Welcome to the Safran half year 2026 results. At this time, I would like to turn the conference over to your host, Mr. Olivier Andriès, Safran CEO, and Pascal Bantegnie, Group CFO. Mr. Andriès, please go ahead.

Good morning, everyone, and thank you for being with us today. Q2 continued on the strong trends observed in Q1, resulting in an exceptional first half marked by a stellar demand in the civil engine aftermarket, a strong ramp-up in LEAP and M88 engine deliveries, and record financial performance. The Middle East conflict barely impacted our performance, civil aftermarket activity remaining well above our pre-conflict forecast. Spare parts sales for civil engines increased by 28% in dollar value, and civil engine services also grew by more than 40%.

All this despite the geopolitical context in the Middle East. CFM56 continued to drive spare parts performance with a fleet benefiting from a low level of retirement, combined with a very strong demand for aftermarket. LEAP is also expanding with a fast-growing number of shop visits, significant work scope increase, and more shop visits being performed by third-party maintenance, repair, and overhaul shops. We delivered 1,030 LEAP engines in H1, a 41% increase year-on-year, aligning four consecutive quarters with over 500 deliveries. All of this translated into record financial performance.

Revenue reached EUR 17.6 billion, up 20% on an organic basis. Recurring operating income climbed by 29% to EUR 3.2 billion, representing an unprecedented operating margin of 18.4%. Free cash flow was even stronger, up 43% to EUR 2.6 billion. Given this robust performance and the strong visibility in front of us, we are raising our full-year guidance. Lastly, disciplined portfolio management remains a priority. We completed the divestment of Safran Passenger Innovations and of our 50% stake in EZAir, our first joint venture with Embraer.

Regarding Aubert & Duval, Airbus and Safran recently completed the acquisition of Tikehau Capital stake, further strengthening our objective to building a more resilient aerospace and defense supply chain. Turning to slide four. Safran is benefiting from strong commercial momentum across its civil businesses. We continue to ramp up our capacity to support growing demand and strengthen the resilience of our industrial footprint. In Mexico, end of June, we opened a new LEAP maintenance shop in Querétaro and a new electrical wiring factory in Chihuahua.

At Farnborough, LEAP confirmed its position as the engine of choice on narrow-body platforms, as illustrated by the signature of an MoU by IndiGo for more than 1,000 LEAP-1A engines, our largest ever engine order, to power its A320neo family fleet and support its new MRO facility. BOC Aviation also placed an order for up to 300 LEAP engines. The new LEAP Premier MRO license with IAG and CFM, together with a full-fledged LEAP engine shop being developed in Singapore through our joint venture with Singapore Airlines, will further expand maintenance capacity and strengthen the global LEAP ecosystem.

We are also preparing the future of flight. Electra, a U.S. company, selected Safran’s turbogenerator, TurboGen600, for its EL9 hybrid electric aircraft, a short take-off and landing aircraft with an initial order for 250 units. Turning to slide five. RISE technologies are now being matured towards ground and flight test demonstrations this decade. Since CFM unveiled RISE in 2021, approximately 500 test campaigns and more than 5,000 endurance and dust cycles have been completed across Open Fan. Compact core and hybrid electric technologies, mobilizing more than 2,000 CFM engineers in both sides of the Atlantic Ocean.

The program is moving from concept to reality. The compact core modules, the Open Fan blade, and the OGV airfoils have passed preliminary design reviews, enabling the program to enter the detailed design, manufacturing, and physical realization phase of the demonstrator, leveraging decades of expertise, including four composite fan blades in Safran. Mechanical and material tests are underway on blades and OGV, including impact, ingestion, fatigue, endurance, load, icing, and vibration response.

Wind tunnel campaigns have also demonstrated aeroacoustic performance above technology maturation objectives. Durability is being addressed earlier than ever in the new technology development cycle. More than 2,000 dust ingestion cycles have already been completed on next-generation HPT airfoil in an engine core. A second campaign is now testing RISE HPT technologies in our more product representative LEAP-1B engine to assess their potential benefits for the fleet.

On the fan system, the first high-speed, low-pressure turbine has been tested for more than 1,000 hours, validating aerodynamic design and aerothermal performance. The next milestone is the preparation of a full-scale front module test in our new test bed at Villaroche, progressively building towards the low-pressure system, including the reduction gearbox. On hybrid electric, Safran has launched the PHILEAS ground test campaign at Istres, a full-scale engine demonstrator with two electric machines installed on the high-pressure and low-pressure shaft with a campaign plan for approximately six months and nearly 300 hours.

We are using our Silvercrest engine for this test. Turning to slide six, Defense continues to show a particularly strong momentum. Eurosatory confirmed the depth of demand, which we are converting into major wins and partnerships. We are once again ramping up capacity in critical areas with major investment in Hemispheric Resonator Gyroscope inertial navigation in Montluçon. In positioning, navigation, and timing equipment and electronics in Germany, and electronics and surveillance and recognition system in Dijon, France. Numerous new partnerships were announced recently, supporting our global expansion as more than 80% of our defense electronics backlog is international.

Safran joined Airbus, Destinus, MBDA Deutschland, and Thales in signing a letter of intent to establish the Bliksem EXO Consortium and develop a sovereign European exo-atmospheric interceptor against medium and intermediate-range ballistic missiles. We are converting this demand into major wins. THUNDART is a key illustration with Safran and MBDA selected to provide France’s future long-range land strike capability with very strong export potential. We have seen a lot of European countries coming to us since this announcement. We also secured a major contract for JIM Compact, our portable electronics equipment, and Skyjacker Advanced, which is our anti-UAV system. Pascal, the floor is yours.

Thank you, Olivier. Good morning, everyone. Today, I will guide you through the adjusted accounts, and you will find a reconciliation to the consolidated statements in the appendix. Let’s begin with the FX trends, which are highlighted on slide eight. In the context of the ongoing Middle East crisis and its impact on the macroeconomy, volatility persisted during the first half, with the dollar strengthening against the euro, moving from $1.18-$1.14. Given the level of activity observed in H1 2026, it is likely that we will need to revise upward the volumes to be hedged for the remainder of the year and for future periods.

This does not call into question the hedge risk targets shown in the graph, starting with $1.12 in 2026. Overall, our hedge portfolio continues to serve as a key protection mechanism, providing us with solid visibility on future dollar exposure despite currency volatility. Now let’s turn to revenue and recurring operating income on slide nine. Revenue reached EUR 17.6 billion in H1, representing a 19% increase on a reported basis and more than 20% organically. The negative currency impact of EUR 742 million reflects an average spot rate of $1.17 compared to $1.09 in H1 2025.

This impact was partly offset by the scope effect, which had a positive impact of EUR 560 million, mainly due to the acquisition of Collins actuation and flight control activities and partially offset by the divestment of Safran Passenger Innovations. Recurring operating income rose by 29% to EUR 3.2 billion, significantly outpacing revenue growth. Despite some cost increases in certain materials, partly offset by tariff refunds, the margin improved by 140 basis points, reaching a record 18.4%.

The main drivers of this performance were robust revenue growth, the outstanding performance of the civil engine aftermarket, strong defense activities, and as usual, our sustained focus on operational excellence across the group. Moving on to slide 10, you will find a summary of the income statement. One-off items amounted to EUR -177 million, which include program impairment charges, M&A transaction costs, and the outcome of commercial discussions concerning past operations. Net financial expense was EUR 123 million.

This includes EUR +57 million of net financial interest, reflecting our positive net cash position, as well as EUR 188 million foreign exchange loss, which includes an impact of reassessing U.S. dollar provisions. The reported tax rate was 33%, which reflects a EUR 322 million impact from the French corporate surtax. Without this surtax, the effective tax rate would have been 22%. With the increased EBIT guidance, we should now expect nearly EUR 500 million impact for the full year, meaning an additional EUR 118 million in the second half from the surtax. Overall, net income attributable to the parent reached EUR 1.9 billion, up 21% year-over-year, resulting in earnings per share of EUR 4.63.

Turning now to propulsion on slide 11, revenue reached EUR 9.2 billion in H1, up 28% organically, driven by the strong momentum in both civil and military engines. In civil engines, aftermarket growth exceeded our expectation. Spare part sales grew by 28% in dollars, mainly supported by a continued favorable work scope mix on the CFM56, something we have seen since mid-2025, as well as a higher contribution from LEAP aftermarket with an increase in external shop visits. Pricing also supported growth on both CFM56 and LEAP.

In addition, civil engine services were particularly strong, up 40% in dollars, led by LEAP RPFH contracts. It’s important to note that the trigger to recognize LEAP-1B RPFH profit has not yet been reached. The introduction of the Maverick Blade is planned for later this year or early next year. On OE, we delivered 1,030 LEAP engines in the first half, up 41% year-over-year, including 24% growth in the second quarter. This marks the four consecutive quarters with over 500 deliveries, and we can expect further sequential growth in the second half. Military engines also contributed positively.

As announced, Rafale production is ramping up from two aircraft per month in 2025 to four per month by 2029, resulting in M88 engine deliveries more than tripling in the first half. Revenue growth also benefited from a favorable customer mix and a solid level of services. Helicopter turbines benefited mainly from the aftermarket activity, while OE was slightly down due to ongoing supply chain challenges. Missile propulsion systems continue to grow, driven by increased deliveries. By the end of this year, we will have tripled our missile turbojet capacity compared to 2022. Recurring operating income reached EUR 2.3 billion, up almost EUR 500 million versus H1 2025.

The margin increased by 120 basis points to 24.5% of sales, a record, exceeding our annual guidance of 22%-24%, mainly thanks to the outstanding performance of the civil engine aftermarket and continued strength in military engine deliveries. Moving on to Equipment & Defense, slide 12. Revenue reached EUR 6.9 billion in H1 2026, up 14% organically. The scope effect primarily reflects the full integration of the flight control and actuation business. Organic growth also takes into account the transfer of Safran Ventilation Systems from Aircraft Interiors to Equipment & Defense.

Without this transfer, organic growth would have been 12.4%. On the equipment side, we observe higher OE volumes across the board, with particularly strong performance in nacelles for the A320neo. Electrical system also delivered solid results, driven by strong demand for programs such as the 737 MAX, A320neo, and the A350. Defense activities made a solid contribution as well, especially in inertial navigation systems, which recorded strong double-digit growth along with robust performance in electronics and the HAMMER guided bomb.

Aftermarket services grew across all segments, with especially strong growth in electrical systems, notably on the A380, and in nacelles for the A320neo. Recurring operating income reached EUR 907 million, up EUR 204 million year-over-year. The margin improved by 60 basis points to 13.1%, or by 110 basis points to 13.6%, excluding the contribution from the actuation business. All business units contributed to the stronger overall performance, supported by higher volumes, improved pricing, and continued focus on operations. Turning now to slide 13 on aircraft interiors. Revenue reached EUR 1.5 billion, up 6.6% organically.

When you exclude the transfer of Safran Ventilation Systems to Equipment Defense, organic growth would have been 12.2%. In cabin, aftermarket growth was led by spare parts, notably on the A350, A220, with good dynamics in all geographies. OE volumes also increased, driven by A350 lavatories as well as 737 and A320 galleys. In seats, business classes deliveries increased by 4%, with a 21% catch-up in the second quarter. OE performance was also supported by a favorable pricing effect, in line with the right pricing for value strategies that we presented at CMD. Aftermarket activities delivered good growth in both spare parts and services.

Recurring operating income doubled to EUR 54 million, lifting the margin by 200 basis points to 3.7%, despite the dilutive impact of the Safran Passenger Innovations divestment and the transfer of Safran Ventilation Systems. This margin expansion was driven by pricing on cabin and business classes and volume in spare parts. This performance confirms that Aircraft Interiors remains firmly on track with its roadmap for continuous margin improvement. Turning now to slide 14. Free cash flow generation increased by EUR 800 million-EUR 2.6 billion, up 43% year-over-year, resulting in a very strong EBITDA cash conversion ratio of over 80%.

This excellent performance was driven by a 24% increase in EBITDA, as well as the positive changes in working cap. Indeed, inventory growth was more than offset by increases in advance payments and deferred income, which benefited from defense-related advance payments and deferred income related to the RPFH contracts on LEAP. It is worth highlighting that inventories grew at a slower rate than sales, allowing us to reduce our inventory DSO by five days. Income tax payments remain broadly stable, as the cash impact of the French surtax will take place in the second half of the year.

We continue to invest significantly to support our growth. Tangible CapEx reached EUR 750 million, up 15%, with spending focused on capacity expansion across the group, particularly for LEAP OE, MRO activities, and defense electronics. Looking at slide 15, Safran’s net cash position remained almost stable at EUR 1.7 billion. 90% of the cash generated in the first half was used to pay the dividend of EUR 3.35 per share, totaling EUR 1.4 billion, and to finance the share buyback program. In the first six months, we bought back 2.6 million shares for cancellation purpose.

Looking specifically at the share buyback program, between January and July 2026, we repurchased around 2.8 million shares for cancellation. It is about 0.7% of the share capital, for a total amount of EUR 875 million. These shares are scheduled to be canceled before year-end, and we also plan to launch an additional tranche in the coming weeks, which will be executed before the end of the year. M&A activity resulted in a limited net inflow of EUR 33 million, mainly reflecting the divestment of SPI, partly offset by smaller acquisitions, including Syntony in inertial navigation. Finally, reflecting Safran’s strong financial discipline, Standard & Poor’s upgraded the outlook on Safran’s A- credit rating to positive in July 2026. With that, I’ll hand it over back to you, Olivier.

Thank you, Pascal. I am now on slide 17. Building on our strong first half performance and sustained momentum across both civil, aerospace, and defense, we are raising our 2026 outlook. Revenue should increase in mid-teens, above EUR 36 billion. Recurring operating income guidance is improved by EUR 300 million at midpoint to reflect better performance in civil aftermarket.

Free cash flow guidance is improved by EUR 300 million at midpoint, despite an increase of the estimated impact of the French corporate surtax. The revenue growth outlook For our two key indicators have been raised. Spare parts and services revenues are expected to be up in the mid-20s, while LEAP deliveries are now expected to be up in the high teens. Thank you. We are ready now to answer to your questions.

Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Once again, please press star one one and wait for your name to be announced. To withdraw your question, please press star one one again. For the benefit of all participants on the call, please limit yourself to two questions so that everyone is given an opportunity to ask questions. Thank you. We are now going to proceed with our first question. The question comes from the line of Olivier Brochet from Rothschild & Co. Please ask your question.

Good morning, Olivier. Good morning, Pascal. Thank you for taking my questions. I would have two. First of all, on the margin in propulsion at 24.5%, which is quite exceptional. You have an increase in the LEAP deliveries and in services sales, which I would assume are dilutive. Could you share some color on the drivers for that performance in H1? The second question is on the one-offs. Could you just give us a little bit more detail on what is within the propulsion number of EUR -134? How much of that is cash rather than P&L, please?

Good morning, Olivier. Indeed, we recorded a stellar performance in the margin in propulsion with a margin of 24.5%, exceeding our annual guidance of 22%-24%, which was clearly driven by spare parts, notably on CFM56, but as well on LEAP. We benefited from the pricing effect on CFM56 that we had on August 1st last year, but mainly from a very favorable work scope mix effect, meaning that airlines will spend a lot every time they come to maintain their engines. The second driver for this strong performance was the volume of spare engines that we delivered in H1.

It’s about 60% of the annual volume we expect to deliver as spare engines for the full year. I would even add a third item, which is a very good performance we enjoyed in the military engines, notably on the M88. As we said, we tripled the volume of engines we have delivered in H1 2026 compared to last year. Looking to the one-off in propulsion, it’s what we say on slide 10. It’s about the impact of the conclusion of commercial discussions that we had for long concerning past operations with some partners.

Well, part of the cash will be at the end of this year and next year.

Thank you. We are now going to proceed with our next question. The question comes from the line of Christophe Menard from Deutsche Bank. Please ask your question.

Christophe Menard

Analyst

0:28:02

Yes, good morning. Thank you for taking my question. I had two. For full year, could you refresh a little bit the divisional EBIT margin guidance? I think you were last time mentioning Equipment and Defense to be slightly above 12.7%, it seems that for the full year, it will be better. That’s the first question. Still in terms of the Equipment and Defense margin, which came out very strong in H1, you mentioned 110 basis point improvement linked to the structural business. What share of this is linked to Defense, and what is linked to Electrical and Nacelle in terms of margin improvement? Thank you.

Good morning, Christophe. We are raising our full-year outlook. One can expect that our margin should be slightly above what we communicated so far. Starting with Propulsion, as we recorded a 24.5% operating margin in H1, I would expect the full year margin to be at least at the upper end of the 22%-24% guidance, meaning around 24%, okay? Which would be a point of improvement compared to what we had in 2025. In Equipment and Defense, we have always called for at least 50 basis points margin improvement including the actuation business.

Excluding the actuation business, as we communicated back at the Capital Markets Day in 2021, our target is to increase by at least 1 point the margin in that branch to reach 15% at the end of the day. Here again, as we had a strong margin in H1, I would expect to beat the 50 basis point margin improvement for the full year. On Aircraft Interiors, there have been a lot of changes in scope with the divestment of SPI, with the Safran Ventilation Systems.

Still, I would say at least one point of improvement. On your specific question around Equipment and Defense. Defense is clearly a good contributor to the margin improvement. As you rightly say, the Nacelle business also enjoyed a pretty good growth momentum in profits. I would say they will benefit that part to the margin improvement this year.

Christophe Menard

Analyst

0:30:55

Thank you very much.

Thank you. We are now going to proceed with our next question. The question comes from the line of Ross Law from Morgan Stanley. Please ask your question.

Hi. Morning, everyone. Thanks for my questions. The first is on the guidance upgrade in services to mid-20s. It implies a pretty aggressive deceleration in the second half, something in the sort of 10% low double-digit range. Can you just walk us through the key drivers of that? Secondly, Airbus has indicated quite publicly that it wants to recalibrate the economic relationship between OE and aftermarket on the next generation single aisle. I would be interested to hear how Safran thinks about this and whether you and your partner at GE would be willing to give up future aftermarket profits in return for better OE economics. Thanks.

Hello, Ross. Olivier speaking. On the spare parts.

It was on services, I think.

Okay. It was services. Okay. The main driver for the services growth is really the LEAP shop visit. The shop visit volume has increased by more than 30% compared to last year. This is just the consequence of the fact that the LEAP in service is simply growing. Also the work scope continues to increase on the LEAP as well. This is the main driver for the services side.

As Pascal has mentioned, on the spare part side, the main driver for the growth has been the work scope. In fact, we have seen a higher proportion of heavy work scope, basically continuing the trend that has started in H2 2025. We’ve not been surprised by the volume of shop visit. It was as expected. We confirm that we are going to be around 2,400 CFM56 shop visits. No surprise on that. Pricing was obviously anticipated. The main surprise, if you wish, which was well ahead of our expectation, was about the work scope. That’s the main drivers.

If I may just add, Olivier. As you know, Ross, there is no impact on profits because whatever the revenues are, you know that from an accounting perspective, we have defined our strategy to release on the services, the portion of LEAP profits we want. Whatever is the growth rate in H2, there will be no consequence on the LEAP.

Okay. We have listened to the, let’s say, Airbus communication as you did as well, with an appetite, basically, to discuss the respective business model, as you know. On the engine side, when we invest on a brand-new engine development, we have to be quite patient to get our return, because, not only we spend a lot of money for the development of the engine, the industrialization, the ramp up, getting to service and all that.

On top of that, for years and years, when we deliver engines to the Airframers, we do that at a loss, and we only make profit at the time when shop visits come up. We have to wait quite a long time. Any potential discussion on business model has to be holistic, taking into account the OE side, and the aftermarket side.

Thank you. We are now going to proceed with our next question. The question come from the line of Sam Burgess from Goldman Sachs. Please ask your question.

Great. Thank you very much for taking my question, and good morning, both. Maybe I’ll just follow up on those last two questions with similar themes. Just on the work scope, looking forward, what do you see in terms of the evolution of this work scope as we move into H2, and then even beyond that into 2027? Does this continue to be a tailwind and supportive, or does it start to reverse at some stage?

Then secondly, on the engine deliveries. They’ve been very strong in H1. Is there a possibility that we could see you maybe over-delivering to Airbus, particularly as we look towards 2027? We know that Airbus has been slightly out of pocket. From the other supplier, is there a possibility you could help them out? Thank you.

Hello, Sam. Indeed, on work scope. In fact, interestingly, the work scope in 2025 has been mainly driven by material availability rather than demand. The material availability does improve. So basically we are in a tailwind situation. We are indeed confident that the trend that we see now with, let’s say, a significant proportion of shop visit, which show heavy work scope, is going to continue for at least the two next years, in 2027 and 2028. This tailwind will go on for at least the next two years. On engine deliveries, we have revised up our guidance, simply because we have gained confidence in our ability to deliver.

Basically with that, we are going to meet both Airbus and Boeing expectations as well as to deliver enough spare engines to the airlines in order to ensure that there’s not going to be any aircraft on ground, which is a strong focus of ours. Nothing is more frustrating for an airline than having bought an asset and having this asset grounded simply because there is an engine issue. Yes, in 2026, we are going to meet Airbus expectation.

We are going to meet Boeing expectation. We are going to deliver what the airline market needs in terms of spare engines. I can say that we are confident also in 2027 to meet both Airbus and Boeing expectation. Do we have enough, let’s say, to offset some of the other guy, if I may say, lack of deliveries? If we can help in that respect, we would obviously, again, our first priority and our first commitment is to deliver on our promises, both Airbus and Boeing and the airlines. Thank you.

Thank you. We are now going to proceed with our next question. Our next questions come from the line of Ian Douglas-Pennant from UBS. Please ask your question.

Ian Douglas-Pennant

Analyst

0:39:51

Thanks for taking my question. Yes, it’s Ian with UBS. I’m sorry to ask another question on work scope, but can you give us any metrics or anything, any just more information or color, to allow us to share your confidence that work scope will continue to be strong for the next couple of years, and especially that the increase in material supply won’t impact your ability to maintain price from here? Do you know what? I’ll just leave it there. Thank you.

Good morning, Ian. Clearly, when we are discussing CFM56 aftermarket, demand exceeds supply today. We continue to see substantial MRO capacity constraints, which is driving longer lead times and elevated work scopes today. The airlines, they learn from past crisis, and they are looking to manage potential MRO capacity and supply chain risk. When they come to maintenance, they tend to spend more than less. That trend should continue not only in the H2 this year, but as Olivier said, in 2027 and 2028, meaning that when you are discussing the revenue on CFM56 aftermarket, you need to consider, I would say, a flattish volume in number of shop visits, pricing power.

This year, by the way, will be in the mid-to-high single-digit range, plus an increase in work scope. Another way to look at it, following the COVID crisis, we have seen huge ramp-up in volume in terms of number of shop visits, and now it seems that we are seeing the, I would say the other way of the green time effect that we had suffered from during the COVID time. Airlines are spending more in order to get ready when the Middle East crisis starts and traffic resumes. They don’t want to lose time and idle their fleets. They want to take benefits of this period to maintain their engines and get ready when the market starts again very strongly.

Ian, I would add that we see a very significant proportion of shop visit where basically the full scope of HPT blades and LLPs, for the core, but also for the LP sections, are replaced. It’s really a full scope of shop visit.

Ian Douglas-Pennant

Analyst

0:42:42

Thank you very much.

Thank you. We are now going to proceed with our next question. The question’s come from the line of Milène Kerner from Barclays. Please ask your question.

Yes. [Non-English content] Pascal and [Armelle] Congrats on very strong set of results. I have two question. One to follow up on Olivier’s question. Your propulsion margin reached 24.5%. As you said, Pascal, that is above your target range of 22%-24%. How should we think about the margin trajectory from here as work scope will remain elevated on CFM56, you’re going to start booking the [LEAP-1B Maverick] and you’re going to have more LEAP shop visits that will be performed by third party. My second question is that you’re now guiding to around EUR 6.5 billion recurring operating income. The updated 2028 target of EUR 7 billion-EUR 7.5 billion appears relatively close. Are there headwinds beyond this year that could moderate the earnings growth? Thanks.

Good morning, Milène. On propulsion margin, as I said, we should be at least the upper end of the 24% margin. This year, we could definitely slightly exceed the 24% mark. Going forward, a bit early to say, but we continue to see a lot of tailwinds, notably on CFM56 as well on the LEAP spare parts. As you rightly said, we will start to recognize anytime soon LEAP-1B RPFH margin, despite the fact it’s slower than what we had to recognize on LEAP-1A. All that concur to, I would say, upper range of the 20%-24% going forward. As you rightly said as well, when we look to our 2028 guidance, we may have to revisit that once again, given the strong performance we have and the raising guidance in 2026.

[Non-English content] Pascal.

Thank you. We are now going to proceed with our next question. The question’s come from the line of Benjamin Heelan from Bank of America. Please ask your question.

Yeah. Morning, guys. Thank you for taking my question. I hope you’re both well. The first question I had was on the LEAP OE profitability. Could you give us an update on where you are on that journey to the break-even point? You mentioned that you delivered 60% of the spares you expect for the full year in H1. Can you give us a kind of high level view on that spare engine ratio that you’re expecting for this year?

That’d be the first question. Then the second question is coming back on this engine versus OE economics. I guess the question is more why would you guys entertain that discussion? What would an OE take it away from Airbus? What would the OEs really bring to the table other than program participation? They don’t have servicing IP, they don’t have engineering IP on the engine side. Those would be the two questions. Thank you.

Good morning, Ben. On the LEAP OE, as we said many times, we already turned profitable when you combine installed engines and spare engines, since maybe three years now. If you look specifically at installed engines, we continue to have a slight EBIT negative every time we are selling a new engine, and we are definitely strongly positive when we sell spare engines. All combined, it is already profitable. In H1, as I said, we delivered 60% of the total expected volumes of spare engines. I would say that the ratio of spare engines with respect to the total of LEAP engines was in the low double digit. Looking to H2, there will be a deceleration to, I would say, a ratio of 10%-12%, which basically will be the norm going forward.

On the other question, of course the discussion is not going to be the same depending on which configuration we’re in. If indeed we are in a single source discussion, then topics could be on the table that would not be on the table if we are in a typical dual source situation. At the end of the day, we will make sure that in terms of internal rate of return, our ambition are going to stay identical and remain the same before we launch a new development.

We have a very strict discipline, and we want to make sure that our internal rate of return is going to be the same. As I said before, in our current business model, we have to be more patient simply because, as long as there’s no shop visit, basically, and because we deliver the engines at the Airframer at a loss basically, we have to be patient. That’s the point. It’s all about what kind of discussion could happen in a sort of single source situation.

If you remember well, we introduced the CFM56 second-gen engines back in the early 1990s, and we only enjoy from the peak of the market revenue and profit today in 2026. It’s a long cycle for engine makers.

Yeah. Okay. Very clear. Thank you both.

Thank you. We are now going to proceed with our next question. The question’s come from the line of Robert Stallard from Vertical Research. Please ask your question.

Thanks so much. Good morning.

A couple of non-engine questions for you. First of all, in equipment, Airbus said the other day that they’re looking at significantly increasing the Airbus A350 production and was wondering what your capacity is in equipment to satisfy any further rate increase there. Secondly, in interiors, you noted a recovery in seat deliveries in Q2. Have we turned a corner in this certification logjam for seats? Thank you.

Hello, Robert. Yes, the ramp-up objectives and the ramp-up plan of both Airbus and Boeing are very good news for us, for our equipment division, because in our equipment division, we are more exposed to wide bodies than on our engine division. That’s also part of, let’s say, the pathway to meeting profitability that we are aiming at by 2028. Indeed, this is very good news. Just remind you on A350, 787, we are on board with the landing gear. A lot of electrical equipment as well, wiring. All that is good news. On interiors, we continue to improve our pricing on seats.

As we’ve already mentioned to you at our last Capital Market Day, there’s significant demand. Demand on seats is indeed significantly above supply globally. That’s just a combination of a demand for a retrofit program and demand for line fit program. Indeed we can get more value for our seats. Now, we’ve not yet turned the corner. It’s an industry issue that is now well understood and identified by the airframers and by the airworthiness authorities.

By the way, there’s going to be significant discussion in H2 on that, because indeed, the airworthiness authorities have elevated their interpretation of preexisting rules in a view that is creating roadblocks for the certification of seats and therefore for deliveries of seats. Again, this is an industry issue. It’s not a Safran issue. It’s an industry issue that will need to be tackled. I hope we will be able to turn the corner by the end of this year. Again, it will have to be a collective and objective discussion between seat manufacturers, airframers, and airworthiness authorities.

Last year, we turned EBIT positive on seats, the challenge this year is to turn cash positive. In H1, it was slightly negative, we expect to generate some cash in H2 in order to be balanced for the full year.

Great. Thank you very much.

Thank you. We are now going to proceed with our next question. The question’s come from the line of Ken Herbert from RBC Capital Markets. Please ask your question.

Yes. Hi, good morning, Olivier and Pascal. Two questions, if I could. Can you quantify or be more specific on how much advanced payments, I’m guessing on the defense side, benefited the first half free cash flow? Second, with the very strong balance sheet, is there any update you can provide on either how we think about buyback over the next couple of years or maybe any incremental interest in scopes or further mergers and acquisitions as you think about capital allocation? Thank you.

Okay. On your second question, we definitely enjoy a strong balance sheet. On share buyback, we have a program into fourth of EUR 5 billion. We have executed nearly 50% of that right now. We’ll continue, as I say, we’ll launch a new tranche, I guess early September to be executed by the end of this year. We are on plan to execute our share buyback program. Until we fully execute that program, we don’t see any need to announce any further share buybacks at this point in time. Regarding M&A, as Olivier said many times, we clearly are looking at opportunities, notably on the defense segments in Europe. You may have seen that we have missed one of them very recently. You can see that we continue to be active.

Now looking at advanced payments and deferred income. Deferred income has continued to rise in H1. I won’t quote the specific numbers, but it’s all driven by the LEAP RPFH contract. As you know, we’re getting paid by flying hours. Advance of payments, we have seen a slight increase in H1. Not much. You cannot consider that the EUR 2.6 billion free cash flow performance was driven by advances.

As I already said many times in the past, we have not factored in any advanced payments, which could come before year-end from the current contract into discussion with the Indian Air Force for 114 Rafales. This is not in our guidance, and this could come as an upside if we do receive any payments before year-end.

Thank you. We are now going to proceed with our next question. The question comes from the line of David Perry from JPMorgan. Please ask your question.

Yes. Hi, Olivier and Pascal. Three, if I may, please. First one, just on the work scope. Oh, can you hear me?

Yeah. Yes, we can hear you. We take two steps back.

Okay. I’ll ask two questions then. On the work scope issue, we often think of it as discretionary airline decisions or, as you said, availability of material. I was just wondering whether mix was also a factor. Is it the fact that you’re seeing a lot more second shop visits that are just coming in at a higher price? Is that a factor or not? The second one, just following up on the M&A question just before. You bid for Exail and obviously Thales has offered more. I’m just wondering, are you looking more proactively now at defense M&A? Thank you.

Hello, David. On work scope. Of course, at the end of the day, it’s always an airline decision. Work scope is an airline decision. To the exception of, let’s say, what has to be done. If a LLP parts has come to the end of its life potential, it has to be replaced. Again, let’s say, beyond what is absolutely compulsory and which is a driver for the shop visit, because there is always a driver for a shop visit. It’s an airline decision to extend or not the work scope of the shop visit. Again, in the past, especially up to mid 2025, it was constrained by material availability, which is not the case anymore.

We have seen, let’s say, a tailwind popping up in that respect. As I said, it’s going to continue for the next two years. We are very, very confident on that. On M&A, yes, we’ve missed Exail. That was nice to have for us. That’s why we decided to remain disciplined. That’s what happened. We are going to continue actively to look at opportunities in that respect. Again, opportunities that are consistent with our core objectives and our core portfolio of activities.

On defense electronics, we want to stay platform agnostic on one side, and on the other side, we are pretty active in what we call ISTAR. ISTAR means intelligence, surveillance, tracking, acquisition of target and recognition. That’s basically our field of activities. As long as it is, let’s say, consistent with this portfolio of activities, and as long as it makes sense as well financially, we would move on an opportunistic basis.

I would add that valuation of defense assets are pretty rich today.

As Olivier say, we need to remain disciplined from a financial perspective. It has to fit our DNA from a technology perspective, obviously. We need to remain disciplined. There is a kind of bubble of valuation on defense assets today. We need to remain disciplined on that.

Thank you. We are now going to proceed with our next question. The question comes from the line of Sebastian Growe from BNP Paribas. Please ask your question.

Thanks. Good morning, Arnaud, Olivier, and Pascal, thanks for squeezing me in. Two questions, one on equipment and defense. Your earlier comments suggested that demand growth continues to exceed mid-teens revenue growth in the business that we’re seeing in the first half. Could you please share the H1 book-to-bill ratio with us in the segment? I think you said earlier that in 2025 you had 1.6x book-to-bill. How should one think of the order book conversion to sales growth going forward?

The second question I have is on free cash flow. The EUR 300 million higher guidance does reflect the 100% drop through from the raised adjusted EBIT target. Pascal, you mentioned the reduction in inventory days among others, having supported the strong free cash flow generation in the first half. My question thus is how sustainable might this working capital improvement be, and do you feel now more confident with regard to your midterm conversion target of 70%? Thank you.

I’ll take the first one. On the book-to-bill, yes, on defense electronics, we’ve enjoyed 1.6x book-to-bill last year. Our, let’s say, basic objective is to be this year above 1.3x. I hope we’ll be better than that, but this is our, let’s say, minimum goal is to be at 1.3x. This is what we need to feed the growth of, let’s say, 20% or more year-on-year between now and 2030.

Morning, Sebastian. On your free cash flow question. We have a target to improve by almost 10 days our inventory DSOs this year. As I said, at the end of June, we improved by five days, there’s still some work to do on that side. Any increase in value in euro terms of inventories would be more than offset by the level of advanced payments or deferred income we will receive in the second half.

I would expect the working capital change to remain slightly positive. CapEx will continue to increase given all the projects that Olivier has discussed in his introduction. All in all, the free cash flow increase reflects a good growth in the EBITDA, increasing CapEx and the positive change in working cap. As you know, on the taxes, it will be a significant increase from last year.

We will now take one last question.

One more. You can take one more if any.

Okay, sure. The next questions come from the line of Hervé Drouet from CIC CIB. Please ask your question.

Yes, good morning. Thank you for taking my questions. I have two as well on my side. The first one on pricing and bargaining power. Obviously, you mentioned the demand in all segments are overwhelmingly above supply. I was wondering, looking in next year, do you believe the pricing dynamics you currently enjoyed could be maintained or even increased?

It looks like some [manufacturers] are increasing their pricing even on OEM quite significantly. I wanted to have your view on that, on OEM, but also on services and spares. The second one is on the profit on LEAP, for flight per hour contract. Do you believe, starting from next year, you will be able to release some profit on those contracts in your financials? Thank you.

Hervé, the dynamic is different depending on the customers’ categories, if you wish. On the equipment side, we have program life agreement with the airframers. The pricing is defined by those long-term agreements, program life, where we have escalation formulas. This is quite ballistic, if you wish. We don’t have much room to maneuver on those program life contracts that we have with the airframers. We have more, let’s say, flexibility and room for maneuver on the services side, on one side. When we have a direct relationship with the airlines, which is what we call the BFE business model on aircraft interiors.

BFE means buyer furnished equipment. This is basically what reflects the equipment for which our customer is not the airframer but directly the airline. The pricing dynamic, we believe will mostly remain the same on the aftermarket side. We want those to be, let’s say, moderate because, again, we don’t want to have an abusive posture at all. Every price increase has to be explained. The fact is that because of supply chain constraints, some of our suppliers may be in a strong position and impose some price increase.

We have this on the cost side as well. We need to reflect that. Any price increase has to be explained and understood. I would say the pricing dynamics is going to stay more or less the same in the coming years on the aftermarket side. I would say the same on the aircraft interior side for what we call the BFE business, which is mainly the seat business.

Morning, Hervé. On your second question about LEAP RPFH margin recognition. The triggering event to recognize the profit is the introduction of the Maverick HPT Blade. Regarding LEAP-1A, this occurred in late 2024. This is why in 2025, we started to recognize profit on LEAP-1A RPFH contracts, not only for the year 2025, but also for the past margins, which was kept on the balance sheet at that time.

Regarding the LEAP-1B, you know that the Maverick Blade, HPT blade, is now certified by GE. We are waiting for the introduction into service of that blade. Should that occur late this year, we start to recognize in H2 some profits. Should that occur early 2027, we’ll start to recognize profits for the LEAP-1B RPFH contracts in 2027. It’s pretty simple. It only depends on the date of introduction of the HPT blade from GE.

Thank you. That is very clear.

With that, we will conclude this session. Have a good summer break, and thank you for your attention.

This concludes today’s conference call. Thank you all for participating. You may now disconnect your line. Thank you, and have a good rest of your day.