AIRBUS - 2020 Universal Registration Document

2. Management’s Discussion and Analysis of Financial Condition and Results of Operations / 2.1 Operating and Financial Review

and IT systems, and the stockpiling of parts associated with transportation and logistics. The UK left the European Union in an orderly manner on 31 January 2020 under the terms of the Withdrawal Agreement, opening a transition period until 31 December 2020. On 30 December 2020, the UK Parliament ratified the EU-UK Trade and Cooperation Agreement (“TCA”) but it still awaits ratification by the European Parliament and the Council of the European Union before final conclusion and entry into force. The TCA is expected to prevent the disruption a no-deal scenario would have created. Preliminary analysis confirms that although Brexit will result in a requirement for increased areas of vigilance, additional administrative work and reduced industrial exibility, the continuity of the Company’s business operations and supply chain in particular are not materially threatened. Litigation. For information, see “– 1.1.7 Legal and Arbitration Proceedings” and “Notes to the IFRS Consolidated Financial Statements – Note 25: Provisions, Contingent Assets and Contingent Liabilities”. 2.1.1.4 Current Trends As the basis for its 2021 guidance, the Company assumes no further disruptions to the world economy, air traffic, the Company’s internal operations, and its ability to deliver products and services. The Company’s 2021 guidance is before M&A. On that basis, the Company targets to at least achieve in 2021: the same number of commercial aircraft deliveries as in 2020; EBIT Adjusted of €2 billion; and breakeven Free Cash Flow before M&A and Customer Financing.

This guidance has been prepared on the basis of certain assumptions, including the principal assumptions as set out below. The principal assumptions within the Company’s control are as follows: (a) underlying commercial aircraft deliveries are based on existing orders. Revenues from other activities are also based on existing orders and may include estimates based on relevant market forecasts; (b) no significant interruption in operational performance or programme execution; (c) no disruption in or change to the development of products or other development projects; and (d) no material change to the Company’s existing capital structure. The principal assumptions outside the Company’s control are as follows: (a) no material change in general trading conditions, economic conditions, competitive environment or levels of demand which would materially affect the Company’s business; (b) the Company’s internal operations do not suffer further disruptions or from external interruptions; (c) suppliers will meet their delivery commitments and ensure maturity, availability and in-service performance; (d) no material change in the ability or willingness of our customers to meet their contractual obligations, including payment obligations to the Company; (e) no changes in the legislative or regulatory environment which could have a material effect on the Company; and (f) no adverse outcome to any material litigation or investigation. This guidance has been prepared on a basis consistent with the accounting policies adopted by the Company and is comparable with the Company’s historical financial information.

2.1.2 Significant Accounting Considerations, Policies and Estimates The Company’s signi f icant accounting considerations, policies and estimates are described in the Notes to the IFRS Consolidated Financial Statements. Please refer to the “Notes to the IFRS Consolidated Financial Statements – Note 3: Significant Accounting Policies”, “– Note 4: Key Estimates and Judgements” and “– Note 5: Change in Accounting Policies and Disclosures”. 2.1.2.3 Impairment of Long-Life Assets, Work in Progress and Finished Aircraft

In testing long-life assets such as jigs and tools and capitalised development costs for impairment, the Company makes estimates on the number and timing of aircraft units to be delivered in the future, the margin of these aircraft, and the discount rate associated with the aircraft programme. For aircraft that may need to be remarketed, the impairment of working progress and finished aircraft is assessed based on an estimation of the future selling price and associated remarketing costs.

2.1.2.1 Scope of and Changes in Consolidation

For further information on the scope of and changes in consolidation as well as acquisitions and disposals of interests in business, please refer to the “Notes to the IFRS Consolidated Financial Statements – Note 7: Scope of Consolidation” and “– Note 8: Acquisitions and Disposals”. 2.1.2.2 Capitalised Development Costs Pursuant to the application of IAS 38 “Intangible Assets”, the Company assesses whether product-related development costs qualify for capitalisation as internally generated intangible assets. Criteria for capitalisation are strictly applied. All research and development costs not meeting the IAS 38 criteria are expensed as incurred in the consolidated income statement. Please refer to the “Notes to the IFRS Consolidated Financial Statements – Note 3: Significant Accounting Policies – Research and development expenses” and “– Note 20: Intangible Assets”.

2.1.2.4 Accounting for Hedged

Foreign Exchange Transactions in the Financial Statements

In 2020, more than 70% of the Company’s revenues are denominated in US dollars, with around 60% of such currency exposure “naturally hedged” by US dollar-denominated costs. The remainder of costs are incurred primarily in euros, and to a lesser extent, in pounds sterling. Consequently, to the extent that the Company does not use financial instruments to hedge its net current and future exchange rate exposure from the time of a customer order to the time of delivery, its profits will be affected by market changes in the exchange rate of the US dollar against these currencies, and to a lesser extent, by market changes in the exchange rate of pound sterling against the euro.

102

Airbus / Registration Document 2020