Change management - 2025 and the evolution of the market

Transcript

Michael Bell:Well, terrific, Marco. Thank you for the introduction. I'm honored to be on stage with a large and distinguished panel today. I'm going to introduce the panel, but in the spirit of change management, we're going to change things up on you guys. And after each difficult question, we'll be voting one of you off the island. So it'll just be me at the end. But no, we're going to have fun here.

Jiri Marek:Yes.

Michael Bell:Let's start with some introductions. On your far right, Tamur Goudarzi Pour, who is the head of strategy, head of group strategy for Lufthansa, manages a broad portfolio of functions for that very important group. I'm not going to give biographical profiles. You can read about those in the program because we got so many great panelists today. Next to him is Marie-Louise Philippe, who is the head of sales and marketing for Europe and Central Asia for Embraer.

Celine Bouas:Hello.

Michael Bell:And holds an important role there, formerly with Airbus. Next to her, Henri-Charles Ozarovsky, Group Head of Strategy for TAP Air Portugal, not a dissimilar role to that held by Tamur. And then beside him, Celine Bouas, who is the Senior VP of Customers in Europe for Rolls-Royce and comes with a distinguished background, as do the others. And then Jiri Marek, CEO of Air Serbia, and having served in several other airlines before that. So we have an airline perspective, we have an OEM perspective. The first question I want to put to you guys is, you know, we've heard a lot about these various impacts, challenges to the industry, and the MAX crisis, and COVID, and labor shortages, the Great Resignation. Aircraft and engine OEM delivery challenges, geopolitical, and of course now the Trump administration. We have a lot coming at this industry. Is this a new normal, or is this basically just what the industry's been dealing with for decades? These are just the flavors of the year, if you were. Tamur, I'm going to ask you, you've seen a lot in your various roles at LHG there. What's your sense of that?

Tamur Goudarzi Pour:Yeah, Michael, I heard the connotation before from the Greek mythology where Sisyphus rolling up the stone all the time. I don't think we are Sisyphus because we are managing to cross mountains. And yes, the ball sometimes comes or the stone comes down again, but we are also managing. And that's why this industry is growing. And it was mentioned before, double of GDP as a history. So we are progressing constantly and sometimes—

Michael Bell:Notwithstanding these things, we're not getting crushed by the boulder here coming down.

Tamur Goudarzi Pour:So at least But I would say we are used to crisis management as we do currently with this famous uncertainty slogan that we are all having on our lips right now. Though COVID, I would say, was unknown, it was the black swan. So that was something fundamentally different where nobody had a textbook. And that's something where we also managed this somehow, but with longer effects. And you've seen it with the aircraft numbers that you've seen now. This will constrain us for some time. So This new world with these longer-term effects, the demographics just shown as well, plus I would say some technological structural changes that we are just about only to enter now. Take the AI topics, we'll probably come to that later. That is definitely changing our world as we speak structurally for the good, for the long term. Is it a new normal? I don't know. It's for us, it's business as usual in some ways. In other ways, we are adapting towards long-term structural changes.

Michael Bell:So let's stay with the airlines for a minute. Henri-Charles, you started in consulting, helped airlines in turnarounds, etc., did this role at IAG and part at Qatar, and now TAP. What is your view on this issue? Are we facing a new normal or just sort of the ongoing Sisyphus challenge, if you will?

Henri-Charles Ozarovsky:Yeah, I'm agreeing with him. I think the quote that was said before, the most that are responsive to change are going to want to be the ones that survive. We have to become more nimble and more agile. And put in not exaggerated, but smart planning changes into the way we construct our framework. And I think that's really important. So instead of just assuming that things don't happen, which we all want to be, being an eternal optimist, we need to really safeguard our operation, our return on capital employed by making sure that we put in the right frameworks to allow for delays in supply chains and engines and tech changes and Power cuts, which we'll talk about, and many things that happen all around the day.

Michael Bell:Now, we're going to come back. You guys at TAP have had more than your share of those challenges, right? But so you really think it's more about how we embrace and deal with those challenges?

Henri-Charles Ozarovsky:Absolutely. I think the key as well, which unfortunately is the most simple thing, is how you create a line of communication which is strong, resilient, and simple.

Michael Bell:So we're going to come back to that story in particular. I'm going to Continue with the airline theme. Jiri, you've not worked with airlines that have, let's say, been blessed with tons of resources, right? I mean, some of the carriers, you know, Czech and LOT and Air Serbia, etc., smaller carriers and maybe facing existential threats from time to time. What is your perspective on this same question about whether we are in a new normal here?

Jiri Marek:Look, I think that being here in Greece, I think we can look at COVID as kind of God. Warning to use the opportunity to reset our industry, which we actually all missed that opportunity. And during COVID we all hoped that there will be some new normal. And actually what we get after COVID, it's actually nothing new what was before. The only that before the cycles of up and downs was, I would say, more predictable. And that was more like longer period between them. And now we are basically 3, 4 years out of COVID And we have crisis which we didn't have last 20 years, they are much more Quicker and—

Michael Bell:They're coming faster.

Jiri Marek:They are coming much faster.

Michael Bell:Like the movie Fast and Furious.

Jiri Marek:Most likely. And that has already 9 series or 10, I don't remember now. So I think that—

Michael Bell:There's more to come for the industry.

Jiri Marek:That I fully agree with what was mentioned, that flexibility and agility is a key. But flexibility and agility in a way is also contradicting aviation industry because you are super complex regulated industry, which is automatically limiting the flexibility and agility to react. But definitely, that's the only solution how we can react on those changes coming.

Michael Bell:So let's get the perspective of the OEM community here. We have 2 very successful women leading important roles here. Both of them were at Airbus at different times. We'll start with you, Celine. You were at Airbus, you were at Bank of China Aviation, and now at Rolls-Royce. So you've seen a lot of geography and a lot of different airlines. So looking at it from a The airlines themselves and what they're dealing with, what is your perspective? We'll come back to what Rolls-Royce dealt with, but what have you seen that the airlines have been dealing with, if you will?

Celine Bouas:Well, it's agility. It's really interesting because airlines have— 15 years ago, we were all talking about the cost of fuel, $100 a barrel, and then we went through all the interest rates issue in financing aircraft. The last 2, 3 years have been about supply chain. We're all going through this issue together, whether OEM or airlines. And I agree, I find interesting because you sound exactly like my CEO just now. So what our CEO is saying is changes will happen, we will— there will be disruption in the industry. It's about having a framework, it's about being resilient.

Marie-Louise Philippe:Yeah.

Celine Bouas:For Rolls-Royce, it meant You know, financial resilience first, to be able to invest in what matters for our customers. So MRO network to get engines faster through shop, time on wing so that the engines stay on wing as long as possible, supply chain sustainability, because we've seen what's happened the last few years. So like the airlines, the OEM have to build resilience to be able to cope with changes.

Michael Bell:Marie-Louise, what's your perspective on this? We're going to come back a little bit to what's going on at Embraer specifically and the sea change that came after the Boeing deal. But your perspective on this, thinking about your customers at the airlines and what they've been going through.

Marie-Louise Philippe:Yeah, and I can absolutely build on what Celine just said. It's, you have to be even closer to your customers and partners and the whole ecosystem. While, and I think this has fundamentally changed over the past 5, 10 years, especially with the situation of the pandemic, it was key to stay very close, understand, and act as partners in a collaborative manner. And so this is also very true in today's world where we, we still as an industry face very disturbing supply chain issues. The only way to really solve them is in a collaborative manner where we sit down, we analyze root causes, and we solve it together with the airlines, understanding their needs. And that's the kind of flexibility that comes because you know each other and you've built that trust over years. So that's key.

Michael Bell:I was just going to say, we had just heard that this Gen Z is looking for trust, trusting brands, et cetera. It sounds like trust among the value chain partners is pretty key here, right? So I'm going to— let's take a deeper dive into some of your specific situations. What I'd ask you to comment on is what did you deal with, but more importantly, what are the mechanisms that you've put in place as companies to increase your resiliency to deal with the challenge? I'm going to start with you, Henri-Charles. The TAP situation is quite amazing.

Jiri Marek:Right.

Michael Bell:You guys have gone through the pandemic, infrastructure issues, fleet delivery delays, a strike, a cybersecurity incident or attack, TAPgate. I didn't realize it was referred to as TAPgate, but the departure of an executive who took a fairly large severance package, and the CEO went with her, and now geopolitical issues, etc. It's a lot for a small company, but nevertheless, you guys have rebounded. You went through restructuring, and now you're making record profits. So what is it that a small airline like TAP can teach the industry about how you guys are managing change?

Henri-Charles Ozarovsky:I don't know if the word is teaching, but we've set up a framework which is figure out what your right to win is, focus on your core, and do it as efficiently as you can with the customer in mind. I think if you forget to put the word customer in everything that you do, then you're screwed. That's the most important thing.

Michael Bell:Have you gotten that in the past, or?

Henri-Charles Ozarovsky:Yes, but I think it wasn't such a strong focus because we didn't exactly understand what our core was. And to be honest with you, Portugal became so much more important than what it is than what it was 10 years ago. It became a very attractive place, a sounding board on the map, just like Singapore was, just like Qatar.

Michael Bell:And why is that? Tell us about that.

Henri-Charles Ozarovsky:Very simply, it's a beautiful place. We have 280 days of sun. It's very inexpensive, disposable incomes. It's an affordable place. It's easy to get to for most people.

Michael Bell:And you have tax preferential situations.

Henri-Charles Ozarovsky:Probably too, for some people. You can probably ask those people. But I think the point is that it's always a great place to go, and there's so many different activities. Whether it's sports, food, just general relaxation, retirement, everybody has a bit of everything they can do. So what we did in terms of the airline is we redefined and redesigned the whole service chain. If you take a simple thing like the AOC, we redesigned the AOC like a bit of an amphitheater. So it's very similar to what other airlines do, but we mapped it out and we did 15 iterations. We added little things in there.

Michael Bell:15 iterations of what?

Henri-Charles Ozarovsky:Of how the framework of communication should work and what should be included, what shouldn't be. Give you a very simple For example, we have a 24 hours a day IT guy in there. Imagine the number of times your laptop fails or you have an IT problem or your screen fails. Having that guy there or that person there helps tremendously. When we went through probably a number of crises, we have many because don't forget, we're a single runway airport, you know, and anything can go wrong. We have non-parallel taxiways. We had a power cut for 12 hours.

Marie-Louise Philippe:Wow.

Henri-Charles Ozarovsky:And we had generators that allowed us to stay afloat for 3 days if we needed to. And it's not just the generators, it's the fuel to go with it. It's everything. Wasn't exactly the same for our airport, unfortunately. So we had huge amounts of issues. The power came back on at 11:00 PM. You know that normally flights stop at midnight. We were trying to rebalance and reshift crews, airplanes, 72-hour checks. Don't forget daily checks, which are 72 hours. You have to figure out the prioritization of all the different aircraft. There was no phones for 10 hours. People couldn't even send WhatsApps. How are you going to communicate to people? So we were trying to—

Michael Bell:That sounds like serenity to me.

Henri-Charles Ozarovsky:Yeah, to an extent.

Michael Bell:Not when you need it.

Henri-Charles Ozarovsky:But unfortunately, we were trying to figure out how to clear gates, how to offload bags, how to do everything without proper generators, do maintenance, set up the crews in the right place so that you could restart the whole framework. I mean, we're not big, but we have 358 flights a day.

Michael Bell:But did your new model help with that?

Henri-Charles Ozarovsky:Immensely, because we had all of the communication paths in place. We had foundations for IT infrastructure, everything fixed after all the problems you talked about. We were used to huge— I remember one time in my first year when we arrived, there was a private jet that unfortunately had a crash landing on the runway. It blocked the whole runway for 24 hours. We were stuck. So we were used to dealing with this You know, nimbleness, agility, and we did 3, 4 iterations, and within 36 hours, we got the operation back on its feet.

Michael Bell:So, Tamur, that list of issues that hit TAP, I could probably repeat them for you guys, right? You got your own strike, an IT outage, operational disruptions due to staff shortages, and on and on and on, and COVID, etc., right? So how does a much bigger, multi-business unit company like Lufthansa Group respond and try to be agile and flexible as maybe TAP is when you have that kind of scale?

Tamur Goudarzi Pour:Yeah, I think the test was probably COVID. And what we realized is that during COVID we were actually focusing on a small group of people. We are a huge company with 102,000 people, $40 billion turnover, 300 entities. But during COVID we managed really to shrink to the core elements and make quick decisions. And that resilience and nimbleness that we developed there is something we want to preserve. Of course, what we all experience that sometimes these things are forgotten when you go back to regular times and you face all those topics now. So how you make a rather complex structure more lean and keep those strengths, that's the challenge. And there are different answers. Some have the central offer because they have one brand, they have a central organization. Others, IAG, our friends, are rather decentralized. We are probably in a different model where we are based as a European-based, I would say, network carrier group, plus of course point-to-point, plus cargo and Technik. But we need to find our own way, and that's why we are constantly rechecking also the operating model that we have. So how do we interact the airlines? We have 13 airline brands now with the central functions. How is the market involved? That is an important balance we have to take, and that's something we are looking at structurally.

Michael Bell:Have you been able to maintain that tighter communication now that maybe the burning platform is not there, or what's the latest that way?

Tamur Goudarzi Pour:The latest on?

Michael Bell:In terms of whether you've been able— you said in COVID, we got together, made decisions quickly, etc. Have you been able to preserve that, and how? How does Lufthansa stay nimble?

Tamur Goudarzi Pour:I formulate it as a challenge. Basically, how to preserve that? By, of course, making those structures not overly complex and thinking constantly in this operating model to take out hierarchy levels. Can we do things with less managers? Can we do things with leaner structures, less boards, agile working forms? And of course, we all think about how we implement new forms of digital hangars and other formats where you come together with business and IT. There are several avenues there, how to make it leaner and A very important element is subsidiarity, meaning you give power and empowerment to lower levels. So, Tamur, if you actually allow them to decide things to a larger degree and not shift everything up—

Michael Bell:I want to put you on the spot for a minute. Like, how does that jive with traditional Germanic structured top-down, more hierarchical approaches, or is that a dated view?

Tamur Goudarzi Pour:Yeah, the Germanic way is not the hierarchical one. The German way is a consensus council-based way of decision-making. Decision-making. So it's different actually, and there it has a very thorough decision-making, but it takes long. So how you make it leaner is by relying less on councils but giving more to individuals actually on lower levels. So less hierarchy but also more empowerment at lower levels. I think that's the key point. You can only do that if you have this trust element we talked a lot about also internally in the company, not only customer expected but also internally. And you have it also only when there is decision-making at some point or escalation, there is this craving for input that when you're on the higher level or you're on the ownership level, that you have the desire to get that information from the others before you make a wise decision. And these kind of cultural elements are ones that we are constantly also engaging in. And yeah, sometimes we have to break our own history culture for that. That's the challenge that we have. It's not just making committees or boards. It's very much something how we act together as a team.

Michael Bell:Thank you. Let's talk for a minute Rolls-Royce, the story. You're there relatively new, Celine, but your new CEO did something I've seen done a lot, which is come in and go, hey, we're going to go out of business unless we change. We have a burning platform. I think that's the term that was used. So we have to go through an existential transformation program. Is that what's happening at Rolls-Royce? Is that what's happened over the past year, and how's it working?

Celine Bouas:Yes, so it is very much the case. So we're going through a transformation, and it is ongoing. And yes, it came in and said, right, it's not working, we have to transform the business. What does it mean? Well, first, a clear strategy, right? You need to know we want to be high-performing, resilient, growing. We need to be close to our customers. We need to understand the market. We need to be good stay very close to our investors as well. We need to own our future, right? Otherwise, our shareholders will decide for us, the competition will decide for us. So owning the future was really important, clear strategy, and then making sure, and that's what you just mentioned on Lufthansa as well, is making sure that you don't only have the head moving, right? The head deciding and the rest of the body of the organization staying still. So how do you make sure that if the head moves, the rest of the body of the organization moves? We delayered, so cut down some layers. We are very— we lead from the front. Tufan leads from the front. He's very—

Michael Bell:Talk about what that means at Rolls-Royce.

Celine Bouas:What it means, you know, Tufan is— there's no ambassador SVP. There's no ambassador executive team where people— so people are very much in the day-to-day, in the operational conversation, translating the strategy with the team, training the team to understanding the market, encouraging the team to be in front of customers. Some of the customers' conversations are not easy, especially at the moment of supply chain. But being with your customer, be close, be transparent, be close to the pulse, the market, understand where the major pillars of the company are and where we want to go. So be— so all the old style of layers and the head office decides is no longer there. It's not there.

Michael Bell:We talked about Lufthansa's rich And long history, Rolls-Royce the same. How is it easy to— how easy is it, rather, to pull that off in a company like Rolls-Royce? I mean, I have to imagine there's a lot of change.

Celine Bouas:If you knew my CEO, you'd know you have no choice. You're just— you have— it's change management must be in each one of us. He's expecting us to challenge ourselves and be in the field and be close to the team. It's— but I am very impressed by how you know, energized teams are actually by the change. And we— our customers need us to be strong, and we need to be resilient as well. So it's actually quite welcome.

Michael Bell:Marie-Louise, jump in here a little bit. In our prep call, you said that one of the sea change elements, or events rather, that impacted the changes at Embraer was Boeing effectively canceling the the acquisition or the merger, if you will. And what did that mean for Embraer? You talk about, you know, Celine talks about owning your own future. I guess you guys were stuck with owning your own future. And how has the company dealt with that?

Marie-Louise Philippe:Yeah, no, absolutely. I mean, it was a necessity to come back and come back stronger. And that was on the, obviously, also with the pandemic ahead of us at the time. So a lot of challenges we had to go through. And I mean, today, Embraer is stronger than ever. We have our biggest backlog ever. We have a foundation of 3 very strong business units when it comes to aircraft platforms in the defence side, on the executive jets. We are outperforming on all of these platforms, and the E2 coming in strongly as well. So what happened is, I think, As a company, we had to build on our history, the 56 years of history that Embraer is looking back. When you look at it, we are a truly engineering powerhouse. We have brought more than 20 aircraft into the market in a span of 20 years. So there's hardly any aircraft OEM that can claim that number of aircraft platforms. And then at the same time, we are very lean and we have a culture of continuous learning. And that means all the lean mechanisms, all the educational paths that we have across the company are not just when it comes to the shop floor or engineering. It's part of our daily life, and it could as much affect us as the sales team to say, let's go through a Kaizen exercise. see how we improve, and continuously learn. And that kind of lean effort, always outperforming against what we, what we say to our customers, stay loyal to them. If you look at it, certainly in a much lower scale, but today we are an aircraft OEM that delivers what I call really excellently on time. For us, a delay could be at best 1 or 2 months.

Michael Bell:So it's exceptional in this industry, right?

Marie-Louise Philippe:Which is absolutely exceptional. And I think this is because we have this strong focus on what is important to our customers, which is important to us, and we're continuously building up, ramping up, growing in all divisions based on that predicament. So we will not go and say we will build that many aircraft, not knowing that we could actually stick to our promises.

Michael Bell:A little bit, I think, Celine, as you're saying with the on-time, the wing, the on-wing thing, where alignment between the shareholders, the company, and your airlines.

Celine Bouas:Yes, exactly. We all need— I was mentioning time on wing because the operators want to keep the engines on wing as long as possible to avoid maintenance. We want the engines to on wing because we take the risk in our TCA. If you have a contract with Rolls-Royce, you'll know that we take the risk through our TCA structure of time on wing. So we have a vested interest in seeing the engines stay on wing. And all shareholders by now, investors, have understood how it impacts profitability if the engines come off wing too often. So when you have 3 stakeholders really focused on the same thing, I assure you pressure is there. Investment goes into it. It's really important to TAP and all the operators we have.

Michael Bell:Jiri, tell us a little bit about the Air Serbia story that way, because it's not a well-known one, but I think it's a pretty good story. I mean, you guys are small. You're the biggest in your region, but if I check, you're only the 5th largest in Central and Eastern Europe and the 50th largest in Europe. Notwithstanding that, You guys are posting record results, have come back from the brink, if you will, in COVID and demonstrated great agility. What can we learn from Air Serbia and your leadership there?

Jiri Marek:Look, I think that we did one thing, which is the only thing you never expect in a legacy old state-owned airline.

Michael Bell:State-owned, I forgot to add, right?

Jiri Marek:Basically, that's to take the risk. If you are in the middle of COVID when basically worst crisis ever, you have only 2— several choices. If you want to play safe, like normally legacy state airline will do, you hire the consultant, they build the strategy, which is impossible in COVID. Then if the strategy doesn't work, you have the excuse that it's not me, it was a consultant. Anyhow, usually you will be changed as a management and you will hire another consultant which will tell that strategy is wrong, build another one, and it's going on and on. So we decided this is not the path we will follow. So we took the risk in 2 main areas. One is a strategy and second one is in internal resources.

Michael Bell:And what is the strategy?

Jiri Marek:Because it's very important. So in strategy, basically, we decided that we will take our market back, that we will use the opportunity of COVID to actually get ready for the massive growth. And we went out of COVID we are currently 70% above 2019. We insourced 18—

Michael Bell:70%?

Jiri Marek:70%. We insourced 18 aircraft in the last 3 years to the fleet, and we basically delivering the triple results what we had before COVID with the same number of employees. So it's brought extreme efficiency. So we went out of COVID as a profitable airline. We are 4 years in a profit with record results. So we opened 40 destinations in 2 years. So this is something which you don't expect to be done.

Michael Bell:I had to ask you, Jiri, how do you get politicians who don't like to do risky things to lay a bet like that and go with you? I guess they, as you said, could have had an excuse and just fire you, but it's not normal.

Jiri Marek:Look, I think we are very much lucky in one thing that I think Peter mentioned that on India level, we are not even micro, we are maybe somewhere nano level because still in our country, politicians believe in aviation. That the aviation is a growth of the economy, especially us not being the touristic country, even you explore a bit as a tourist. So the aviation is still like appreciated that what we do, it will be seen in economy. So it was not difficult to brought them in. It was rather difficult after you start to make those growth and success to slow them down that we are still regional carrier and we are not flying all over the places. So, but that's definitely manageable. And the second part which we did is exactly not going the consultant path. We basically upgraded the next generation of our managers to the senior level to start taking the decision. Also something not really seen in the state airline. I'm in my early 50s and I'm of the oldest in the company in terms of the senior team. There are the people on the head positions which are like in their early 30s or below 30s. Again, something which is not really common of, let's say, we are one of the oldest airlines in the world. We are number 7 now. So this was very high risk to be taken. Luckily, it paid off.

Michael Bell:How, Tamur, how do you guys at Lufthansa with this portfolio, how many entities did you say Lufthansa had?

Tamur Goudarzi Pour:We have 300 legal entities, about 13 airline brands, plus cargo and technique.

Michael Bell:Huge, right? So how do you allow, if you will, this sort of freedom, that agility, if you will, on an airline-by-airline basis to exist while still being a group and getting the synergies of that. And I think your role in particular has a lot to do with that, right?

Tamur Goudarzi Pour:Yeah, we're doing currently the exercise again, and this is something we do internally, of course, while we have to be nimble towards the outside. We should never forget about customer, but this helps you thinking about the customer, that everything that is guest-related, should be very close to the entrepreneurial spirit. That means close to the brand, close to the airline that's executing. So on operations, on guest services, guest products that you're offering directly, I think there should be something close to the customer and then close to the airline. Everything that is more where you can bind the sticks together, where you do joint network planning, you do joint revenue management, I think there you have much more ability to act as a group to use those synergy effects and, you know, say that e pluribus unum, in the end you have more than you have as a sum of the parts. And everything that's kind of outsourceable in terms of services, in terms of back office topics, IT, certain HR topics, still you have to be close to the employee, but that's something else you can do together. So finding the right balance there is important. But always with that, in the end, a view of what actually the customer sees and experiences to be as close to the entrepreneurial decision-making unit and execution unit.

Michael Bell:Yeah, let's, let's talk about technology's role in enabling change. And I want to use an example here. You know, I'm, I'm from a baby boomer, never mind Gen X or whatever, but late-stage baby boomer. I was having a frustration with the get smart packages that I asked for on my panelists, etc., from our outsourced team in India. So I told my associate, try something different. And he put it to AI, and I got these incredible 10 or so page reports on each of you, which are like, hey, this is amazing, all AI generated, right? So I'm now a fan. But there's risks to that. I'm sure those people in India are going, hmm, okay, I'm not sure we want to see that happening. Maybe they should be using But all that said, let's talk about how you are using AI or other technology to enable change and how you are, in managing change, avoiding that becoming a threat to your people. I'm gonna— Celine, we talked a little bit, it's maybe not AI, but maybe AI-related, but what you guys do being such a data-intensive organization.

Celine Bouas:Well, so it's what I do personally to lead the team and what we do as an organization. I'll start with the organization. All our engines are monitored 24/7, right? So we, through the data, we get all the information we need on engine behavior. It means that we can forecast demand for MRO and the shop. We can provide better information to our customers on, you know, maintenance aspect. We also can monitor and model cost better, which is helpful at the moment. It allows us to also send signal to engineering, to the supply chain. I find fascinating how much of our decision and modeling is based on data today versus when I started my career 25 years ago. It's incredible. And, and so leadership and decisions that we take, um, us knowing the market, right, talking to our customers, talking to each other, understanding the world we live in, but it's also very much data-driven. And in what I do as a leader, I use AI a lot as a leader, whether it's, you know, summarizing meetings, preparing PowerPoint, obtaining data.

Michael Bell:So in part, it's also what you as a leader do to model the use of data, if you will.

Celine Bouas:Absolutely.

Michael Bell:And you mentioned that the decision-making at the company has evolved considerably as a result of that, right?

Celine Bouas:Absolutely.

Michael Bell:Less gut feel, more data.

Celine Bouas:Less gut feel, more data-driven, or you may have a gut feel, but you will always check it against data. And it's fascinating. And I'm sure, you know, my colleagues will have more questions.

Michael Bell:Henri-Charles, I'm going to ask you to jump in here. You have a doctorate. By the way, we've got an— if you added up the degrees among this panel, it's really quite impressive. So I'm in awe. But you have a doctorate. The very good AI profile I got on you said you're a very data-driven person, right? So, but I wanted you to talk about that and also what I think you have done in either your current or prior roles around sharing data with airports for better decision-making. So talk a little bit about your guys' approach to leveraging data.

Henri-Charles Ozarovsky:So data can be overwhelming. You have to understand how to manipulate it and how you segment it and how you create the key term we all know, the kind of 80/20 basis of what are your priorities and what do you need to focus on to—

Michael Bell:What matters and what doesn't.

Henri-Charles Ozarovsky:Quick decisions. 'Cause you could spend millions of days looking at data and it's probably gonna give you the same answer. And then the next day something else happens and the whole data goes out the window. So when we looked at AI, just to get to your point before I get to the answer, is the first thing we did as a management is we called in a major AI expert to come in and explain to us how to think about AI. Because a lot of people use the term AI, blockchain, ChatGPT, And I'm generalizing anecdotally, but many people don't actually understand how it works. If you do, then you can start thinking about how to use it. My PhD was on stochastic modeling of jet engines, turbojet flames. At that time, processing power was very, very different to what it is today. What I took to model in 3 days, I could do in probably 15 minutes today.

Jiri Marek:Mm-hmm.

Henri-Charles Ozarovsky:So in the same way, the way AI works is it uses a combination of iterations for You know, different modeling skills depending on how many variables you have, and it creates outcomes. Great. That's really good. But at what point does it work and what point doesn't? Well, you obviously start with the easy stuff like the back office. That's the easy stuff. Then you're like, okay, maybe I can do a high-level crew analysis. That could work. But if you have a situation like I had the other day where all of a sudden you have power outages and you need to rerun the model, actually rerunning a crew scheduling will take you anywhere from 3 days, maybe to 2 weeks, depending on how big your airlines are, right?

Marie-Louise Philippe:Yeah.

Henri-Charles Ozarovsky:And that's not really helpful when you have 3 hours to get everything going again. So you have to understand at what point you can use AI and in which ways to make better decisions or create a better-looking box so that when things go wrong, you can shift around that. I'll stop there because you could probably—

Michael Bell:No, very helpful. And Tamur, come in on this. I mean, you've been one of the real, I'd say, change agents at Lufthansa Group. NDC is a good example. Like, you've been a driver for using new technology. What is the group's philosophy on this, and what role are you playing in that?

Tamur Goudarzi Pour:Well, first of all, I think our industry is really technologically friendly. That's very important. And secondly, we cannot be easily substituted. It's also a very important starting point from embracing those new technologies. We know that on the aircraft side, it's a much longer time cycle and some hopes of new propulsion systems, etc., have not come about so quickly. So there, at least, we cannot be substituted as long as we get this basic business, right, flying from A to B, we have a good starting point to actually use those new technologies either in the basic business for operations, but also, and that I think is something where now the revolution is happening and quicker than maybe some of us have thought. If you remember, some people talk about blockchain, not many people have applied it. It didn't really penetrate that much.

Celine Bouas:Right.

Tamur Goudarzi Pour:But what has happened the last 2 years on the AI front, everybody was using AI before, is dramatic and accelerating in a speed that we probably underestimate. It takes longer than you think, but we underestimate the impact, particularly now on the commercial side. So the layer above what you do as basic business, where you can also apply it, there is now the revolution happening either for inspiration, either for servicing, either for commercialization and ops as well. And there I think we see Huge changes already that will affect us tremendously in the business model, in the fundamental business model, where possibly selling the ticket in the end is only the commodity.

Jiri Marek:Mm-hmm.

Tamur Goudarzi Pour:And the question is, how can the business model fundamentally enlarge basically the revenue per passenger you make with those new technologies also on the commercial side? That is dramatic. And I think we're just experimenting there. There are some first players, take the Wi-Fi broadband, Wi-Fi on board now, which will change the story of making money for airlines dramatically because the captive time is invaluable, is proprietary data, is people who are there, you can engage them. And you do it, of course, before the trip and hopefully afterwards with loyalty, and loyalty is also radically changing. This is a sea change, and that's something where on the commercial customer side, I think we see dramatic revolution right now.

Michael Bell:So, Marie-Louise, you mentioned that Embraer is very engineering-driven, great at product development. What's it like at embracing new technology like AI?

Marie-Louise Philippe:I think the easiest way to describe is, again, that as an organization, we embrace change and evolution very quickly. So, as you said, we are very focused on bringing products to the market in an efficient timeline. And I think if you look at the E2, what we've achieved at the time, we basically set ourselves a target. We were actually ahead of our target with 3 certification bodies at the time. So it means that efficiency, simplification is top of mind of everyone in the organization. And therefore, AI, I would say, is just another vector for us. As you just gave the examples, it drives down the time what would have taken days, months in the past. It just means for our engineers using AI day in and day out, it's the same. And as Celine said, also for us as a leader in the, in the sales organization, for example, it means that we, for example, use Copilot now in and out for our meetings, for synthesis, for analysis. So it becomes something that is the normal way of working and an assistance in our drive of efficiency.

Michael Bell:Thank you. We have only 2 minutes left. I'm going to go to the questions that are on the screen here. I'll take the second one first, which I will answer, which is, how do you attract a skilled workforce? And the answer is simple, you just retain Korn Ferry. So we'll move on from that. But the other one is, how do you consider investing or funding new technology like aircraft design and propulsion versus the fact that Airbus, Boeing, and the OEMs have a backlog of 10,000 aircraft? So who wants to take that one? Maybe I'll ask our OEM friends to do that.

Marie-Louise Philippe:Well, first of all, in our segment, there's only about 17% of aircraft that have actually made the move into the latest generation. So in our small narrowbody segment, there's still a huge potential. And Embraer has been, as I mentioned earlier, very, let's say, liable and reliable as an OEM partner in delivering. So from our perspective, as we now ramp up in our production line, we actually can deliver to airlines. We see that this demand, we will meet the demand that our customers ask from our segment. So I'd say in our segment, much less of an issue than maybe at the higher, larger narrowbody and widebody end. So I'd say very upbeat about the improvements that we will bring into the market with our efficient products.

Michael Bell:How about the airline perspective on this? Do you want to see the OEMs drive more some of the new technology versus just make sure they deliver on their commitments of the existing?

Tamur Goudarzi Pour:I mean, for us, of course, the priority is now getting our aircraft in time.

Celine Bouas:Yeah.

Tamur Goudarzi Pour:So I think for all of us, this is the key challenge right now. There is, of course, the time when there's the next generation of aircraft has to be developed, but we all know this is 30, 40, whatever years ahead. Every aircraft does fly 25 years, and in 2040, I don't know, 40,000 aircraft, how long will they fly? In the 60s and 70s. So we will be happy if the current model were working better. And that is our plea, of course, to the OEMs, and that we get these aircraft in time, in the right way, and as we actually ordered them.

Michael Bell:We said customer centricity is important, so you've heard your customers speak here.

Marie-Louise Philippe:Yes.

Michael Bell:It is time, so I'm going to bring this to a close. I've thoroughly enjoyed chatting with you all. I would like I'd like you to help me here to thank our great panelists for taking the time to be with us today.

Marie-Louise Philippe:Thank you.

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