MTU Aero Engines AG (MTX) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the MTU Investors Day 2021. This time in a virtual setting. First, let's have a look at our agenda to see what's coming up. Reiner starts with a look at the actual market development. After that, Michael will present the different developments within our product portfolio and the trends there. Lars will follow with an overview of how we adapt our production facilities to the new situation and share our current view on technical and economical challenges we face in our industry. Peter will provide a view on financial topics. Firstly, a view on our different actions to counter the emerging crisis and on the other hand, share a first look at our guidance 2021. Concluding the presentation, Reiner will give an executive summary. Before we start, some organizational information for the Q&A session. [Operator Instructions] So that's basically it. Enough said, let's get started, and I hand over to Reiner.

Thank you, Thomas. Good afternoon, ladies and gentlemen. Welcome also from my side. And thank you, Thomas, for the introduction. Certainly, I would have preferred to see you again in person today. But since this is not possible, we are pleased about your participation online, and I'm looking forward to an exciting Investor and Analyst Day. Let me please first start with an overview of MTU's market environment, the impact of COVID-19 on certain key indicators and then some developments, which help to mitigate the impact of the pandemic on MTU. No news for you, industry is currently facing a strong headwind, and all players are asked to provide their ability to weather the storm. Let's start with some words on traffic development. Passenger traffic activities have shown a sharp decline in the first 9 months this year, being down by 65%. Within that, domestic travel is being less affected than international traffic. However, what matters for MTU's business are flight cycles. And here, the decline of about 50% is still significant but not on the same level as the RPK decline. How did traffic develop over time? After an almost complete standstill of passenger air traffic in April, we saw a continuous recovery until summer. Passenger flights reached a plateau in August, but since then, we saw no further improvement. Looking at different regions of the world. China has been recovering faster than other regions. And especially Europe is still in the midst of a 60% decline. But on the other side, pure cargo traffic was enjoying a strong market development worldwide. Looking at China in detail. As China reported a relatively low level of new cases per day since August, the domestic travel has experienced a strong recovery. Flights in China are, year-on-year, now back at 2019 levels, and this stimulated the in-fleet service utilization and especially engines like the V2500 and the GTF that benefit from this. If we are looking at specific engine modules with our participation, you can see that latest engine models are recovering faster than the mature engines. So for example, the GTF utilization is already back at the level we have seen at the end of last year. And even in the wide-body segment, which is lagging behind in terms of recovery, state-of-the-art engines like the GEnx are not back yet, but on a good way. And in addition, the GEnx is also benefiting from its cargo applications. Let's talk about fighter aircraft. In general, belly capacity in passenger aircraft decreased this year by 70% compared to last year. As a consequence, we saw a jump in pure cargo flights being up by 60% year-over-year. And we, at MTU, we have a higher share -- higher-than-average share of engines in cargo services. Here we are talking about a 22% share of engines in cargo service compared to 14% as the industry average, with engines like the PW2000 and the CF6 on the Boeing 747, 757 and in the Boeing 767. And finally, also hundreds of passenger aircraft are used as freighters, the so-called preighters. Coming back to the global economy and starting with interest rates. First of all, the reduced U.S. dollar interest rates as they support the OE backlog. Secondly, lessors may access cheap capital to acquire aircraft owned by distressed airlines through sale and leaseback activities. And finally, the oil price stabilized at around $40 per barrel, and this helped airlines to save about $100 billion in fuel cost in 2020. And this is also slowing down retirements of mature engines. Let's have a look on the order book. The order book has only slightly declined by 5% in the first 9 months. The OEMs have only seen a limited number of cancellations. They mainly negotiated with airlines postponements of delivery slots. But of course, the airframers, they had to adjust their rates, as you can see on the right-hand side. As you know, most important for us is the A320. Here, the monthly production has been pulled back to 40 aircraft. Single-aisle production for us is the -- the most important for us is the A320. Here, the monthly production is -- excuse me. Single-aisle production will be a focus in this sector, will lead the recovery. As you know, the A320 family is well placed to address the current uncertainties of the market. Airlines can use them to open new routes, point-to-point and also long-range operations. That's why the A320neo family is to make up the majority of 2020 industry deliveries. In the widebody market, Boeing will gradually reduce its combined 777 and 777X production rate to 2 jets monthly in 2021. Last but not least, the 787 production rate has been revised to 6 aircraft per month. At the same time, the GEnx is gaining market share on this aircraft. Positive implications for MTU are also derived from trends in the leasing market. All of us know that roughly half of the worldwide narrowbody fleet is owned by lessors. Lessors still have access to the capital markets, and they are able to provide a capital lifeline for the airline industry. Lessors also help to keep existing fleets by offering sale and leaseback deals as well as rental deferrals. And on the other side, there were also some cancellations coming from lessors, but those were mainly centered on the 737 MAX. One thing I would also like to mention is that lessors directly or indirectly order MRO services. For example, shop visits have the least returns or after repossession. Let's have another look on where the leasing market supports our business. First of all, as I mentioned before, lessors support airlines in the current challenging environment to keep existing flights -- fleets. This supports our profitable MRO demand on older aircraft, and at the same time, delaying the teardown of engines. Secondly, lessors are usually PMA-unfriendly as they want to safeguard the value of their assets. And furthermore, high lease return conditions required from lessors lead to higher MRO volumes. And in case of repossessions of lessors following airline insolvencies, lessors have to order MRO service before remarketing of the aircraft to a new lessee. When do we expect the market to recover? Almost everyone in our industry has been hit hard by the pandemic and recovery period is longer than in other sectors. The single-aisle market is expected to drive recovery in the industry. And most forecasts expects a return to 2019 global traffic levels between 2023 and 2024, but earlier for domestic travel. As you know, the regional jet and narrowbody segment are the backbone of our business. So MTU will be one of the first players benefiting from this trend once the market is ready to restart. Currently, there are already some positive recent developments, such as the promising vaccine candidates. Furthermore, once effective testing technologies have been integrated into the travel process, this will also help to lift travel restrictions and stimulate travel demand. And last but not least, the fundamentals that have driven air travel for the past 5 decades and doubled aircraft -- air traffic over the past 20 years, they remain intact. While aviation has seen periodic demand flux since the beginning of the jet age, our industry has recovered from these downturns every time throughout its history. Coming to my last chart. I think the statement is suitable to explain where we stand. The industry is ready, but not yet cleared for takeoff. We see promising signs as the recent news regarding an effective vaccine, but until a real restart, we'll use our time to keep MTU well positioned and to set the course for further profitable growth. So Michael, I think now it's your turn to show us how MTU is set to seize the opportunities the market will provide in the future.

Yes. Thank you, Reiner. I will do my very best on this one. Actually, dear ladies and gentlemen, dear friends of MTU, also a very warm welcome to this exceptional session this afternoon. We would like to share some thoughts with you about why MTU has solely managed this deep, deep crisis in the industry comparably better than our peers, to be honest. And a lot of this has to do with our product portfolio. We have a very robust, a very well-balanced portfolio. But to start, let me share you some views about our impacts on the various business fields, starting here with the military business, where I can state, we actually didn't have any impact. It was just the opposite. We had a strong support from our German, from our European governments, in order to facilitate contracts to get deliveries done. So a big thank you on this side. On the commercial OE business, I think we were impacted like the rest of the industry with the reduction of flight cycles, but also with the reduction of production volumes from the OE side. The commercial MRO business, which accounts for roughly about 60% of our revenues, was impacted with less shop visit demands, but we used the time also to do some homework on the Geared Turbofan engine program, which I will touch in a minute. Yes. Let's go through the segments, and I would like to start here with the military segment. Actually, I've got very good news. Just last week, we could sign another order of 38 new Eurofighter aircrafts for the German government. So this deal is in safe places. And also when I look a bit more to the further horizon, I think we have a promising decade for the Eurofighter program in front of us. Germany will replace about 85 older Tornado aircraft, mainly with the Eurofighter fleet, and that's a decision which is upcoming approximately in the year 2023, 2024. But beside this, I think you know that the Eurofighter program accounts for nearly 50% of our revenues. Besides this, we also had some progress on the export campaigns. You know that we have got signed deals with Qatar, Oman and with Kuwait already. And we got now the information that the Eurofighter flight test campaign in Switzerland was really promising in terms of results. So I'm also very bullish on this campaign going forward. Besides this, we continuously work on the Saudi batch too, but also new customers like Finland. So a lot of potential also for this decade to continue the military business on a high level. The second element why I'm quite bullish also on the military side is the future combat air system. It is the largest, by far, the largest military acquisition program Europe ever has launched, and we are in. Together with our partner, Safran, we are now in the process to define the cooperation structures we want to implement. In the weeks to come, now a joint venture together with Safran, we will onboard our Spanish partner, ITP, to this program. And I can tell you this is a massive program for MTU. It's a massive program when it comes to share. 33% is the biggest workshare we have had in the program. It's a massive program when we look on the technologies, which we can acquire out of such a position, and also from the volume side and, therefore, also employment for our German locations. So we make good progress on this one. First revenues are flowing already to the companies. We released 2 weeks ago a big offer for the demonstration phase, together with our partners, Safran and ITP, to the customers and we are looking forward to get this offer turned into a firm contract in the first, or latest, the second quarter of next year. Then going further to the commercial side, and Reiner touched this point already. I mean on the left-hand side, on the gray chart, you see what we were talking for the last 6 to 8 months. Industry is down, yes, it is like this, but this is history. And just a question to all of you. Who of you would like to attend here today this event in person? Who of you would like to speak with us in the coffee break, to speak with your colleagues? And who of you would like to book a travel kind of a vacation trip for the next year together with your family? Everyone. And therefore, I'm personally totally convinced that we will see a strong recovery of the market, maybe even faster than we today anticipate in the year 2021, latest, in 2022. And also the fundamentals are unchanged. About 2 billion people in Asia, in India, in Africa never entered an aircraft. So the fundamentals to grow the business, besides the growth of the GDP, besides the growth of traffic, will lead also to a growth in demand and services, but also in the demand in new aircraft. The fundamentals are unchanged. Coming to the recovery phase and speaking a bit in 3 phases here. I think the crisis phase, the year 2020, is still imminent. We have passed it, endured it well, so we're happy about this. And then there will be the restart phase. And I think the restart phase will be dominated by the use of narrowbody aircraft, by modern aircraft, and that's also underpinned by just 1 number. More than 80% of the A320neo aircraft, which are equipped with our Geared Turbofan engine, are already back in the air. And what I personally see is also big, growing, the MRO demand towards 2021. Airlines were not spending today in terms of maintenance cost. So all these maintenance efforts have to be revised and they revisit in a year from now. And then there will be the growth phase. And I'm definitely convinced when we go back to growth rates as we have seen in the past, 4% to 6%. So we will see, again, additional demand for OEM and MRO capacities. MTU is prepared to set up for this demand. And by the year 2023, 2024, I guess, we are back to normal. So what is the impact now with a little bit of a wider view in the next 5 years with the various segments in which we're in? I'll touch here a bit the series production element. On the widebodies, we are not as bullish. I have to say there's enough capacity in the market. The demand to open the borders, the demand for new aircraft is limited, in our view. But luckily, we are also exposed quite limited to the widebody market. We have to watch programs like the PW4000 and A380 engine, the GP7000 quite carefully. But I'm not too optimistic on those markets, to be honest. It's just opposite on the regionals and the narrowbodies. These are the aircraft which will return, first, back to the market. The demand will grow quickly. And I think on these segments, we are quite nicely positioned, with the A320neo propulsion system as well as with the promising A220 Airbus platform. Then moving further to the spare part business. I mean it's a bit similar, like on the widebody side, the international passengers are not giving a good hope for quick recoveries. But luckily, our exposures are also limited. What is helping us in 2020, what will help us also going forward, our strong exposure to the freighter and to the military markets by the 2 engine types, CF6-80C as well as the PW2000 in the Globemaster F117. So these programs will pick up again. And in a similar manner, the domestic market will pick up again, where the main profit drivers for MTU will be the V2500 program and also now the Geared Turbofan engine, which will kick into mixed work scopes from 2021 onwards. So the profit contribution also to the spare market for the PW1100 engine will continue. And that's also a good keyword, I think, to speak about the Geared Turbofan status. Actually, we used 2020 to get the fleet ready for the kickoff. We have developed a new, more durable solution for the engine. We have used the time -- the downtime of some of the engines in 2020, to implement this more durable solution on the engine. And this will provide us on the long term the better economics of our overall agreements. You know that maybe nearly all of the engines are under 10- to 15-year agreement. So the less the engine comes back to the shop, the better for our economics. So this was one of our key achievements in 2020. Now let's move to the MRO segment. Last year, we could announce a record year in terms of contract wins with $7.5 billion, an enormous amount of contract wins. For this year, I had expected that we get something like $2 billion, maybe $3 billion. But actually, today, we are already above $5 billion. And towards the end of the year, we will be somewhere in the region between $5.3 billion and $5.5 billion. So an enormous achievement of the sales team but it also proves our position in the market. It proves that we have got a good customer relationship and that even in difficult times, we can win such orders. So our order book is solid and is filled up for the years to come. Now this leads then to the natural question, how sustainable is your MRO order book? So we also are analyzing this very, very frequently. And maybe just 4 points where I would like to tackle here. 80% of our order book could be allocated to the narrowbody market, a very strong recovery expected, a very solid market, and we have got a very widely spread portfolio in this market. More than 50% allocates to the OE-MRO arrangement. Again, this is part where we are part of the OE network, where we benefit from this 10 to 15 years long-term agreements, which the OEM is allocating by the -- with the airlines, and we get our natural program share of this. Again, a very solid market, a very solid order backlog. 17% are allocated to cargo, state or military customers. And don't forget our industrial gas turbine business. So not affected at all by the COVID-19 crisis. And only about less than 10% is a critical order volume. These are exactly the customers in Asia, in Europe, North America, and some other parts of the world, Middle East, I would like to mention, where we really have to have a close look, but we work with these customers. What can you do? You establish a payment plan to get a win-win solution with you and your customer in place. Sometimes we also extend the payment terms. So we managed to get throughout the 2020 year's [ scope ] very, very well and not of a single risk and a need for a write-off. So this leads me to the long-term maintenance strategy. I think it's clear that we are continuously developing our customer-focused portfolio. We listen to the customers. We invest in our portfolio. I think that's a given, with or without COVID. But we also used 2020 significantly to enhance our digital maintenance solutions. And I just would like to place here one example, which is a new tool, which we have implemented, and it's already in place now, we call it CORTEX. CORTEX is our engine fleet management solution. So what is it all about? It's about the combination of the know-how and the experience of 30,000 shop visits, together with artificial intelligence. What's the benefit out of it? With CORTEX, we are optimizing big fleets towards lower shop visit demand, towards lower CASM for a customer and towards much, much more flexibility for our customers, but also for us. Another example, which I experienced the other day, in the old times, it took us about 3, 4 or 5 weeks to analyze a fleet, to provide a proposal to good and valued customers like JetBlue, and then to come back, maybe with a change, another 3 weeks. With CORTEX, it takes us about 3 to 5 seconds. So we are very much agile, we are flexible in the market, and this is exactly what the customers like. So we really use the year 2020 to increase our customer touch points to get closer together with our customer, and I'm very proud of what the team did here. And if you have got the chance to see this in Hanover, come and you will always be invited. Yes. And the third element of our strategy is the network expansion. We told you last year that we need and want to increase our footprint in the best cost areas, from about 40% of our production hours to more than 60%. What did we do? We have decided just on Wednesday this week, together with our partner, China Southern, that we built a new and a second facility in China, in Zhuhai, capable to cope with about 250 additional shop visits. So this project is underway. We will see the new facility coming into service by 2024. We also have decided that our new Serbian project, our parts repair facility, capable to run about 400,000 to 500,000 production hours, will continue. We will implement this project. And by end of 2022, we will benefit also from the low-cost part repairs there. And the existing investments, like our joint venture with Lufthansa Technik, EME, Engine Maintenance Europe in Poland, is operational since December 2019 and has delivered the first engines back to the field already. So we are very proud also that we constantly work on our local footprint and that the strategic view always follow those guidelines. Yes, then let's have a look on the changes on the OE segment. I would not like to go into the various platforms. But what I can tell you is that we are ready. We are ready, together with our partner, Pratt & Whitney, to provide the enhanced Geared Turbofan technology to the market whenever one of these platforms will move, like a new Boeing application, a new Airbus application. I think we have the technology in our hands. But I think that's not all and what is behind the chart, it's really much more interesting in this space. In the long term, MTU was focusing on carbon-neutral flying. So that's a very interesting story. And I told you before, we use 2020, to a great extent, to build a new setup for the future. And I also can tell you that my colleague, Lars, he worked a lot with his team in 2020 to exactly focus on this point, so be patient. The next information will come with Lars' presentation. Yes, to sum up. I think MTU did well in 2020. We are geared up for the growth again. Why? Because we have a very diversified approach in our product strategies. This is good, it proved to be solid and in our partnerships. So this provides us a real solid and clean foundation for the future. Thank you. Lars, I think it's your turn.

Thank you, Michael. It's always nice to talk after you. You throw over a lot of work, but I guess we are well prepared. And let me -- hello from my side as well to the audience. Let me focus today a little bit on the COO and CTO parameter. We called it the cost leadership and the technology road map. In these difficult times, it's really all about anticipation, adaptation and flexibilization. And I'd like to give you some insights in our really flexible adaptation of our production facilities and the future engine technologies to the demand we actually anticipate in the future. One of the backbones, and Michael mentioned that, is our product, the pre Pratt & Whitney 1000 family. On the left side, you see probably a chart that you've seen last year as well. It's our -- these are the KPIs of our engine family. And you know it's about 16% fuel burn reduction, it's about 70% reduction of the noise footprint and also the MRO cost savings we see today through the different and reduction of the stages and the blades, which really enables us to do the MRO shop visits more economically than ever before. But what I really wanted to point out is the right side of this chart. If all this comes -- becomes reality that Michael just described, then we see a tremendous ramp up again and in the future for MTU operations. You see the chart from the 2020 pre-COVID [ nivo ] to the 2020 actuals, but then talking about the GTF ramp-up, the GTF second-generation that Michael just pointed out but also the next European fighter engine that we are able to produce and design. This is a tremendous ramp-up, almost double the size of what we have seen in 2020 figures. And to make this a reality, it needs both, obviously, a competitive operations landscape but also the promising and convincing technology road map. When the crisis started, we are set together, and we started around mid-year a variety of measures to ensure that we are well prepared in terms of performance, hence, cost leadership, and what is equally important in terms of supply chain management. And here are some -- a couple of slides that I'd like to present, not all of them, but some examples. You see the unit cost management, for example. Since middle of this year, a multifunctional team across the company is working on design process -- design process and manufacturing improvements to reduce the unit costs in our volume programs. As very promising examples, we are improving some design features in our GTF program, where we have seen that some features actually were difficult to produce in our factories, which gives on a bottom line a unit cost saving. And secondly, we have recently uploaded a new CMC program with a 20% reduction of lead time in milling titanium lifts. This is especially remarkable, having in mind that this hangar, and most of you know that Hangar 77 is fully automated since the beginning of its operations and already 7 years in production. So you see there's still a significant improvement possible even in a fully automized, and, let's say, mature hangar. The focus of these unit cost messages -- measures is internally and externally supply chain, and the bottom line really produces very mature cost savings in the amount of mid-double-digit millions per year. On the global footprint, we are sketching the engineering and manufacturing footprint -- global footprint of our MTU 2030, 2035, with the ambition to have at least 50% share of best cost manufacturing in our portfolio. In order to manage the growth you have previously seen, we also think about additional best cost facilities for the OEM segment. Our existing client in Poland has, for example, just received a significant work package, both in engineering and manufacturing. And in addition, we are permanently reviewing our make-and-buy strategy to evaluate more cost saving potential here as well. That goes hand-in-hand with our sourcing strategy, where we are assuring that high-volume parts are at least double, or better, triple sourced, and we tend to sign longer-lasting contracts with our strategic suppliers to ensure attractive prices and local buffers to reduce our own inventory. And finally, we are setting up this year and next year a complete new value stream management, with increasing transparency of our digital shop floor, we will strive for an end-to-end management of our supply chain, moving away from local optimums to [ attracted ] workflow. Our target is to significantly reduce lead times and I talk about mid-double-digit percentage and to optimize our inventory along the process chain, to a pull system, beginning at the customer demand. In this magnitude of the program, this would have not been possible in a steady ramp-up, so we are really taking advantage of the current times. One of the types -- or 2 of the types you have seen is also automation and digitalization and I'd like to blend over to a chart. This is some key messages. Why do we actually automate in our engine manufacturing baseline. And I think the messages are quite clear. We want to reduce the cost. We want -- need to adapt to a volatile market in the future. That goes especially for a [ a lot size 1 ], which would help the spare part market tremendously and the reduction of turnaround time, as I said before, in working capital. All this is -- has a long-lasting tradition in the MTU. And many of you have seen this chart as well, where we keep on going in the right direction. You see on the left-hand side, we started in 2012 with a semi-automation of our flow path hardware and then increased year-over-year the automation footprint in both our facilities here in Munich, but also in our Bauhaus in Poland in 2017. And then if you look in the future, last year, well, future is 2019 is still for me as of right now because the turbine -- the fully automated turbine blade manufacturing just hit its ramp-up this year, beginning of this year. But in the next years to come, you see 2021, a fully automated flow path hardware construction, which basically substitutes the machines of 2012. We have postponed this project from the year 2020 and 2021 to the reduced CapEx opportunities we had. But if I walk through the hangars, I can see already the machines, I can see the autonomous mobile robots, this is the first time ever in MTU operation hangers, autonomous mobile robots, and this is promising some very good cost efficiency and opportunities on this part family. And then we keep on going. Also next year, we will see a fully automated bearing chambers production facility. It's a very complex path, the bearing chamber. The current production line has over 850 program stops, with manual interactions inside the machine. And then our goal is to really fully automate. It's called a closed-door approach here, hence, eliminating all of these manual processes. So far, we have already achieved 50 hours of automation, which enables, at the end, a manless operation over the weekend, for example. And this brings a very promising spillover effect on other part families as well. And then the next 2 projects, fully automated rotor disk and the ECM, I'd like to go a little bit more in detail, showing 2 slides. This is the Rotor2 project. It's the first time and many of you, like I mentioned, know the Hangar 77, the world's first fully automated titanium blisk manufacturing and here, we'd like to copy this success, and we'd like to come up with the world's most modern turbine disc manufacturing hall. The steps that you see is mostly focusing on milling and turning. It's a complete automated change production system. As you see, automated parts and tools setup and the famous closed-door manufacturing. So once the machine is closed, there is no manual interaction. We will reduce cost and lead time. As you see on the left lower part, it's significant. If you compare today's milling and turning process time and we compare it with tomorrow's process time, it's about 60% lead time reduction for this process. On the overall unit cost for a rotor, it's probably close to 15% to 20%, just out of this measure. And what becomes more and more clear is that with the new machines, we also have an advanced process monitoring, meaning that, a, we use the machine to tell us when a predictive maintenance is necessary. So we only go in there on demand when the machine needs a maintenance process. But even more importantly, we are able to follow the KPIs through the operation process, which compensates for any kind of human resource interaction, but also through this monitoring, we can reduce our inspection effort. And this is basically the vision in this process data management, that the more we know about the process, the more we know about that every KPIs are in a certain range, we can significantly reduce our inspection effort, which is mainly manual these days. The second big thing is the ECM, and that's probably a new word for you guys out there, it's an alternative to cutting. ECM is electrochemical machining and that basically removes the metal through electric currents in a conductive solution. We use this process already for the nickel blisk in a small amount. But this now is focusing on replacing the so-called broaching operation. Broaching is a very cost-intensive and a very long-lasting process to actually produces [indiscernible] in a turbine rotor. And here with the ECM, you see we have a 50% unit cost reduction if you compare broaching to ECM for the [indiscernible] in the 20% reduced lead time for the overall part. So very significant improvements in the next year and then in 2022 for our rotor manufacturing. And both of these activities together, we call the world's most modern turbine rotor -- turbine disc manufacturing. So that was, in a short note, that was today. Now we're looking into tomorrow. Next to the COO -- we have the CTO as well in my [indiscernible] and this is [ beyond ] tomorrow, and Michael said, there's a lot of activity ongoing in the decarbonization. If you -- in fact, if you leave the pandemic a bit aside, there is no other most important topic than the decarbonization. MTU and our engineers, we have always worked on reducing the fuel consumption, hence, reducing the emissions, and you have just seen the Geared Turbofan is a role model in this evolution with 16% less fuel consumption and, hence, CO2 emissions. Our industry has adopted the IATA 2050 goals. That basically means we want to be CO2 climate neutral in the year 2050 and on top of that, we have also accepted the 2 degrees' warming goals of the Paris Climate Conference a couple of years ago, which always gives us a more enthusiasm to work on less CO2 emission. But not only CO2. We focus these days on all kinds of emissions, and that is CO2 that is NOX, but that's also water in the atmosphere. And we have set up a very leading technology road map. It might be seen as a bit difficult, but I'd like to guide you through that. It explains our approach towards 2050 in a 1 pager. So on the upper part -- left upper part of the slide, you see the gas turbine, the evolution and the revolutionary engine concept we have for a gas turbine. I can tell you there is a future for a gas turbine in the next decades. On the lower part of this chart, you see the green, the electric propulsion, where we see parallel hybrid electric concepts as an enabling technology. You see batteries and you see flying fuel cells. Under that -- in the bottom of this chart, you see the time frame and then on the right, obviously, the different applications for our products. What you see in this chart is that MTU technology road map is both focusing on further enhancing the gas turbine but we also look on the second approach into the electric propulsion and our most promising product is the flying fuel cell. When you see on the right then you see that the gas turbine, we still see for all kinds of application. But that, obviously, if you want to decarbonize, you, a, need to reduce the SFC, the specific fuel consumption, but you also have to think about alternative fuels. And in the middle, you see these 2 alternative fuels. One is the so-called SAF, the sustainable aviation fuels, fantastic fuel that can be merged by pure hydrogen together with CO2, ideally out of the atmosphere, absorbed out of the atmosphere, then you are really CO2 neutral. This technology is called a drop-in because it is a kerosene as the current Jet A-1 kerosene. This is the same infrastructure at the airport and in the aircraft actually, so it's easy to use. It is already developed. It's industrial available. We just need a scaling of the facilities to produce the drop-in fuel. And it's so interesting, this fuel, because you can fuel the -- all the generations of gas turbine that are in the air currently. And you don't have to wait until [indiscernible] we have a successor in even less CO2 emission in gas turbines. On the other hand, you hear a lot about hydrogen. I heard yesterday an expression, hydrogen is the champagne of the energy industry. That's probably valid for the 21st century. It is the base line of the future engine of propulsion systems in the 21st century. We see actually 3 different uses for hydrogen in the engine industry. A, I said you can use it as a foundation for the SAF fuels; b, hydrogen, you can burn that directly within that direct burn in our gas turbine. You need to know that all the gas turbines out there, and especially the new ones, would be able to burn hydrogen as it is with very little applications on the engine itself. The hindering element is the infrastructure, both at the airport and in the aircraft, because hydrogen is a different material, and that cannot be filled into the tanks we see today. So we do need to come up -- we, as the airframers, need to come up with a complete new setup of tanks for liquid hydrogen. And the third element where you can use hydrogen is by fuel cell, which is, for us, the most promising element in the -- in our technology road map. You see the time lines, and we are, with the evolutionary Gen2 GTF, we are well prepared for any kind of product that comes up at the end of this decade or very early beginning of next decade. And we come up with a revolutionary concept, and I have a picture of that in the next slide that are rather more into the second part of the next decade. And then very interestingly, the flying fuel cells. I believe, we believe, that the first aircraft are able to fly fully electric with a flying fuel cell at the end of this decade in the size of, let's say, 60 to 80 passengers. We have launched a technology program to actually bring a 20-seater aircraft in the year 2023, beginning of 2024, into the year a fully electric flight. And then if we if we want to be bigger and we want to grow bigger for a single-aisle, for example, I'd rather see it another 10 years, somewhere at the end of 2030s beginning of 2040s. So that's, in one slide, the story of our technology road map. And here, I have some examples of what I've just said, the evolutionary Geared Turbofan is at least bringing us 10% fuel burn and, again, another 10% of noise reduction compared to the current GTF engine. And the icons underneath that just showing that these engines are both running on sustainable aviation fuel, but also on hydrogen. If we have a little bit more time than I said, we are looking into revolutionary engine concepts, and I'm very proud to say that MTU first time has came up with some patterns on the overall engine system. We call it the WET engine, so the Water-Enhanced Turbofan. And without going too much into details, but we are using the heat of the exhaust pipe and the water in the exhaust to recuperate some energy and to fill it again as the support, as a boost to our thermal dynamics into the combustion chamber, and that brings another 15%, plus the 10% you just heard on the evolutionary path. So we believe that a revolutionary WET engine might be able to be 30% -- at least 30% better than today's Geared Turbofan. Now when we have in mind again, the turbofan was already 60% better than the previous generation, so we're somewhere close to 50% less fuel consumption, and that means less emissions. And finally, on the right side, we have a picture, let's say, a graph, because the picture is not really available yet of the fuel cell. And the fuel cell is clear -- fuel cell is minus 100% CO2. There is no emission on CO2 and NOX. It is only water and water steam hydrogen that comes out of the fuel cell, and this is really promising in terms of climate neutrality. And Michael pointed out, this is the commercial part of it, but we are also working, and this is a huge program for us for engineering and technology is a new European fighter engine. It's a key enabler for our both military but also civil technology demonstration because you have the first time that you can really use spillover effects from a military and thus paid development program into the next civil program. Just keep in mind, the milestones, the first prototype for the next European fighter engine is somewhere 2028, 2030 maybe. And then I just said, the next commercial program might see entry into service very close afterwards, so 2031, '32, '33, maybe. So all this material and the low-weight materials, high-temperature materials, we can actually then spill over into the civil program, which is the first time that we really can do that from one program into the other. So in a nutshell, I do believe that indeed, MTU operation is ready for everything, Michael, you are throwing over for us, both on the technology and operation sides and the future challenges on the decarbonization. Thank you very much, and I'm open to your questions later. Now I hand over to Peter. Thank you very much.

Yes. Thank you, Lars, and a warm welcome also from my side. I want to kick off my presentation going back to mid-March 2020 for a moment, when the corona crisis emerged here in Europe. At that point of time, we have no visibility at all of the corona impact of our industry. Remember, IATA, at that point of time, published an expected 25% RPK decline in 2020. Our first reaction was to immediately close our facilities for 3 weeks in April in order to prevent infections in our workforce and to merge down flextime and holiday accounts, which is a precondition here in Germany for the German short-time work program. In parallel, we started to evaluate different market scenarios to gain a better understanding what capacity demand in the short to midterm would be. Obviously, at the very beginning, in the absence of any new production rates from the OEM or shop visit forecasts, we had only a very rough idea. Consequently, we had to implement a flexible cost and capacity reduction program. We cut roughly EUR 200 million of personnel costs with a bunch of measures. In all of our German locations, we started to use the short-time work framework, which is very flexible. The company pays only for the days the employees actually work, and the government pays for part of the salary gap. We obviously stopped hiring, reduced temps and also canceled all 40 working hours' contracts. It was also clear that there won't be a bonus for 2020, so we stopped booking provisions, therefore. So on the right-hand side, you see other expenses were also cut by roughly EUR 100 million, such as, for example, traveling, consulting, machine maintenance and many other positions. And we also returned leased-in assets wherever possible. Finally, R&D efforts were also reduced by 30%, in alignment, of course, with our partners, GE and Pratt. To protect liquidity and to prevent further cash drain, we also reduced our CapEx budget by 50% roughly in 2020. That included a broad range of buildings, machines and tooling investments and also the postponement of intended parts repair facility in Serbia. The free cash flow outlook for 2020 was extremely difficult and cloudy, you can imagine. So we also had to suspend our initially announced dividend proposal of EUR 3.40 per share. All these measures reduced cash outflow by a further EUR 300 million this year. In addition, we intensified working capital management, of course. In the first step, we put a laser focus here in last organization on our OEM supply chain and proactively reduced demand levels there already in March before we had any indication from the OEMs on future build rates. This approach prevented a significant inventory buildup here in our facilities. At a later stage, we entered, as Michael told you before, into intensive discussions with customers, but also on the supplier side, on other payment terms or payment plans. In parallel, we stepped up receivables management in order to avoid a high level of bad debt write-downs. So that was the cash outside. Of course, in order to navigate through the crisis, we immediately started to build up an additional liquidity cushion and increase our accessible liquidity with different instruments. We issued a short-term EUR 100 million promissory note. We increased our RCF facility by EUR 100 million to a level of EUR 700 million now. And as debt markets reopened, so mid-May roughly, we placed a EUR 500 million bond. We saw in our Q3 results several weeks ago that we now have roughly EUR 800 million cash on hand and a EUR 700 million undrawn RCF facility. So in total, we do have access to EUR 1.5 billion of liquidity. Also positive news, there is currently little pressure on the refinancing side as next year, we only have to redeem EUR 130 million, that is the EUR 100 million promissory notes from April this year and the EUR 30 million bank loan. So the next maturity, 2023, that is the remaining portion of the 2016 convertible with a conversion price of 124. So that should, from today's point of view, convert into equity. So the next major refinancing is the eurobond we did this year in 2025. Having a brief look on our capital structure targets. In a nutshell, they do remain in place completely. In the absence of any M&A deal, we currently do not see a scenario where we would need new equity. We want to defend our investment-grade rating. So net debt should stay in the range between 0.5x and 1.5x EBITDA, although, admittedly, in 2020, we will move to the upper end of that range. Of course, we want to maintain flexibility for investments into new engine programs, but in that space, nothing is really expected in the first half of this decade. As I pointed out before, we had to suspend our dividend payment in 2020. But in 2021, we definitely want to reinitiate dividend payments. We'll decide that in February 2021, where we think we will have a better visibility on the exact recovery path of our industry, of course, based on the availability of a range of COVID-19 vaccinations. So after all of these rather short-term measures, we think now we have a better visibility for the next 2 to 3 years, especially compared to the beginning of the year as the crisis emerged on expected aircraft build rates and shop visit demand for our major engine programs. When we compare available capacity with expected demand end of 2021, we come to the conclusion that we have roughly 10% to 15% excess capacity on board. So in the first step, we have already cut capacity by reducing temps and 40-working hour contracts that is part of our cost reduction program anyway. On top of that, we will also make use of early retirements and voluntary agreements. And for that part of the capacity reduction, we booked a EUR 34 million provision in Q3. You saw that with the results. Cash outflow for that will be centered in 2021, a little bit in 2020, and some spillover into 2022. Corresponding cost savings will ramp up in 2021, and we will reach the full amount in fiscal year 2022. So turning now to our outlook for 2021. And first, I want to go through the drivers in our 3 business segments as we see them as of today. The commercial OEM business, we obviously expect lower production rates in the narrowbody and the widebody segments. You saw it earlier in Reiner's and also in Michael's presentation. Currently, we do assume rate of 40 on the A320neo for the PW1100 engine and the target rate of 6 on the Boeing 787 for the GEnx engine platform, here with an increasing market share versus competition. Engines for regional jets, A220 and also [ A2 ] should grow but at a slower pace compared to our view on that market at the beginning of the year. Business jet production should remain broadly stable. On the spare parts side, we expect demand to grow from actual levels based in case of the V2500 on a faster recovery in the short and mid-haul traffic. In the case of the CF6 and the PW2000, on a larger freighter footprint and also healthy demand for military applications. In addition, GTF engines will also start to contribute to spare parts revenues next year. So some words on our military business. In nutshell, we see our military business completely unaffected by COVID-19. We heard it in Michael's presentation. In 2021, we will see rising EJ200 OE revenues based on the committed delivery schedules for our export customers. Aftermarket and support revenues for Tornado and Eurofighter engines should stay on a healthy level. And on top of that, we will see a rising level of funded technology for the Franco-German fighter engine. In commercial MRO, we see the same drivers as in the spare parts business. A faster recovery in narrowbody traffic will support demand for V2500 and CFM56 shop visits, and our business with cargo customers should also stay strong. On top of that, as Michael pointed out, we will see a high revenue growth from GTF MRO work caused by a higher number of shop visits and the planned network to proactively replace parts of the hot section to increase durability time on wing and avoid future shop visits. So as a consequence, our flight hour agreements, they are less cost and will be more profitable. Regarding our expansion projects in 2021, Zhuhai will have a capacity of 400 to 450 shop visits, and we will start construction roughly 6 months later of MTU Serbia. So we will be well prepared for the recovery in engine MRO demand. So to sum that up, I think, first, it is important to have in mind that comparing 2021 with 2020 is a bit skewed as this year, we have included a very strong Q1, which was completely unaffected by COVID-19. So that means for our segments, we expect military business to show a slight growth, commercial OE across all platforms will be roughly flat, commercial spares should grow slightly, and commercial MRO should grow in the 20% to 30% range, driven by very strong revenue contributions from GTF MRO work. Bear in mind that these shop visits have a high spare parts content. As you know, new spare parts don't generate EBIT in the MRO division, so we'll see a very high revenue growth next year, but MRO margin continues to be under pressure. From today's point of view, using the current spot rate, $1.18, $1.19, we would see a revenue headwind from a slightly weaker U.S. dollar, which in 2020, will be as an average, $1.13, roughly. However, that will only be a revenue impact. EBIT impact from FX should be very small as we have already hedged roughly 90% of our 2021 exposure at the rate of $1.18. So $1.18 would be roughly the achieved rate for 2021. So this marks the end of my presentation, and now I would hand over to Reiner for his final conclusion.

Yes. Thank you, Peter, for your first guidance of 2021. What we expect there, let me summarize. Here we are. Our sector is hit hard by the COVID-19. But as we have seen, not all market segments were impacted at the same extent. As Peter showed us, we reacted sober and reflected on the emerging crisis. Michael showed us that our business mix provides an island of stability until the recovery kicks in. We have also seen that our order book has seen only very few cancellations in the OEM business. At the same time, in the MRO business, we achieved a considerable volume of new contracts. Lars showed us that we continue to invest to our future with industry-leading manufacturing technologies but also technologies for the next-generation of engines. We also used the COVID crisis to further accelerate our innovation and digitalization efforts, and we rightsized our capacity. At the same time, we secured financial health. Both sets the ground for future success. Potential M&A opportunities, we will evaluate, but our focus remains on our organic growth path. So thank you very much. That's the end of the presentation, and I will now hand over to Thomas to start the Q&A session.

So thank you, Reiner, Michael, Lars and Peter, for the different perspectives on our company and the insights into the different segments. As announced in the beginning, I just give the rules for the Q&A session once again. You have, as long as you have joined through the Webex session, that's really important, not the audio feed, just the Webex session works, you have a chat button on the right -- on the lower side on the right side of your screen. Right there, that you have a question, you do not need to type the question in there. Our Webex host will then line up the different requests, and I will name you -- call your name as soon as it's your turn. Then you have 2 questions. After that, please re-queue if you have further. Before that and after that, you are muted, so it's not worth a try basically. So having said that, I'm waiting for the first question, and we have the first one by Robert Stallard.

Oh, can you hear me now?

Yes.

Sorry, I was on mute. A quick question for Peter. I was wondering if you could comment on the free cash flow outlook for 2021, especially with regard to working capital if Airbus decides to move ahead with the increase in the A320 build rate.

I mean regarding A320 build rate, for now, we assume a rate of 40 lessees throughout the year if we can go up to the proposed rate of 47 from Airbus. But I think, working -- I mean, we don't give a free cash flow outlook today, honestly, and I think it's extremely difficult because I think that is really depending on the exact recovery part of the industry throughout 2021. So at which point of time, we have to increase spare parts levels in the MRO, increase supplier orders for higher rates and so on. And what exactly will be the working capital at the end of 2021, I think nobody can say today. We are working on our working capital management, working on our turnaround times. I think these are the things we can do.

Okay. So next question comes from Chloe Lemarie.

Yes. I have a clarification on the MRO outlook, please. Because this year, if I'm not mistaken, you should have a total of EUR 700 million to EUR 800 million of sales from the GTF retrofit. So when you mentioned that we'll be growing strongly in 2021, should we assume this excludes the warranty shop visits you performed this year? Or is it actually on top of those warranty shop visits? And when you mentioned the margin pressure it may put in the division, could you help us give some color on what will be that pressure in 2021? And then I have a follow-on on cost.

I mean the -- regarding the outlook actually for the total MRO division is a 20% to 30% growth, and that comprises the regular MRO business but includes also warranty shop visits. And as I said, these proactive shop visits we do that we -- with our fleet agreements get more profitable to increase durability of the fleet and the time of wing of the fleet so we can avoid shop visits in the contract time.

Okay. And on the margin for 2021. I mean, when you mentioned the cost savings that you've managed to do this year, how should we think of the EUR 200 million you saved on personnel in 2021 and the EUR 100 million saved on operating expense? What share could potentially come back? And what share is structural now?

Sure. I mean the -- we reduce our personnel costs, but that obviously follows also demand -- loss in demand. So you lose also contribution margin from less spare parts and less OE volumes, so you cannot add EUR 200 million on top in 2021 to the EBIT outlook. But there will be some structural thing obviously on the other costs like traveling, consulting and so on, but also part of the personnel cost. But that's really -- what exactly will stay in 2021 is extremely depending on the real volumes we're going to see in 2021. So if volume rises, then we also have to react and hire blue-collar workers.

So number three is Ben Heelan.

Can you hear me?

Yes.

Yes. On the MRO guidance, can we go back to this a little bit because I'm still a little bit confused? Can you help us understand, of that 20% to 30% growth in MRO, how much is from those GTF kind of pull forward work that you're doing? And what is the underlying increase that you're seeing in retrofit -- sorry, in shop visits for the MRO business? And you're saying that you're pulling forward some of this MRO work to reduce the -- to improve, rather, the profitability of your shop visits and the contracts that you have. When are we actually going to see the profitability and the better profitability start getting booked in this division? That would be the first question. And then the second question on the spares guidance. Obviously, you've said slight growth. Can you help us understand what the slight means? How should we think also about the assumptions behind that? So freight, V2500, GTF, just some more color around that would be great.

So I mean around the 20%, 30% MRO growth, so the split is roughly, we can say, mid- to high single digit is, I would say, core MRO growth. And we, obviously, we see a high growth in the GTF MRO. I mean you can do the math. That is roughly something like in the range of 60% to 70% in GTF MRO, and that comprises everything. I mean, in 2021, we really have a mixture of warranty shop visits, proactive shop visits to reduce the cost in the FHA contracts but also regular shops visits. Now that is a mixture between these 3 aspects. When do we see the profitability? You see, I mean the profitability of the flight hour agreements in the PW1100 program is attached basically to the spare parts revenues in the OEM segment. So that is, from an accounting perspective, a bit technical, a bit complex. But you can say the better the flight hour agreement is, the better the margin in the PW1100 spare parts is. But you don't see the profitability of the PW1100 flight hour agreements in the MRO section. As I said, you see them in the OEM section.

Okay, okay. And then on spares?

On spares, okay, slight growth, mid- to high single digit.

Okay. And the big moving pieces behind that, freight, V2500, et cetera, are there any kind of key things to call out?

Yes, exactly. I mean they're the same driver as we saw them in 2020. I mean, we expect, obviously, a recovery in narrowbody traffic and consequently a growth in the V2500 spare parts. And in case of the PW2000 and the CF680, the drivers, as I mentioned them. So very good freighter business. As long as widebody traffic does not pick up, we see a continued demand for freight. And they are really heavily utilized and the military application, especially in case of the PW2000, where 60% or 70% of the fleet is on the C-17.

All right. Next question comes from Zafar Khan.

Can you hear me?

Yes.

Okay. Just wanted a little bit of clarification, please. I'm still confused with the MRO guidance. And what's confusing, I think, most of us is this warranty work you're doing on the GTF. Is that still ongoing in 2021? Or would you've not completed that by the end of this year? And I'm struggling to understand. The 20% to 30%, Peter, is that a reported basis? So you're saying 2021 growth is on what you report on 2020?

Yes. I mean, Zafar, do the math. I mean we're going to end 2020, I mean, roughly at EUR 2.6 billion of MRO revenues. I mean you can do the math with our guidance. And if you add 20%, then you come up with an -- at the same FX rates with EUR 3.1 billion, EUR 3.2 billion of MRO revenues if the 20% is correct. I mean you gave a broad range of 20% to 30%. And as I mentioned before, you cannot really completely distinguish between warranty work at regular shop visits. I mean if you really look at the warranty work we did in 2020, that was the exchange of the low-pressure turbine module for roughly 1000 engine. So that was the major thing we did in 2020. Some of this work will spill over into 2021 but only a minor portion. And the heavy shop visits we do is that we really replace part of the hot section to increase the durability of the engine in the field. And so that is not a warranty that is part of the activity we do in regular flight hour agreement. So then you really can avoid over the 10- to 15-year time frame, and the contracts, costs, shop visits and costs for the overall contracts are more profitable. And it's useless to do it at the end of the contract. You have to do it at the beginning of the contract, which is now next year.

Okay. That's clear. And the second question just, well, on spares guidance. I'm hoping that narrowbody flight hours will be up quite a bit in '21 on 2020. I know Q1 2020 was reasonably strong. But you talk about the slight growth. How would you expect it better than slight growth on the spare side, particularly the V2500 in 2021?

Yes, we don't split out the guidance now on different engine platforms. But as I said with Ben's question, for mid- to high single-digit growth, that's the expectation for 2021. Certainly, the V2500 will be rather above that growth rate, and something like PW2000 and CF6 are rather below that. So -- but the average is mid- to high single digit.

Which is obviously [ a bit ] slight, isn't it? Slight for me means 1% or 2%.

No, I specified that with mid- to high single digit, roughly.

All right. Next comes from [ Jonathan Prigoff ].

You mentioned some technical accounting, and I wanted to push you on that a little bit. So when MTU is doing the OE MRO work as part of a consortium, for example, within the GTF, I'm wondering, does that influence the program share? Or is that a totally separate arrangement between the consortium and your MRO business?

Jonathan, it does not influence the program share. Actually, the MRO business is a part of the program share. And therefore, we knew that this kind of shop visits were coming up, and we invested also in these cost centers like in Poland or like in Hanover or now in Zhuhai also. So it's a normal part of our program share.

Okay. The other question was on some of this, it sounds like proactive maintenance you've been able to do and you're going to be doing on the Geared Turbofan. How does the burden and the benefit sharing work with the customers and with the rest of the consortium? If you're able to cut the lifetime cost of maintaining the engine, I mean, is that something that accrues to MTU? Or does the customer get some of the benefits of that?

No, actually, the consortia gets the benefit on this one as well. It's a typical risk and revenue share arrangement. So when we can lower the cost here for the consortia, all of the consortia will benefit from this. And vice versa, if you have got higher cost for the risk side, then the consortia will share into those risks.

All right. Next question comes from Andrew Humphrey.

On mute.

Hello, can you hear me, okay?

Yes, we hear.

Sorry to kind of try and dive in a bit more on the MRO side. You obviously talked about how proactive shop visits can improve profitability over the course of the contract. I guess the question is, does that then mean whether the flying hour agreement in place, you'll be, I guess, kind of recognizing the possibility on the work that you're undertaking proactively at that average margin over the life of the contract? So therefore, they might end up effectively being a bit of a mismatch between the profit that you're recognizing and the cash in the short term.

Yes. So there are 2 sides of the business. So we do these shop visits in the MRO division. So in the MRO division, I would say a transaction between the consortium and our MRO shop side arm's length; so our MRO shop purchase, the parts they need at, i.e., at list price, and they bill it back at list price. So that is true for the spare parts side of the business. And for the working hour, there's, I would say -- working hours, there's a pricing agreement between the consortium and the respective shops. So -- but the pricing framework is such you don't generate a lot of margin for the MRO segment. And when you -- through this work, we increased profitability of the flight hour agreements, and we profit from this better profitability in the OEM segment, where we book the profitability of the fight hour agreements through the spare parts.

I see. I see. So the MRO parts of the margin may not be that much different than your normal MRO margin.

Exactly. So that's why I mentioned that MRO business -- the MRO segment would see a margin pressure. On the one hand side, you have a very high increase in revenues because shop visits bear a lot of material cost, but that's obviously -- pressures the margin because with that material content, with depth of content, you have 0 margin in the MRO division.

The next one comes from me because -- David Perry, I think, indeed asked the question. How much furlough scheme benefit do you have in 2020? And what do you expect in 2021?

Furlough scheme [indiscernible]. I think in personnel [indiscernible]. I think we have a clear target with the headcount reduction until, as Peter mentioned, until end of 2021. We can say roughly, I would say, 50%, 60% of that will be done at the end of this year. And the remaining part will be done until end of 2021. But the provision for the entire program has been booked already in Q3 of this year.

Good. Next one, second round from Ben Heelan.

Yes, you have not given any profit guidance. And in Q3, you said that in the OEM business, 20%-ish margin was sustainable into Q3 -- into Q4. Is that a level that we can think about moving into 2021? Or are there some other big moving pieces that we need to be aware of? Secondly, used serviceable material. There's a lot of industry people at the moment highlighting that we're going to see this wave of retirements, and this is going to lead to a big increase in new serviceable material. Is this something you're seeing? Is this something that you expect? Do you see this as a risk to the spares recovery? And then a third question. Last year at the CMD, you said that with the big backlog that you'd run on MRO, you could see a doubling of MRO revenues in the next decade. You've done better than expected this year in terms of orders. Do you think you could potentially do better than that now once you get back to kind of a 2019 level of revenues?

Well, for the margin, I would say that, let's say, something like in the range -- I mean you always have quarterly fluctuations depending on with the development in specific programs and specific spare parts or OEM and so on. But something like a 20% margin in the OEM segment is a reasonable assumption going forward.

I mean if you add up all the guidance Peter gave you on the different segments, I mean, you will end up in that range. So this should not be a surprise.

On your question on material, Ben, I mean there's a lot of speculation currently in the market. But if you have got a contact where we can buy at a reasonable price some used engines, please hand it further to me. Currently, I think the market is basically dead when it comes to this kind of transactions. We are actively in the market actually to buy equipments, to buy assets. But it's hard, I can tell you, because everyone is on a wait and see mode currently. I do not expect that on volume programs, like a V2500, you will see a lot of excess of material. Maybe it's more on programs where we planned that they are more under pressure like A380 engine, I would suspect that such a case could come up.

Okay. Great. And then finally, on that MRO question?

What was your final question, Ben?

Yes, the final question was at the Capital Markets Day last year, you said that there could be a doubling of MRO revenues over the next decade given the backlog that you'd won. You've done better from an order perspective this year. Are you still on track to do that? Could you do better?

Yes, I think we're on track of this one. Last year, we said that we will double our MRO revenues to about EUR 8 billion by 2030. I think we will reach the 2030 a couple of years earlier, to be honest, which is good.

Good. Next one comes from [ Miro Zuzak ].

Can you hear me? Can you hear me?

Yes.

I have 2 questions. The first one regarding the top line guidance in MRO, the 20% to 30%. What's your visibility on this? So how sure are you? How much is in the books already that this is going to happen? And the second one regarding the MRO margin, which we have discussed now already for around, I don't know, 10 to 15 minutes. Just one additional question for me. Do you expect this to be somewhere in the middle between '20 and '19? Or is it even below '20?

The margin -- I mean if you add up all the things I said on MRO, then the margin will be below the 2020 margin for sure. And what do we have in our books? I mean so the PW1100 part of the business, we have in our books. I mean it's the clear plan, the network really to pull the engines and do that kind of retrofit work, and that is roughly 40% of MRO revenues in 2021. And the rest really depends on, I would say, recovery of traffic.

Yes. And [ Miro ], I would say that about -- you saw the contract wins, which we presented to you last year and also this year. So we did another very extensive review of our order book and what we can expect from each of our contracts and from each of our campaigns and customers in August this year. And if I need to place a number today, I would say about 80% to 90% is in our order book already in order to fill the capacity for 2021.

Good. Next question comes from Tristan Sanson.

Yes, so Tristan from Exane. Two quick question on technology and actually your -- the update to your technology road maps that you put on Slide 40. So thanks for that update first. So the first question, can you tell us a bit more what are your capabilities today on the fuel cell market and how you consider that activity? Is it strategic? Can you work on it alone? Do you work in partnership with specialist manufacturers? And second, a more general question about how do you see your engine share evolving as per the various options here? And what do you think would be the kind of engine architecture that would allow you to maximize your engine share into the coming decades? That would be very useful.

So I'd like to start with the fuel cell. We have launched 2 years ago a fuel cell development team at MTU. It's, I would say, at the right sizing to come up with a -- get operational. We are still in an R&D phase of this technology. Like I said, the first demonstrator might take off somewhere end '23, beginning of '24. This is a complete new technology, and thus, it involves like probably a high 3-digit million euro of development until we actually see that in a business application. So we have not yet started to evaluate who might be potential partners. But for me, it's clear, we cannot fulfill the complete propulsion system. So we need to find a way to find partners, but we're not yet at a level to share that. There are some very specific competencies that you need to find on the market elsewhere. For example, we will not produce any kind of electric motors. That's, for sure, not in the perimeter of MTU. But we are striving for a high level of technology know-how in our applications, and this brings us to a different level of partnerships and then majority of partnerships. Very early stage. And the share, could you elaborate on the question of the share of engines? When I said both -- we are working on the gas turbine, which was in line with our share -- with our partner, Pratt & Whitney. So we might increase here and there, but the share will stay as we prognose it for the next application. So that's somewhere between -- what's that?

Our target for the existing, let's say, technology of engines, we said -- always said we target a program share up to 25% in that range for the next generation of engines, so let's say a GTF 2 engine, something like that. But I think, actually, it's too early to, let's say, speculate on what could be a potential program share in an entire new engine concept like a fuel cell or something like that. And as Lars said, that will be, let's say, into the service maybe in 15 to 20 years. So it's, I think, definitely not at that time where we can discuss about potential program shares there.

Okay. Next question comes from Sean Stewart.

Can you hear me okay?

Yes.

Yes.

Great. So I just wondered, do you have any R&D guidance for 2021 in terms of total cash spend? What will be expense? What will be capitalized? And then secondly, on the provision for the GTF warranty work, how much of that provision will be left at the end of 2021, so unspent provision at the end of 2021? And then maybe if I could just one further one. Just the point that David was asking earlier on the -- I think the point we wanted to get was the courts abide scheme in Germany and whether or not that will continue in 2021.

On the last part, maybe I can answer. On the short-term scheme, especially for the OEM factory here in Munich, we anticipate probably the first quarter depending on the re-ramp-up that we have seen. But with the current planning, we probably go on for another quarter or maybe 4 months. And then we evaluate month by month whether we need to prolong it or whether we might have the chance to exit earlier.

We can use that instrument until end of 2021. But as Lars said, we are actually, let's say, running at a rate, let's say, an average 1 day per week for -- not for everybody but for -- mainly in the OEM segment, I would say, for 70% to 80% of the people 1 day a week. And as Lars said, maybe continue for the next quarter, beginning of next year, and then we will review it and see whether we continue with that. Or if the market recovers, then we can also slow it down. Regarding R&D?

Yes, I mean we do not have an official R&D guidance out there. I mean we're going to end the year roughly with self-funded R&D in the range EUR 140 million capitalized, roughly EUR 45 million. And from debt levels, I think it's fair to say that we're going to move up a little bit. I mean, we're going to pick up, again, the work on the PW1100 performance improvement program. So it will be a bit higher compared to 2020.

And on the unspent provision for the GTF retrofit work?

Well, we never split out the provision we have on the balance sheet for the PW1100 warranty. So I mean we're going to -- technically, we're going to use that provision, obviously, when we do the respective shop visits in the worldwide MRO locations, which do the work on the PW1100.

So one more from me from Olfa Taamallah, basically referring to the last point in your last slide, Reiner. Potential M&A opportunities will be evaluated, but the focus remains on organic growth. Could you please elaborate further on that? Are you referring to MRO business?