AIRBUS - 2020 Universal Registration Document

Risk Factors / 1 Financial Market Risks

in each of the countries in which we have a presence. A change in economic conditions in any of the geographies in which we have significant numbers of employees or key employees may therefore impact our ability to compete effectively for employees in such countries. At the end of 2020, approximately 23,000 suppliers from more than 100 countries supply parts, components, systems and services to the Company. In 2019, the overall external sourcing volume of the Company was valued at around € 53 billion. The Company requires its suppliers’ and subcontractors’ services in order to deliver our products and generate revenue and profit. Therefore financial instability in any part of the world that would affect our suppliers or subcontractors, including financial conditions resulting in their inability to obtain credit or even in their insolvency, could impact the Company’s ability to meet its customer obligations in a satisfactory and timely manner. In addition, financial instability af fecting suppliers or subcontractors could impact such parties’ ability to meet their obligations under risk sharing partnership agreements entered into with the Company. The COVID-19 pandemic and the resulting health and economic crisis has increased the Company’s exposure to supply chain risk. The behaviour of our customers and by extension, the demand for and supply of, the Company’s products and services has been and may continue to be materially affected by global economic conditions. Historically, the Company has experienced that order intake for commercial aircraft has shown cyclical trends, due in part to changes in passenger demand for air travel and the air cargo share of freight activity, which are in turn driven by a range of economic variables including gross domestic product (“ GDP ”) growth and private consumption levels. A further downturn in economic factors driven by new variants and successive waves of the COVID-19 pandemic and the resulting health and economic crisis and the related drop in air travel in a large part of the world driving our commercial airline business, could lead to a protracted weak demand for our commercial aircraft. The significant growth of our commercial aircraft business relative to the Company’s Defence, Space and Government activities has diluted the latter’s ability to serve as an effective tool to counter commercial cycles. Demand for military and parapublic products may be further af fected by governmental budget constraints caused by economic pressure and COVID-19 measures. Therefore protracted weak global economic conditions could directly result in: – – financial distress of airlines and lessors, and potential bankruptcies around the world; – – requests by customers to postpone or cancel existing orders for aircraft (including helicopters) or decisions by customers to review their order intake strategy due to, among other things, lack of adequate credit supply from the market to finance aircraft purchases or increases in operating costs or weak levels of passenger demand for air travel and cargo activity more generally, which could negatively impact the Company’s results of operations;

– – variations in public spending for defence, homeland security and space activities, which may lead to termination or reduction of future funding or cancellations or delays impacting existing contracts which could negatively impact the Company’s results of operations; and – – an increase in the amount of sales financing that the Company is requested to provide to its customers to support aircraft deliveries typically secured over the underlying aircraft and bearing exposure to the customer credit risk. See “– Risk Factors – Financial Market Risks – Sales Financing Arrangements”. In addition, in the Commercial Aircraft industry it is the industry standard to include revision clauses in sales and supplier contracts due to the long terms of such contracts. Such revision clauses can be based on one or multiple indices and therefore, can evolve due to changes in economic measures on which such indices are based, thereby potentially negatively impacting the Company’s results. The Company generally finances its manufacturing activities and product development programmes, and in particular the development of new commercial aircraft, through a combination of cash flows generated by operating activities, customer advances, European governments’ refundable advances and risk-sharing partnerships with subcontractors. In addition, the Company’s military activities benefit from government- financed research and development contracts. If necessary, the Company may raise funds in the capital markets. Weak economic circumstances leading to liquidity constraints or reduced availability of finance for the Company’s customers, suppliers, European and other governments, and other risk sharing partners may affect the Company’s ability to finance its product development programmes and raise funds in the capital markets. The Company’s financial results could also be negatively affected depending on gains or losses realised on the sale or exchange of financial instruments; impairment charges resulting from revaluations of debt and equity securities and other investments; interest rates; cash balances; and changes in fair value of derivative instruments. Increased volatility in the financial markets and overall economic uncertainty would increase the risk of the actual amounts realised in the future on the Company’s financial instruments differing significantly from the fair values currently assigned to them. Although the potential negative impact of global economic conditions have been thoroughly assessed, the consequences thereof could have unforeseen material effects on the Company’s business, results of operations and financial condition, and in particular if these were to impact the Company’s commercial aviation activities or otherwise impact its access to financing.

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Airbus / Registration Document 2020