Dassault Aviation SA

PAR:AM

Earnings Call Transcript 2019-Q2

[Éric Trappier, Chairman & CEO]

Thank you for coming. Hello, we're going to talk about our half yearly results, and we'll begin with the short film that will recap all the activities of the Company for this first half of the year.

2019 began with the visit of the minister of the Armed Forces on January 14 to our Mérignac plant. Florence Parly officially handed the notification of the contract to develop the new Rafale F4 standard to our CEO. The Rafale is an operational and commercial success. It retains the highest capacity level as it is regularly upgraded according to the most recent standards. The Rafale will still be in service after 2015.

With this in view, it must persuade its development following the integration of the F3R by incorporating all the latest technological progress, but also feedback from our operational staff, so as to face new threats. Compared to the current F3R standard, the F4 standard will provide significant progress in four areas, connectivity, engagement, survivability and availability.

The F4 standard will be validated by 2024. Some functions will be available right from 2022. In her speech, the minister of the armed forces paid tribute to the know-how of the women and men of the Company, you are France at its very best, its work, its industrial expertise, its service. Our Falcon support development strategy is being strengthened with the acquisition announced early 2019 of TAG Aviation maintenance activities in Europe and ExecuJet.

In July, the Company also announced the acquisition of RUAG's Business Aviation activities in Geneva and Lugano, an ambitious strategy at the service of our customers, which also resulted in the construction of an ultramodern spare parts center. This Dassault Aviation center obtained the first place this summer in the AIN and ProPilot surveys. This service set the standards in the field of business aircraft support. Customers and operators paid great attention to their ranking. Both reviews highlight our excellence in almost every area and support the availability and price of spare parts, the responsiveness of our breakdown service for specialist aircraft reliability customer satisfaction.

Our Dassault Reliance Aerospace Limited plant in Nagpur, India has started producing Falcon 2000 front ends and tanks, the construction of a new 12,500 square meter building, the development of the local supply chain and the ramping up of the engineering center in Pune demonstrate our desire to invest sustainably in India within the framework of the national policy known as Make in India, the delivery of the first of the 36 Rafale ordered by India is expected in the coming weeks.

On February 6, our Bordeaux-Mérignac plant hosted the delivery ceremony for the first of the 36 Rafales ordered by the state of Qatar. This event is a historical one because it is a proof of the quality of the strong relationship established over 40 years between the Qatari Air Force and Dassault Aviation. This ceremony hosted by Desandre Darrieussecq, State Secretary to the French Minister of the Armed Forces was the opportunity for the Deputy Prime Minister of Qatar and Minister of State for Defense to unveil the name and official symbol of the Qatari Rafale, Al Adyiyat.

After a direct flight from France within flight refueling, the first five Rafales in the hands of Qatari crews trained in France were welcomed to Doha during an important ceremony, the presence of his highness, the Emir of Qatar and our CEO. The Rafale successfully carried out a test campaign in a very cold area in Finland from 29th of January to the 2nd of February in the Lapland region. Engine start tests were conducted at this site as well as one-way driving and flight tests.

Hot weather campaign organized by the French Air Force this summer in the United Arab Emirates also demonstrated the Rafales flexibility and robustness. Dassault Aviation was awarded the UIMM Aquitaine women's vocation prize. The prize was awarded at the [indiscernible] ceremony to Bricette in terms of the industrialization of the Rafale in Mérignac, Nadège Reuilh Le Gall and Elodie Bouille.

The European Business Aviation Exhibition, EBACE took place in Geneva from the 21st to the 23rd of May, an opportunity for Dassault Aviation to present its entire range of business jets and to review the progress of the Falcon 6X Program, which is progressing according to schedule. The manufacturer of major parts has begun. The assembly of the first aircraft will begin by early 2020 for entry into service in 2022.

On May 14, the construction site of the new Mérignac building was officially launched. It is mainly intended to accommodate research, development and after-sales support teams. This is one of the projects of the program to redevelop our infrastructure, deciduous part of our transformation plan. This program aims at specializing production sites according to strategic sectors. It also includes the construction of a new plant in Cergy to accommodate the activities of the Argenteuil site, the modernization of the Saint-Cloud and Biarritz facilities.

The extension of the Seclin side and the delivery of a new building in Martignas for our pyrotechnic activities, call it, leading our future, our short-, medium- and long-term transformation plan is based on our DNA, a passion for aeronautics, Civil, Military duality, a constant search for innovation and teamwork.

Their responsiveness, tenacity and know-how of the Company's men and women are at the heart of this transformation, which is driven by digital technology, of which we are one of the pioneers. This transformation plan will allow Dassault Aviation to be stronger, more agile in order to adapt to the changes in the world and the challenges that lie ahead to remain at the top of the world's aeronautics industry.

On April 24th, the Falcon 8X broke a speed record by connecting the Eastern and Western Coasts of the United States in 4 hours and 28 minutes. The aircraft improved the previous record by 24 minutes despite more difficult conditions with a one per charter Santa Monica runway and more stringent takeoff noise standards, a new feed that demonstrates the flexibility and versatility of the Falcon family's flagship.

Australia took delivery at the end of April of the first of the three Falcons 7Xs it had ordered for its governmental fleet. The Falcon VIP to be operated by the Royal Australian Airforce benefit from the latest connectivity solutions with the broadband permanent data link.

The first two of the six Falcon 2000MSA maritime surveillance aircraft ordered by Japan have been delivered. Dassault Aviation has been awarded the verticalized Rafale contract RAVEL from maintenance under operational conditions, MCU, of the French Rafale over the last 10 years. The Company shall deploy an information system to manage the Rafale and shall use a Big Data Dassault Aviation, Dassault Systèmes platform for the benefit of all its stakeholders.

As for the drones, this first half of 2019 was marked by the end of a flight test campaign undertaken by the nEUROn in 2018 and by the notification of a new campaign for the end of 2019 Dassault Aviation tool. So pursue its active collaboration with Airbus defense and space as well as Leonardo for the development of the Eurodrone MALE, the goal is to obtain a contract with OCCAR.

The inauguration of the Paris Airshow was marked by the unveiling of the scale 1 model, the future new generation NGF fighter aircraft and their support drones in the presence of the President of the Republic, Emanuel Macron, and the French, German and Spanish defense ministers.

During that event, Éric Trappier, CEO of Dassault Aviation and Dirk Hoke, Executive Chairman of Airbus Defense And Space signed an industrial agreement for demonstrated programs. They also submitted a joint industrial offer to the government for the initial demonstration phase of the future SCAF air combat system with a view to a first flight in 2026. The ministers initial the framework agreement between the three countries on the development of the SCAF.

The SCAF aims at creating a combat system around the NGF combined drones and manned platform, current and future generation fighter aircraft tankers at works et cetera. France has been designated as the leader nation and Dassault Aviation, industrial the leader company for the NGF fighter aircraft. During this 53rd Paris Air Show, the President of the Republic Emmanuel Macron heard a detailed presentation on the civil and military range of Dassault aircraft.

Prime Minister, Edouard Philippe, was able to discover the different trades in the Company. Several members of the government were able to appreciate the extent of Dassault Aviation expertise and know-how in many fields. A large number of military delegations and customers visited our static display. Our highly innovative stand was particularly appreciated by large numbers of visitors.

During the exhibition, the French Minister of The Armed Forces also confirmed her intention to purchase three Falcon 8X Archange to implement the universal electronic warfare charge and seven Falcon 2000 maritime surveillance Albatros. Prestudy work to prepare the contract for the development and manufacturer of these aircrafts is in progress.

During this 53rd Paris Air Show, the Rafale demonstrated its flight qualities each and every day with Air Force Captain Sebastien Nativel nicknamed Babouc. The Rafale also presented to many foreign delegations throughout the week. They were able to discover the many innovations on display in the military support customer service area. A brand-new Rafale simulator allowed us to demonstrate the extent of our aircrafts operational capabilities.

Just as the Rafale, the Falcon 8X flew every day. The flagship of the Falcon range was also presented at our static exhibition alongside the Falcon 2000, the Falcon 900 and scale 1 model of the Falcon 6X cabin.

As part of its plan to recruit 1,000 employees in 2019, Dassault Aviation actually participated in the fourth edition of the [indiscernible] and in the employment and training forum. The Company was also present in the Paris Air Lab, a space of discovery dedicated to innovation where our specialists were in charge of the Big Data and Artificial Intelligence island.

At the airshow, Dassault Aviation also welcomed the partners it supports within its social action programs such as the Antoine de Saint-Exupéry Foundation for Youth or Rêves de gosses and Elles Bougent Association encouraging young women to choose careers in Aeronautics. Finally, this show was an opportunity for us to pay a very special tribute to Serge Dassault who has done so much for the development of Dassault Aviation.

Well, presenter, Trappier, thank you very much. We'll now move onto our business activity. Lots of things have already, so I will be fairly quick on the presentation so to allow plenty of time for the questions. You've seen, of course, the star of the show on the Bourget was the signature of the agreements with the three countries involved France, Germany and Spain regarding FCAS, the Future Combat Air System that we are partnering with Airbus so as to support this development that's preparing ourself for the future. By 2040, we hope to see the commissioning of this system, FCAS

The Bourget Air Show is also good opportunity to do some stock-taking with political dignitaries who come and visit the airshow. There were lots of them, and it's a chance to see the delegations. There are lots of those who came along this time too, and it was an opportunity for people among delegations to meet on the B2B basis and a one-to-one basis and the public at large to that comes to see the aviation business lines, the spaces we prepared for GIFAS entity, the employment recruitment area and the innovation area and also it was a good opportunity to pay tribute to Serge Dassault because it was the first Le Bourget Air Show without his presence.

Now, the [indiscernible] trends you're familiar with them I think. I won't dwell on them. There is a geopolitical tension, as you know, that I won't go into in detail, some uncertainties too regarding the relations between China and the United States creating also further uncertainties with respect to the potential trade war between these two. Hence ripple effects for certain companies. The Brexit, well, no comment on that, there is lots about that in the news or the uncertainty hanging over a possible Brexit and how the U.K. might leave European Union and how we will have to rebuild some kind of business relationships and trading relationship with this important country.

Economic environment, well, it's, of course, something that ensues from what I've just been saying. Uncertainty, the business climate can suffer from these uncertainties. But in the U.S. we see development investment going on at a more normal pace and then of course, the dollar-euro exchange rate, with the dollar stronger, and we have got to hedge against future currency fluctuations if the dollar is less dominant in the future.

So the Future Combat Air System, FCAS, this is something that encompasses different platforms and already existing airplanes with the future combat aircraft, the NGF and initial design work was done at the start of the year, and we set up a contract between Dassault and Airbus, as you know on this so as to hopefully foresee the launch of demonstrators. The airshow in Le Bourget was a major milestone because the three countries are in agreement now about the start of the demonstrator program.

So we've got to get into the contractual and administrative details now so as to sign contracts and so on but that's in process, the DGA for France with their counterparts in Germany and Spain that are basically in charge of getting these initial contracts going hopefully in 2019. Now the objective I'd recall is the first demonstrator flight in 2026. The Military Programming Law in France, no Rafale deliveries for certain number of years.

So 2018, there were 3; 2019, there won't be any and the launch of the F4 at the end of 2018. We started working on it. This is a major issue. We hope to have an additional order by the end of the year for options to do with the F4 standard, and we resume deliveries then for the second part of the fourth tranche, 28 airplanes that is. 28 Rafales as of 2022 and then reached the order of a fifth tranche that's been announced by the French defense ministry.

And important notification was done which was the contract notification for RAVEL, which is the verticalized Rafale. Now we have seen the contract notification for the French Rafale operational condition maintenance that is OCM. We want to give more verticality to these maintenance contracts, give the responsibility for matters in the vertical way to the aircraft manufacturers, so we want to try in order to supply apart from the engines and the ejectable seats, which will be managed separately.

So Dassault Aviation is the OCM single-prime contractor for aircraft equipment excluding the engines and seats and you see this is the contract that encompasses 10 years. Obviously, the order intake would be impacted by, of course, contribute a lot to the French order intake and a particular feature of the contract is setting up of a Big Data platform that we're currently putting together in Dassault Systèmes and Dassault Aviation together so as to foster secure exchange of information with our user friends in the military arena.

Now deliveries for export markets of 10 Rafales of the 36 ordered by Qatar. I'm mentioning the end of August figure. This is September now of course, and Thales has actually postponed the publication of its half yearly results. Thanks to it because of Gemalto. And so there are things that happened over the summertime, for example, with respect to the Rafale 5 deliveries of Qatar Rafales. So to date, we've delivered 15 Rafales to Qatar and the five that we've just delivered are actually ones that have arrived already very well.

So in Egypt, we have delivered the 24th Rafale in July. It's not in the half yearly results, of course, because the cutoff date was the end of June but the delivery of the 24th Rafales to Egypt has now been done. And India, Rafale for India first deliveries in 2019 of the contract of 36 Rafales ordered. India is an important country for us of course with the reelection now of the Prime Minister, Mr. Modi and his party and his coalition.

We are preparing the setting up of Make In India still, where we're setting up in India for -- we're in for the long haul. We are starting to manufacture Falcon parts. We've done it in a small hangar for the moment and now, they've built a big hangar that you can see on this photograph, which will help us to pursue our ramping up of our business efforts in India.

Leading to the final assembly of Falcon 2000 in India, making certain parts locally, and it will be true also slowly but truly with the Rafale and depending on the order that we might obtain from India for the Rafale.

So our supply chain is supporting us to. It's not just Dassault, but subcontractors too going to settle in India as well, and we've even opened an engineering center in Pune, near Bombay. Now the MALE drone, Eurodrone, we are working behind Airbus, which is the lead contractor here dealing with the OCCAR which is the contracting entity and dealing with Germany, which is the lead country. For FCAS, France is the lead country, so here is Germany, and we are trying to obtain a contract, which will enable us to develop a platform of this nature that would be competitive but especially be more developed than what's being done by our American friends

I'll turn now space programs. We are working on obtaining additional contracts from ESA. This will all depend on what will be decided on the ministerial conference next November in ESA, but in particular, we would like to continue our adventure there in small space there because -- especially the Space Rider project. Also there is a new interest for defense in the space area now and there is some parties that have been set up under the Air Force. They're supposed to prepare space-based defense.

Now maritime patrol aircraft, we've delivered ATL 2 that's been upgraded. The initial aircraft have already been retrofitted with this upgrade and that will be part of our sales figure for the first half of the year. Then also Japan, delivery of the first two Falcon aircraft there. There's been an order of six Falcon 2000MSA for maritime surveillance by the Japanese Coast Guard, so that's 6th, therefore, in total ordered, and we hope to continue with the pace of delivery and sale of aircraft to the Japan Coast Guard.

Now France, Florence Parly our French Defense Minister has confirmed the decision to enter into a contract for three aircraft for the electronic warfare effort to replace the Gabriels that were becoming older now, so three Falcon 8X Archange ones and seven Falcon 2000LXS Albatros for maritime surveillance and intervention and seven therefore, Albatros Falcons. We've also delivered a second Falcon 50 with a hatch for Search and Rescue chains, so we're pursuing our improvements to Falcon 50.

Business jets. Well, the start of the year was a very flat market. And the first half of the year was really flat in terms of orders because we had seven orders as of the end of June this year. That was pretty low ebb in spite of the fact that the pre-owned aircraft got off to a pretty good start, but lots of prospects and negotiations but not lot of orders. So July and August, August suddenly saw finalization and some achievement there resulting in a total of 26 Falcons in the order intake as of the end of August.

So people became pretty active over the summertime in terms of ordering Falcons and that's quite substantially important we think. Regarding Falcon 6X, we're pursuing our development of the 6X. Everything is as per plan and everything is on track, and we hope to see the commissioning of the 6X by 2022 as planned, and we're really impatient to see this airplane -- they've already been sales of this 6X, and we want to see it flying as quickly as we can.

So Falcon in service. It was said in the film that this is #1 in all areas, not just in the general league tables, but on all sorts of points that we've put here on the slide for you, so we're pretty proud of this and the Company. A lot of work was put in by our teams to work closely, side by side with our clients and the two publications that are the benchmark ones here, AIN and ProPilot, U.S.-based publications that rate the business jets as a whole, we came out on top of their list and that we think is important.

It's something that's really a feather in our cap. It's really what our clients think and say to this publication. That means that in reality, the efforts we've been putting into the customer focus, work side by side with their clients have reliable aircraft, help them if there is an issue in terms of troubleshooting, and that's been factored in by our clients and their service satisfaction reports have bring us out on top.

So Falcon in service, again, the Falcon 8X, there has been a new time record that you heard about in the film in spite of the take off on the length and noise-restricted field over there, so that was a new time record there and continuous improvement of aircraft in service with the FalconEye that's starting to be used widely now in the whole of the range 8X, 7X, 900, 2000 and so they will all be equipped with the FalconEye. FalconEye is something that enables us to approach in poor weather conditions, in fog or nighttime, for example, with maximum security up to 100 feet in a very safe condition.

So it's a really good enhancement and the Royal Australian Air Force, as you see here, two Falcon 7X VIP delivered out of the three that they ordered. And we've delivered two already and their Air Force is a pretty happy. So here is the Falcon family, the future well, I'll foster too for another few months maybe and the future Falcon that is -- we are working on it. It's in progress but not much on the slide because it's rather confidential for the moment.

Falcon customer service, I've talked about success and satisfaction of our clients, but it's also question of extending our service centers that's important. We've talked about that already. We started off with the ExecuJet. We'll continue with the buyback of TAG, and now we've continued further with the purchase of RUAG's business jet operations in Geneva and Lugano Airports.

So this is now quite a substantial network, well fleshed out as well as our own capabilities for -- to support internally like we had during GIFAS in the U.S., so global leadership with Geoff Chick and our business manager over there. So we are continuing the integration to the great satisfaction of our clients. We are closer and closer to where our clients operate these days.

The transformation plan is being pursued. You've seen certain number of new appointments, the manager of the design office and in the field of civil aviation now announced that at the EBACE, the replacement of [indiscernible] who by Carlos Brana, the setting up of this new support to be more efficient vis-à-vis our Falcon clients.

The replacement that was made today at the top of DFJ of Jean Rosanvallon, he is going to remain because of his great experience. He is going to be consultant who will be directly by my side, by Thierry Betbeze who is going to take the leadership. He was the financial director of Dassault Falcon Jet and all this is to give more strength through a certain number of transformations carried out in the Company.

The deployment of the digital technology, I talked about the Big Data, Dassault Systèmes, we are trying to develop this new aircraft, I'm not going to tell you about this with our 3DEXPERIENCE tool and in our plans considering the transformations we are making you've seen the modernization projects for our plans and you cannot see what's happening inside, but these are digital transformation programs with the arrival of SAP that is -- and Apriso also.

So in the digital sector, the results of Dassault Systèmes this summer have highlighted this teamwork we are doing with Dassault Systèmes, and we really bank on 3D experience, which is a wonderful platform in terms of all its new features so as to improve our development capacity and our productivity.

From the industrial point of view, just to remind you that we're going to close down Argenteuil, as you know, this has been accepted by everybody. We're going to open the new plant in Cergy. We've begun working on the mockup of the new plant, we have bought the land. We are in touch with the -- with all the authorities in the region of Cergy and the urban community of Cergy, everything is taking place well in terms of all the schools around to train people, to have schools that can provide employees.

The modernization of Biarritz, Martignas for those who can go there and who can visit the building, it's almost build. It's almost operational, it will be in a few weeks from now. Mérignac is being built. We have this tertiary building. Seclin, with its extension we have linked two buildings. Seclin will deal with the primary parts from Agenteuil and finally, Poitiers with a certain number of activities that will be arriving in Poitiers.

As for our results, so seven aircrafts at the 30th of June in terms of our order intake compared to 18 in 2018. As for the first half deliveries, we have delivered 17 aircrafts at the 30th of June compared to the 15 in 2018. So 43 Falcons, that's the backlog versus 53 at the end of 2018. Rafale export, no new orders for Rafale export. The delivery of 10 aircraft, the 10 Qatari ones compared to the two in 2018 and the backlog is 91 versus 101 in 2018.

Order intake. €2.9 billion, a large number of orders in France because of the verticalized contract, the RAVEL contract, which will take place over the next 10 years versus the €2.8 billion last year, which would include the 12 Qatari aircrafts. The net sales €3.1 billion, that's the net sales. Those are the deliveries of the Rafale and Falcons that I mentioned earlier on and the delivery of the ATL 2 modernized compared to the €1.7 billion in the first half of 2018.

So the backlog at the 30th of June is at €19.2 billion versus €19.4 billion at the end of 2018. I actually would like to take a few key seconds to update things at the 31st of August because I told you about the summer, which was a very studious summer. Order intake: 26 aircraft versus seven on half yearly basis, a delivery of 23 aircraft versus 17 on a half yearly basis, as for the Rafale, 16 Rafale were delivered compared to the 10 on a half yearly basis.

So the backlog is at 56 Falcon, 85 Rafale compared to the figures I had indicated at the end of 2018. Now our research self-funded R&D. €258 million that is the strengthening of our teams for the development of the Falcon aircraft. We are working on the Falcon 6X fully, and we've begun the development of new Falcons. So we are increasing our efforts in terms of self-funded R&D Falcon.

Adjusted consolidated income. Net sales, €3,058 million versus €1,709 million in 2018. Operating income €250 million versus €111 million last year on a half yearly basis. Financial income is equivalent minus €26 million versus minus €38 million last year. Equity affiliates of Thales €143 million compared to €134 million in 2018.

Taxes vis-à-vis our income €81 million versus €21 million, so the net income is €286 million versus €186 million last year. Net income margin slightly down 9.4% compared to 10.9% because of Thales because Thales is less important in our results compared to 2018.

Our available cash, we are using our cash to build aircrafts. So we are receiving prepayments but we are delivering our aircraft now. So we can see this in our income and there is a drop in our cash from €5.2 billion to €4.8 billion, and it's going to continue because of the delivery of the Qatari and Indian aircraft.

This is what I wanted to tell you today regarding our half yearly results, and I'm at your disposal to answer all your questions. If you have any questions because if I was clear enough.

[Unidentified Analyst]

Aren't you worried about the time for the negotiations to reach the Eurodrone. As a partner of this program, how do you decode the time you require to sign a contract?

[Éric Trappier, Chairman & CEO]

In terms of defense, I'm always worried about the time, but our DNA and our experience has shown that we have to be resilient. We have to be a little bit patient. We aren't so naturally, but we learn to be so. So we actually be patient in these large defense programs. In the cooperation programs, we have to be even more patient because there are several countries, several companies involved, you have to be even more patient.

This is a topic that is studied by OCCAR for four countries France, Germany, Italy and Spain, where there are three major companies working. Actually, there are many more but the three leaders are Airbus, Dassault and Leonardo. And the prime contractor at OCCAR is Airbus. The discussions are underway. We aren't really concerned. We are supporting our prime contractor, Airbus. They ask us questions, we answer them.

And I think that the major parts of the discussion are the states. Are the states going to do it, what will be their budget that's the discussions underway between Airbus and OCCAR, I must say that there is an additional complexity, but it is quite pleasant that it's one of the topics that could be used for the new European Defense Fund, and it can contribute to develop European material for European requirements.

[Olivier Brochet, Crédit Suisse]

Olivier Brochet from Crédit Suisse. A couple of questions, please. Firstly about the market trends for business jets geographically speaking, if you could give us a breakdown what you're seeing in the market in the first half and what about the business activity right now? And secondly, the hedging -- currency hedging, the exchange rate used in the first half of the year, what about the second half of the year, how did they compare? According to what I understood, you've hedged -- taking on some additional hedging instruments. How far does that go?

[Éric Trappier, Chairman & CEO]

Okay. The trend for the Falcons presumably, we won't do it in a quantitive way, but qualitatively maybe. The United States are faring pretty well. The American continent in general is faring pretty well, orders coming in from the United States. It was true last year and it remains true this year is a trend. It's the U.S. economy that is fairly buoyant and active with investments continuing, so all types of aircraft in the United States.

The second trend is a bit of a dip in Europe, is hard to always link one thing with another, but maybe there is some uncertainty that I mentioned earlier about Brexit and issues to do with Europe's positioning and Europe vis-à-vis, the issues between the United States and China and so on. Also perhaps the southern part of Europe that's a bit less buoyant than other parts of Europe.

So these worries are sources of disquiet don't really foster a very active market, but we're selling in Europe anyway notwithstanding that in Asia, well, there are two Asias, there is China and the rest of Asia. China is still a bit flat. So as I've been saying for many years is flat, but you've got to be patient. China will purchase, but you've got to be present in China, therefore.

They're not buying from anybody, from ourselves or our competitors at the moment, but you've just got to bite your time. We've been investing in China, we're close to China, we're present in China, but the results for the moment have been really materialized on the power -- with the size of this country that wants to be a major economic power and there will necessarily have needs so as to get around efficiently in the business world.

Now the rest of Asia is rather promising. We've got new countries that are becoming interesting in the business jet world, especially for Falcons. And Australia, of course, is well known. They need airplanes. It's such a vast country. Everything is big in Australia, so you need a plane to get around. And so the Mid-East, it's a bit flat along with Africa, a few sales, that's all.

But the U.S. is, I won't say it's a bit better with Brazil because you will ask me about the [indiscernible] impact regarding the issues between France and Brazil at the moment, the impact on our sales. Well, the business world in priority was in favor of the arrival of the current authorities in placing the country, so would tend to foster may be the purchase of business jets in that country.

The hedging instruments, sorry, didn't answer that one. Yes, we've taken out hedging instruments. 1.18 is our basis for the hedging ratio but I will leave it at that. There are other things but I can't tell you them for the moment. There are things I know but things I can't say.

[Unidentified Analyst]

Can you tell us about the F3R retrofit standard and the Mirage 2000D?

[Éric Trappier, Chairman & CEO]

The retrofit of the F3R, we have delivered the F3R. The development has been accomplished. It's been delivered. Now we are in the application of the F3R in a certain number of aircraft. We have done a few. The armed forces has received some, and then it is a state that deals with these projects in the state of workshops.

And I can't really tell you where we've reached, but there is a program to retrofit all the aircrafts into F3R. I mean not the whole fleet, but part of the fleet.

The second question on the 2000D modernization is underway, it hasn't yet been finalized. So it will take place. I don't remember which year exactly. I think roughly 2020. The delivery of the retrofit of the 2000D, there are a few additional arms on the aircraft, et cetera.

So it's standard and there will be other projects in the state workshops.

[Unidentified Analyst]

I'm from [indiscernible]. I gathered that one of your competitors in business jets was undercutting on prices. Is this still going on? What are the case? And is it still going on is my question please in business jets?

[Éric Trappier, Chairman & CEO]

The price war, price battle, we can say that there's been undercutting, but there's been a price war, yes, yes. So obviously, you got to have a cost war too, but one of the players has brought their prices down much more than others. You probably know which one. So I don't need to name names, but there is lots of analysts here, who needs most cash, and you know who's been doing that. You will find the name straight away. They were afraid the debate was over. Is that it.

[Loïk Segalen, COO]

Some people are keeping their questions under their hats or something.

[Unidentified Analyst]

[Pierre Trum], [SAT Info]. I have a question on the possible contract for the NGF demonstrator. So when is it planned? And the negotiations, the signature of this contract that you mentioned, is that related to the Franco-German project for tanks?

[Éric Trappier, Chairman & CEO]

No, no, no, it's not a tank, it's not a tank, it's not the Shaha a tank, but we would like the two topics to be completely separated. So we with Airbus and the people with whom we cooperate in the field of NGF and SCAF. As the NGF demonstrated, but there are also the remote carriers and there are certain number of packages in this large global system. We are ready -- we have made our offers. We have shared our industrial tasks, and we are waiting for the contract. This reminds me a question on the Eurodrone or on the MALE, always takes too long.

But we do believe that it is taking too long considering the announcements made at Le Bourget, we would like it to happen quickly, and we were hoping it will happen at Le Bourget now in September or by the end of the year, but it is normal. We are impatient industrialists. Our engineering teams are absolutely, motivated. They're ready to work really and not just on proposals, they want to develop a prototype, and we need that to develop our skills, so we are very impatient to obtain this contract and I think it is a contract that's easy to sign but, of course, the three countries have to agree.

We have to agree on the budgets. The systems are not the same in the three countries. So all this has to be harmonized. We are doing this and France is the leader, so it's up to the DGA to make sure that all this takes place quite rapidly. We must not forget that to make something fly by 2026, we need to have a starting time because otherwise all this will be left floating, and we cannot leave our teams idle.

So we're trying to motivate our teams and the contract has to arrive. And the budget, well, I know the budget, but I'm not giving it to you, but the DGA knows about the budget. You can ask them this question. This is not something we've decided to publish during the Bourget Air Show.

[Unidentified Analyst]

Well, on business jets, this period of flattish market that went on for a while, would it not raise financial issues that you will have low ebb of deliveries and then you've got the R&D spending going on, you got to cover your costs, you've got factories. And to you have an imbalance between -- this low ebb must create some cost issues.

[Éric Trappier, Chairman & CEO]

Well, as I've been saying for decades and my predecessors as well, this is our jewel activity that helps us out. We work for civilian aircraft and for military aircraft. So we have two strings to our bow, and we try and get the balance right now. And it's hard to say what's a low ebb on the market. We've got guidance for 2019 at 45 Falcons, so we'll deliver 45 Falcons. We think that would mean that we'd manufacture more or less 45. We can't say it's a Badger either. We had better years, better vintages so to speak. Well, we had worse vintages too.

So to level off at 45 isn't bothersome in my eyes if we can do double it, all the better, but at the same time the Rafale pace has gone up. Gone from one to two to be capable of delivering this year or next year, the export contracts that you're familiar with, so it's not an issue for us I would say right now in terms of industrial activity. We're working at our rate of speed as a company.

[Unidentified Analyst]

I have a question. You talked about a space program, Space Rider, I don't know much about it. Can you tell us a little more about this?

[Éric Trappier, Chairman & CEO]

The Space Rider from the Franco-Italian line, it's a way of validating the return of vehicles from the atmosphere. We have already done this. We carried out a demonstration. We launched the Vega rocket, and we would like to continue this aspiration. You know that we have experience, we wanted to have a spaceship in Europe, Hermes at the time. We preserve that experience. We have good aerodynamic technicians at Dassault, and we have good air controls. We can link aerodynamics to controls.

So any space vehicle that would like to go into the atmosphere in a piloted way is out of question to have bits of rocket falling back on earth, and so we're interested in having spaceships that come back and so we have a project of this type called Space Rider.

We're already a stakeholder in the current studies, and we hope to go further and hope to have some demonstrations in the coming months. It's an ESA project, European Space Agency project.

[Unidentified Analyst]

I have four small questions. The first one concerns the business jet market. We've seen your competitors with a book-to-bill ratio greater than one driven by certain factors. Even if we look at the upthrust you had in August apart from the 6X, you haven't been obtaining as many orders as some others. Could you explain this slight market share losses in the short term for your company? And the second question has to do with the service activity. How far have you gotten now in terms of external growth. In other words, have you got a network that is now fleshed out enough? Is it big enough, or you've got to make further acquisitions? And could you share with us some objectives you might have? Numerical objectives between now and three or five years hence about the contribution made by that part of your activity. And the third question, on the NX, lots of suppliers have already responded to calls for tender. Could you share with us any information, maybe a time line about the different development phases, any numbers you could give us on that?

[Éric Trappier, Chairman & CEO]

Firstly on the first question. If I'm not mistaken at the end of August it was 26 orders and 23 deliveries, so book-to-bill greater than one, I mean anyway, if you look at the end of June, there's a book-to-bill ratio that's negative. But end of June is it representative of the market for Falcons, I don't think so because it's fairly rare that you manage to sell so many airplanes in July and August so there was some catching up done by clients. They didn't place the orders for all sorts of reasons beforehand.

So we're doing -- nothing is already better or less within our competitors. You can't compare in this period because our competitors don't produce the figures that enable us to verify that in respect of comparable aircrafts, take Bombardier which has done wider-bodied aircraft and their number of airplanes would be, there's a lot of wide-bodied aircraft that is supplied to the market.

So you're not comparing like with like. But in terms of new aircraft, I hope, and we all hope that we will be extending our sales with the arrival of the 6X. We should offset a bit the loss of activity because of the 5X because we lost out -- we lost about four years in this whole affair. So the arrival of the 6X should boost our sales. We would hope in a market, which as you see is moving around a bit.

But I'm not unduly worried. I would've been more worried if I published on the 1st of July. I would have said -- if we've been taking here on the 1st of July, I might have been a bit more worried. But at the same time, there are a lot of talks going on with lots and lots of clients. Even now, there are lots of people who would be purchasers.

So the price pressure what we talked earlier about that is important, but it's not the only factor. We need to widen the range, so the arrival of the 6X will help us a lot there. In terms of the Falcon rate. Now service centers let us finish closing the deals, the three acquisitions we made and integrate those companies in the coming few months before we talk about further possible acquisitions.

We would hopefully be able to give you figures when we have the end of 2019 figures available by about next February. With the 2019 figures all available, we should be able to give you a bit more details about that. Having integrated those acquisition and your third question, what was it, again, Louis? The future Falcon. Well, well, no, I can't answer it anyway -- sorry, that's why I forgotten it maybe.

[Unidentified Analyst]

I have two questions. The first is can you give us an indication of the net cash at the end of the year? And the second, is on the R&D envelope for the full year?

[Éric Trappier, Chairman & CEO]

I cannot answer your first question because we do not guide our cash. I gave you an indication that our cash is going to go down because of the additional delivery of the Rafale. So I'm just giving you a trend, which is normal, logical, but I'm not going to give you the landing at the end of the year. I'll let you discover it when we will publish our accounts.

[Unidentified Analyst]

So I'll try to put the question in a different way. Will there be another drop in the cash?

[Éric Trappier, Chairman & CEO]

Yes. The answer is yes. There will be a drop in the cash because we are going to deliver a lot of Rafales this year. So whatever has been prepaid for these contracts will be used and, therefore, there will be a drop in our cash automatically.

And it's the same for the self-funded R&D. For the self-funded R&D, I gave you two indications: the half yearly one which is normal and I said that there was a progress because we are ramping up on the future Falcon, and we are developing the 6X. So, the second half will be slightly higher than the first half that gives you a small indication.

[Unidentified Analyst]

On the Rafale F4 standard, you said you're awaiting additional orders for options, could you be more specific on that, please?

[Éric Trappier, Chairman & CEO]

Yes, well, DGA has rolled out for the French armed forces an F4 standard that has been gone through in the main anyway. So there are tranches of -- major tranche was -- there are additional tranches that will come into add up to the total number planned for the F4 standards. So if you're trying to do calculations to see how it gets into the sales and so on, I would like to tell you that there are additional complementary orders that should come in that will be called F4, titled F4, not the same on the part with the previous ones. The bulk of it has gone through.

[Unidentified Analyst]

I have two short questions. The first is on Rafale. What is the net sales in H2 for this activity? And the second question on Albatros and Archange, where are the 26 orders at the 31st of August?

[Éric Trappier, Chairman & CEO]

The Albatros and CUGE -- C-U-G-E, no contracts have been signed. So it is not in our orders. As far the net sales of Rafale, if there were any, it will be very low because this is really the beginning, but I think it will be rather in 2020.

[Unidentified Analyst]

You disturbed me actually because you said that there were no orders placed for Archange, Albatros and the three Falcon 8X and the seven Falcon 200LXS, there were no orders?

[Éric Trappier, Chairman & CEO]

No, no, there are no orders. It's just going to happen in the future.

[Unidentified Analyst]

And you expect that for the end of the year?

[Éric Trappier, Chairman & CEO]

For the three 8X we hope it will be before the end of the year, but you know the discussions with the state, it always takes a long time. You have to be patient. So if it's not at the end of this year, it would be at the beginning of next year. And for Archange, it won't be this year, but next year. Most probably.

[Éric Trappier, Chairman & CEO]

Okay. Well, if there are no questions. I would like to thank you, and I hope to see you very soon for our results in 2019, that is in six months from now. Thank you.