Safran SA

PAR:SAF

Earnings Call Transcript 2019-Q3

[Operator]

Ladies and gentlemen, welcome to the Safran Q3 2019 Revenue Conference Call. At this time, I would like to turn the conference over to your host Philippe Petitcolin, Safran's CEO; and Bernard Delpit, Group CFO. Mr. Petitcolin, please go ahead.

[Philippe Petitcolin, CEO & Director]

Thank you. Thank you very much. Good morning, everyone, and welcome on today's call to present our business highlights and revenue for the third quarter and the first 9 months of 2019. As usual, the press release and the presentations are available on our website. To sum up the equity, we had a very robust revenue in Q3, and we are right on track to meet our fiscal year 2019 revenue guidance as disclosed in early September. I will start with the highlights and will give the floor to Bernard for the financials. So let's start the presentation on Slide 4, solid underlying business in Q3 and the first 9 months of the year. In Q3 2019, we reported revenue of EUR 6.1 billion, up 14%, 1-4, and the organic growth sustained at 9.8%. For the first 9 months of the year, the reported revenue growth was 22.5% including, of course, the 9 months contribution of the Zodiac activity and reached EUR 18.2 billion of sales. The organic growth increased by 12.6%, with all divisions contributing positively. Going now to Slide 5 and give you an update on the CFM56-LEAP transition. For the first 9 months of this year, the LEAP confirmed its status of engine of choice for airlines. Year-to-date, orders and commitments were recorded for 1,717 LEAP engines, bringing the total LEAP backlog to 15,778 engines. With regard to production, the LEAP ramp-up is still ongoing. We delivered 1,316 LEAP in the first 9 months of 2019 compared to 741 engines in the year ago period, of which 455 LEAP in Q3 2019. LEAP-1A and LEAP-1B, before of course the grounding of the MAX, have accumulated together 5.7 million of flight hours.For the CFM56 engines, the progressive ramp down is also ongoing as planned. 69 units were shipped in Q3 2019 compared with 243 in Q3 2018. We expect to deliver a little bit more than 350 CFM56 engines in 2019.Going on the Slide 6, a few words on our highlights in Q3. Propulsion. Beyond the CFM56-LEAP propulsion, the Aerospace Propulsion segment did very well. Our civil aftermarket business increased by 9.2% in U.S. dollars in Q3 despite a strong comparison base in Q3 2018, where I remind you we had an increase in Q3 2018 of 19.2%. For the first 9 months of 2019, the civil aftermarket grew by 9.8%, still in U.S. dollars, in line with our full year assumptions, which I remind you was around 10%. As for H1 2019, this performance reflects the high demand for spare parts for the second generation of CFM56 engine.For military OE, we shipped the first 6 M88 engines for the Indian Air Force, Rafale, and the total delivery of this engine reached 20 units for this quarter.And then our Equipment, Defense and Aerosystems segment through Q3 was also strong. Nacelle has continued to enjoy organic growth with the ramp-up of both the A320 family and the A330neo family. We therefore delivered the 100th nacelle for the A330neo just 1 year after we started production. This division has also benefited from strong growth in services activities with several contracts such as with All Nippon Airways and Virgin.We also started new partnerships towards electrical aircraft with Boeing. We invested in Electrical Power System, a small U.S. company specialized in energy storage product. We also acquired a French start-up that works on electrical current sensors. In Defense, we have been appointed as designer of 3 major combat systems components for the Australian Future Submarine Program. Let's turn to Aircraft Interiors on Slide 7. As I mentioned in September, this business is starting to improve, which is a good sign that customer confidence is returning, but we still have a lot of work to do. In Cabin, we have been selected by Air France to retrofit ECOS overhead bins for 51 aircraft, basically the A320, A321 family. In Seats, we have been selected by several major Asian and Pacific airlines to provide business class seats for Boeing 787. Virgin Atlantic started its A350-1000 commercial flight equipped with our Cirrus NG business class seats. Lastly, we started to deliver Air France with our optimal business class seats and our Z300 economy class seats for their 28 A350-900. In our Passenger Solutions activity, we welcome new contracts on IFE from Lufthansa, All Nippon Airways and -- that's mainly All Nippon Airways, which also selected us for the 787-8. I will now give the floor to Bernard for the financials.

[Bernard-Pierre Delpit]

[Foreign Language], Philippe. I turn to Slide 10 for an update on our hedging portfolio. The hedging portfolio now totals EUR 29 billion in October. The annual exposure has been raised to EUR 11 billion for 2019 to reflect growth in our USD-related businesses, and it should remain at least at that level going forward. We started to hedge 2023 exposure with EUR 2.2 billion achieved so far, and targeted hedge rates are confirmed for the 2019-2022 period. If FX landscape continues to stabilize between $1.10 and $1.12 per EUR 1, it could be improved, and we'll see that at the end of the year. On Slide 11, adjusted revenue has reached EUR 6.1 billion in Q3, up 14%. It includes EUR 44 million of change of scope due to electrical mechanical systems acquired at the beginning of the year from Collins Aerospace. The positive currency impact from the dollar due to the average spot rate at $1.11 this quarter compared with $1.16 in Q3 last year, so it is a 9.8% organic growth across all divisions. Slide 12. Aerospace Propulsion revenue in Q3, EUR 2.987 billion, up 18.3% or 14.9% organic; Equipment, EUR 2.298 billion, up 12% or 6.5% organic; Aircraft Interiors, EUR 805 million, up 4.7% or 1.4% organic. Some details on those Q3 figures on Propulsion. OE growth was 18% up for civil engines, thanks to the mix even though volumes were slightly down, reflecting rundown of CFM56. It was also positive for military engines as we shipped 20 engines for the Rafale. It was 13 in Q3 2018.Propulsion services were up 18.6% or 14.4% organic in Propulsion. It reflects the 9.2% increase in civil aftermarket and growth in helicopter maintenance. For civil aftermarket, the 9.2% growth is broken down with double-digit growth for parts and mid-single-digit growth for service contracts.On equipment, OE was up 7.2% organic, thanks to nacelle and defense. And services for equipments were up 5.3% organic, thanks to carbon brake and nacelle initial provisioning. For Aircraft Interiors, growth were weaker than in H1 with seats still up high single digits in Q3; Passenger Solutions up mid-single digits in Q3; and Cabin down in Q3 with lower Space-Flex deliveries and the impact of the MAX on our galleys delivery. Two additional comments for helicopter. OE sales declined as Q3 2018 was also very strong, and services were up high teens in Q3 this year as 2018 was weak. And it was also mentioned that the A380 nacelle organic is down due to the year's situation of this product. On Slide 13, year-to-date revenue is now EUR 18.197 billion, up 22.5%. It includes 80 -- EUR 184 million scope impact, of which EUR 781 million from the Zodiac integration and EUR 103 million from ElectroMechanical Systems purchased at the beginning of the year. It also includes EUR 580 million from currency hedging, so leaving 12.6% organic growth. On Page 14, I will not go into the details of our year-to-date activities. Year-to-date organic growth is 12.6%. The 17.6% for Propulsion with civil and military OE up, and services also up 22%. It includes 9.8% of civil aftermarket, high-teens growth for helicopter maintenance and one-offs for military engine, as we commented in H1. The 7.9% organic growth in equipment is balanced between OE and services. And the 7.3% organic growth in Aircraft Interiors is first due to meeting gross proceeds 2018 was a trough. Slow growth in Cabin as 2019 comps was already a recovery year, and high single-digit growth for Passenger Solutions. And now I leave the floor to Philippe for the outlook.

[Philippe Petitcolin, CEO & Director]

Thank you, Bernard. Going on Slide 16. As a reminder, our 2019 guidance is based on the various assumptions as mentioned here. I will not comment then as they are unchanged. Going to Slide 17, we confirmed fiscal year 2019 revenue and recurring operating income outlook that we presented in September. At an estimated average spot rate of $1.13 to the euro in 2019, the adjusted revenue is expected to grow by around 15% in 2019 compared with 2018. On an organic basis, the adjusted revenue is expected to grow by around 10%.The adjusted recurring operating income is expected to grow comfortably for both 20% at a hedge rate of $1.18 to the euro. We refined our free cash flow outlook. From June 30, 2019, Safran revised the free cash flow impact for the Boeing 737 MAX situation to approximately a loss of EUR 300 million per quarter, or in other words, a loss of EUR 100 million per month in Q3 and in Q4 to reflect the decrease of prepayments of future deliveries.Based on an assumption of return to service for the Boeing 737 MAX in Q4 of 2019, the free cash flow is expected to be in the range of 50% to 55% of adjusted recurring operating income.In case the grounding of the Boeing 737 MAX continues until the end of 2019, we think now that the free cash flow to adjusted recurring operating income should be around 50%. Previously, we said below 50%. To take into account the agreement signed between Boeing and CFMI to receive an advance payment on LEAP-1B engines delivered to Boeing in 2019. We maintained that current Boeing 737 MAX grounding's impact on Safran's free cash flow and any extension in 2019 merely represents a deferral in cash collection and should reverse in the following quarters. This is what we have to tell you. Thank you for your attention. And we are now at your disposal, Bernard and I, to answer any question you may have.

[Operator]

[Operator Instructions] The first question comes from Olivier Brochet from Crédit Suisse.

[Olivier Brochet, Research Analyst]

I would have 2 questions or 2 sets of questions, if I may. First of all on the aftermarket -- commercial aftermarket. Would you able to give us a bit of color around services versus spares in the quarter or in 9 months, and a bit of color around engine type CFM56 versus widebody, please?And the second question is on the change you've implemented on the hedge book. Why didn't you change the target rate for the year, given the, I would say, probably low spot that you've been using around these new hedges? And can you help me understand what the impact on EBIT would be from this additional $1.6 billion of hedges, please?

[Philippe Petitcolin, CEO & Director]

Thank you, Olivier. I will try to answer the first question, and we'll let Bernard talk about the impact of the change. On the aftermarket, the momentum we saw since the beginning of the year is continuing. If you remember, we were at 10.2% increase in Q1 and Q2, 9.2% in third quarter. But again, the Q3 of 2018 was very high with an increase of more than 18%. We still enjoy, in the spare parts, an increase of double digit. And our services is lower, but something we were expecting. We have not really increased our capacity in services. So the level of services in terms of growth is not that high as what we can enjoy in the spare. We were a little bit disappointed by the quantity of shop visits on CFM56-7, which basically the one we -- which are on the NG. We believe, based on the comments we get from our field service engineers, which are at the airline sites that the airlines, as they don't have the MAX, they tried to fly their NG as much as they can and they try to postpone as much as they can the service or shop visit for their engines. We don't think there's a problem. I even think it's good for the medium term. But on a single quarter, we saw a little bit of reduction compared to what we were forecasting in terms of quantity of shop visits for the CFM56-7. The business on wide-bodies was good. We were so happy or -- in 2018 because we didn't see a large growth on the wide-bodies. But the wide-bodies are coming back to the type of growth we were expecting.So all in all, no change, no big change in the third quarter compared to what we have seen during the first 2 quarters of the year. A good, strong, solid business in spare parts with, as I said, a small reduction in quantity of shop visits for the CFM56-7. And each airline we have interviewed gave us the comment I just gave you regarding the fact that they need to fly the airplanes as much as they can and a good business in wide-bodies. I hope it answers the first question. Bernard, maybe on the change?

[Bernard-Pierre Delpit]

Yes. So as you said, Olivier, we haven't changed our hedge rate target, and we haven't changed it in 2019 even if the spot rate conditions are good. And I would say that this is precisely what we want to avoid. We want to avoid the volatility in the spot market to translate into a volatility of our P&L through the hedge rate, whether would it be good or bad. That is exactly what we want to avoid. So the benefits of what we see now in terms of new transactions will allow us to keep hedge rate at this good level or even to decrease hedge rates going forward. This is the merits -- these are the merits of our purely annual hedging policy.

[Operator]

The next question comes from Celine Fornaro from UBS.

[Celine Fornaro, Head of EMEA Industrials Research]

Philippe, if you could follow up a little bit still on the shop visit comments that you made at the slightly lower number of those. Would you know if they're more related to, number one, shop visit 1 or shop visit 2? Is there a way you could tell that? And also my second question would be on the interior business. So we've had a downgrade of volumes on the 787. The 777X may be pushed slightly to the right. How does that affect your 2021, 2022 top line recovery in some of those businesses for the interior?

[Philippe Petitcolin, CEO & Director]

Thank you, Celine. Don't take this small comment on the shop visit as something very big. We are talking about 20, 30 shop visits difference, which is not a big number. And again, for each shop visit which was delayed, we went to see the airline and say, "what's going on?" And basically, the answer was, "Okay, we know we have to do our shop visit, but we preferred to delay it as much as we can until we can use the airplane because we need the airplane." So it's a mix of first and second shop visit as we are talking about the latest generation of Boeing 73 NG (sic) [ Boeing 737NG ] and CFM56-7B. We are talking about first and second shop visit. And as you know, for us, that's the 2 most important shop visits in terms of future revenue and margin. So I don't have the split, to be honest, of this 20 or 30 shop visits between the first one and the second one, but it's a mix of both of them. And again, in my opinion, it's good because it's an additional business, good business that is going to come anyway in the coming quarters.Your second question related to the delay of the 777X and the reduction in quantity of the 787. 777X and 787 is, of course, not good news for us. I mean we are on these new programs, and I'm not thinking about engines. I'm thinking about all the equipments and interiors we supply to these programs. Of course, when there is a reduction in quantity, it's not good news. But we will ask you to deal with it. We have no choice. We are a partner and -- of our -- of Boeing, and we will adjust. What I have to do very quickly is to adjust my cost to this new quantity. And for the 787 and for the 777X, I have to adjust my cost in development. We don't leave the same quantity of engineers and development and certification when the certification is delayed by 6 months or 1 year. So it's a question of reactivity in order to maintain the targets we gave you in terms of guidance, which is key, but we know how to do that. It happens on a regular basis. It happened on those -- the A380 a couple of months ago. It will happen again. We are not in a business where we knew 10 years in advance how many products we have to build. So the reactivity, the flexibility is key in our business if we want to maintain a nice positive growth of our recurring income.

[Operator]

The next question comes from Andy Heelan from Bank of America.

[Benjamin Michael Heelan, Analyst]

It's Ben from Bank of America, not Andy. I've got 2 questions, first one on organic growth. Obviously very strong again in Q3 on a tough comp, like you said, Philippe. Our guidance for the full year implies a strong slowdown in the fourth quarter. So is there any color you can give us around why you're going to see that slow down? And then secondly on the investment with Boeing into the Electric Power Systems business. Is this in a similar vein to the APU joint venture that you made with Boeing? So is this about growing exposure to Boeing over the medium term? Just if you could give us a little bit more color on the strategy around that acquisition.

[Philippe Petitcolin, CEO & Director]

Thank you, Andy (sic) [ Ben ]. No, it's not a big reduction or slowdown of our business in Q4. We started at a very high level, and we told you during -- when we presented our H1 results in early September that, for the year, we were a bit too high during the first semester, and the second semester would be more in line with what you were expecting and what the market was expecting. So we now forecast and confirm the guidance of around 10%. We are 12.6% at the end of 9 months. If we can do a little bit better, we'll do a bit better. I cannot tell you exactly what is going to be the business in terms of the services. Managed services is unknown for a little bit of the business. It's never totally guaranteed, but you may have also very good news. So all in all, I confirm that you will do at least this 10% of growth in terms of sales. But to give you an updated number at this stage would be -- will not be useful, I think.

[Bernard-Pierre Delpit]

The only thing, Ben, that I would add on that is that, for example, on the helicopter turbines service, which was very strong year-to-date, we expect, because of high comps in Q4, services to be slightly down in Q4. But for the rest of the business, I would say business as usual with the trends still positive.

[Philippe Petitcolin, CEO & Director]

Your second question, Ben, regarding our investment with Boeing in EPS. In fact, EPS is a small American company, which exists already, where we decided to put some money, Boeing and us, as they have a very unique technology for the storage of batteries. They don't really build the batteries, but they have a unique way of putting the batteries together in order to optimize the weight of the batteries. And we believe there is a unique technology that we wanted to be part of like Boeing. It is totally different from the APU. APU is a JV at 50-50 between Boeing and us. So we own with Boeing together, 100% of the company for APU, and we are going to develop and build APU. So regarding EPS, it's just a financial participation of both Boeing and Safran in a small company where we believe there is a huge potential for the future.

[Operator]

The next question comes from Tristan Sanson from Exane.

[Tristan Sanson]

Three questions, if I may. The first one is on the aftermarket momentum and the double-digit growth in spare parts, which you had in Q3 despite lower shop visits. So if we're then going to include constant currency, we assume shop visits are about flat or slightly up, where it means price and wide scope are still trading above average. Price is what it is, but can you comment a bit on what is feeding that wide scope FX still after already a trend that was pretty reached in the recent past? That's the first question. The second is, if I understand correctly this year, you don't have an important tailwind in your activity from military OE, military services and helicopter services, which altogether are going to create the usual contribution of these businesses. I know it's [ core ] to talk about sales, not profit. But can you give us some feel for what would be the magnitude of the impact we could have over time from the normalization of these businesses going forward? Is it a 3-digit number in profit? Or something like that would be helpful. And finally, quick question on Space-Flex of B2, which has been transferring deliveries of fresh sets that were pretty low in Q2 and Q3. Can you explain us a bit the momentum on that activity? It's probably a bit lumpy, but a bit more color on it would be helpful.

[Philippe Petitcolin, CEO & Director]

I will try to answer the first question and let Bernard -- and I will complete if necessary for the second one and the third one. On aftermarket, again, there is in fact a reduction in the quantity of shop visits. I'm just saying that on the specific shop visit, I just wanted to be a bit more precise for the CFM56-7B. We were not at the real quantity we were expecting. But in general, the growth of the quantity of shop visits, except that on this one, we were not at our forecast at the end of Q3. And again, I understand why, and I just wanted to share with you the reasons why we are not at this level, but we are talking again. But a small quantity of shop visits compared to the complete picture of the shop visits that we do in our business. We didn't see, Tristan, any change in the behavior of our customers regarding quantity of new spare parts they would use or level of maintenance they will need. We are still at the very high level, and we didn't see any kind of change or kind of change from the airlines. So business remains very strong as I said. In spare parts, we remained with the growth of double-digit. And we do not expect, for the time being when we look in front of us, any change. And maybe Bernard, if you can, military OE and the services, our helicopter business.

[Bernard-Pierre Delpit]

Yes. Tristan, I will be more qualitative than quantitative on that at that stage of the year, and I don't want to enter into a discussion about 2020 guidance at that stage. For the military services, it's something that we explained. We had some positive good news in H1, and we expect that military services and specifically on the Rafale and their whole business will continue, but we had some specific one-offs in H1. So you should expect military services to be down at least in H1 next year versus H1 this year.For helicopter maintenance, the point is that 2/3 of our business in helicopter is through services. So it has been part of the IFRS 15 impact that in 2018, at the beginning of the year, it was weak and we had some improvements in Q4 last year. So in 2019, the -- we managed to do that, I mean the improvement every quarter. And it won't be as lumpy as it was in 2019. Now going forward, in 2020 I expect that helicopter services business will continue to grow between 3%, 4%, 5% every year, including pricing and volumes. For our Space-Flex, I don't know what to say. In 2018, we had some full volumes including some recovery in terms of delivery delays. So you don't have this kind of impact in 2019. In fact, the volumes are down. And this is one of the reasons why the Cabin business was, I would say, sluggish in Q3. I will add that the situation of the MAX, I mean because we manufacture galleys for the MAX, was also one of the reasons of the flattish situation in Q3. Going forward, it's a little bit premature to give any guidance for the Cabin business and the interior business in 2020.

[Philippe Petitcolin, CEO & Director]

And for the Space-Flex v2, I am -- we are not late in production. We have some requirements from the customers, which are not at the higher level as you just said. So -- level is quite low, but we are on time in terms of deliveries. So it's not a question of we just feel performance on our side.

[Operator]

The next question comes from Christophe Menard from Kepler Cheuvreux.

[Christophe Menard, Head of Aerospace and Defense Sector]

I have a follow-up question on Space-Flex. Precisely, I mean is Space-Flex also mounted on the A321 ACS? And is that reduction in volume in Q3 related precisely to what Airbus described yesterday? That was the first question. Do you want me to follow up with the second?

[Philippe Petitcolin, CEO & Director]

Yes. Let's go with the second.

[Christophe Menard, Head of Aerospace and Defense Sector]

The second is on the hedging. Just to come back, I may not have heard properly, but I think you say that if the spot rate is between $1.10 and $1.12, you could improve the hedge rate. Is it -- as of when is this valid, 2020, 2021? Can you -- I may not have heard exactly what you said that's more detailed or precision on this.

[Bernard-Pierre Delpit]

Okay. I will start with the second question on hedging to close this point as quick as possible. I did not mention a specific time frame. I just -- it's a general answer saying that if spot conditions continue to be good with current rate between euro and the dollar, I guess that, as we have today at $1.18, if spot rates continue to be in the $1.10, $1.12, at some point you will have some improvement. And you know that we take a step-by-step approach in the improvement of the hedge rates as we have a clearly annual approach. So I guess this is somewhere that we will disclose at the end of the year when we'll have a better view on 2023 as we have just started the hedging of 2023. So we think it will be positive. When is still a question.

[Philippe Petitcolin, CEO & Director]

Christophe, on your question on Space-Flex, I know that the others disclosed yesterday that they were all deflating the instant production on some units. Again, the only thing I can tell you is that we are on time with the delivery of our product, which today is a requirement for less products, we deliver less. We don't have an industrial impact on the Space-Flex v2 in terms of quality or lead time or whatsoever. We are on time. As Bernard said, 2018 was quite high because we were late and we recovered partially some delays we had at that time. But 2019, we are on time, and we deliver according to requirement of our customers.

[Operator]

Your next question comes from Zafar Khan from Societe Generale.

[Zafar Khan, Equity Analyst]

This is Zafar Khan. Just wanted some clarification, please, on the agreement with Boeing on the cash payment on the engines. You're saying here in the statement that if the MAX is grounded to the end of the year, then Boeing will give you an advance payment on the engines delivered in 2019. Just a couple of clarifications here, please. Firstly, what happens if that grounding extends into 2020? Does this agreement cover that period as well? And just wanted to understand, are you delivering every engine you're making, or are you stockpiling at your facilities? And if you are stockpiling at your facilities, will Boeing pay for that as well?

[Philippe Petitcolin, CEO & Director]

Let me answer the last part of your question, which is more an industrial part of the question. And I will let Bernard answer, of course, that there is a cash impact on the discussions we have at this point and the agreements we have at this point. Regarding the production, we produce today at a rate of 42 airplanes a month and we deliver 100% of our engines to Boeing, which are all installed on Boeing airplanes. So we have absolutely 0 piling stock in our factory. We deliver as usual to Boeing, but we are at a rate of 42 when we were expecting, of course, something higher than that a year ago. The production is 100% with Boeing and sold to Boeing.

[Bernard-Pierre Delpit]

On the agreement, it's something that was signed in September between CFM and Boeing. So it covers, for an undisclosed amount, some cash for the engines already delivered. But we know that also we have -- we are only paid at deliveries. This cash is missing, and Boeing agreed to pay a portion of this missing cash. That's it. So it only covers part of the cash missing in 2019. And I would say that it doesn't change the picture of the grounding of the MAX as it regards the impacts on our free cash flow. It's good, but it's limited.

[Zafar Khan, Equity Analyst]

Okay. So as I understand it, you get part payment on delivery and then the balance when Boeing delivers the aircraft. So what you're suggesting is that the -- historically...

[Bernard-Pierre Delpit]

Yes. I will start it again. Usually, we are paid for the engine first with some prepayments and then when aircraft are delivered. We get a percentage of what Boeing gets from the airlines. So as aircraft are not delivered, we are not paid since the grounding of the MAX. So the agreement with Boeing is just to say, "Okay, guys, you don't have the cash today because we don't deliver engines and we don't receive prepayments from the airlines, but we will in a way give you some part of that ahead of what you should -- you could have received and that you will receive in 2020." That's all.

[Operator]

The next question comes from Harry Breach from MainFirst.

[Harry William Freeman Breach, Research Analyst]

Can I just ask a couple of questions? Maybe firstly, just while we're talking a little bit about LEAP-1B, I think yesterday on GE's call, they said that we'll continue to see in the fourth quarter an acceleration of LEAP-1B shipments in anticipation of the MAX return to service. So I just like to check with you, is there any acceleration of LEAP-1B production in the fourth quarter as the CFO of GE appeared to be saying yesterday? Or is there a misunderstanding somewhere? And second is just on LEAP-1B. I think I just -- thinking about earlier on this year, given the relatively elevated number of spare engine shipments in the early years of the program, there were some anticipation that you might be able to encourage LEAP-1B customers to bring forward their spare engine purchasing. So just to clarify, I think the comments in answer to Dr. Khan's question, presumably you are shipping more than just rate 42 aircraft per month in LEAP-1B is because, presumably, there are still spare engine shipments at a reasonable rate. And then moving completely away from LEAP-1B for a minute, just Aircraft Interiors. Philippe, can you give us any sense of the book-to-bill of Aircraft Interiors, whether that has continued to be above 1? I think you said for the second quarter and first quarter that book-to-bill had moved above 1. And the refurbishment market historically has been particularly important for seats. Can you give us some sense of whether your refurbishment orders are helping to sort of fill any production gap coming up in the 2020, 2022 time frame?

[Philippe Petitcolin, CEO & Director]

Okay. Thank you, Harry. Do you want to answer the first part of the question on the LEAP?

[Bernard-Pierre Delpit]

Yes. On LEAP-1B, there is no acceleration between Q3 and Q4. We continue to ship the equivalent of 42 aircraft a month in terms of engine. Maybe you were referring to an increase versus Q4 last year because, indeed, the amount of production is not the same as it was last year. But Q3, Q4, no acceleration.

[Philippe Petitcolin, CEO & Director]

We have -- no, we have no requirements from Boeing to accelerate deliveries of LEAP-1B in Q4 at least as of today. I mean if EFA gives the green light, I don't know, in a day or 2, maybe Boeing will come back to them. But as of today, no acceleration. We are completely in line with the requirement of Boeing to produce these 42 airplanes per month. Regarding the Aircraft Interiors, book-to-bill is still slightly above 1 in interiors. But we see, in terms of seats and refurbishment, a reduction that is in front of us in terms of sales, as we said in September, for the second part of 2020 and 2021, which is the consequence of the nonoperability that Zodiac had with Boeing and Airbus in 2017 and the beginning of 2018. You know that when we bought the company, I had to go to Boeing and -- to have this and get the green light to be authorized again, to be proposed for refurbishment and for new sales. So it is a situation that is going to last another 18 months. In terms of prospects, when we look the bright side of it, we have, today, a lot of new airlines, new potential customers, new prospects who like our product and who like our performance. Because today, in terms of performance, we are on time at the level of quality or requested by my customers and at a price which is competitive. So we are back into the loop. We are back into the competition. But with these business class seats, Harry, it takes some time because the engineering phase is at least 18 months even for refurbishment, when you have to go through industrialization and production. So you cannot really deliver a new product with less than 2 years. So there's a hole, not a big hole, but the reduction in sales and revenues I have in front of me in the seats is going to remain where it is today. And the latest decision of some customers didn't help. The fact that, for example, Emirates decide to cancel the A380, where we are the supplier of the business class seats on the A380, is not good news. Even if we do everything we can to get the investment of the A380 and supply Emirates with their new aircraft, it's going to take a bit longer. It's just a question of timing. I am not worried at all in terms of our interior business on the way we do the improvement, on the way we put it back on track. But the timing based on our customers is not something we master. It's something where we need to be sometimes a bit more aggressive in terms of cost reduction in order to meet the targets we gave you.

[Harry William Freeman Breach, Research Analyst]

Just on the LEAP-1B spares. Presumably, you're still shipping 1B spares.

[Philippe Petitcolin, CEO & Director]

We do ship 1B spares according to the orders we received from airlines. Yes, of course, yes. Bernard, do you want to add something?

[Bernard-Pierre Delpit]

Yes. From that point of view, we may have some increase in the shipments of LEAP-1B spares in Q4 versus Q3. But for the installed 1B, it's going to be flat. But for spare engines, we will have more shipments in Q4.

[Philippe Petitcolin, CEO & Director]

True.

[Operator]

The next question comes from Andrew Humphrey from Morgan Stanley.

[Andrew Edward Humphrey, Vice President]

Just a couple from me. One is coming back to this mix issue in the civil aftermarket business. I mean -- sorry to come back to it, but if you had single-digit growth and maintenance revenue and double-digit growth in spares, just arithmetically, the mix must be getting richer and spares consumption must be increasing. So can you tell us whether that's the case? What's driving it, if that's kind of like-for-like shop visit number? Or if you're seeing some prebuying or buying from maintenance shops who are maybe stocking up on legacy spares? And the second point is -- or the second question, sorry, is we've obviously seen some headlines over the last few days highlighting a potential large IndiGo order, which I assume would give visibility for the next several years on the A320 side. Has that affected your thinking at all about any potential production increases on that side of things?

[Philippe Petitcolin, CEO & Director]

Let's start with the second question, IndiGo. As you know, IndiGo was a large customer in 2010, 2011 of the A320neo and replaced their first batch of order with our competitor. Then they came back in discussions with the Airbus at a later stage and ordered the second batch of 150 aircraft and the third batch of 130 aircraft. We have been awarded at the Airshow last June the order for the second and the third batch. So we have an order today from IndiGo for 150 plus 130, so 280 aircraft. IndiGo is, from what I heard, is negotiating or just negotiated a new order for Airbus, so an additional 300 aircraft. We have not yet targeted discussions with IndiGo regarding the selection of the engine. We are not in a rush because these airplanes are coming -- are going to come after the end of the first batch and the second and the third batch. So we see there's a bit of time in front of us. And we have, of course, not negotiated anything with IndiGo at this stage regarding the fourth batch of 300 aircraft. More generally, as you may know, from the discussions you may have had with Airbus yesterday, we have, today, an agreement with Airbus until 2022 regarding the quantity of engines that CFMI with the LEAP-1A must supply to Airbus. I heard yesterday that Airbus wants to potentially discuss an increase -- an additional increase of production of LEAP. We are welcome to discuss, and we will see with our supply chain if this potential additional increase is something feasible enough. We have not yet discussed with Airbus, so I cannot tell you what is the requirement -- potential requirement and, of course, what would be the reaction of our supply chain, both internal but also external.

[Bernard-Pierre Delpit]

Okay. On civil aftermarket, Andrew, maybe the missing part of what we explained that our spare parts increase is a mix of CFM56 and high-thrust engines. And what was maybe a bit more dynamic in the Q3 was the high precision pump. That's why it's completely consistent with what we said in terms of CFM56 shop visits. So I reiterate that for civil aftermarket, spares are growing double-digit; services are growing single -- mid-single digit; and for spare parts, there is a mix between CFM56 and high-thrust engines' part of our share in some of GE's programs.

[Operator]

We have no further question.

[Philippe Petitcolin, CEO & Director]

So thank you. Thank you very much. Thank you all for attending this call, and we wish you a very nice day and a nice weekend for the ones who are going to start tonight. Thank you very much.

[Operator]

Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.