Safran SA

PAR:SAF

Earnings Call Transcript 2021-Q1

[Operator]

Welcome to the Safran Q1 2021 Revenue Conference Call. At this time, I would like to turn the conference over to you host, Olivier Andries, Safran CEO; and Bernard Delpit, Deputy CEO and Group CFO. Mr. Andries, please go ahead.

[Olivier Andries, CEO & Director]

Good morning, everyone. Thank you for joining us to this Q1 2021 revenue conference. I'm joined by Bernard Delpit, our CFO and Deputy CEO. I'll start the presentation with Q1 business highlights. First, on Slide 5, a few words on air traffic data. After a steep drop in traffic in January, and especially in February, narrowbody average [ sheet ] kilometers are back in April at 57.6% of 2019, a level that is higher than in December 2020. But the situation is very different from one country to another in a global context of upsurge in new COVID cases. Vaccine is rolled out at a very different paces all around the world. China, weekly cycles are back over 2019 levels. Since March -- since mid-March, for all engines. For CFM engines in week 16, cycles are up 12.6% compared to the same week in 2019. In America, after a nice increase in March around 29.5% compared to 2019. In Europe, on the other hand, weekly cycles for CFM engines stood around minus 70% to minus 75% compared to 2019, since the second half of January. All in all, we see that capacity and flight cycles have been improving during the quarter, even if it has been bumpy and even around the world. Nothing that we see as of today leads us to change our air traffic assumption, which lies on a gradual recovery driven by domestic air traffic. Current levels of traffic in China and in North America are encouraging. But uncertainty is still high, especially given the current low levels of traffic in Europe and in Asia, excluding China. Our air traffic assumption is based on an increase of narrowbody traffic that relies on an uptick in Europe and Asia yet to come. Moving to Slide 6. In this challenging context, and with Q1 2020 being still a strong precrisis comparison, sales are down by 38% in Q1, including a strong negative currency exchange headwind. In organic terms, the drop is 34.6% for all the division. Bernard will give you more details in a minute. Sales in Q1 are in line with our recovery profile expectations. In the context of uncertainty, which remains high over the timing of air traffic recovery, reservice caused delayed recovery of civil aftermarket, we still expect the recovery to start to materialize in Q3, and we confirm our full year 2021 outlook. On Slide 7 and 8, some business highlights. Let me start first with Propulsion. In Q1 2021, combined shipments of CFM56 and LEAP was 214 engines versus 326 in 2020. As for LEAP engines in Q1, we delivered 188 engines. Total backlog is above 9,200 engines as of March 31. Our market share on A320neo family is 59%. Southwest Airlines announced the purchase of 3 LEAP-1B engines to over 100 Boeing 737 MAX-7 aircraft along with a long-term service agreement. The new airplanes are scheduled for delivery from 2022 onwards. Today, the airline is CFM International largest commercial customer, operating a fleet of more than 700 CFM powered 737s. Scandinavian Airlines, selected LEAP-1A engines to Power 35 additional A320neo family aircraft. The order includes 8 spare engines and Rate Per Flight Hour support agreement. In Q1 2021, CFM 50 -- 26 CFM56 engines have been delivered. As expected, this was a holding compared to 54 engines in Q1 last year. Overall, civil aftermarket decreased 53.4% year-on-year. As expected, Q1 2021 looks like a mix of Q3 and Q4 2020. On Slide 8, a few words on business highlights for Equipment, Aerospace and Defense Division sales. Safran will provide the new generation Euroflir 410 optronic system for 2 different Falcon-based aircraft, a dozen Albatros derived from the Falcon 2000LXS and the 8 Falcon 50M Triton models upgraded as part of the French Navy program to modernize its maritime surveillance and intervention aircraft. In Aircraft Interiors, Safran has won 3 Crystal Cabin Awards, the first for the group. SOPHY, which is our smart trolley solution, won in the category cabin system Modulair innovation, a concept, offering an enhanced comfort for seats; won in Passenger Comfort Hardware category; and our RAVE Bluetooth system, won in IFE & Connectivity category. Within seats, Safran latest economy class seat, Z200, is now available on the Airbus A320 family catalog. Safran Z110 and 600 seats have also been selected by Airbus to provide its latest generation of short and medium-range economy and business class solution as SFE seats for the A220 family. Safran will also provide business class seats to a major U.S. airlines for its A321 XLR. On Slide 9. As I explained in February, restructuration actions are in progress in 2021. As a consequence, the decrease in headcount is still going on. From the end of 2020, it is now a decrease over 2,000 jobs. The drop is larger in permanent workers, and there is a slight uptick in temps. All in all, the reduction in human resources cost that we have reached in Q1 2021 is very similar to the savings achieved in full year 2020, with, on the one hand, the lower headcount, and on the other hand, a lesser share of short-term work. As we expect a back-end loaded profile in activity, we keep our OpEx and CapEx low in the beginning of the year, our research and development expenses and our OpEx in Q1 2021 compared to Q1 '19, we are in line with savings that we have achieved in full year 2020. CapEx commitment are kept under control. We are not accelerating compared to H2 2020. All in all, we deploy efforts to keep our cost base as low as possible. In an uncertain context, with a bet on a strong recovery in H2. We manage OpEx and CapEx in order to keep room for maneuver within the year. Now Bernard, the floor is yours for more details on Q1 revenue.

[Bernard-Pierre Delpit]

Good morning, everybody. Hope you're well. I start on Slide 12, with adjusted revenue that has reached EUR 3.3 billion in Q1, down 38%, with 2 comments on my side. First, currency impact was a negative EUR 180 million, which reflects weakening dollar or almost 0.10 when you compare Q1 2020 and Q1 2021. Based on consensus, it's the kind of situation that we should experience during all year. My second comment is on organic growth. Of course, we are now entering a period where comparison basis becomes easier. But I'd like to underline that in March, the numerator improved. Our sales increased by almost 25% compared to the average of January and February. On Slide 13, Q1 revenue per activity. Before going into the details by activity, the big picture is that services were down 40% and OE down 35%. In absolute terms, Propulsion drove the trend. And in percentage, Aircraft Interiors was again the most impacted business. Revenue for Propulsion was EUR 1.561 billion, down 37.5% or 34% organic. OE revenue in Propulsion were down 30% due to the LEAP production rate decrease and CFM56 continues ramp down. Services revenue were down 41.4%, driven by civil aftermarket revenue. Civil aftermarket was down 53.4% in USD. This drop was mainly due to lower spare parts sales for CFM56 engines. 2 activities in Propulsion have been resilient. Military engines sales, thanks to higher M88 OE deliveries as planned, and despite the temporary headwind in services, as Q1 2020 was a strong comparison basis, and the helicopter turbines activities, with the low double-digit organic growth, thanks to support activities. Equipment revenue stood at EUR 1.464 billion, down 33.1% or 29.4% organic. OE revenue in this division were down 33.4%, with lower volumes in wiring and power distribution activities in nacelle, landing yield, especially on the widebody programs for the Boeing 787 and A330, A350 programs. Services and Equipment were down 32.2%, notably with landing gear support activities, carbon brakes business and nacelle business. Defense activities in the Equipment division increased organically by around 10%. Aircraft Interiors revenue stood at EUR 313 million, down 54.9% or 51.9% organic. OE revenue were down 51.9%. Sales were again strongly impacted in cabin due to lower volumes for galleys and laboratories and floor to floor activities for Boeing, and in seats, due to lower volumes, as business class seats deliveries were down 64% in Q1. Services revenue in this division were down 61.6%, driven by seat aftermarket as well as cabin spare parts and MRO activities. Some comments on Slide 14 with regards to our hedge book. The hedge book totaled $28.6 billion as a mid-April. As a reminder, the book is composed of options, with scale barriers, spanning, sorry, from $1.2350 to $1.31 per euro, representing a risk on the size of the book and on targeted rates. 82% of these scale barriers are above $1.25 per euro comparing to 41% only back in October 2020. The strong rise in the euro-dollar rate observed at the end of 2020 as posed it offer a respite to start building the hedge book for 2024. $3.2 billion have consequently been added to the hedge book in order to initiate hedging for 2024. And of course, no change for 2021, where we expect a rate -- for the hedge rate at $1.16 per euro. On Slide 15, a word on financing, with 2 noticeable transactions in Q1. We signed a EUR 500 million bank loan with the EIB to finance research on future aircraft propulsion systems. And also in March, we took a further step in diversifying and extending Safran debt maturity with a EUR 1.4 billion trench issue, with maturities of 5 and 10 years. It was Safran's first issue since the publication of our long-term rating by S&P, which is BBB+, with a stable outlook. Consistently, the EUR 1.4 billion remaining amount of the EUR 3 billion bridge facility set up one year ago, that remained undrawn since inception, have been canceled. That's all for me. Olivier?

[Olivier Andries, CEO & Director]

Well, I think -- thanks a lot, Bernard. This is time for question.

[Operator]

[Operator Instructions] We have our first question from Olivier Brochet from Credit Suisse.

[Olivier Brochet, Research Analyst]

I will have a first one on the commercial aftermarket. If you could provide a bit more color on what has happened between contract and spares as well as on the content of shop visits. And the second question, on programs in widebodies and destocking. Do you think that this is something that you are still seeing? And how will it trend beyond the Q2? And which program are more pronounced still, please?

[Olivier Andries, CEO & Director]

Okay, Olivier. On civil aftermarket, the main driver, as always, is the number of shop visits for CFM56, second generation. This is what we focus on because this is what does really matter for us. When we look at the shop visit, the number of shop visit in Q1 versus Q1 2020, it has decreased slightly below 50% year-on-year, which is broadly consistent with the air traffic data and specifically on the narrowbody. As in March, we are back to a level which is slightly above December and which was in March at 55% of the traffic one year ago. So this is in terms of shop visit. Now when we come to spare parts, as Bernard has mentioned, the spare part sales have decreased more for CFM56 than the number of shop visits. We see 2 reasons for that. One is a typical end of year, beginning of year phenomena, as there has been anticipated purchases that have been made in Q4 from certain airlines before the escalation in catalog list price. And those anticipated purchases have been used in shop visits that have been performed at the beginning of this year. And the second reason is that we are seeing a slight reduction on the work scope in Q1. It does not mean that it is a trend for the full year. Perhaps we have seen that on the quarter. In terms of aircraft retirements, the rate is today the same as what we have seen in 2020. So there is a low number of aircraft retirements, I mean the aircraft powered by CFM56 second generation engine. On widebodies, well, I'm not sure I picked up your question, but we had explained in February that we would be impacted by a decrease of widebody production and deliveries on 787 compared to 2020. This is what happens. You know that Boeing has still quite a number of 787 that have been produced in the course of 2020 and not delivered yet. And so they have decided to decrease the rate of production of the 787 down to 5 per month. And this is basically what we have taken as the assumption for this year, and this is what we see -- what we have seen during this quarter.

[Operator]

Next question from Robert Stallard from Vertical Research.

[Robert Alan Stallard, Partner]

I have a couple of questions for you. First of all, yesterday, Airbus was talking about the possibility of a steep ramp in the A320 starting next year. I was wondering if this may start to have an impact on Safran before the end of this year, particularly with regard to staffing and working capital? That's my first question. And then secondly, there have been some comments about airlines prebuying parts and services ahead of the summer flying season. I was wondering if you had seen any sign of that in your business.

[Olivier Andries, CEO & Director]

Okay. I will answer the first one, and maybe Bernard, on the second one. Yes. Yes. We are all prepared for ramp-up that will start again in 2020. And so we are getting prepared for that. So yes, indeed, there is going to be an impact, but we have planned for it. There's going to be an impact at the end of this year on, let's say, inventories as we need to purchase long-lead items and especially to be able to follow the rating in the first month of 2022. That's one. And yes, indeed, we will have to restaff again at the end of this year, especially on our assembly line. Bernard, on spare parts?

[Bernard-Pierre Delpit]

On spare parts, yes, indeed, we think airlines will start preparing the summer season. And we expect a strong increase in our civil aftermarket in Q2 after the drop in Q1. So I think it's partly because of what you call pre-buying. But it's also because everyone is starting to be more optimistic, and they want to be sure to have the potential to fly in the summer and for the rest of the year. So yes, we're going to see an improved Q2 for civil aftermarket, much improved.

[Operator]

Next question from George Zhao from Bernstein.

[George Zhao, Research Analyst]

So coming back to the aftermarket. We're 1/3 through the year. And as your slide show, the narrowbody ASP trends are still below your severe case. So what type of growth do we need to get to your mid-teens shop visit growth for the year? And also, how would you reconcile that gap between your mid-teens guide versus the expectation from GE of a flat the growth, when about half of their program is a program shared with you?

[Bernard-Pierre Delpit]

Maybe I will start just with the simple answer to the difference between GE and ourselves. I think -- well, I can't speak on behalf of GE, but ourselves. We look at second generation of CFM56 shop visits, because as Olivier said during his presentation, we think it's -- these are the shop visit that really matters in terms of content and in terms of profitability. So the guidance that we've given for the shop visit is only related to second-generation shop visit. Okay? And we stick to this mid-teens increase in the number of shop visits. I think it will start to materialize in Q2. On a cumulative basis, of course, the positive will come in the second half of 2021, as the first quarter was really weak, but it will improve quarter after quarter. And you will see that improving on a cumulative basis in Q4. I mean I was referring to the civil aftermarket indicator and to the number of shop visit. Olivier?

[Olivier Andries, CEO & Director]

Yes. Regarding your first question on the narrowbody, George, we have built our mid-teen, let's say, year-on-year growth on the number of shop visit for the guidance. That is our key assumption for the guidance. We have built on a trajectory for the narrowbody ASK, which is steadily ramping up from Q1 to Q4, with a staff around minus 50 -- around 50% of precrisis level, and with, let's say, a level that goes to 80% of precrisis level in Q4. I think we have mentioned that in February. So what you have to take into account and retain that, basically, it's built on an average narrowbody ASK in 2021, which is around 65% of the precrisis level of 2019. This is a strong assumption that we have taken into account for the guidance.

[Operator]

Next question from Ben Heelan from Bank of America.

[Benjamin Michael Heelan, Analyst]

So I wanted to come back to some of the comments you made on scope. Is there anything that you can read into that through the conversations that you're having with your airline customers about what's driving that slight decline in scope in Q1? Is it used serviceable materials being a higher proportion? Is it just them trying to keep spending low? Any color on that would be great. And then secondly, we haven't talked yet about GE90. I was wondering if there's any color on what you're seeing on the GE90.

[Olivier Andries, CEO & Director]

Okay. On the scope, yes, yes, indeed. We see airlines willing to, let's say, spare as much as possible and spend, as you say, as low as possible. So what we have seen for some shop visits is, let's say, push out the same part of the work scope. So instead of having full scope shop visits, some airlines have decided to push out the shank or sometimes the healthy turbine parts of the scope. But once again, this is a very slight. Today, it's very slight. And it's not enough to talk about the trend. It has happened for -- in some cases. It's not enough to talk for a trend. On GE90, is holding well. And as Bernard mentioned, the -- on the IFRS engine, the year-on-year comparison is minus 45 ...

[Bernard-Pierre Delpit]

For step-up.

[Olivier Andries, CEO & Director]

For step-up. And on the cycles, what we see for GE90, it's about minus 30 on cycles compared to pre-crisis level.

[Operator]

Next question from Ari Rich from Stifel.

[Unknown Analyst]

Just 2. Firstly, just for -- in terms of the shop visit bookings that you and GE can see for the remainder of the year, is that in line with what you expect? Are you seeing sort of any sort of significant improvement in that? Are you seeing -- what are the demand trends you can see? And then the second question was just looking over at interiors. Olivier, Bernard, I remember, you've been very clear that revenues would be quite lumpy this year. Was the first quarter sort of more or less what you're expecting? Was there anything unusual? And do the bookings that you have for that business sort of give you confidence that it can improve as we go further through the year?

[Olivier Andries, CEO & Director]

Okay. On shop visits, there is no bookings, if you wish, of shop visits. There is an horizon. And we -- of course, we interact with all airlines and all shops. And we ask for their forecasts and anticipated shop visits. So we have a view of what could or should happen this year, which basically is not different than what we have forecasted. So today, it's more in line -- it's in line with our expectation. It's not -- once again, it's not a booking per se, it's more an anticipation, which is consistent with our anticipation. What was the second question?

[Bernard-Pierre Delpit]

Aircraft interiors.

[Olivier Andries, CEO & Director]

Yes. Aircraft interiors has been more severely impacted, as we have said and as Bernard has explained. So we have seen a number of push-out deliveries and push-out orders, especially on the BFE activity. So this is what does explain what happened in Q1.

[Bernard-Pierre Delpit]

If I can elaborate on that, and I would focus on seats. We are seeing airlines not canceling orders, but just postponing the timing of deliveries. So Q1 was extremely strong -- weak, sorry. And I think we mentioned that we expected Q1 to be like a trough in terms of seat deliveries and especially business class seat delivery. And this is what happened. Now looking forward, we -- our guys in the seat business keep the same kind of forecast for the midterm as we have not seen any cancellations. One of the weak area in the seat business is also aftermarket, because as airlines have not completely resumed flying, there is not much aftermarket. That's why you've seen a 60% decrease in aftermarket. And also, it also explains why Aircraft Interiors' revenue was so low in Q1. But I don't think it changes the picture. We don't have a very clear view if there is or not structural change in this market, and we stick to what we said at the beginning of the year. So we expect that the revenues will rebound in the second half of 2021 and in '22 and '23 as well. So there is no change in the way we look at this business as of today.

[Olivier Andries, CEO & Director]

And interestingly, as we see -- as we have seen push-out of actual deliveries, to the request of airlines, we have seen as well a pretty active campaign activity. So we see a lot of requests for proposal and so on. So the campaign activity is back.

[Bernard-Pierre Delpit]

Yes.

[Olivier Andries, CEO & Director]

It's back.

[Bernard-Pierre Delpit]

And we mentioned in the press release that we have recorded a new licensing contract with a major U.S. airline to provide business class seats for A321 XLR, which was a very, very good news for the confidence in our new products.

[Operator]

And next question from Andrew Humphrey from Morgan Stanley.

[Andrew Edward Humphrey, Vice President]

Just a couple. One was I wanted to clarify, I think, a comment you made on March revenue. I think you indicated that was 25% better than January and February. Did you mean that, that was basically kind of the sequential growth, say, March, on the average of January, and February was 25%? Or that the year-on-year...

[Bernard-Pierre Delpit]

Yes, yes.

[Andrew Edward Humphrey, Vice President]

Okay, okay.

[Bernard-Pierre Delpit]

No, no, no. I say in March, sales improved by 25% when I compare March to the average month of January and February.

[Andrew Edward Humphrey, Vice President]

Okay. And that's group-wide?

[Bernard-Pierre Delpit]

Yes.

[Andrew Edward Humphrey, Vice President]

Okay. And my second question was on -- was a follow-up on some of the prebuying activity that you highlighted ahead of an anticipated more busy summer season. I wouldn't obviously expect you to go into detail on customers. But can you give us any additional detail around which regions you're seeing that activity in most strongly?

[Olivier Andries, CEO & Director]

China and North America, which is consistent with what we see on the air traffic, on the domestic air traffic.

[Operator]

Next question from Tristan Sanson from Exane BNB Paribas.

[Tristan Sanson]

3 on my side, please. The first one, I was going to get a high-level comment on the performance of the various services activities in Q1. So you have Equipment down 32%, Propulsion down 41% and Interiors down 62% in Q1. Conceptually, can you make a comment on what's driving the difference in -- pretty strong difference between the services momentum in the 3 divisions? You explained quite a lot Propulsion, but to get a feel on the other ones. And does it mean that you expect this to reverse and behave actually exactly the other way around in the recovery phase or stronger recovery in Services, in Interiors and Propulsion and Equipment? That's the first question. Second one, I wanted to get your view on the level of inventory of spare parts today in the MRO network. Do you know whether it's sufficient to get -- to manage a good level of activity? Do you think that there will be some restocking at some point? Or are you just under, I don't know. And the third one is a follow-up on the OE production ramp, at least on the A320neo, for 2022, '23. Can you say on your side what are the bottlenecks that have been identified and that will pace the level of production that -- production ramp that you could do for the coming years? In the previous ramp, we had issues on forging and casting parts. It's still the same type of equipment that will set the pace of ramp, or are there different areas of focus right now?

[Olivier Andries, CEO & Director]

Okay. So on your first question related to the aftermarket performance, differences between the various activities. Go back to the key dynamics, underlying dynamics. On the Propulsion, it's really directly correlated to the air traffic and the flight cycles. So that's one. On the equipment, you have on line size wheels and brakes, which is also correlated strongly with the air traffic. And you have the other Equipments where you have sometimes more calendar overhauls, which are not related to the actual flying hours, but are more related to, let's say, calendar scheduling. This is why, I guess -- I think this is why, let's say, the Equipment aftermarket has decreased slightly lower than the Propulsion aftermarket. On Interiors, it's really related to the airlines's health as it's on condition. So for seats, for cabin equipment, it's on condition. And for activities, which are really BFE equipment, such as seats, it's still related to the or the airline. So this is why it has been quite strongly -- more strongly impacted, even more strongly impacted in Q1. On your second question, related to the inventory of spare parts, I would say that most shops and airlines have consumed their inventories of spare parts all along 2020, and that was a way for them to reduce spending. So we start 2021 with a level of inventory all over the world and the shop which is lower than at the start of 2020. And the third question, what are the bottlenecks for the ramp-up that we will have to go through for the -- especially for the A320neo and the MAX as well. Same as before, the -- I mean the -- let's say, the 54 points are going to be upstream. So forging and casting are the areas where we will have to be extremely vigilant.

[Operator]

Next question from Thierry Dubois from Aviation Week.

[Thierry Dubois]

I would have 3 questions, please. Sorry, 2 questions, please. The first one is about human resources. You alluded to, correct me if I'm wrong, savings in Q1 that were similar to the full year 2020. That seems huge. Can you explain and elaborate? And the second question is a quick one. You already commented on the pushout of deliveries at the request of airlines. Was that on seats only or aircraft interiors in general?

[Olivier Andries, CEO & Director]

So on human resources, yes, we've said that we -- basically, we keep on going as in 2020. As I said, we have continued to reduce our headcount in Q1 by 2,000 people. But at the same time, we are, let's say, a lesser share or percentage of short-term working. So at the end of the day, when we look at the overall human resources costs in Q1 versus, let's say, H2 2020, so post March crisis, we are aligned, same vein. And your second question, push-out deliveries. it's mainly on seats, I would say, because seats is an activity which is really hugely exposed to BFE. It's really BFE. It's a BFE activity. So this is where the push-out has impacted the top line. On Interiors and the other cabin equipment, let's say, it's more balanced between BFE and SFE. And therefore, the pushout of deliveries and the top line impact on the other cabin equipment has been less.

[Operator]

Next question is from Celine Fornaro from UBS.

[Celine Fornaro, Head of EMEA Industrials Research]

I have 2, if I may. The first one, I'll give it a try, Bernard. But last year, you were off at the Q1 to provide some color regarding the cash dynamics. So maybe you could, at the high level, do something similar for Q1 2021. And my second question would be regarding the dynamics of services in equipment. And really trying to understand if the wheels and breaks, as you said, is linked to air traffic. So did you see a small pickup in Q1 as well and particularly in March? And should we expect still the equipment services to recover sooner than the propulsion services?

[Bernard-Pierre Delpit]

Okay, Celine. On cash, what I can tell you is that, even if it's not an earnings call, what we have seen since the beginning of the year for cash was good. And it's not different, I think, from what our peers have said during their Q1 call. The start of the year is good. So it might not be a completely balanced year between H1 and H2. I think H1 might be a little bit better than what I expected at the beginning of the year. Now there are still a lot of uncertainties, including due to the ramp-up at the end of the second half to get prepared for 2022 rates that we'll be demanding in terms of inventories for the supply chain. So free cash is okay. I don't change the full year guidance, but it may be more balanced. They're not imbalanced, sorry, than what I previously shared. On services, yes, indeed, wheels and brakes is strongly correlated to traffic. And what we've seen in March was really encouraging as the average has increased versus what we had in January and February. So it's moving in the right direction. It's still far from what we had, of course, before the crisis, but it's moving in the right direction. So we have no reasons to believe that it's not going to follow the pattern of what we expect for the civil aftermarket for engines.

[Operator]

Next question from Christophe Menard from Deutsche Bank.

[Christophe Menard, Research Analyst]

Yes. I have 3 question. The first one is on green time. In the fiscal year '20 call, you mentioned that you haven't seen any real impact of green time on engine propulsion MRO. Has it been the case in Q1? And is it also one of the potential reasons for the reduced work scope? That was the first question. The second is the SCAF engine agreement. I think it's out, so -- and it's fresh news. So I don't know whether you can comment on this, and whether there were any -- I mean, I guess you must be satisfied with this agreement. But any compromise that had to be made to make it possible? And the last question is on the recovery in engine MRO. Remember that before the crisis, you had to -- you were planning to invest in capacity. And the expectation is probably that engine MRO on your side will recover very steeply at given point in time. So I was wondering when will you need to resume that investment in capacity in engine MRO capacity, and also, probably in HR, to be prepared for that potentially steep ramp-up at a given point in time? I don't know whether it's going to be in Q4 or beyond.

[Olivier Andries, CEO & Director]

Okay, Christophe. So your first question on green time, I think we said that the green time impacts are in 2020 was less than what we expected. We did not say that there is -- there was no impact at all, but we said that the impact was less than expected. And what we've seen in Q1 2021 is basically in the same vein. So it's a continuation of what we've seen in the last quarters of 2020. So we've not seen a big change here versus what we've seen in 2020. On staff, your question on SCAF, yes, indeed, we have reached an agreement with ITP at the beginning of this week. This is good news. And I can tell you that there has been no compromise at all. We have made very clear that certain key underlying principles had to be respected in terms of clarity of responsibilities, governance, and also what we have called the best asset principle, meaning that the allocation of work has to be decided according to the demonstrated capabilities. And as a consequence, basically, this is where we are. So this agreement is satisfactory, because ITP will be responsible for modules on which they have demonstrated their capabilities, so the LP turbine and the other of the engines. And we, Safran, we shall be responsible for the overall engine architecture, design and integration, most of the nonspecific work related to that responsibility. And we shall be responsible for different section of the engine. So no compromise. On your third question related to engine MRO, as you know, we have pushed out our decision to increase our internal capacity in terms of engine MRO to align with the LEAP MRO ramp-up. So I confirm that. So it's not for 2021. So we shall look at the situation again in 2022 onwards. Not time yet to invest in an additional shop for LEAP engines MRO. Not yet.

[Operator]

Next question from Nick Cunningham from Agency Partners.

[Nick Cunningham, Managing Partner]

Yes. Just to come back to the green time question. So essentially, from what you're saying, the engine fleet hasn't actually burnt up much green time in '20 or first quarter '21, which would tend to imply that demand should track -- aftermarket demand should track ASKs going forward. But I was wondering about the equipment business. Has there been some burning of green time in the fleet as far as equipment is concerned, other equipment? And therefore, when recovery comes, should we see some sort of ASK-plus growth in those businesses, as we've generally seen in previous business cycles? And following up on that, is any of that expectation built into your second half recovery plans?

[Bernard-Pierre Delpit]

Okay. Nick, I will take this one. The concept of green time in equipment is not something very familiar to me. In fact, we have 2 kinds of aftermarket in the Equipment division. First, within brakes, where it's, I would say, completely correlated with traffic. When airlines fly, they need to change their carbon brakes. And they cannot optimize, if you wish, the fleet, and they don't do that. All right? So while I'm not aware of any kind of optimization where they switch a brake from one aircraft to another aircraft. And next time, I will know. I will try to know if it happens, but I have not heard of it. And for the rest of the Equipment division, in fact, it's not fully driven by the traffic. It's more when it's a broken fixed business model. So the recovery in sales will come after the recovery of traffic, not because of optimization of timing, but just because they will need -- I mean airlines will need aftermarket once they have to fix something on the aircraft. So the concept of green time is really something that is, I think, relevant when you look at the engine aftermarkets. But when it comes to equipment and aircraft interior, I don't see that as a driver of our aftermarket revenue.

[Olivier Andries, CEO & Director]

And on Propulsion, yes, indeed, as airlines use some green time, at some point in time, you're absolutely right, there's going to be a catch-up. But we don't expect that in 2021. We expect that more in 2022 onwards.

[Nick Cunningham, Managing Partner]

And just coming back to equipment. I mean there's clearly scope though for airlines to cannibalize parked aircraft, which then have to be repaired before they can come back to work again as traffic recovers. Do you see any of that going on?

[Bernard-Pierre Delpit]

I have no idea.

[Olivier Andries, CEO & Director]

No. Not aware of that. Not aware of that. No.

[Operator]

Next question from Chris Hallam from Goldman Sachs.

[Chris Hallam, Equity Analyst]

So first, Bernard, just to follow up on the helpful comment you made about March being up 25%. Are there any big variations by business lines or divisions in that momentum versus January and February which surprises you? And then secondly, perhaps this is a bit of a long-term question. But have there been any capacity cuts for CFM56 MRO in the independent network? I just wonder whether we face some capacity constraints in '22 and '23. And what risk of not have -- the risk of having servicing slots available could cause a bit of a rush amongst the operators to get maintenance done earlier than expected.

[Bernard-Pierre Delpit]

Chris, I will not go into the details of the March figures business by business. But I would say, it was across all division in equipment.

[Olivier Andries, CEO & Director]

Okay. Well, and Chris, we've not seen any capacity cuts in the CFM56 MRO network. We've seen a lot of furlough, short-term working, et cetera, et cetera. But before the crisis, everybody was prepared to face a strong ramp-up in the MRO business. So no, we have not seen any cuts.

[Bernard-Pierre Delpit]

And I get that everybody is planning for a strong ramp-up again. So no one has really definitely closed or reduced their capacity. It's a temporary. Will grow, but it's not structural.

[Operator]

Yes. Last question from Jeremy Bragg from Redburn.

[Jeremy David Bragg, Research Analyst]

One question, please, on retirements, which have been low so far for CFM56 Gen 2. At what point do you expect them to step up? And do you expect them to step up? And when that does happen, how quickly will the kind of USM from those engines start to become kind of available in the system? I guess I'm kind of driving at what happens to the average revenue per shop visit once stuff actually gets -- starts to get retired, please?

[Olivier Andries, CEO & Director]

Okay, Jeremy. On aircraft retirements, we had said in February that basically what happened in 2020 was, let's say, kind of a good surprise because we expected more retirements than what has actually happened. And we got it to you number of -- if I remember well, it was something like 60 airplanes that have been retired in the course of 2020. As I said, first quarter of 2021, same rate. So we expect it's going to pick up. At some point in time, it is going to pick up. Considering the lead times between retirement and basically the availability of used parts in the marketplace, we don't see the used parts as being a significant, how could I say, driver? For revenue per shop visit in 2021. If you remember well, we have said, and this is what we continue to expect, that there is going to be year-on-year, let's say, more and more availability of used parts, yes, indeed. And we expect it just to compensate the price escalation of our new parts. So that we plan for a stable revenue per shop visits in the years to come, especially in 2021. Our guidance in 2021 is relying on overall revenue per shop visit that is stable versus 2020.

[Jeremy David Bragg, Research Analyst]

And that includes the bit of the aftermarket, the USM mark that you are exposed to as well?

[Olivier Andries, CEO & Director]

Sorry?

[Jeremy David Bragg, Research Analyst]

So you have some -- sorry, you have exposure to the USM market as well?

[Olivier Andries, CEO & Director]

Yes. Yes, indeed. We are the biggest...

[Jeremy David Bragg, Research Analyst]

So that's all kind of factored into your guidance throughout [indiscernible]

[Olivier Andries, CEO & Director]

Yes, absolutely. Absolutely. Thank you. Thank you. Thank you, everybody. Have a good day, and thank you for your attention.

[Bernard-Pierre Delpit]

Bye-bye.

[Operator]

Thank you. This conclude the conference call. Thank you all for your participation. You may now disconnect.