Interview with Guillaume FAURY – Executive Chairman of Airbus | Paris Air Forum

Yes, good morning Michel. Good morning everyone. I'm delighted to be here this morning, and indeed, I think we cannot start this session without expressing our condolences to the victims and the families of the victims of the Air India flight that crashed yesterday. We all work very hard in this industry to ensure that doesn't happen, and when it does, it's a tragedy. So we will all work even harder. But I wanted to say a few words about it. Safety is my number one priority. It is the number one priority at Airbus. We talk about it every day, every morning. When we start a meeting, we begin with safety topics. And it's important because the numbers of risk exposure make us very humble. For example, there are about 400 to 500 thousand people in flight on an Airbus right now. There will be about 2.5 billion people flying on an Airbus this year, which means an Airbus takes off or lands every second. So it forces us to be excellent, and today with yesterday's accident, we can only think of the victims and their families. And I also think of our friends at Air India who will go through a difficult period and will have to work hard and face what is also a human tragedy. That's it.

Yes. So effectively, we are an industry that is by nature very global. We are an internationally deployed group with a global supply chain. We have a somewhat particular activity: in a supermarket with 3 million references, when three references are missing, the supermarket continues to deliver 29,997 references. On an aircraft, there are about 3 million parts. When three parts are missing, we don't deliver the aircraft because we don't deliver a nearly finished aircraft. So we stop the assembly line, and therefore we stop all 3 million references. So we have to be extremely efficient on supply. And in fact, since COVID, we have struggled to recreate a supply chain as efficient as it was before, and we have constant difficulties. We have resolved many. We still have a few. In particular, right now you are aware that we have aircraft missing engines, several dozen aircraft in this situation. So we are working hard with our friends at CFM to resolve this. We hope that will be the case by the end of the year, but overall things have improved significantly since 21-22. We still suffered a lot in 23-24, the start of the year is better, and now other disruptions are arriving, linked to the trade war launched by the United States and the numerous conflicts emerging in many places around the world, which strongly disrupt the functioning of economies and supply chains. Therefore, our deep supply chain also creates other difficulties for the aviation sector in particular. Philippe Pascal mentioned ICAO and the Chicago Convention which defined the sky as a common good. For a long time, airlines could fly over any territory without difficulty. Today, they face a very large number of restrictions, no-fly zones due to these conflicts or legal provisions taken in certain places. So it becomes very difficult, and for a sector like ours, it's a new dimension to take into account, not far from the security dimensions Philippe spoke about, which are connected to security but go further.

So we need to keep in mind that the civil aeronautics industry has been based since 1979 on an agreement that sets tariffs and customs duties at zero. So effectively, we have a nearly global ecosystem that is very optimized, and supply chains developed being very international so that each activity is done by whoever is most efficient to do it where it is most efficient. When suddenly tariff barriers are imposed in a very international supply chain, it creates enormous disruption in commercial relations and potentially friction in flows. So it is very penalizing. It is penalizing first for American companies. Then we at Airbus are also an American company. We have activities there, we assemble aircraft and helicopters. But for American groups, it is very penalizing. So today, no one has found a winner in this matter. That's why all industrial actors, whether American or European, who rely on these very integrated chains, are determined to convince that tariffs must be brought back to zero because that is what is best for each actor. However, we are not there today.

So for now, in the short term and in the absence of reorganization of the supply chain, it's a bit of everyone. Because when Airbus delivers an aircraft to an American customer, an American airline, since it is the one importing the aircraft, if we deliver from Europe, it pays 10% tariff, which is enormous. So one way or another, it will pass it on to its customers because it needs to find a balance. When I am the importer, we at Airbus in the United States because we assemble there, we import paying import duties, tariffs that we are not necessarily able to transfer to our customers since they buy according to contracts they had. So it is we who absorb the costs, and that is also true at different levels of the supply chain. So in the short term, it would be spread across everyone, and it's hard to absorb. For some, it's even impossible. In the medium to long term, if tariffs remain in place, the supply chain will reorganize to cross borders much less and pay much fewer tariffs. We will regionalize this industry, therefore de-optimize it. So in the end, passengers will pay more for airline tickets because the supply chain and industry will be much less optimized than today.

No, honestly, we are not there yet. I think everyone is first working on adapting in the short term to these tariffs and trying to understand how to live with them, adapting tactically. And we are trying to see how to convince.

So in the short term, we are trying to see how to manage this situation, to convince and explain what the negative consequences are, and why we need to return to tariffs equal to zero for everyone. And if we never reach that situation but instead have an escalation in tariffs and durable tariffs to account for, then we will enter that phase, because it is very significant investments to relocate supply chains for technically and industrially complex products. So we are not in that phase yet.

We need Europe to achieve a result, so it is up to it to decide how it wants to conduct its negotiation. What we think is that in any case, we must start with the most constructive negotiation possible. I believe that is what Europe is trying to do. But at some point, if it doesn't work, we need to show our teeth a bit. We at Airbus had a somewhat comparable situation five years ago with the tariffs resulting from the WTO dispute between Europe and the United States over financing of civil aircraft programs. We had 10% tariffs on Airbus aircraft going to the United States, then 15%, until Europe retaliated and there was a negotiation and it was brought back to zero. So there you have it: negotiations go through constructive phases and more conflictual phases. We expect Europe to find the path.

So it's not likely to make things easier. Yes, the level of complexity is rising very seriously. [Technical issues] It's a cyber attack on the Paris Forum. Well, I think it's symptomatic of the new world we live in, where we must constantly adapt to unforeseen events. And yes, effectively, the level of complexity must rise because the environment we are in, we use the term that comes from the United States: the world is volatile, unpredictable, complex, and ambiguous. In fact, we see this notion developing on a larger scale and with more speed on events. So we need to incorporate into our operating modes more resilience to incoming events. No one is capable of preparing for everything we see arriving each day at the moment. So we are very reactive; we would like to be more proactive, but we are also forced to be very reactive depending on events.

That doesn't make things easier. Let's be clear: having such an important actor relegate its objectives to second place. What we also see is that security issues are so dominant that they take precedence, at least in agenda and discussion, over sustainability issues. But we have not changed anything, and the industry considers that it must in any case face global warming and growth that will only be acceptable sustainably if we very strongly reduce CO2 emissions. So we remain focused on the carbon neutrality objective for 2050. To achieve it, there are several important levers. I won't list them all here, but it's essentially technology, air traffic management, and fuels. On technology, we are advancing as we had set our roadmap; we follow it, and many solutions are emerging, so I think we will meet the objectives for entry into service in the next decade, rather at the end of the next decade, of aircraft that will be much less fuel-consuming and capable of using 100% sustainable aviation fuel, the famous SAF. However, on the ramp-up of SAF, it is not progressing as needed. It is much more laborious and slower. [Technical issues] I continue. So on SAF, we are not advancing at the required speed for several reasons. First, the definition of what is a SAF is not the same in Europe, the United States, China, or ICAO. So we don't agree on what a SAF is, while we are talking about fuel for traveling around the world, and airlines need a standardized definition of SAF. Second, the methods used by governments or regulators to encourage and help scale up production and consumption of SAF are not the same in different parts of the world. And whereas we would need a level playing field to ramp up gradually and avoid competitive disadvantages for certain actors, we have different systems. So there is a lot of work to do. And then there are many other issues that unfortunately tend to push these topics to the background. When energy security becomes an essential element of a country's short-term security, it puts the ramp-up of SAF in second place. So that concerns me, it concerns us. We work a lot on it, there are many discussions, but we must admit that on SAF, we cannot declare victory.