Dassault Aviation’s (DUAVF) CEO Eric Trappier on Q2 2017 Results – Earnings Call Transcript

Dassault Aviation SA (OTC:DUAVF) Q2 2017 Earnings Conference Call July 26, 2017 12:00 PM ET


Eric Trappier – Chairman and CEO


Christian Schubert – Frankfurter Allgemeine Zeitung

Eric Trappier

Good evening. Thank you for being here at this press conference for the close of our half yearly accounts. And as usual, I suggest, we look at a short film, summing up all the events since the beginning of 2017, since the first half of 2017 therefore.

Dassault Aviation is elected best French employer by a panel of 20,000 employees surveyed by the economics and business magazine, Capital. This award is proof of our company’s positive image and the high level of confidence in its future.

Further to the sale of 36 RAFALE fighters to New Delhi, Dassault Aviation has joined forces with the Indian group Reliance to create a joint venture. Dassault Reliance Aerospace Ltd. is poised to become a key player with regard to the offset obligations pertaining to the RAFALE contract signed with India. This contract is part of the Make in India program set up by New Delhi, which will help us build our future in the country.

The Egyptian Air Force took delivery of three additional RAFALE fighters in February. Thanks to this delivery, Egypt now has nine of the 24 RAFALE fighters it ordered.

The Japanese Coast Guard has purchased a fourth Falcon 2000 MSA for its maritime surveillance missions. After a demanding call for tender process, our aircraft was selected for its versatility and optimized operational costs.

Our Falcon 8X was granted certification to fly from London City Airport, which has notoriously stringent regulations. The Falcon ranges ability to land at and to go from airports that are tricky to access, makes for incredible flexibility, a quality that is much appreciated by our customers.

The DGA, Dassault Aviation, Thales and MPGA successfully carried out the METEOR air-to-air missile integration campaign on the RAFALE. The Air Force now has the green light to start its own test and prepare for the missile’s arrival on the RAFALE F3R.

The Falcon 8X was one of the main attraction at the EBACE Aviation Event in Geneva. This was an opportunity for Dassault Aviation to show off its full range of business jets and prepare for market recovery in a highly competitive context.

Eric Trappier is the new Chairman of the Group. Our CEO had previously been elected Chairman of the Aerospace and Defense Industries Association of Europe, the ASD.

The 52nd Paris Air Show was held from June 19 to the 25th. This Air Show, the biggest event in the aeronautical sector, was a resounding success, both for industry professionals and the general public. Military delegations, Falcon customers, prospects and pilots, as well as industrial partners and subcontractors showed up in force to enjoy the event. France’s newly elected President, Emmanuel Macron, elected the air show and stayed for over five hours. A perfect opportunity to evoke the technological and budgetary issues affecting the defense sector, and the chance to discuss notions of flexibility and competitiveness in the civil and industrial fields. These topics were also raised with the French Prime Minister, Edouard Philippe and members of the government.

The RAFALE demonstrated its enviable flight qualities each day, with air force pilot, Jean-Guillaume Martinez in the cockpit. The RAFALE was also presented to numerous foreign delegations throughout the course of the week. They were able to discover the range of diverse innovations exhibited in the military support customer service area. A brand new RAFALE simulator allowed us to demonstrate our aircraft’s incredible variety of operational qualities.

Just like the RAFALE, our Falcon 8X also flew every day. The flagship of the Falcon range was also presented in our static display, alongside the Falcon 2000 LXS, the Falcon 900 LX and a scale one markup of the Falcon 5X cabin.

And after a tough flight test campaign, which subjected it to the highly restricted electromagnetic environment of aircraft carriers, the nEUROn moved on to the ground testing phase. The DGA carried out a fresh series of stealth measurements in its Anechoïd chamber in Bruz, in Brittany.

The morning of July 5, Falcon 5X made its maiden flight from our Mérignac plant located near Bordeaux. The flight lasted almost two hours, and marks the start of a limited series of preliminary tests, built into the aircraft’s development program. The aircraft is fitted with silver crest engines with an intermediate design. The validation and certification test will start in 2018, when Safran has supplied the engines made to our specifications and the central foundation for entering to service of the 5X version in 2020.

On July 6, 2017, at our Argonay site, Eric Trappier and Laurent Wauquiez, President of the Auvergne-Rhône-Alpes administrative region, signed a partnership agreement that aims to boost future developments in our industry. This agreement provides for an action plan, specifically targeting precision mechanics, machining, mecatronics and the development of advanced production processes.

During the past few months, the initial milestones of Dassault Aviation’s transformation plan, known as leading our future have also been put in place. It’s deployment is set to span the next few years, and will ensure that our company is fully equipped to rise to the challenges that lie ahead, remaining at the peak of world class aviation.

Well I suggest we go through — I walk through the presentation before we go on to the accounts and your questions. So just to tell you a few words about the context, you must have noticed that there is a new French President, a new Government, a new Prime Minister. So the first thing that was decided, was to carry out a defense strategic review. We are right in the middle of it right now, and we will have to wait for the autumn to obtain the results of the defense strategic review, that is taking place after the white paperwork signed in 2012.

A new defense procurement law, which will begin from 2019, which is the — following the follow-up of this strategic review, and there will be a particular budget says the President of the Republic.

India for us, well we are going to setup our Make in India policy. We will settle in India sustainably, and this is the first contract with 36 RAFALE aircraft, and we will also prepare for the future, and try to obtain other new orders in India.

The first flight of the Falcon 5X, you saw it in this film, the maiden flight took place and the business market is still a bit sluggish. So that is our general context. Now in France, as for the RAFALE, we delivered one RAFALE, one out of one, we had planned to deliver one in 2017 for France, which is delivered, so therefore we have delivered 149 aircraft out of the 180 ordered by France.

The delivery of one Naval RAFALE retrofitted to standard F3 will take place, will continue to take the development of F3R. The delivery should take place in 2018. The F3R, you might remember is the standard, with the integration of the METEOR missile, the integration phase of this missile took place very well with firing tests. The RAFALE support, especially for the French forces, which are in operation in [indiscernible].

The defense procurement law, which is underway, one RAFALE in 2017, as I said three in 2018, zero in 2019 and zero in 2020. And then we will start delivering again, the 28 aircraft, stay tuned from 2021, according to the French defense procurement law.

RAFALE export Egypt, the delivery of three RAFALE took place in the first half of 2017, bringing to nine, the total number delivered out of the 24 ordered. This week we delivered two extra RAFALEs after the month of June. So this is why they haven’t been taken into account here. These aircraft were delivered to Egypt a day before yesterday.

Qatar, the contract is taking place normally. India, the contract is under execution too. With the reception of a request for information to supply the Indian Naval Army 57 combat aircrafts. So we will propose 57 Naval RAFALE to the Indian Navy. There are other countries, where we are pursuing our prospection, and maybe we can talk about this a little later.

And so India, as I said at the beginning, we are continuing. We have signed the joint venture with Reliance. This had been announced last February. So this joint venture is now underway. 51% Reliance, 49% Dassault Aviation. We have an Indian CEO and Dassault Aviation Industrial Director. So the company will have Indian staff and Dassault will provide its support, and we will have RAFALE parts made there, and we will transfer our Falcon parts there, so as to have a large manufacturing of Falcon 2000 in India and this, so as to fulfill our offset obligations and so as to fulfill our engagement to start this Make in India policy proned [ph] — claimed by the Indian Prime Minister. This is a very promising future for India, with a lot of patience. So this ramping up should take place over the next five years, with a beginning of production, that will begin right from this year onwards, until the manufacturing of the parts of Falcon 2000 and sub-assemblies, and this will take place over several years.

We will begin with the infrastructure. We are doing it right now. We are recruiting our staff. We are training them. We will also be supplied locally in India, and each step will be validated by the Dassault teams. And our partners, Thales, Safran, and subcontracting, they are all working on their own for this Make India.

Mirage 2000, we are still supporting HAL to upgrade the Mirage 2000 for the Indian Air Force front. We are continuing to upgrade the Mirage 2000 and we are supporting the Mirage 2000 fleet in France and for export, especially to the United Arab Emirates, especially for the Mirage 2000-D, which is in operation in the Yemen territory.

Maritime surveillance, well we are continuing our tests, flight tests to upgrade to our Navy, and we began PLM system that we are implementing with our friends from Thales, SIAE and DCMS, which are provided with the TLM systems.

For maritime surveillance, we have obtained a fourth maritime surveillance contract in Japan, so we are continuing to change, modify our Falcon 50 for the National Navy. We have carried out drop hatches.

The nEUROn, as you have seen in the film, has continued its test campaign in Bruz. It was done by the DGA, to measure stealth after an intense flight test campaign, to test that the stealth is good, and the results are good. I cannot comment then further. It’s confidential. And we are currently negotiating a new contract for a new phase of flight test of the nEUROn. The logical follow-up from the neuron, is the Franco-British program, the cooperation program that we initiated under the Lancaster House Treaty, with BAE Systems, Thales, Leonardo, Rolls-Royce, and Safran, and our studies should enable us to launch an operational demonstration by the end of this year. At least we are working with our partners on this and it is of course, for UCAM [ph] demonstrator.

Regarding the MALE drone, we are working with Airbus Defence and Space and Leonardo as well on the definition study, for countries interested, that’s France, Germany, Italy and Spain. They are the countries interested at the Franco-German summit that was held on the 13th of July. There was a breakthrough piece of progress, because there was a single engine and twin engine set of assumptions that were too possible. So [indiscernible] twin engine solution that would be adopted.

Now we also decided to continue our studies to prepare for the launch phase, and this drone, which is a European one, made by European companies on behalf of four European countries, will try and make sure that we are one of the first programs to avail the European Defence Fund, which as you know was instigated at the initiative of the European Commission Service to provide match funding to programs rolled out in the context of partnerships between — among countries that would be an excellent opportunity for us to test out the intent of the European Commission to become interested in defense matters.

Then we have the business jet market. I introduced this already. It’s a bit difficult always. There is a lot of price competition still, and the pre-owned jet market is there. There are a lot of pre-owned aircraft available, and that creates pressure on pre-owned jet and of course then there is pressure on pre-owned jets. You have a differential with a brand new aircraft that is high, and we try to bridge the gap by working energetically on our competitiveness in terms of price, but it’s not sufficient of course to bridge that gap. And that means that clients then tend to postpone their purchases or their purchase intent.

So there are geopolitical uncertainties of course, economic uncertainties especially. Results have been published by those highlighting the U.S. tax issues for example, and there is still the institution process going on in Brazil. Asia is developing, but not at the speed we were expecting. It’s taking a bit of time, and there is this large pre-used aircraft inventory out there. So there are some positive signs regarding the pre-owned market. They are just getting a bit better, but there is still a big inventory out there.

But on the 5X, as was recalled in our press releases, the flight took place on the 5th of July last, that you heard about. We decided to have the 5X flight with provisional engines, that won’t be representative of what the definitive series produced engines will be, because the program has been subjected to delays, because Safran has accrued delays by four years and therefore, we are trying to speed up the integration program to make up for that, and also, the test campaign we are running right now, will help us to save some time. Even though, these engines aren’t representative, nonetheless, we will be able to verify certain things, in respect of the airplane itself, and I won’t make any more comments on that right now; because the real integration campaign of the flight test and the representative engines in that will start off in 2018. Subject of course to the Safran engines being delivered to us on time, and at the right date.

Regarding the 8X, great satisfaction from our initial clients, and I thought it would be — talking about that one, we posted our results for 2016. But this is a very mature aircraft. It’s very reliable, very silent and it’s range is very good, and therefore our first clients are very satisfied with it. This is of course something we are proud of, the success. So we have the Falcon range here that you see on the screen on the 2000S to the 8X, and we have the 7X of course as well still, I hope you got questions — I mean, still they are up for sale. You can ask questions about it if you like, later on. And I think the Safran engine, the definitive engines available, we will of course be marketing the aircraft that will contain that.

So we are of course located all around the world, with an after sales network. We opened two new service centers in Malaysia and Austria, to be as close as possible to our customers. Also, we have improved our services, the Falcon Sphere II presented at certain trade shows. The Falcon immersive training, which is also something that has been presented, it’s training program for mechanics, using virtual reality and Falcon Broadcast, which is connected for the identification support system.

So all of these enhancements enable us to assume a very good ranking in the annual analysis and service on by AIN and Pro Pilot, first place for us on aircraft entering into service and first place also for us, for service quality, availability and guarantee for all aircraft. So those publications recognize the ongoing progression of Falcon support services, and that’s a source of great satisfaction for us.

Some numbers, as you go to the results of page 1; as for order intakes, 14 Falcon aircraft compared to 11 in the first half of 2016. But 11, that was the result of 22 minus 11 cancellations of 5X. As for the deliveries of Falcons, we delivered in H1 17 Falcons compared to 15. At the same time last year, we delivered four RAFALEs, the three Egyptian ones, plus the French one compared to the seven last year at the same time. So therefore, the backlog is at 60 Falcons and 106 RAFALEs, 31 for exports — 106 for exports.

The net sales, €1.4 billion, €1 billion for Falcons, €200 million for export and €200 million for France. The net sales €2 billion, €1.1 billion for the Falcons, €700 million for RAFALE export and support services and €200 million for the French deliveries, and the backlog is at €19.8 billion, €3.1 billion for Falcon, €13.9 billion for exports and €2.8 billion for France. That’s for our self-funded R&D. It is increasing once again in 2017. This was planned, it was in 2016, we had slowed down the development of the 5X, because of the difficulties on our engine, and now we are resuming more sustained activity on the 5X. So therefore, we are at the same levels as before. Here at the midyear, we owed €176 million, and if you take the five year average, we were at 10% of our net sales.

Adjusted income statement, so for this first half of 2017, the net sales stand at €2.50 billion; operating income at €123 million and operating margin at 6.5% compared to the operating margin at the end of 2016 comparable to that margin, financial results; €16 million, Thales and other equity affiliates at €106 million, a clear increase, which translates the progress in terms of the results at Thales, Texas, minus €46 million. So therefore, the net income is at €199 million, which is the net margin of 9.7% compared to the 11.1% at the same time last year, and if I look at the earnings per share, because of the share price was increased, which is 23.3 compared to 24.3 shares.

Available cash, well that’s mainly the RAFALE contract that gave us some down payments, and we have increased inventories because of the RAFALE, and we have cash at €3.8 billion compared to the €3.1 billion we had at the end of last year.

Changes in capital after dividend payment and shares. So at our last shareholder meeting, we decided to pay out the dividend either in shares or in cash. GIMD opted to receive 100% of their dividends in shares, 47% of the free flow decided to be paid in shares, and Airbus, which is leaving [indiscernible] capital, opted to be paid in cash. So we paid €24 million of dividends in cash, for a full amount of dividends of €100 million. So therefore, we have this new table, which you can see, this is a breakdown. It dilutes GIMD, because GIMD received 100% of its dividends in shares, the free flow, just more or less the same. Airbus has gone down a bit, and this is the new table therefore.

A few words on the transformation plan; the transformation plan is mainly based on the digital lever. On the digital transformation, we have decided to carry out — launch a digital transformation. We have a partnership with Dassault System. This is a historical partnership, but this is always renewed, and we are going to support ourselves on their experience on 3D, as many other aircraft builders have decided to follow. We are going to support our digital transformation. It’s not just digital with our new tool, but also in our plan, to upgrade our plans with new tools will better manage the inventories and orders, and we will be more efficient with our plans.

And we will have a better manufacturing and the work of our manufacturers will be made easier. They won’t have to do too much management work, and they will be able to focus on their job as manufacturers.

The plant specialization is being pursued, I announced this. We have a certain number of adjustments to be carried out in our plants. We have decided to keep the nine sites of Dassault Aviation, and we want to have greater specializations in our plants, as to better invest in our plants, once the specialization will have been carried out.

Just a few words now on our culture and our strategy; we have decided to building in Mérignac for the service sector, that is design offices, support. So that some teams will be closer to the aircraft being built in Mérignac, that are also flying. And besides our digital program, we will be able to face the physical reality of the aircraft. It is not just putting Saint-Cloud in Mérignac, but we will have stronger team in Mérignac. There are a lot of people who are already working in Mérignac.

Now, I will talk about the outlook and strategy in this uncertain environment, we have to ensure Falcon sales, that’s the number one priority, prepare new RAFALE contracts. I hope so, and in a case especially, thanks to the implementation of this Make in India policy, this JV with Reliance. Obtained development contracts in France. We will be negotiating for RAFALE standard, which we call the F4. There are discussions with FCAS, with the British for UCAV demonstrators, based on the announcement made by the President of the Republic. A future Franco-German combat aircraft for the MALE drone, the ability to quickly launch an observation drone, with four countries involved. All this will have to be confirmed through contracts in the future, and this will contribute to maintain our teams at their top level of competence to ensure the bright future of our combat aircraft.

We have to ensure the development of our Falcon 5X program continue its integration, once we will receive the engines at the end of this year, the engines that are specific, and those that will be certified, we would like to launch a new Falcon so as to widen our range, and mobilize, as I said, all our energy to succeed in this transformation plan, that will allow us to adapt ourselves to the market. It will allow us to adapt ourselves to the changes in the world, whether it’s the economic world or the geopolitical world, will be in order to win this competitiveness and to be more flexible.

So it is a difficult context for our Falcon program, but we would like to confirm our net sales for 2017, which is going to go up, and we will keep delivering our 45 Falcons and 9 RAFALEs in 2017.

So this is my formal presentation, and now I am ready to answer your questions.

Question-and-Answer Session


I would like to give the first person with a question a microphone please, thank you.

Unidentified Analyst

Yes Jean-Mac [indiscernible] is my name. I have three questions please. You have seen the minister this week. Do you talk about the major programs staggering, that’s what our minister in France here has talked about often, the staggering. Then I’d like to ask you also about the German state majority stake in the MALE RPAS program. Do you think that there could be a bigger interest by the French in that program, and then regarding drones, mention was made at the Franco-German defense counsel of a possible cooperation about a future Franco-German combat system. Were you surprised by that announcement, and what share do you think you might have in that program?

Eric Trappier

Thank you. That’s a lot of questions. Firstly, I won’t reveal to you what the minister and myself talked about. I see the newspapers and say things about where I go. But that’s the newspapers. Now it is the first time, I saw the minister in my capacity as chairperson of Dassault. I had seen that minister as President of GFAS before. But I did some explaining about the issues, the challenges, and the problems to do with combat, aircraft, and Dassault Aviation in particular. So the purpose of our meeting with the minister wasn’t just staggered programs, it was to talk about Dassault Aviation. And of course, in that context, I recall that there is a budget for 2017. It has been decided upon there is a budget for 2018 also. And there are certain ambitions that I recalled a while ago. So we are talking about all of those projects, so that our minister could put together our own plans, and talk to the Chief of Staff on budget and the DGA here in France and make their decisions. It’s not as if decisions were made on cutbacks at this point in time.

Then regarding the MALE drone, firstly, I think that the project is really exciting, because for a long time, we have been trying to make drones here in France and in Europe, and I think it’s not a fatality that the only solution available should be an American one or Israeli one, even though they are the only two that exist right now in that area. If Europe wants to demonstrate its capable of taking the reins and moving out new equipment, I think it’s a good example. But we in Europe should be able to do it. Our French president wants Europe to have a strong Franco-German pillar that would be a driver, a powerhouse, and here, this is a project I think that’s quite good in this domain to illustrate what our president has said, as opposed to actually put it into practice as well of course, and make it into a launch in the end. And we could perhaps be assisted by Europe, because as I said already, this is the right time.

But the leadership matter, this declaration was made at the Franco-German meeting, German leadership was mentioned. Germany will be prepared to put in the most money. But in the studies underway right now, there is no actual planned contract. There are three companies that agreed together, that they would be joint contracts for OCCAR. OCCAR, O-C-C-A-R, is the body that will award the contracts in conjunction also with the four countries that wish to enter this program. They will decide if they want the prime contract and who should be that prime contractor then. As always, I call on people to build up Europe, powerful Europe with performance and skills and it’s up to all the parties concerned to form their plans on that, and we have made a focal point of Germany here and our engineers are toing and froing. Some of them now live in Germany actually to feed into the team, and there is absolutely no problem. There is no problem here in the area of the MALE drone.

Now on the UCAVs, to my knowledge, that didn’t come up in the Franco-German talks. So this for the moment remains Franco-British, under the Lancaster House Treaty and future combat aircraft. So this is an agreement that just study the possibility of having a roadmap in the long term, which would have to be produced in 2018 for the two states. There will come a day, when we will need to replace the Typhoon, and some fine day, we’d have to replace the RAFALE too. We have to have a look at the time scales. They may not overlap, they may not be the same. And then on that particular day, when it rolls around, maybe France and Germany should [indiscernible] Brussels to develop a new combat aircraft. You know the skills of Dassault on this area. We are of course necessarily a candidate to build up something there with others. Of course, we are not the only ones in electronics, Thales has also a lot of skills and competencies, so as to fit out combat aircraft.

Safran also is no doubt a driver, if you don’t me using the expression in that area too. So there will be studies done in that context, and we will have to allocate a budget to that. A budget will have to be allocated to a new combat aircraft. It has a certain cost of course. If you refer to the development cost of an American combat aircraft, it’s much more expensive and there are lots of other Europeans too, who contribute to giving money to the American design office to make an F-35. If Europeans want to pay money for European combat aircraft, that’s fine. Once we make a combat aircraft that’s more and more efficient and highly performing, so that the performance of the European teams would be recognized. That’s what’s going to be studied in the coming few months, weeks or years, but it doesn’t take anything away from the Franco-British UCAV or the MALE drone or the roadmap for the RAFALE, which has the four [ph] standard and other exports in view so on. This all hangs together to prepare the future in the very long term.

Unidentified Analyst

Yes, I have a question. I am here on your left, Mr. Trappier. Do you have an idea of the sums that will be added into the European Investment Fund?

Eric Trappier

Well, there were some figures that were given by the Commissioner Bieńkowska [ph]. We have to be very prudent, because the project of the commission, which is defended by Commissioner Bieńkowska [ph], will be presented at the parliament in September. So they want to go fast, but so long as the parliament has not approved this, we have to be prudent. The idea is to contribute up to 20% of the project. Now do the sums allow this or not, we have to see. It’s a question of principle, which will be the principles that will allow the money of the Commission to be used in a program, so just this one of cooperation, and then we will see what kind of governance we will have.

So there are some important steps, but I think it could be compatible with the launching of the MALE drone, because we have to finish our studies on the MALE drone before launching it as such. But I think it’s a good example to have a Franco-German cooperation, to have a European cooperation and to show that we have capacity in the field of surveillance drones.

Unidentified Analyst

Yes, I am from Credit Suisse. I have three small questions if I may — two small questions, and then a bigger question I’d say. The order intake in the first half, what about the pricing compared with what you already have in your backlog? I mean, the pricing of the orders that came in the first half of this year compared with the backlog ones? Then second question, the number of employees you now have in the United States? And the third question then, do you think it’s beneficial to Thales to have a larger stake in DCNS now and in the future?

Eric Trappier

On the third question, I can’t give you an answer. You know Thales has 35% in DCNS. There is a majority shareholder, which is the French state. So first of all, you should ask the question of the state, I can’t really make any comments myself on that, further than what I have said.

Then the second question, the precise figure is around 2,500. We have reduced — we have trimmed ourselves a bit in the United States. We have got to be flexible because of the drop in delivery. So we have transferred some completion activities, also that we have in Mérignac over to Little Rock. But the number of employees in Little Rock has therefore has gone down; 2,500 therefore includes Little Rock and Teterboro in the U.S. and the service stations as well.

And the first question, I have forgotten what was your first question?

Unidentified Analyst

The order entries in the first half of the year.

Eric Trappier

I don’t know if we really publish that information. I don’t think we report it usually. I do apologize, we can’t answer that. You will be frustrated.

Unidentified Analyst

Good evening. Karen Fink [ph] from the German Magazine. You talked about the FCAS and we had announced this project in 2014 and it was signed in 2017 post Brexit and after the announcement of this Franco-German cooperation, now this Franco-British cooperation, is it still going to have and is it — is that going to happen and in Germany, in a few years from now, we will have to replace a certain number of combat aircraft, and just like some other European countries that you mentioned, others have decided to buy F-35s. So do you think Germany would also be interested in buying Falcon F-35s, and with this cooperation with Germany, do you hope to be able to sell more to Germany?

Eric Trappier

So F-15 future combat air system it’s the aircraft and the whole system around — FCAS sorry. And now to have a potentially European aircraft built with other partners and France, that’s a long way ahead of us. So first we have to determine the brick [ph]. So within the framework of Lancaster House, we mentioned FCAS and we wanted to launch a brick [ph] that would be a UCAV demonstrator. So this is a choice that was made by the two defense ministries and the industrialists have made a certain number of proposals. So this brick [ph] is important. Maybe one day we will have a UCAV program or certain technological developments, stealths, drones, etcetera. So this is an element to move towards in FCAS.

Now in Germany, this is the beginning. It is just the intention. It was announced at a top political level by the presidents. Now should Germany buy F-35s or not, I mean, it’s not up to me to decide. I mean, I am always happy if a European country buys such aircraft, but there are all kinds of aircraft. There is a lot of competition. There is the Typhoon, etcetera. That’s medium and short term. And in the long term, I am happy that Germany and France might become drivers for the development of the future program. But we first have to decide how we will get them. It is not exclusively with the British that we are going to have this partnership. There will be bricks [ph] with the British. Will all these countries join together at the end? Maybe, we will see. But the bet made right now, is to say, well let’s look at two major countries, let’s have a Franco-German summit, during the Franco-German summit. These two countries are interested in the future of combat aircraft, and we are very happy about that.

Unidentified Analyst

Five to 10 years from now, Germany will have to replace a certain number of combat aircraft. Five to eight years to develop an operational aircraft or the RAFALE?

Eric Trappier

Well no, you see, Germany will have to replace a certain number of combat aircraft before this cooperation. It could be a temporary solution, but it is up to Germany to decide. They know that the Typhoon exists, that the RAFALE exists. If they want to buy a European aircraft, until they do it — until they decide to do it with France, they have all the assets. I would prefer if they bought RAFALE aircrafts. But I am not saying that we were selling RAFALE aircraft to Germany right now. I have understood your question, and yes, there is an intermediary step, where we will have to replace the Tornado, which is more specialized in air-ground. Now can RAFALE replace Tornado, well apparently just posing a problem.

Unidentified Analyst

Yes hello, I am from DuPont. I am just wondering if you are expecting spin-off effects in terms of maintenance and say their spare parts, regarding the sales of Mirage F1s to U.S. companies, and same thing for other countries like India?

Eric Trappier

Well, for Dassault Aviation, no is the answer. No we are not integrated into that offer deliberately. We don’t want to contribute to have F1 Mirages fly in that context. This offer was made totally separately from Dassault.

Unidentified Analyst

And what about India?

Eric Trappier

Well India — well that’s — if you have a hanger full of things that you don’t choose, and you have a partner, France and India are in a partnership. Whereby, a partner of yours takes away free of charge, the inventory you are carrying, so you don’t have to rent a hanger, and then these spare parts for their Jaguars, airplanes last a very long time in India. Well in that way, it makes it possible for them to have spare parts. I think the idea is a good one. It doesn’t make us sell more spare parts though. [Indiscernible] Indians to hold their own with the Jaguars, was waiting for the massive arrival of RAFALEs.

Unidentified Analyst

I want to go back to business aircraft. You were talking about pre-owned aircraft. Can you tell us how many aircraft have been sold, and at what level should they be, so there might be a certain recovery in the sales of the new aircraft?

Eric Trappier

That’s difficult to say, because it depends on supply and demand. So today, there are a lot. We do have pre-owned aircraft with us here, but most of the aircraft are with our brokers. So we follow, how they are sold, and this allows us to have an indication, how many were sold. Well that is disclosed to the public, I do not know if Olivier is here, no he is not. He could tell us. I do not know exactly how many pre-owned aircraft have been sold. And qualitatively what is said, is that there are more pre-owned aircraft that were sold in last six months than last year. So it is a sign. It is an indication. But in terms of quantity, the right numbers, I don’t have the numbers.

Unidentified Analyst

It’s complicated because, are they just Falcons, are you taking into account all the aircraft, which one? Gulfstream, Bombardier, Embraer?

Eric Trappier

Well, this indication exists, it has materialized. There are lists that are followed, and you can have access to that on the net.

Unidentified Analyst

And are you ready to make discounts to sort of accelerate orders on these pre-owned aircraft?

Eric Trappier

No. For new aircraft, we carry out commercial negotiations. They are very tough. Yes we carry out discounts. It will be a lie to say that we don’t carry out any discounts. But yes, we do carry out discounts. We tried to earn our bread and butter by selling aircraft, one after the other by making discounts, which you know as we don’t sell them at a loss. But pre-owned aircraft, well, we have to get rid of our stock. So there is a larger drop in the prices, in the local markets than the discounts we can make on new aircraft. So this creates the disparity, when you want to buy a new aircraft, you sell your aircraft which is at a lower price, and we have the blue book. And if you want to get 100 to buy an aircraft — 120, well you get much less, 60 or 70. So you have to get plus 30, 40 or 50 more. So then it’s a question of decision. You need to put in more money to buy a new aircraft, and maybe you carried out this operations with a blue book reference.

Unidentified Analyst

Yes, I am from Le Parisien newspaper. I’d like to talk about the transformation plan. You repeated the nine sites will be retained and so on, but at the same time, the Argenteuil site, there are lots of concerns. CGT trade union has I think, often alerted you to that fact and ourselves as well. So they continue talking about an upcoming closure. Recently, they had experts appointed, who will confirm their concerns actually. So I was just wondering, what are your guarantees about maintaining that site and operation in Argenteuil. And then, second point, if possible, at the end of the specialization plan, the number of employees that will remain in the Argenteuil facility, and then you talk about investments at the end of the specialization plan, what will be the investments then, in the Argenteuil facility?

Eric Trappier

Well I see that CGT has been talking to you. Well that’s only normal and logical I suppose. But I also talk to the CGT trade union people, and I represent the company, obviously. So the question is, can I guarantee that I won’t close Argenteuil in the next 100 years. Well I can’t guarantee that to the CGT, to my shareholders, to the journalists or anybody. Now for the moment, our transformation plan hasn’t been done on the basis of the closer of Argenteuil, number one. Number two point is the following; I was surprised to read in Le Parisien newspaper and in some other handouts from the CGT as well, the Argenteuil site is good, we should close it down. They said it, in the handout, that Argenteuil should be closed. I am surprised, personally. Maybe I am not a good Chairman, maybe I should close down Argenteuil. But so we are kind of — we are upside down. So the thing is, says the journalist, the machines are leaving the plant. Well there are things we have got to specialize. Primary parts, we decided to put them in Saint-Cloud, everybody agrees with that, and we have got dedicated plants. All the experts on the planet earth could come together, while the best experts on this is ourselves, because we have been doing this for 100 years. So that’s the most rational decision to take.

We are not going to closed down Argenteuil. For the sake of closing down Argenteuil¸ we have got to specialize. We got to have a transformation plan, we got to be competitive. So Saint-Cloud was decided upon by our industrial experts as being the place where certain things should be done. So we are creating this specialized area [indiscernible] in Saint-Cloud, Argenteuil will retain a certain number of kinds of activities, and we will be adding other ones, and it will impact some employees. Of course, people are always worried of this change, that’s normal. And you can explain things well or badly, but people will always be concerned, when there are some changes going on, and we provided answers to our employees, not just to the CGT trade union, but to all our employees.

And it’s on the basis of volunteership that those who were working on primary parts, will continue to work on those, and the others will remain on Argenteuil. It’s not as if we are emptying out the facility in Argenteuil of its work, and most of the work being done in Argenteuil will continue to be done in Argenteuil, and what I am saying here, I have said before, I have seen that the — Le Parisien, the newspaper that there is a plan to build a plant in [indiscernible]. But you know, nine is good enough, as far as I am concerned. I am not going to up the number to 10 facilities, because we have land. We are occupying the land we already have. Land costs money, and we already have money in Saint-Cloud and Martignas which is a big site. We have got a site in Mérignac. We have got lots of land in our facilities. We can optimize existing facilities without setting up a new one in the Paris area. It’s not easy to be in the Paris area either of course, for production plant. So for the moment, we are staying in part in Argenteuil, and we will be also upgrading the Argenteuil site on the basis of the work that could be done and that will remain in Argenteuil.

Christian Schubert

Christian Schubert, from the German press, Frankfurter Allgemeine Zeitung. Just a question on the future Franco-German combat aircraft. Do you think it would be good to include the British also in this partnership? And if yes, why?

Eric Trappier

Well yes, why not. The more we have, the merrier. But we have to remain efficient and it should be planned for. So there are discussions with our governments. And what I am asking for is a certain amount of stability. We ask that for Texas, for all social issues and for cooperation. If it’s a long term cooperation that is launched now with the Germans, it just has to be launched to a cooperation with the British, within the framework of a Franco-British treaty, we should be able to integrate it. We have time before we come up with another combat aircraft, but we have to look at all the assumptions. If the British want to join this Franco-German cooperation, why not. If the German want to join the Franco-British for a combat drone, well why not also. It’s a very good geometry. If the British wand to join the MALE drone, well why not. Well if these are financial contributions without harming our operational efficiency, because it has to be efficient, otherwise it will not be competitive, when we will want to export, when we will want to provide our armies and satisfy the operational needs of our armies. All this is prepared well in advance, and well why not, I am ready.

Christian Schubert

And the second question if I may, on the replacement of Tornado in Germany. Are you making any particular efforts to present to RAFALE — to convince the Germans?

Eric Trappier

No. No. No.

Christian Schubert

Why not?

Eric Trappier

Well, if the Germans were interested, they can ask me. But to say that we are going to go to Germany and we are going to have MALE drones with our friends with Airbus. But the RAFALE is there, is on the shelf. It is operating. We see it every day. If Germany is interested in the acquisition of RAFALE, Mrs. Merkel can talk to Mr. Marcon. The DGA Mrs. Zuber can talk with god knows who, because we are waiting for the name of the DGA, Laurent Collet-Billon [ph] beforehand. So everything is there, and it will be a bit strange if Dassault promoted the RAFALE, when all the officers meet with each other. It is a formal demand from Dassault or the French authorities, we would be delighted to carry out a marketing campaign on the RAFALE in Germany. RAFALE is air-ground aircraft. We demonstrated every day. The Tornado is also an air-ground aircraft. So yeah, the RAFALE can also do it. So it depends on the deadline. I do not know when you are supposed to replace the Tornado. If it is long term, we can have a future combat aircraft. If it is medium term, it is better to take an existing aircraft.

Unidentified Analyst

Hello, I am from Reuters, I am over here. Regarding the RAFALE, were you surprised by what we heard about Malaysia? They seem to have suspended their request. Are you worried about that? And then for India, do you not think that we will be moving towards a single engine contract outside of the marine RAFALEs, the naval RAFALEs? Might that not change the twinjet need? And then, you talked about other prospects, prospective clients, who are the countries? Which are the countries on your radar screen at the moment.

Eric Trappier

Well I can’t tell you all that. Regarding Reuters, I think you had exclusive information not so long ago, so I don’t contradict the information in public. But regarding Malaysia, to my knowledge, I might be wrong. It seems to be there is still a need to purchase combat aircraft. The question is when, question is when. It’s not right now, I agree with Reuters, there would be elections due in Malaysia, and I think it will be probably after the elections. But where I don’t agree is, in saying that Malaysia has forever decided not to purchase combat aircraft. That I don’t think would be confirmed. If confirmed, at least I haven’t got to worry. And when we read your article, we looked into this, and a priori, there is no cancellation of the purchase of combat aircraft. But the question is when, it’s just a question of when.

Regarding India; India has a need for combat aircraft, between 500, 600, 700 maybe. There is an idea that single engine ones could be produced alongside twin engine ones. The Mirage 2000, they have 35 of them already, and being developed, you have the LCA, the Tejas, the development work was [indiscernible]. But the single engine was the Tejas, and then in parallel with the development of Tejas, if there is a single engine call for tender out, well that’s India’s business, but then you have the twin jet aircraft on-site that contrary for the moment, there are 36 of those, but we hope there will be others after that, and it won’t just remain at 36.

So it’s a question of timing, who will buy what, when and how and so on. And they can’t pay for it all at the same time, as to in France, as to in India. Even though in India, the budgets are fairly substantial, given the perceived by India regarding its neighbors. So there is reality like that there, and the more India wants RAFALE, the better it would be. But it’s a very good plane.

And the other prospective customers, while I won’t talk about that here today, because you can probably guess yourselves, but it’s not really topical right now, so I won’t talk about that.

Unidentified Analyst

India still. The aircraft for the navy, you were talking about earlier on, will it be the same ones as the French Navy, a copy paste of the French navy aircraft, that’s a question. And do you think that the Indian Navy — I mean do you think that we could anticipate the delivery, thanks to excess aircraft that we would have in the French Navy?

Eric Trappier

Well, I am not going to replace the French Navy, I can’t talk about that. But there is military equipment too for Thales to equip the aircraft carrier, which will become operational in a year from now. So the Navy has calibrated it’s number, and I don’t think the French Navy has aircraft stored anywhere. So you have to ask them the question. Now will it be ready to lend a few? I think the two navies will have to discuss this. But that’s not the question today. The question today, is you built RAFALE’s — built Navy RAFALE’s that will equip the Indian aircraft carrier. Is that possible? Can it take off from an aircraft carrier? Can it land on the aircraft carrier? What type of mission? What adaptations are necessary, because when it is — it has to be customized if it is an aircraft carrier. So we are in that phase, upstream.

Now to find out whether we can lend aircraft or not, this is still upstream in the process, in the Indian process. It is still a bit too early. But the navy might be interested to discuss with another aircraft carrier operator. They are already doing it with the American Navy, because they operate regularly together in the Gulf area, and to have the — to receive the help of the Indian navy, that will be great, because of the strategic partnership between India and France, and we need to discuss this strategic partnership, and that has to be done by the politicians and the officials.

Well perhaps one last question if you like, if there is a question over there.

Unidentified Analyst

Yes, good evening. I am from Reuters Agency. You talked about a joint contractorship — co-contractorship model for the MALE drone. So there is no main prime contractor, I mean, joint contracting. Now could that model function as well for the development of a new combat aircraft, or is it more important in that arena to have a prime contractor? And if so, do you think it could be negotiated upon? Would you be prepared to leave that role to BAE or Airbus, if they were to arrive on the same?

Eric Trappier

Well on the MALE drone, we are in the study phase. So in the study phase, it was decided to co-contract. You don’t need a prime contractor for the preliminary study work. So when a program is launched someday, well then, the responsibility of knowing if we need a prime contractor or not — I mean, be wary for the word prime contractor. Prime contractor has got to do with contracts. When we enter the contract with one — will the contract be entered into with one main industrialist, who will dispatch it to others then and show responsibility and be accountable for what happens elsewhere. When it comes to development of such programs, it could be dangerous. So I would say, this would have to be laid up very carefully. But you could have an architect maybe, because the issue is, somebody has got to think in holistic terms about the whole product, and advise the project owner who will be [indiscernible] about the way in which they like to organize efforts on this. That’s for the MALE drone.

For the combat aircraft, we are far from making European combat aircraft at the moment. The only combat aircraft that’s European that we have a reference on apart from the RAFALE that was done along is the Eurofighter. Now, the contractual model regarding the responsibility liability and the results observed, is that the right model for a future combat aircraft. I won’t answer the question, but I will raise the question, and it’s not up to me to answer it, it’s up to those who did it really, to ask this question, to challenge themselves about this.

So it’s the same with the French wondering about their own contractual model, about the best efficiency. The most efficient way to have the best combat aircraft in the hands of the armed forces working with the French armed forces for us, because we are a French company, we are in France. So the idea to make sure your armed forces and your politicians, because it’s the head of the state who is the head of the army, and that French Palace would have the right claim in [indiscernible] operations for nuclear deterrence for an aircraft carrier, whatever; and France has certain specificities in that area. So we will see then.

If you look at the French contracts, it’s not just Dassault, there are other companies too. We often work on a co-contractorship basis. The DGA here in France assumes responsibility as project owner, we are dispatching the work for development. Dassault acts as the architect, because we have the competencies to do it. We are kind of able to take this helicopter view of [indiscernible] expression to act as the architect, orchestrate it. So that’s the way it’s done. But it’s up to others, it’s the officials not me, who should decide how the contractual relationships should run. But this role of architect is a good solution. But I don’t think we would be the architect, but we might like to be the architect, given the skills and the competencies we have in that area already.

Okay. So that was the last question. And I’d like to thank you for having come here and we will meet certainly at the Université Lille-Nord-de-France [ph], and for the closing of our 2017 accounts. Thank you and have a pleasant evening.

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