty much the time spend that we should be looking at when considering the size of the opportunity we have ahead of us and the way we should value the investment in the asset. And this is at least the way we look at it as managers and investors at the same time.

On these very topics, we are working through a review of our strategic planning exercise, which, of course, takes top of what has happened in the course of the last 2 years and how we have now come back after having gone through many difficulties and replaying the [ success and exercise awards ] the end of the decade and partly beyond. So we'll try to be more precise to these expectations as to the degree that we can. But I wanted to provide you some of the key highlights for you to be able to grasp where the opportunity is and how we plan to be supported also financially to make this happen.

And with this, I think we're done, and we're happy to answer any questions.

[Operator]

[Operator Instructions] The first question is from Martino De Ambroggi with Equita.

[Martino De Ambroggi, analyst]

Yes. The first question is on the order intake. Just to be sure, for the current year, the order intake, roughly EUR 450 million plus, does not include any contribution from the Italian Recovery Plan or something is included?

[Giulio Ranzo, executive]

No. In 2021, we don't have anything yet on the recovery plan. As you know, the recovery plan is being implemented as we speak, basically. I do not anticipate that we will be able yet by the end of 2021 to already incorporate any backlog.

[Martino De Ambroggi, analyst]

Okay. Perfect. The second is more difficult. So I probably know the answer, but you presented EUR 2.4 billion as a global plan for the space sector. I imagine it is very difficult and too early to say, but what could be the magnitude that you could take from this bigger cake?

[Giulio Ranzo, executive]

This is a bit difficult for us as well. Let's say -- it's easier if I explain to you why. Because it will be if, let's say, the perimeter of the recovery plan is maintained as the ramifications here is currently outlined on this initiative. On the earth observation side, it will be essentially the procurement of launch services to enable the launch of this constellation, okay? And we don't know yet how many launches this will require. What we know is that on the current distribution of funds, a significant amount of funds have been earmarked for the earth observation. So there it will be flight, which doesn't change anything in the technology but provides additional business. So in a way, [ it's even the same trend ].

On the access to space initiative, we don't know exactly the figure. But if I have to, let's say, to create an ambition, perhaps it should be something maybe less than what we typically get from -- I mean it's a period of conference, so to speak, but not so much less. So a pretty sizable package. Now this is difficult to estimate because it will be -- it will require bids and proposal that needs to be submitted and contracting and so on. So it's not guaranteed, we need to pitch for it. But as you know, there is one rocket player in Italy. And so if we do well, I think, we have a good chance. So the amount is sizable. It will grow by a substantial degree, the availability of funds with respect to what we typically receive from a Ministerial conference. It will grow the number of flights. And as a consequence of that, we think it is a substantial difference. So we're not talking EUR 20 million.

[Martino De Ambroggi, analyst]

Yes, very clear. If I remember correctly, the last Ministerial council, worth EUR 400 million for us -- for you and...

[Giulio Ranzo, executive]

Almost EUR 500 million.

[Martino De Ambroggi, analyst]

Almost EUR 500 million to be spread over?

[Giulio Ranzo, executive]

3, 3.5 years.

[Martino De Ambroggi, analyst]

Okay. And when do you expect this resilience recovery plan will also fix the awards? And so just to have an idea of when this will materialize into orders.

[Giulio Ranzo, executive]

Italy expects to award contracts all in 2022. Now I don't know whether they will succeed. But the money needs to be spent by 2026. I believe, by -- as a consequence of European regulation. So they will need to be pretty quick, okay?

[Martino De Ambroggi, analyst]

Okay. And this should be spread over the same typical Ministerial Council business? Or probably longer?

[Giulio Ranzo, executive]

It will be probably longer. I think it will be in the period of 2022-2026. So it's 5 years. But the effect that it will overlap with that of the Ministerial conference.

[Martino De Ambroggi, analyst]

Yes, clear. Okay. The second is on the EBITDA guidance for the current year. How much is the fiscal benefit of R&D incentives assumed in your guidance?

[Alessandro Agosti, executive]

It's between EUR 4 million and EUR 5 million. It's -- what we expect, I mean, and what is now fairly stable, I would say.

[Martino De Ambroggi, analyst]

Okay. And should go down gradually in the next few years?

[Alessandro Agosti, executive]

Yes. This is according to the [ below ] and now it's stabilized. We have more or less for 4, 5 years in this year and then decreasing gradually, but however, up to '25, '26 depending on the amount on the low, probably the lower we confirmed also for the future within this measure to sustain the Italian economy.

[Martino De Ambroggi, analyst]

Okay. And the last question on the EBITDA. You are factoring in EUR 5 million of nonrecurring costs, which is more or less double than in the first half. If I look at the split of your first half and nonrecurring cost, it was mainly referring to the Vega return to flight. And just a minor portion was for COVID emergency. So how you double this cost when -- I don't want to be too optimistic, but it seems to be better than it was in the first half when you had Colleferro in Red Zone for 2 months.

[Giulio Ranzo, executive]

COVID costs continue to ramp because when we move people all around, we have more substantial costs. We need to keep -- for example, when we send people to the launch site, we need to keep them in different houses one by one, to rent cars one by one to -- we still have some extra office space used at the production site to make sure that we respect distancing. So these costs continue to run. And we will see what happens in Italy at the end of the so-called emergency period by year-end and according to the current vaccination plan, if requirements will be taken down for distancing and so on, so we can save some costs at least, we don't know yet.

[Operator]

The next question is from Ben Heelan with Bank of America.

[Benjamin Heelan, analyst]

Yes. I have 2. One, obviously, the backlog is improving. You won this contract and this outlook from Europe seems very good. Can you talk a little bit about the pipeline for international government and international institutions and how you feel that, that is shaping up? I know you talked a little bit about the strong outlook, but just if there's anything a bit more specific around the kind of international side of things? And then secondly, how are you thinking about the kind of risks around the Vega C flight and how some of the failures are kind of informing the way you're going about preparing for Vega C to make sure there are no issues there?

[Giulio Ranzo, executive]

Thank you very much for your questions. So the -- on the commercial pipeline, we would like to talk about it a bit qualitatively for the sensitivity on the commercial side that you may understand. But just to give you a sense, I mean, we see a wealth of opportunities. You mentioned what are you doing with foreign governments and so on. There's a wealth of demand coming from governments from the Middle East and from the Far East, all of which we are monitoring closely. There are some competitive bids, of course. And so some of them are harsh. But on some of them, we think we have a pretty good opportunity in combination with some of the European satellite manufacturers that are also pitching for their satellite to be manufactured.

So there's more than a handful, let's say, of concrete opportunities that are currently in the pipeline. The value of the pipeline is substantial. The degree of maturation of this pipeline, let's say, at least for half of it is very close to finalization. So we hope to be able within the next 6 months to make some announcements. So far, we've been unable to announce new customer contract signatures because out of the difficult period we have gone through, some customers have waited before signing the contracts. Now that we are reestablishing a credible track record of performance, I think the situation is relaxing. Also because, of course, insurance premiums are more affordable. There's a more comfortable commission, I would say.

Now on your second question on the risk of Vega C, now very interesting. When we were given a set of recommendations by the European Space Agency to implement in order to improve flight coordinates on Vega, they requested that these provisions be applied also to Vega C. So we have to spend extra time on Vega C. We have more time to do it, but we had to spend extra engineering efforts to implement new, more rigorous inspection processes on the manufacturing of Vega C as well. And as a matter of fact, even the ground qualification review, which, as I said, is our last goal before the launch in terms of reviewing documentation and flight coordinates and product compliance, was split in 2 tranches to make sure that we would carefully review with, not only the European Space Agency, but also with a panel of independent experts. And each and every subsystem on Vega C is flight worthy, is checked and x-rayed to make sure that we minimize risks at lift off.

So this process is ongoing, should complete before year-end. The ship to actually send the flight hardware is ready to go on, I believe, on the 4th or 5th of November. So everything is already planned. And I think the feedback I have from the team is that we are exactly on track. On these things, you can never eliminate surprises, of course. Many things need to go right. We have a substantial change in the product. It's 70% more performing. It has a completely new control system in a different location. Software is completely upgraded. So it's a lot of change. but I think we are well prepared for. The buildings for the team to stay there are being readied as we speak. There will be quite a team there between, let's say, December and March. So preparation is at full steam, and we are quite excited.

[Operator]

[Operator Instructions] There is a follow-up question from Martino De Ambroggi with Equita.

[Martino De Ambroggi, analyst]

Yes, on the P120, I don't know if you could provide us an update on the expected run rate? And when do you see the full run rate for the P120?

[Giulio Ranzo, executive]

Okay. So full run rate of P120, I will expect that we reach between 2023 and 2024. Now this depends very much on how the progression of new orders will actually unfold in the next few years. We still stay ready for accelerating along this path if we can. There might be a possibility of that. But it was probably 2024 is a good account with a potential upside to go up.

[Martino De Ambroggi, analyst]

Okay. And referring to Slide #17. When you present the estimate of total mass at launch per year doubling in 10 years, could you try to translate it in number of launchers -- launches? Because meanwhile the multiple launches is becoming a habit. So probably it's less than proportion of the number of launchers required.

[Giulio Ranzo, executive]

At a global level, I guess, this is almost impossible to do because now we have -- we will have by then a different mix of launchers between very large, small, micro. We honestly cannot tell. The reason why we use this measure of mass is because it's a good way to normalize that against the number of flight demands. From our point of view, this should sustain. For example, on Ariane, the flight rates, as I said before, from 8 to 9 per year, something like that. For Vega, maybe by 2030, from 5 to 6, possibly slightly beyond. So if we succeed at growing at the same pace of the market, there is where we should be. And as a matter of fact, capacity upgrade is one of the things we are now studying very carefully with the agencies to make sure that if this scenario unfolds as we expect, we need to be ready with the right capacity upgrade.

[Martino De Ambroggi, analyst]

Okay. And just very last on the Italian relaunch plan. Could it be possible to see the plan financing the mini launchers? Or it is not taken into consideration for the -- for next investment?

[Giulio Ranzo, executive]

So far, what we have heard from the Italian Space Agency does not contain a plan for a mini launcher. It contains a plan for propulsion technologies, but not for our mini launchers.

[Martino De Ambroggi, analyst]

Okay. So is it abandoned as a program? Or you still have it in your pipeline?

[Giulio Ranzo, executive]

It's still there, but we should really see whether this -- in the scenario of such a growth in the mass is truly instrumental to reach our objectives or it's an opportunistic move that we could do if any of the customers have a very explicit requirement for it. Because what is happening is clearly showing that no one is intending to do micro launchers for the fun of it. The only reason why micro launchers are being developed is because it's an intermediate fact to develop a larger one. And this is very clear. If you look at what Rocket Lab is currently doing, they have successfully launched Electron with roughly 150 kilograms. And as soon as they got listed, they announced, of course, the preparation of a much larger rocket.

[Operator]

The next question is from [ Sandro Direto ], private investor.

[Unknown Attendee]

Could you hear me, please?

[Giulio Ranzo, executive]

Yes, very well.

[Unknown Attendee]

Okay. Just 3 quick questions. Okay. Regarding PNNR (sic) [ PNRR ], do you expect to just an order flow? Or capital contribution for free?

[Giulio Ranzo, executive]

Sorry, I didn't quite understand. You asked about the order flow and?

[Unknown Attendee]

No, no. Regarding the PNRR.

[Giulio Ranzo, executive]

Yes.

[Unknown Attendee]

Okay. Do you expect just a new order flow or an increase in the backlog? Or any contribution [Foreign Language]. I don't know the...

[Giulio Ranzo, executive]

Okay. Okay. I understand. Well, this, we will need to see because, as you know, on the Italian Recovery Plan there is not yet a manual how to execute it. It's something really in the main. The reality is that the overall European Recovery Plan assumes that the vast majority of funds are, as you say, [Foreign Language], so no cash back. And part of this could be done in the form of a loan. But I would say the overwhelming majority will be without any expectation for a cash back. And it's the old intent of the plan to provide these resources to companies to restore the growth path. So that's what we expect too.

[Unknown Attendee]

Okay. The second question is regarding -- okay, around the world in the U.S., for sure, a company like Avio have crazy valuation, crazy comparing to Avio. So how could you justify just the stock market is just a different stock market? Or -- and if this is the answer, have you ever evaluated the chance to list the U.S. or U.K. to have the double listing for your shares?

[Giulio Ranzo, executive]

So first of all, why do they have these valuations? This is a very difficult question. First of all, I have 2 explanations. The first one is that, of course, the U.S. capital market is a much, much larger one than the one we have in Italy for sure, but in general, in Europe. Number two, U.S. investors are looking at space with a much more long-term perspective than European investors are. All of these companies are presenting their expectation for EBITDA by 2028, and they are valued on that. Whether this expectation is variable or not, I don't know. But no one evaluates these companies on what they do in 2022 or 2023.

The third reason why in the U.S. there is such a big valuation is because the government is spending a lot of money for contracts for these companies. And so they have a huge government demand that is way larger than in Europe. So have we consider listing in the U.S.? Why not. Possibly. This is not very much something we can decide on our own as, say, management. It's a question that should be reverted back to the shareholders if they want to be listed on a U.S. stock market.

For sure, U.S. stock markets have much larger liquidity, so provides more opportunity for selling if you want to sell, for buying if you want to buy. And there's a much, much larger number of investors. Keep in mind that as of today, we have something like 10% of our shareholder base in the U.S. We should definitely do our best to grow our investor base in the U.S., even the interest. Of course, the pandemic has not made things simple because it's impossible to travel, very difficult to travel to the U.S. at this time. And therefore, we will come back to that as soon as we are in the possibility to do that. But we take your point. It's a very interesting remark.

[Unknown Attendee]

Okay. And the third last question for me is as a strategic potential question is regarding Ariane. Avio and Ariane are the 2 launchers for the official, let's say, EU government, let's say, for them. There is any chance to think to put them together because, okay, Ariane is your client and okay, the business is going well until now and for the future. They keep today your current. But the point is, okay, it's not your decision, but it's just, okay, shareholder or a political decision. But in your mind, put Ariane and Avio together, makes sense or not? Because apparently should be a great combination, but I don't know about your opinion.

[Giulio Ranzo, executive]

First of all, let's say that Ariane and Avio are already industrially combined probably more than you think. We have 2 industrial joint ventures. We manufacture engines together, so we already have extracted most of the synergies we can extract. We perform integration of big motors and casting of propellant in 50-50% joint ventures in French Guiana, and we split the profits in 2. So we have optimized costs and so on, on a 50-50 basis. So we are already quite integrated. On commercial activity, we have one company, which is Arianespace, of which I am a Board member. They already carry out the same activity for Ariane and for Vega. So I don't know what other incremental value we could generate if we were to merge the companies, quite frankly, more than we already have today.

[Operator]

Next question is from Bruno Permutti with Intesa Sanpaolo.

[Bruno Permutti, analyst]

A few questions. The first one regard Ariane 6. If you already have a timing for -- a schedule for the beginning of the launch campaign, so -- or alternatively what lacks to start to schedule the beginning of the launch campaign for the new Ariane 6?

The second question regards the launch capability. I would like to understand the differences in the launch campaign. How much time takes the launch campaign or we take the launch campaign for Vega C or Ariane 6 as regime and there are differences compared to Ariane 5 and Vega. So to understand if there is the possibility to increase the number of launches per year.

And the last question is only a detail on the order backlog at 30 June, the EUR 120 million for the Vega E contract is -- was already in or it is nothing would be recorded in second half?

[Giulio Ranzo, executive]

Okay. So let me start from the first question. The Ariane 6 launch campaign, we don't know exactly when it can start. Prior to the launch campaign, Ariane will start with a so-called combined test. So they will start to fire the engine on ground to test if everything works. And I believe this could start as early as the beginning of the year, maybe by end of the first quarter. Don't take that as a precise estimate but more or less, okay?

Then in terms of the launch capability and frequencies. First of all, on Ariane 6, yes, the launch capacity has been designed to be able to do up to 11 flights every year. So the mean time between 2 launches will be dropped down to, I think, about a week or 10 days, something like that. How do they reach this improvement? Because they have built next to the launch pad a pre-integration building that is very well equipped and automated such that while you are launching one rocket, you are already assembling another one, okay? And so these operations will certainly allow for a lot more flexibility in the frequency of launch at the Guiana Space Center. In addition to that, the control center has been redesigned and will allow for reconfiguration at the end on one flight to prepare for the following one within 48 hours. So I think this is also another great software advancement that will enable to increase flight rates.

Now regarding Vega, to improve the launch capability, yes, we need to reduce the mean time between 2 launches, and therefore, the duration of the integration campaign. Moving from Vega to Vega C, we already dropped that by 5 to 7 days because we have designed Vega C to be largely preassembled, let's say, from Europe. So we send subassemblies, which are already well equipped such that when we go at the launch site, we really have to make fewer connections and less amounts of work on site at the launch site. Number two, we need to work a lot on storage areas at the launch site for solid rocket motors. In particular, we need to increase the amount of storage area. And in this way, we will be able to do something similar to Ariane to prepare for integration activities while one launcher is being prepared for flight. And this is what we will work on in the next few years to move from a theoretical capacity of 4 to a theoretical capacity of 6 to 7, it's not a huge and impossible task, but of course, we need to do a number of things.

Last, your question on the backlog of Vega E, maybe Alessandro can answer.

[Alessandro Agosti, executive]

Yes, Bruno. Yes, Vega E was formally signed beginning of July '21, but substantially was acquired by the end of June. So it was factored within the EUR 835 million of backlog end of June.

[Operator]

[Operator Instructions] Gentlemen, there are no more questions registered at this time.

[Giulio Ranzo, executive]

Thank you very much to you.

[Operator]

Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.