Airbus SE

PAR:AIR

Earnings Call Transcript 2020-Q1

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome to the Airbus Q1 2020 Results Release Conference Call. I am Aurelia, the operator for this conference. [Operator Instructions] 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 your host, Guillaume Faury, Dominik Asam and Thorsten Fischer.

[Thorsten Fischer]

Thank you, Aurelia. Good morning, ladies and gentlemen. This is the Airbus Q1 2020 Results Release Conference Call. Guillaume Faury, our CEO; and Dominik Asam, our CFO, will be presenting our results and answering your questions. This call is planned to last around 1 hour. This includes Q&A, which we'll conduct after the initial presentation. This call is also webcast. It can be accessed via our homepage where we have set a special banner. Playback of this call will be accessible on the website, but there is no dedicated phone replay service. The supporting information package was e-mailed to you earlier this morning. It includes the slides, which we will now take you through, as well as the financial statements. Throughout this call, we'll be making forward-looking statements. The package you received contains the safe harbor statement, which applies to this call as well. Please read it carefully. Now over to Guillaume.

[Guillaume M.J.D Faury, CEO & Executive Director]

Thank you, Thorsten, and good morning, ladies and gentlemen. Welcome to our Q1 2020 results call. Thank you for joining us today. I hope that you, your families are doing well and remain safe in these difficult COVID-19 times. Aerospace is among the sectors that have been most affected by the coronavirus pandemic, which is an unprecedented situation. In fact, as I said many times already now, our industry is now facing the gravest crisis in its history. This is particularly true for commercial aircraft. Demand for air travel has collapsed amid the travel restrictions and the lockdowns put in place by the many countries around the world. Our customers, the airlines, have reduced capacity, grounded a very large share of their fleet temporarily and are implementing measures to reduce cash spending. This also includes a thorough review of their CapEx and predelivery payment schedules. Not all of this is yet fully visible in our Q1 2020 financial [Audio Gap] that EUR 281 million and free cash flow before M&A and customer financing at minus EUR 8 billion, including the payments of the penalties and the fine of EUR 3.6 billion. Before the payment of the penalty, free cash flow before M&A and customer financing is indeed at minus EUR 4.4 billion, which is roughly at the level of Q1 2019. After a solid commercial and industrial performance at the beginning of the year, we have taken prudent steps to ensure the future of Airbus to prepare, as best as we can, for a return to normal operations once the situation recovers. In Q1 2020, cancellations were at reasonable level, but many customers are asking to defer their deliveries or are simply physically unable to take delivery of their aircrafts. We're adapting to this new reality as fast as possible to find the most adequate solutions. We are, I call it, facing reality. We're taking a realistic approach to proactively manage our order book and to match production with our best understanding of this new demand and trying to best meet the customer expectations and commitments. Under our Watchtower process, we are constantly talking to airlines and lessors to understand their different requirements and we are closely monitoring their own financial health and situation. We put particular focus on delivering aircraft, which are industrially engaged, by leveraging the related prepayment on hand. Based on our best assessment of the overall situation, we've decided 3 weeks ago to adapt our commercial aircraft production rates downwards by roughly 1/3 while protecting our ability to further adapt as the global market further evolves. For us, the urgent priority is to implement a short-term cash containment plan, we are doing this, and to address the longer-term cost structure to rightsize the company. We're implementing a number of temporary social measures across sites in coordination with our social partners. We have rigorously prioritized our CapEx spend, projects, R&D and our general cost structure in terms of business criticality and timing, resulting in a very significant reduction. With our strong balance sheets and the measures taken in March to further bolster our liquidity, we've protected our financial flexibility to adapt to the new environment and to ensure what I call the business continuity. We are also advocating support from governments to our airline customers, to the ecosystem, and obviously, to our suppliers. We are still at an early stage of this crisis, so we have to remain humble. The situation is still evolving, and we are very carefully managing our ability to understand all the implications. After withdrawing the 2020 guidance in March, we continued to assess the impact of the COVID-19 on our business. Given the limited visibility, in particular, on the delivery situation, we do not issue a new guidance. In summary, our industry is a complex and interdependent ecosystem with many different parts, and we are doing our best to keep those parts synchronized in a COVID-19 environment, which is still evolving. We're in constant dialogue with our customers, partners, suppliers and the many stakeholders, and we need and we will navigate this crisis with them together. Looking into our commercial aircraft environment in more detail. We start to see some signs of recovery in China, albeit at a very slow pace. Passenger capacity declined by minus 85% at the peak of the crisis in China in mid-February compared to pre-COVID-19 situation and recovered to a minus 60% in April. That's the latest data available I have. In its latest market report, IATA now expects RTKs to be down by minus 48% year-on-year in 2020 and a decrease of passenger revenue by minus USD 314 billion versus 2019 levels. We see leading companies continue to play a significant role in actively financing and remarketing aircraft. For most of them, their financials were robust before entering the COVID-19 situation with no repayment towers in the short term. ECA financing has been reopened last year, and we expect demand for ECA support to increase this year. By the way, I want to thank the ECAs and EDC who have confirmed their continuous availability of support for the crisis and beyond. This is very helpful. Now looking at Q1 orders. In Airbus, after a good start to the year in January, the commercial dynamic changed as the COVID-19 situation developed. In Q1, we booked 356 gross orders. Net orders were at 290 aircraft, and our backlog was at 7,650 aircraft. We recorded 66 cancellation, which represents a lower level than last year. On 220 -- on the Airbus A220, we booked 42 planes -- 42 net orders and our backlog was at 529 aircraft. On the A320 family, 248 net orders were added and our backlog stood at a 6,220 aircraft mark. This brings our market share in the single-aisle segment in terms of backlog up from 58% to 60% over the last 12 months with half of the gain in the last quarter. Our A330 backlog amounted to 323 aircraft after 4 cancellations. Moving to the A350, we booked 21 gross orders, including 10 more -900 for Air France and recorded 17 cancellation. Our backlog was at 569 aircraft. Next slide, looking at Helicopters. In Q1 '20, we booked 54 net orders versus 66 in Q1 '19. We concluded the HELI-EXPO 2020 with 38 orders, including 12 additional H145 for Metro Aviation. On the H145, we booked also an additional order for 6 H145s for the Ecuador Ministry of Defense. And we also secured an order for 15 UH-72, the Lakotas, the military version of the 145, for the U.S. Army. In addition, we booked 2 Super Puma for the Japanese Coast Guard. We expect the civil and parapublic to remain soft in 2020, particularly in oil and gas, and mainly due to the very low oil prices, but we continue to see good prospects in military. Finally, in Defence and Space, we booked orders of up to EUR 1.7 billion, including contract wins in military aircraft services, secure communications and telecommunication satellites and the Phase 1a of the FCAS project signed in February. Also in Defence and Space, discussions are ongoing on contracts like German Eurofighter batch 1 replacement and the Tornado succession. As always, the exact timing of contracts award is difficult to predict. However, in the current environment, we see a number of opportunities in the field of defense with our European governments that are very important to us. So now I'll end the -- I give the floor to you, Dominik, to guide us into more details and the financial data. Dominik, the floor is yours.

[Dominik Asam, Chief Financial Officer]

Thank you, Guillaume, and good morning, ladies and gentlemen. I hope you're all well and remain safe. Q1 2020 revenues were EUR 10.6 billion, down 15% versus Q1 2019. This reflects the difficult market environment impacting our commercial aircraft business as we delivered 40 less aircraft year-on-year, partly offset by a better mix and a more favorable foreign exchange environment. Our EBIT adjusted was EUR 281 million for the quarter, significantly down year-on-year, mainly driven by lower deliveries and associated costs where we benefited from more favorable hedge rates. Helicopters recorded a good performance in Q1, while Defence and Space remains impacted by lower business performance. Our earnings per share adjusted stands at EUR 0.23 per share using an average of 782 million shares. Our free cash flow before M&A and customer financing was minus EUR 8 billion. It includes the payment of the EUR 3.6 billion of penalties in Q1. Despite lower deliveries and the significant inventory build, we managed to maintain a free cash flow before the penalties at about the same level as in the first quarter of last year. Q1 2020 EBIT reported was EUR 79 million. The level of EBIT adjustment was around a net negative of EUR 200 million and includes the following elements: minus EUR 33 million related to the A380 program cost, minus EUR 134 million of negative impact from foreign exchange mismatch and balance sheet revaluation, EUR 35 million of other costs, including compliance costs. EPS reported includes minus EUR 477 million of financial results. It reflects a net minus EUR 245 million related to Dassault Aviation. Also on March 27, OneWeb filed Chapter 11 bankruptcy proceedings. Consequently, the related loan was fully impaired with an impact of minus EUR 136 million in financial results. The tax rate on the core business is around 27%. The effective tax rate on net income is negative 24%, impacted by impairments in certain tax jurisdictions and on certain investments as well as updated tax risks. The resulting net income is minus EUR 481 million with loss per share reported of EUR 0.61. Now on to our hedging activities. Our total hedging portfolio in U.S. dollar stands at $95 billion with an average hedge rate of 1.23. In Q1 2020, $5.1 billion of hedges matured at a rate of 1.19. We also implemented $2.1 billion of forward and finalized the restructuring of our collars portfolio by converting them into forwards, resulting in a positive impact on the 2020 and 2021 hedge rates. We adjusted the phasing of our hedges to reflect the situation as of March 31. We rolled $1.8 billion of hedges out of Q1 2020, $0.8 billion were rolled out of 2020. We will continue to adjust our portfolio based on the recent developments, especially COVID-19, to reflect the evolution of our deliveries going forward, which, in particular, means no implementation of further hedges for the time being, but rolling existing ones to deferred delivery dates. Our gross cash flow from operations of EUR 0.3 billion reflects our EBIT adjusted. We paid the penalties of EUR 3.6 billion in Q1 2020. The significant inventory buildup weighed on working capital as it includes around 60 aircraft that could not be delivered. A400M continued to weigh on our free cash flow before M&A, but less so than in 2019. At around EUR 0.5 billion, CapEx was stable versus Q1 2019. We have scrutinized our fiscal year 2020 CapEx and decided to cut it by about EUR 700 million, so we're now expecting around EUR 1.9 billion. Free cash flow reported was minus EUR 8 billion. Customer financing contributed approximately EUR 30 million, while M&A activities accounted for minus EUR 0.5 billion, mainly related to the acquisition of remaining interest in ACLP from Bombardier. Given the current environment, we announced measures to protect our financial liquidity and continued to fund our operations by securing a new credit line amounting to EUR 15 billion, withdrawing our initial dividend proposal and suspending the voluntary top-up funding in pensions. In addition, we issued a EUR 2.5 billion bond, partially terming out the EUR 15 billion credit facility. The transaction settled on April 7, so cash proceeds will be accounted for in Q2 2020. In the coming quarters, we will continue to focus on cash preservation and we'll be reducing cash outflows with the aim of stopping the net cash consumption by Q4. Besides CapEx cuts, the activated measures include the deferral and suspension of activities, which are not critical to business continuity and to meeting our customer and compliance commitments. With that, back to Guillaume.

[Guillaume M.J.D Faury, CEO & Executive Director]

Thank you, Dominik. Now on to commercial aircraft and looking forward. First, let me remind you that the activities related to innovation and digital transformation, formerly reported in Transversal, are now included in Airbus under the new segment structure. So we have 3 businesses. They are reported in R&D, and there is no impacts, obviously, on Airbus revenues. On the overall results. In Q1, we delivered 122 aircraft to 49 customers. That's a decrease of 40 aircraft year-on-year. Actually, industrially, we made good progress but we ended the quarter with around 60-plus aircraft that we could not deliver as many customers are asking -- or were asking to defer deliveries or were physically unable to take delivery of their aircraft. Where do we stand on each of our programs? And probably starting with the 220, we delivered in Q1 8 aircraft to 3 different customers. On the 320, we delivered 96 aircraft, of which 91 were neos. And in Q1, we continued with the ACF ramp-up, and we further improved industry rate. Moving to the wide-body. We delivered 18 aircraft, of which 14 A350s and 4 A330s. We also delivered the first A350-900 to Aeroflot. As previously announced, we are now adjusting our production rates to -- down to rate 40 for the A320 family, 2 for the A330 and 6 for the A350. This represents a reduction of roughly 1/3 compared to our precrisis average production rates. On the 220, the FAL in Mirabel is expected to progressively return to the rate 4 we were before COVID, and the new FAL in Mobile is targeted to open in May as planned. Now let's look at the Airbus financials. Revenues mainly reflect the lower deliveries with the 40 aircraft less year-on-year, of which 30 A320 aircraft and 8 A350s. EBIT adjusted also mainly reflect these lower deliveries and associated costs, partially offset by FX -- by ForEx.Looking at Helicopters. In Q1 '20, we delivered 47 in total. It's a similar level to the first quarter of 2019. Revenues and EBIT adjusted reflects a favorable delivery mix and a further growth in services. In Defence and Space, revenue were stable year-on-year. The EBIT adjusted reflects the lower business performance, particularly in Space, as already said. For the A400M, 1 aircraft was delivered in Q1 2020. And due to the severity of the coronavirus pandemic, we are assessing the incremental impact on our business and we'll adjust the restructuring plan that we had started previously. We will adjust it to the new situation at Defence and Space also. So now what are our key priorities? Overall, aviation was, is, and will remain a long-term business. And after the crisis, I am convinced, we are convinced, people will want to and still need to fly. We also remain convinced that we have the right product portfolio to maintain our lead position in the current context, if not reinforce our position. Our strong A320 competitive position in the single-aisle market, including the XLR that we are maintaining, we keep developing the XLR at good speed, is of particular importance since we expect these segments to recover ahead of the wide-body market. We're implementing, sorry, a number of measures to ensure the future of Airbus -- future of the company. Our urgent priority is to reduce the spending to the right level that ensures business continuity and preserves our ability to meet customer demand. We're also addressing our more longer-term cost structure to rightsize the business while protecting our ability to stay agile and further adapt as the global market keeps evolving. We will keep monitoring the evolution of the demand and managing our order book in a very proactive way. We continue to work with our customers to honor our commitments and secure delivery of aircraft. Obviously, we're also monitoring the financial health of our ecosystem, the airlines, but also our suppliers. And we are implementing the recently announced new production rates and aligning this with all our supply chain. That's, as you can imagine, a very complex and important work that is ongoing. All in all, we are doing our very best to synchronize, sometimes resynchronize the ecosystem, synchronize with all stakeholders as we navigate this crisis. And as I said, we will manage that together. Before concluding, I want to remind that we are strictly complying with all health and safety requirements even with sometimes changing requirements. And while we are doing all the rest, as I previously explained, health and safety comes first. So as we face this unprecedented situation, we stay focused on our resilience as a company and also as an industry to ensure that we can return to so-called normal operations after the crisis in a strong position once the situation improves again. Because it will come, situation will recover and improve again later. Now we will take your questions. Thank you.

[Thorsten Fischer]

We now start our Q&A time. [Operator Instructions] So Aurelia, please go ahead and explain the procedure for participants.

[Operator]

[Operator Instructions] The first question we received is from Ben Heelan, Bank of America.

[Benjamin Michael Heelan, Analyst]

I hope you guys are all well. My first question is on supply chain. Could you talk a little bit about which areas of the supply chain you're currently seeing as most at risk? And how can you, as Airbus, step in, and where necessary, support some of those suppliers that are facing stress at the moment? And then my second question, Guillaume, you highlighted in your remarks that there was 60 aircraft that you didn't deliver at the end of Q1. I'm assuming that deliveries in Q2 are going to be quite a way below where the newly announced production rates are. How high do you see that undelivered aircraft number going before you have to consider lowering production rates again?

[Guillaume M.J.D Faury, CEO & Executive Director]

Yes. Thank you. So on the supply chain, where are the risks? Well, basically, they are everywhere. Where are the most urgent risks? These risks are on the suppliers that entered into the crisis in a weak position, and we are first looking at those ones. Actually, we have a bit of time as the suppliers keep being paid as they deliver what was ordered under the payment terms. But obviously, later in Q2, we will see a big drop in the cash flows that will go to the suppliers and this is the moment where the situation will become more crucial. So we have sort of 2 or 3 months to organize ourselves, and we have conducted a very important work with the national associations to organize ourselves and be able to proactively speak with suppliers, organize support when necessary, but we are just at the very beginning of the process. Suppliers that were already impacted by the 737 MAX grounding and then stop of production are obviously higher on our radar screen as they entered in this new crisis with already major difficulties. But there are a couple of few others that were, for other reasons, for ramp-up reasons sometimes, in difficulties. That's a bit cynical, but that's the way it is. So as I said before, we are very proactively looking at it. We're looking at their ability to deliver, but as well as their financial situation, and it's more a one-by-one, a case-by-case approach that has to pay off later. On the number of planes, which are produced but not delivered, yes, we were at 60-plus end of Q1. Deliveries in Q2 will remain very low -- will be very low as the -- we are in the midst of the crisis itself and the bans and it's very difficult for customers to come and take deliveries. We were as well slowed down by the measures that impacted ourselves in the supply chain. So it will continue to go up before it goes down. I would say the scheme is probably that it will start to go down in Q3 and there are 2 effects. We anticipate that customers will be able to come more easily and probably in larger numbers to pick their planes. But as well, we will see the first effect of our ramp-down, of our adaptation in terms of production. So that's probably somewhere in Q3 that we would see the peak in terms of planes produced not delivered. At least I have to say this is, very prudently, my guess as of today. And as you can imagine, we are running different scenarios to be able to be robust and agile to different realities. It's still a very dynamic picture.

[Operator]

The next question is from Tristan Sanson, Exane.

[Tristan Sanson]

I hope you're all safe and same for your family. Sorry, that's Tristan Sanson from Exane. The first question is on the net impact that we should expect from the pullback of deliveries this year. You provided us with the past -- in the past with indication about the rough level of EBIT per aircraft we should expect from delivering additional A220s. When we look at the drop in deliveries that is upcoming, given the fact that you're probably going to have a higher negative leverage, but you're also going to work on your cost structure, you're going to get rid of penalties for delivery delays, how should we consider the negative leverage? Do you think it should be in the same order of magnitude, higher, much higher? Any qualitative comments would be useful on that front. And the second is on the negotiation that you have with airlines. Can you give us a feel for what is the share of the backlog for which you have completed at this stage negotiation with airlines and what's the philosophy of these talks or the mood of these talks with airlines right now?

[Guillaume M.J.D Faury, CEO & Executive Director]

So as usual, I will make the easy answer and I will hand over to Dominik for the most difficult one. My easy answer to the first question is we have withdrawn the guidance. And the reason we have withdrawn the guidance is because of the many uncertainties and the very dynamic and changing picture. And we are not at that point in time in a situation to indicate where we think we would most likely launch by the end of the year. That was the easy answer. Dominik, do you want to try to give a bit of color or...

[Dominik Asam, Chief Financial Officer]

I can just reiterate what we have discussed in previous discussions on the sensitivity. I mean we said it's kind of mid-teens type of fall-through from each delivery we are missing. However, you're right, in the current environment, that is more kind of a normalized contribution margin -- or gross margin number. We're also stranded with some fixed costs, which we cannot get rid of so quickly. So fall-through, if anything, higher to the downside than if we are kind of in a planned manner ramp-up.

[Guillaume M.J.D Faury, CEO & Executive Director]

In other words, all nature of costs are now being reviewed. The classical approach with fixed cost and variable cost is very challenged. And on top, the speed of evolution of the different cost of nature -- nature of cost, sorry, is not the same. So it's really a rather complex picture with a lot of moving parts. But I don't want to hide behind complexity. We are realigning. And now I come to the second part of the question as well. As soon as we will have something that is stabilized, that is likely, that is -- that we can share, we try to share, but this is obviously not the case. I was commenting earlier today that we're still May, June in the phase where we are having those very detailed negotiations. Sometimes, we have temporary agreements for the short term. We are more discussing on the bigger -- on the larger frame of the contract. Sometimes, we have a lot of difficulties to come to conclusion with airlines, which are themselves negotiating their own bailout or support plan or are looking for financing. Sometimes we have already found some agreements with airlines or some are just willing to -- it's a small number, but some are just willing to keep executing the contracts as before. So it's very difficult to give an average answer to your question as the average would represent a huge diversity of situations, which are, first, very different; and second, still moving and changing. We think -- I mean, our goal is to have sort of completed a new stability to define a new world by June. And that's why, as well, we have indicated that we could readjust a second time our production rates June-ish, I would say, at the time where we will have a more granular picture. It should not change significantly compared to what we have already done, but it could change slightly. At least this is prudently the way I see today, and this is all I can share, I think, with being as transparent as possible, but also recognizing that this is a time of huge change and many, many things are changing at the same time. So it's not easy to give an outlook for the future as we have so many moving parts.

[Operator]

The next question is from Olivier Brochet, Crédit Suisse.

[Olivier Brochet, Research Analyst]

I hope you're all well. Olivier Brochet with Crédit Suisse. I will have 2. The first one is on noncurrent PDPs. If you could help us understand a bit the tone of conversations you have with airlines and lessors about this. Anything you could provide that would help us understand how the trend and what the momentum is, if it is changing. And the second question is a bit more, I would say, longer term. At this stage, what do you think is the biggest strategic threat that you have, in particular, in balance of competition with your, I would say, your U.S. and possible Chinese competitor.

[Guillaume M.J.D Faury, CEO & Executive Director]

I'll take it. Well, on the negotiation with our customers, be them airlines or lessors and on the particular point of PDPs -- or PDPs and deliveries, there's a contractual frame that gives some boundaries and rights to Airbus. But as I said earlier, it's also a crisis that we have to navigate together because there will be a tomorrow. And we are actively trying to find the best balance between enforcing our rights and still be able to navigate today, next month, next quarter, next year. Each situation of each airline is very different. As soon as they have managed to find a way to go through the crisis to ensure their own financing, the discussion are easier. When they are in the very short term of extreme cash drain pressure, obviously, as you can imagine, it's more difficult and they're focusing first on their short-term survival. So a huge diversity of situation. We're expecting the lessors to fully play their role in this current situation. They entered in the crisis in a good shape. And therefore, we count on them to be a very strong shock absorber and help navigate the liquidity situation that we see in the industry. So we are enforcing our rights. But we are behaving as well as much as we can as partners, not endangering our own situation, being very strong when it comes to protecting ourselves, but in a collaborative way. It's difficult, I have to say. What is the biggest strategic threat? Well, basically, I think what we're focusing on is on our ability to adapt to that situation, to rebalance cash in/cash out and ensure that we will be, again, at a later stage, stabilized and then creating positive free cash flows. So when the things start to go better or are accelerating, it might be the case -- it will be the case at a given point in time. We can put full throttle and be as fast as possible because I think the race will start again. After the phase where we are to protect and to weather the storm, there will be probably a better weather, good times, and here, we want to be very fast, very agile. We want to be able to further invest, move on our products. And I think this is the biggest threat. The threat is to be stuck behind the first month of the crisis, not to be able to compete again. We are doing everything we can to be in the best shape for competing again later. We think we have the right products. We have a lot of ideas on what we could do better. We have ambition for this industry. We think the environment decarbonization, the need for flights will be as before. We're keeping investing in the right products. You know that we have said very clearly we keep developing the XLR and we think this will be a very, very competitive plane for the post-COVID-19 situation. So we are a bit schizophrenic, I think, in English. Short term, very prudent, but to be able to be midterm, long term, again, very aggressive and very ambitious, innovating and investing. That's the complexity of the situation. I try to give a lot of color on the difference between what we see short-term issues and more midterm, long term. I am and we are fundamentally convinced that the need and the willingness to fly will be back after this confinement and this very painful COVID-19 loss of freedom.

[Operator]

The next question is from Zafar Khan, Societe Generale.

[Zafar Khan, Equity Analyst]

Zafar Khan, Societe Generale. Hope everyone is well and safe. I have 2 questions, please. The first one is just on phasing of deliveries versus production. Now given at the start of the year, you were targeting 880 deliveries for this year. I guess there will be a lot of in-production aircraft at the moment. So how do the new production rates phase in? And how does that tie up with the deliveries for this year because we've talked about production for this year, we haven't really said much about deliveries. And the second question is just you mentioned that you need to adapt the cost structure to rightsize the business. Given the great uncertainty at the moment, what assumptions will be underlying the restructuring that you will be doing? So how do you look at the future and then set the right cost base?

[Guillaume M.J.D Faury, CEO & Executive Director]

Okay. So all very important questions. Thank you. I hope you are safe, too. Thank you for your comments at the beginning, and we're okay on that end. Yes, we had a guidance for 880 deliveries. We delivered 122 in Q1. We have 60 produced, not delivered. We have decided not to give a guidance for the year -- or to report the guidance because the most difficult parts to predict today are the deliveries. And this is the result of the so-called very granular work. I called airline by airline, plane by plane and very often at the top level of the company that we are currently conducting. It's not over. We have some short-term agreements with the majority of airlines, but we need to find more midterm. When I say midterm, it means at least 2020/'21. This is what we are looking at with the airlines. And we think we should be restabilized somewhere in June. When I say stabilized, having a better visibility. It's better visibility not only for 2020. And here, I go to the second part of your question, but also for the shape of the recovery. All the bottom-up activities that we are conducting with airlines and the modeling, the simulations and the data we're collecting and computing are telling us that the single-aisle is very likely to recover faster than the wide-bodies. But depending on the data, on the assumptions we put in the models and also having this moving discussion with customers, it's very difficult to say today when the recovery will take place and what will be the pace of recovery. That's why we keep working. We want to do our cost adaptation to the so-called resizing of the business, having gained more visibility than we have today to be, I mean, as appropriate, as adequate as possible. And there is obviously a balance between the short term and the midterm. As we said before, we think it's very likely that there will be a recovery. There will be another ramp-up after this phase of going down. The second ramp-up could be very aggressive on the single-aisle. So we have to keep this in mind. But this will not prevent us from doing the right things in the short term because we think it's absolutely essential to readapt our cash-out to the real cash-in and to regain this profitability, this ability to reinvest and to restart competition basically and being a performing company. So that's a nonanswer or it's a way to tell you that we are not yet at the point where we know where we want to be in terms of midterm, long-term resizing. We are very aggressively adapting to the short term and very comprehensively assessing what is the most likely new scenario of aviation for the next years.

[Operator]

The next question is from Doug Harned, Bernstein.

[Douglas Stuart Harned, Senior Vice President and Senior Analyst]

During past downturns, Airbus had said that its use of temporary workers and contractors gave the company flexibility to scale back operations some. And back then, it was around 20% of the workforce was what was discussed, although was never really needed like today. So first question, when you look at the furloughs of workers, you're talking about the use of temporary workers, how much of a reduction in workforce can be done and in what timing can that be done? And when would we see the impact would be the first question. And then second, as airlines look to get cash, to finance progress payments and deliveries, as you've talked about, I know you're working with lessors. Can you talk about if you're seeing the ECAs actually in process now to address these problems? And then would Airbus consider doing some of this financing itself, if needed?

[Dominik Asam, Chief Financial Officer]

Okay. So 2 questions. So on the temps and on the furloughs, [Foreign Language] spezielle Kurzarbeit, we are a little bit blessed in some of our home nations that we have these support mechanisms from governments because, indeed, they allow us to resize very, very quickly. And depending on the country, also for relatively long periods of time, and as Guillaume has already indicated, we are going to extensively use these schemes to reduce the cost base. I mean, if you think about the new production rates, they are about 1/3 down and at least on the remain to do for the year, that's the kind of target to rebalance and bring the cost out. On the funding of our customers, the ECAs are indeed very helpful. We are starting to reengage in much more intensive dialogues with them. They have been kind of crowded out a little bit by the lessor markets. We had only 2%, I think, in deliveries in the prior years with ECAs, and we think it will be a super important tool going forward. And we are very encouraged by the signals we get from our home nations in terms of supporting us in this very difficult journey and now working on the first situations with customers where we try to leverage these tools.

[Douglas Stuart Harned, Senior Vice President and Senior Analyst]

And would Airbus consider doing financing itself in some cases?

[Dominik Asam, Chief Financial Officer]

Well, this is really a means of last resort. As we said, while we are well protected, we believe, given the cash flow profile we foresee and given liquidity resources we have, it doesn't mean that we can support the entire ecosystem. So if, of course, there is a special situation, I would not rule it out, but it should remain an exception.

[Operator]

The next question is from Celine Fornaro, UBS.

[Celine Fornaro, Head of EMEA Industrials Research]

And I hope you are all well, as your families. So I would have 2 questions, if I may. The first one is, Guillaume, if I could just come back on your comments regarding the medium-term demand for aviation. We've got Southwest CEO yesterday saying that it probably takes 5 years for business travel to recover from a crisis. I was wondering if you see anything that is probably more structural that would limit the air traffic growth and that we wouldn't have this 15 years doubling that we've had for the last 2 to 3 decades. So something to do with environment, train competition and other things. And my second question would be regarding the Chinese deliveries. I remember early April, you alluded to the fact that potentially we could have -- or envisage deliveries restarting in China during Q2. So I was just wondering where we are on those.

[Guillaume M.J.D Faury, CEO & Executive Director]

Okay. Thank you, Celine. I hope you're doing well, too. On the mid-term demand, well, it's a bit the crystal ball. We are all working on that. When we look at the very long term, we all believe nothing basically has changed with COVID-19. But the long-term, 3 to 5 years, it's more difficult. That's really the difficult part of the equation. What are the -- what you call the structural factors that could change the picture we had before COVID-19? Well, it's potentially a change in the willingness to fly because of the wake of the crisis. I think before 3 to -- after 3 to 5 years, it's probably back to where it was before. We saw similar situations with terrorism in 2001. People were back to flights faster than what we thought. We had the trust where it was a bit the same reacceleration after the crisis. But each crisis is different, so we have to remain very prudent. It could be as well the economic downturn impact. It's going to be a worldwide economic crisis as well, not only a health crisis, and we don't know how long it's going to take. Our assessment for the single-aisle is not that gloomy, but we are very prudent. As I said before, we think we are not at the end of the assessment with the airlines. On the wide-body, we think it's going to take more time and scenarios of full recovery of the 19 is probably between 2023 to 2025, but it's work ongoing. There's a lot of studies produced by a lot of different players. That's a moving picture. I think we would be wrong to try to be right too early. We are still at the very center of the health crisis and the rest is a bit too much speculation. And China, yes, the situation is recovering in China and we'll see deliveries in Q2 in China.

[Operator]

The next question is from Andrew Humphrey, Morgan Stanley.

[Andrew Edward Humphrey, Vice President]

Hope you're all well. Just a couple, if I may. One is on the clear commentary you've given around wanting to balance cash in with cash out, which I think clearly implies a reluctance to build a significant amount of inventory during the year. There's clearly a range of expectations out there in terms of deliveries at the moment. You've highlighted that any further adjustments in production might be small from the levels that you've indicated. So while -- clearly, you've said it's very hard to give guidance on deliveries for the full year. Should we take those revised production rates as indicating at least the midpoint of a wide range for where you believe deliveries typically for the full year? And then the second and related point is, I think, your approach in terms of limiting inventory build is clearly very prudent. You obviously have a situation, particularly on single-aisle, where your main competitor has built a lot of inventory over the last year or so as a result of the MAX grounding. Can you talk about how you are working with customers to mitigate the potential -- or sorry, to defend the long-term profitability of your core business when you can see there's clearly a kind of -- quite a problematic position in terms of broader industry inventory build, which clearly is not appropriate for the current situation the industry finds itself in.

[Guillaume M.J.D Faury, CEO & Executive Director]

You take it?

[Dominik Asam, Chief Financial Officer]

Yes, I'll have a go at the kind of cash phasing question and then the deliveries. I think I can only reiterate that the hardest thing to predict is the deliveries. And the way we think about the cash phasing is the following: I mean we started with about EUR 4.4 billion in Q1 negative. And you've seen that the vast majority of that was basically related to the 60-aircraft inventory build. So you see that we are not burning much cash to speak of at these type of delivery rates of 122. And don't forget the seasonality we have where it's more difficult in Q1 anyhow. Now the June quarter will be the toughest one because, as Guillaume hinted to, it's probably in terms of deliveries, the toughest and most difficult one to talk of. And the measures we are currently taking on the supply chain have a certain kind of latency. They really give us the relief on the sourcing more in Q3 and this is why we think we'll flip back in Q3. Even if the deliveries are not snapping back massively, the cash should improve significantly. And then towards the end of the year, that's the big question mark. Are we then going to kind of languish on a low level and then be kind of cash flow breakeven, which is really even in a lower depressed scenario possible, we believe, with all the measures we are contemplating? Or do we see a certain snapback in delivery that would then give us a higher number? So the question you asked is really the crystal ball question. How much inventory will we have at the end of the year at these production rates? And we cannot tell you because then we would need to know the deliveries. However, if we see that there is too much inventory piling up, then as Guillaume hinted, we would need to adjust the production rate, maybe at the earliest in the June time frame.

[Guillaume M.J.D Faury, CEO & Executive Director]

On the long-term aspect you alluded to, we think our capacity to compete and be strong on the long term is intact, if not improved, as the impact of COVID-19 on our main competitor on top of the previous difficult situation they had to manage is probably making us stronger. So I want to remain very prudent on this and always very humble when it comes to competition. We tend to underestimate always the ability of the other guys. But I think our product range is the right one. It's the right one for going out of the crisis, we have the 220. I mean we see a tendency to go for smaller planes, what they call smaller modules in the airlines, a bit smaller modules compared to pre-COVID. That's one of the few trends we could see. And the 220 and the 321 and the XLR to go long-range and the 350 are particularly good planes. So I think we really have the ability to keep competing. And as we told you already, we think we are doing the right things to be able to go through the crisis and not jeopardizing our main projects to compete again. So I'm very prudent on the short term. We want to do all the right things, to have no regrets and not react too late, too small. But on the other hand, we are as well looking at the future very positively. We strongly believe in this industry, even in this big downturn.

[Operator]

The next question is from Robert Stallard, Vertical Research.

[Robert Alan Stallard, Partner]

Just a couple from me. First of all, Guillaume, obviously, there's a huge number of parked aircraft at the moment. How many of these parked aircraft do you think won't be coming back into active service? And then, secondly, in terms of research and development, what are your priorities going to be going forward from here?

[Guillaume M.J.D Faury, CEO & Executive Director]

Okay. I mean, parked aircraft, I suppose you're referring to the ones of the global industry, of the airlines. Well, yes, it's really massive. We see a clear trend for the airlines, which have either secured the right liquidity and think they will manage to go through the crisis or are state-sponsored or were already in good shape when entering to the crisis, the discussions we're having with them clearly show that they are a bit in the state of mind I was sharing with you before for Airbus, which is doing the right things on the short term, survive, but compete again. And the competition, they clearly put environments at the top of their priority. I think most of the airlines have understood this is a must for the rest of the 21st century at least. And the crisis is potentially an opportunity to accelerate the transformation of the fleet or reduction of the CO2 footprint airplane. And therefore, there are 2 competing trends: the most forward-looking airlines, which want to have new planes, modern equipment, low-emission planes, low fuel burn and will go very much accelerating on that path, and that's good for us; and maybe some others, which are parking planes and will use them back in service, minimizing their cash investment, their CapEx when they will have to do so. And obviously, this will be a bit of a different competitive landscape. But I think there is space and there will be even more space moving forward for new technologies. So we have these competing trends and that's why it's so difficult for us to assess the market for new aircraft moving forward, obviously, as this is going in opposite directions for us. But I'm quite encouraged by the discussion we're having at the moment. R&D, well, I made it clear, environment, so it's all the decarbonization of the aviation. I think there is still a huge potential for flight for human beings if we manage that side of the equation, and we're working on it big time and we'll keep doing it. I explained that we are, short term, hibernating and slowing down for cash purposes. But as soon as we have more visibility and room to invest again, we'll be back and probably with more speed on some of the projects. We keep working and we keep believing in automation, robotization of production in the full 3D design of the product and the production system and on digital bid time. We think the connected plane, artificial intelligence and data before it goes into plane themselves and the digital-native plane that is, in my view, the next generation of plane, these are the priorities that remain or are even reinforced by the crisis. And there is probably a new topic on the agenda, a topic that is of a higher importance, it's health onboard. As aircraft manufacturer, we have worked very heavily on those topics in the past, was not too much known by the public. People were more focusing on flight safety and later, on security more than on health. We'll prepare, but this will probably be a more important to take moving forward after this COVID-19 worldwide scar, I would say.

[Operator]

The next question is from Christophe Menard, Kepler Cheuvreux.

[Christophe Menard, Head of Aerospace and Defense Sector]

I had 2 questions. The first one is on the ability to recover and in terms of -- you mentioned the fact that you need to rightsize the organization. When demand actually recovers, especially single-aisle, what kind of ramp up could you -- could we expect? I mean, in the past, where you had lead times of 12, 18 months, what is -- what do you have in mind when actually demand recovers? Second question is more long term. Embraer-Boeing, the deal has collapsed. Do you think that could change the kind of competitive position or the competitive landscape in the future because I would expect that Embraer will probably seek other potential partners. What is your view on the situation at the moment?

[Guillaume M.J.D Faury, CEO & Executive Director]

Well, ramp-up, and especially ramp-up of the single-aisle. So we are going down from 60 -- down from 60 to 40-ish. That's easier to ramp down, industrially speaking, than it is to ramp up. Financially speaking, we know that for suppliers and for us, it's very difficult and this is what we are managing now. The discussions we're having with customers and the assessment of the forward-looking demand clearly make us believe that there will be a ramp-up again. And the question is when and at what pace. So your question is a very valid one. I see 2 different questions for us. The first one is from 40 to 60, let's call it, back to 60. We know the industrial systems are able, have demonstrated the 60 and we have even demonstrated in the last 6 months that we are now coping with the complexity of the 321, of the ACF. All of this has finally been digested. So what we want to preserve in the next month is the ability to be back to 60, not too slowly if the demand comes back, and we think it will come back. Then there is the rate beyond 60. As you have probably heard or seen, we have decided to pause the investment we had on the new A321 Final Assembly Line in Toulouse. We have not canceled the investment. We have just paused and we will recover at a later stage. So we keep having in mind that the midterm demand could be higher, could justify more than 60. And -- but we are not investing today for that. And we would restart investments when we have a clearer picture. In other terms, I think the recovery from 40 to 60 could be rather quick or probably a bit quicker than what we have done in previous years to go up to 60 because we are prepared. The capacity of the industrial system has been in place. We are working with our sales and suppliers to make sure it's not damaged or not too much damaged, so we can recover. Beyond 60, it's another story and we would need to have a much clearer assessment and maybe really through to the other side of the river before we restart to invest big time on production rates. We are not yet there. We think the product would deserve it. We think the family of the 320, including with the XLR, will be a very successful family for the decade to come. But we would be wrong to be right too early, okay?Embraer-Boeing. Well, what to say? In a crisis like this, there are collateral damages. I think this is a collateral damage for our competitors. And therefore, I would see it more positively for us. Now we see, we have our own challenges. I think the 220 was, is and will remain a very strong product. We are very committed to it. I think it's very adapted to the post-crisis, post-COVID-19 crisis. And I am very happy that we made this investment 2 years ago, that we reinforced our position. It costs money currently. We know that it's an investment, but I think it's a very valuable and adequate investment for the future. That's a very good plane and it's a very good program and the right point in time for Airbus.

[Operator]

And the next question is from Harry Breach, MainFirst.

[Harry William Freeman Breach, Research Analyst]

Wish everyone with you and the Airbus team good health or return to it. And I had just 2 questions, maybe one for Guillaume, one for Dominik. Dominik, maybe firstly, you spoke earlier about matching cash-in and cash-out. You spoke about the crystal ball challenge of forecasting inventory and deliveries later in the year. I guess the other important side of cash-in is PDP flows. And I know when we spoke back in late March, there was a point where you said the vast majority is still paying, and then there were fewer. Can you possibly give us some feeling about PDP flows, whether it's sort of what's being made on schedule or some metric about what you'd expect just so we can have some way to sync in our models about PDPs?And then maybe just for Guillaume. Guillaume, again, coming back to what you said to us in March about 737 MAX customers and potentially the interest of some MAX customers in diversifying their single-aisle fleets, particularly as we come up to 12-month anniversaries of the grounding. Can you share with us sort of any thoughts about the level of interest you're seeing? Has it gone away perhaps from these MAX customers? Can you share with us how you're thinking about them?

[Dominik Asam, Chief Financial Officer]

So talking on the cash-in/cash-out, I mean, you're right, the PDPs besides the PODs are a key component of the cash-in. But I don't want to go beyond what Guillaume explained in terms of individual customer discussions. What I want to say is that we are looking into Q4 and want to bring the cash-out to a level where we can cope with even very pessimistic cash-in scenarios. That's the kind of idea, to really look for kind of rock-bottom idea. You never know where rock bottom really is. But in terms of everything we can see today, every customer dialogue we have, we look at both the POD we can expect -- and the PDPs we can expect and then try to resize the cost base. And the key question is, of course, the rates. If the deliveries would suffer more, we would need to potentially adjust, as we said before, in June. But for the time being, it's about bringing these 2 back in balance at the latest in the December quarter. And trust us that we're not hoping on kind of 100% of PDPs coming at that point in time.

[Guillaume M.J.D Faury, CEO & Executive Director]

Well, on customers and the situation of our competitor on the single-aisle, I think there's not much I have to add compared to what I said in March. It's not that long ago. Obviously, all airlines are focusing on their short-term liquidity and how long the planes on the ground would last for them and when is the return to service and how long they need to sustain the crisis. So we don't see airlines being very active on that side of the equation, but it's not unlikely that it will come later. So short term, I would say, it's a bit survival mode for everybody. Okay. Was it the last question? No? One more?

[Operator]

And the last question is from Carter Copeland.

[Carter Copeland]

Sneak in the last one. I'm glad everybody is staying well. I hope it stays the same. Guillaume, just a couple of quick ones. One, with respect to the 60 aircraft that didn't deliver in the quarter, can you help us with some color on how much of that was related to financial distress and inability to take the plane because of a financial condition versus just simply the logistics of not being able to get a crew across international lines or wanting to avoid quarantines and whatnot. So any color there, I think, is helpful. And then with respect to the June time frame that you've laid out on knowing more. Is there something with that date that's significant in terms of a decision point? Is that a point where airlines get enough visibility on forward bookings, on recovery, that they have a bit more confidence around how 2021 will look? Any color there would be helpful.

[Guillaume M.J.D Faury, CEO & Executive Director]

On the 60, well, I have the share by type, I don't really have the share by region. Basically, it started in China. What I have clearly top of my head is that there were 19 planes to be delivered in Feb in China to Chinese -- sorry, to Chinese airlines, that Chinese airlines didn't take for many -- I mean, clear reasons. They were just not able to travel any longer. They were not able to travel to Europe and then Europe was in a lockdown. So I would say that, in my view, the vast majority of cases were the combination of reasons, but not yet the financial distress itself when it was just not yet the case. This maybe leads me to the second part of your question of the June time frame. Except for Chinese airlines, which are ahead of the pack, for the majority of others, the crisis is a month or 1.5 months old. So it's very young, actually. And the time it takes to manage your very short-term situation, your planes to park them, all the staff, what you do with your customers, your passengers, the tickets and so on and starting to discuss with your lenders, with many stakeholders, the governments, this is what the airline had done so far. Now I said earlier today that we see airlines that have secured their viability through the crisis and these are the ones with whom we start to have visibility, but it's just a share. Not all airlines have regained their own visibility. And to come to agreements with us on the short term and the midterm, they need to do that. So the June time frame is my assessment -- our assessment today of how long it will take to restabilize the new scenario in this new world. On top for us, it's more or less the time it takes to run, to get more data points, including from governments, also on the virus itself and the health dimension of the crisis, to understand better what -- and the economic impact, to understand better what will be the scheme of recovery, the speed of recovery of the traffic, of the number of planes in the air and what it means for the demand. And this is important for us to have this midterm, long-term view that will lead to decisions, okay? So that's basically what I can share with you. And these are the main reasons why we think by June, we will be more educated than we are today.

[Thorsten Fischer]

Ladies and gentlemen, this closes our conference call for this time. Sorry, Carter. If you have any further questions, please send an e-mail to Mohamed, Philippe or myself and we will get back to you as soon as possible. Thank you, and I look forward to speaking to you again soon. Goodbye.

[Guillaume M.J.D Faury, CEO & Executive Director]

Thank you very much. Keep safe. Bye-bye.

[Operator]

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.