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

Welcome ladies and gentlemen to MTU's 2021 Investor and Analyst Day. It's great to have you here, even in a virtual format. It would be even greater to have you here in person, but that's the time we are living in, that's where we are. But nonetheless, we tried to give you a view over the company and where we stand today. Let's get a quick view on the agenda. We start with a look on the current situation, the current market environment from Reiner. After that, Mike will take over and share our view on the current product portfolio and our position in there. Lars will take over and share his view and take a look at the costs we are undertaking to get to a sustainable product line as well as a sustainable production. After that, Peter will provide a view on some financial topics, the foremost certainly our view on 2022. Following to that, Reiner will share a few topics on the ESG side as well as executive summary. And after that, we will go into a Q&A session. The Q&A session will be moderated. I will be here and will call your name, more details later. But basically, it's -- you will need to use the Team's hands up or the Team's chat to get your questions into the queue. I'll come back to that later. And let me now hand over to Reiner for the situation.

Yes. Thank you, Thomas, and also a very warm welcome from my side. I'd like to start with an overview of the current COVID situation. First of all, the globally infections are stabilizing or even declining, but they are still partially large outbreaks of COVID infections. The chart does not reflect the most recent infection highs, especially in Europe. We currently see an increase of infections again. But thanks to the increase in vaccination rates, fatalities on a slow downward trend. The progress in vaccination is the base to loosen restrictions, especially for traveling. So we saw some countries start to open up again for travelers. Most important was for sure the border opening in the U.S. for European travelers. Let's now have a look on the next slide for some more details. After closing down at the beginning of last year, many countries loosened their restrictions. But China, continues to hold a zero COVID approach more and more nations tend endemic approach. So the focus seems to move to living with COVID instead of eliminating it. Again, vaccination is the key. So we saw many countries open their borders again. The opening of the U.S. is a particular importance in this context, of course. The first flight from Europe to the U.S. started on November 8. This is a big relief for our personal contact to our partners and customers, but it's also a big relief for air traffic in general. The U.S. is no doubt an important market for airlines and air traffic around the world. So speaking of air traffic, let's have a look on some more details on the next chart. The weekly flight cycles versus the pre-COVID level, we could observe a big difference between passenger and cargo flights. So cargo showed a good performance, it's partly more than 30% above the pre-COVID. It was boosted by the lack of passenger value capacity, but also by the sharp increase in cost for sea transports. If you look on passenger flights, the Zero COVID strategy in China is well visible in the graph with short dips. In total, however, it's back to 90% of the pre-COVID levels. And in global comparison, North America outperformed the average recovery of around 70%, Europe started slower, but recovered well during the summer and is back to 65% of pre-COVID level. So the more domestic rate of recovery would lead to the assumption that widebodies lagged the improvement in narrowbodies significantly. But a look into the details, shows a little surprise as we can see in the next chart. Narrowbody flights boosted by domestic travel still is ahead of widebody flights. Widebody flights, however, especially in combination with freight, keep well up this narrowbody recovery. For MTU, this is good news. On the one hand, narrowbody flight cycles boost our MRO and our OEM business for our main engines, V2500 and the PW1100. And on the other hand, widebody flight cycles, so both the passenger and freight boost our MRO and spare parts business for CF6-80 and also the GEnx. Let's come to the global economy. The latest news imply a new all-time high of oil price with some serious consequences for the economy. But if you look at it more closely, the oil price is still far away from previous peaks. And we also experienced way higher prices in the past. Let's now have a look on the consumer price inflation and interest rates. Inflation is surely picking up, especially in Latin America with 12%, Middle East and Africa was 60%, but it still moderate in the more important economies. And also still interest rates stay low, but the pressure to raise interest rates might increase now. This would result in potentially higher financing costs for new plants and also for new engines. And the question then is, what happened with respect to retirement. Many people expected a big wave of aircraft and engine retirement. As air traffic picks up, we observe increasing reactivation of parked aircraft. And airlines such as British Airways or Qantas even reactivate, for example, the A380s. And retirements have not seen a substantial setup. So retirements in October '21 are still below the numbers in 2019 and in 2020. So in consequence, used material is also not available in masses as freight. Let's now have a look on the order book. Looking at the numbers, there has not been a wave of cancellations of orders, we rather saw a shift. Fleet cancellations and new orders balance each other out, so each about 2,300 aircrafts. And what's important to know, about 50% of all cancellations therefore the 737MAX following its issue where we have no exposure. And close to 60% of all new narrowbody orders have been placed for the A220 and A320 family. As you know, for the coming years, Airbus and Boeing both plan to ramp up narrowbody rates. On the other hand, widebody rates remain more or less stable or go only slightly up. So together what plan would be we will evaluate both request and we'll get prepared. Let's come to a closure. Global traffic demand is expected to return to 2019 levels by 2023, led by domestic and narrowbody flying. Due to a decline in load factors, the fleet decline in 2020 and 2021 was not as dramatic as to the traffic downturn was. Looking at the future fleet requirements, we expect the narrowbody passenger fleet will follow the global RPK recovery and will recover in 2023 before then returning to its pre-COVID growth path, as we expect that widebody passenger fleet will recover later in 2025. As a consequence, if you look on deliveries, we think that narrowbody passenger deliveries will recover by 2023, led by A320neo and also the MAX return to the market. Widebody passenger deliveries will need more time to recover. So that means the market is ready to absorb supply of narrowbody aircraft at pre-crisis level. And that's a perfect base for our growth path. And with that, let me hand over to Michael to give you an insight on our product portfolio.

Yes. Thank you, Reiner. Good morning, and good afternoon, ladies and gentlemen. Before I start, just let me do some worth about the Dubai Airshow, which took place this week and where I just returned from. Besides me personally catching it close, this show was the most intensive Dubai Airshow I ever attended. And I can tell you, we have many excellent customer contact. It was a very exciting show and a very promising start in the future of aviation with a lot of very optimistic views about the future. So we are very happy about attending the show. And that's also a perfect exchange towards the topic of the presentation today, a strong growth basis for our future. We often asked why MTU is so resilient in this market during the crisis. One of the answers is definitely our portfolio. Today, there are about 15,700 engines flying in the world with MTU components. The good thing is that the distribution of the market is mainly narrowbody but also nonpassenger body aircraft where the cargo market replacing OEM. And the good story is also that this kind of product mix will not shift dramatically. So we will be a very strong player also in the future in the narrowbody market here with the growth mainly driven by the gear the movement. And about 10 years from now 23,800 aircraft will be thought by MTU components. Now having a look a bit more closer to this very important sector, the narrowbody market, which is definitely expect to start up as the first market segment after the crisis again. The industry consensus is that the narrowbodies will have recovered to pre-COVID-19 levels by about 2023. On the other side, as Rainer mentioned this already, there was always a big fear due to COVID, as after COVID we see bigger retirements in the market, this is something which we cannot support. We think that the retirement rate will level out in a balance of about 600 aircraft per year in the market. And on the other side, we all know that the production rate of the A320neo aircraft will reach a higher level than pre-COVID, leveling at about 65 aircraft per month starting 2023. So all this will lead to a situation where from today, 16,000 aircraft with MTU participation are in the market that we will see some retirements, 600 per year, leading down to a retained fleet of about 10,000 aircraft, but then also the new engine deliveries. And out of the new engines out of this 13,000 aircraft, we expect about 40% of replacement and 60% investment in growth. So this will lead to a total number of 24,500 aircraft with an MTU component. And this also means that MTU is in a position to outperform the market, whereas the normal CAGR for the market is around 4%, we expect a 6% CAGR for the MTU products. Let's have a bit of a deeper look now into our participation in this market. And there are things, one element is obviously retirement where our core program, the V2500, supposes about 70% of the retirement of the entire narrowbody fleet. The rest is PW2000, other engines equal about 33% and about 50% will be the CFM56 engine. So this means that the V2500 engine will remain a very efficient, a very reliable engine also for us in providing a lot of aftermarket portion in the future. We shouldn't forget also at this stage that the passenger to greater conversion of the A321 then just takes up momentum. And again, also the market, the V2500 with its powerful engine is best positioned. First side, in the second column, we are growing by our natural program participation on the PW1000 group, mainly driven by the A320neo. If you accumulate all this together, we will see an increase of MTU's narrowbody market share from today, about 23% towards 28% in 10 years. I know there are often concerns also what is the short term telling us and let's have a look also on the V2500, what is the aftermarket situation on V2500. I think the first thing to notice is the V is a fairly young fleet. About 40% of the engines did not even see the first shop visit. And all the engines, which we have delivered after 2009 are still waiting for the second heavy shop visits where we have to change all the high-value LLT material. So we feel confident on the basis that the engine will recover back very, very soon now to normal levels. We see it in the park rate. The park rate of the V2500, A320 has improved from 31% last year to 80% now already. And a lot of our operators they are operating the V to be almost as normal again. On the average, we are back to about 70% of the pre-COVID usage. So we have continued -- we will continue and we are convinced that the V will play a key role in the narrowbody market and therefore offering us a good potential to the aftermarket sides. So far on the narrowbody side, but let's have a look also on the remaining starting here with the widebodies. Today, MTU has an access to about 5,000 widebody aircraft, basically. And this is a situation which will change by, first of all, retirement. Retirements are happening as of today, mainly on 747s, 767s, 777s and obviously, also GE9X. But we are also participating on engines like the GEnx engine, which will go back to a double-digit production rate and after -- in the second half of the decade after the crisis. And we also will see benefits out of our participation on the [indiscernible] program. So all in all, we expect from today's market participation of about 1.4% or CAGR of 1.4% in the widebody market all over. We expect that MTU can also outperform this market segment with a CAGR of about 2.1%. And this does not even include the upcoming passenger to freighter conversions like the 777-300 programs. The third segment on the commercial side is our business jet segment where we are mainly participate on the bigger -- on the heavier business jets with our platforms of PW800 and the PW307 programs. I think it's good to note that the business jets are up and flying again above pre-COVID levels already. It's clear, the routes are open with a business jet where you cannot fly with a commercial airliner. And I think that's a big, big push in the market. I also can note that the retail and the transactions are up above 30% up above the 10 years' average in business jets and the number of available used jets on the market, is at an all-time low. Good to see is also that the number of first buyers in the jets have been rising dramatically during the COVID situation for obvious reasons. So again, MTU has got a strong footprint in this market. we participate today at over 7,500 jets, which are active. We have delivered now more than 100 Gulfstreams G500, G600 since they enter into service, and that's a live which will continue also with the new Gulfstream G400. Yes, moving over to the maintenance segment. I'm proud to say that MTU did very well in the last 2 years, we gained orders in a value of about USD 10 billion despite the crisis. For this year, we expect we have contract wins in the range up to $5 billion. So we did well. The overall order book in the maintenance section is well filled with about $18 billion of order backlog. What does this development show us in the past? We always were -- we come from a pre-COVID level of about $4.4 billion, including the nonreported sales in Zhuhai, mainly. $4.4 billion, and this is also a number which we expect to reach in 2021 already again. And then we will grow the business with a CAGR in the mid-teens, expecting $6 billion, $7 billion by 2024. Why is it so strong? MTU concentrates on a very strong portfolio, the narrowbody, which we're picking up very first. We have a strong regional focus in China. We concentrate on the cargo market, our CF6, G90, PW2000 product lines. And overall, we have a very loyal and concentrated customer base, just to mention our long-term customer relationship with LATAM Airways, also Jet Blue Airways in the U.S. Why are we so important? Why are we so successful in this market? First of all, starting from left to right, I can say that the ramp-up has been significantly faster than ever expected, to be honest. There's a very strong shop visit demand by airlines starting in summer this year. Everyone wants to ramp up wants to clean out the engines again to be ready when the market is back again. Secondly, the freighter market remained also through COVID very strong and even increased. And secondly -- thirdly, I think the airline behavior is always budget driven, so once we structured interesting contracts with the airlines, we also get the work upfront, and we were one of the first companies in MRO to restart this kind of business. But you have to be flexible. You have to know your market and you have to be here with the right capacities. I think here, it really pays off that we did not reduce our capacity. We kept our people. We kept our competence on board and even we concentrated on our strategic investments, for example, our low-cost investment in China or in Serbia. We also developed and continued to develop customized solutions with a high flexibility to react also to the market. We expanded our on-site service network to be closer to the customers with quick solutions, and we implement a clear passenger-to-freighter conversion strategy, how to work together with conversion houses, but also how to work together with lessors, which are specialized in this field. At the end, it helps us that we have multiple MRO locations across the world serving the same engine type. So we could create a high flexibility within the network, and we are, therefore, again, quick in the market when the demand was rising up in summertime this year. We have a strong position in the market, driven by our strategic initiatives. We have multiple market accesses. We are airline cooperation. We are our own OEM corporate, but also a very strong independent footprint where we directly access airlines for them with our products. As I said, we have expanded our network and we continue to do so. We will have an end to this expansion policy by about 2025 when we have built Zhuhai II and when MTU Serbia is fully in the network. And finally, we also used the time of the last 2 years with the expansion of our digital footprint in the MRO sector. We have implemented a very innovative AI-based solution to improve our fleet management to save costs for our customers. And we just announced this tool and presented this tool at this week's Dubai Airshow. I know there are also a lot of questions in the market, what happens to green time engines, what is the availability of used materials and so on. Let me try to illustrate this on this chart. It starts with the pre-COVID level on the left-hand side. Today, I would say we are somewhere a little bit right hand from the crossing of the blue and the green line here. And if I start with the green-time engine, what happens there, obviously, customers are using available green time in their fleet, they were exchanging engines from 1 aircraft to another to save maintenance costs, but this comes now to a very natural end, the nonavailability of green time in the market. Secondly, used material. We had a high level of use material in the market, and we will have a high level of used material back in the market. But it was on an all-time low during the last 24 months. Why? It's also a very simple question. First of all, the demand wasn't there. And then secondly, there was no price point established to trade used engines. The seller has the engine, had the asset in the book value for 100 and the buyer wanted to buy it at 50. So there was a natural conflict basically to align the both and therefore, not a lot of transactions did take place. And I think at MTU, we just had our first transaction actually last week. So -- but this is something which will come up again. The price levels will normalize again. And therefore, the trade of used engines and used material in the market will accelerate again to a minimum and same level as a gross before. And it's not a threat for us, actually it is an opportunity to get used material in engines where we don't have an OEM participation. The dark blue line illustrates the shop visits. Obviously, shop visits were down by about 30% in the last 18 months. Now it's recovering fast. From July onwards, we saw that customers were very interested in our products again. They send us the engine and we have equation that we already have a wave. Sometimes I tell you also there's a tsunami in front of us, and we really have to manage now carefully with our capacities. I don't know how long the situation will last. Is it a year? Is it 2 years? But that's a situation which I think definitely we will have to face throughout the entire 2022. So a very, very high shop load in the next year to come to us. That's so far for the commercial business. Military business was doing very well. I think we -- as you know, we our military business definitely on the fighter aircraft and in the segment, predominantly on the EJ200 engine, the power plant for the Eurofighter type. We had and had -- we had 1 export campaigns, mainly in Middle East. We could sign last year, the very important Quadriga order of another 38 Eurofighters for us. And we are in constant discussion with the customers, how do they want to replace their Tornado fleets, especially here in Germany. There's an attempt to buy a minimum of 50 Eurofighter aircraft to replace the older Tornado. A400M, a program which is also very valued at the customer. It was A400M was of by the British Airforce in Dubai. We had the rescue mission end of August in Afghanistan. There are 20 aircraft performed really excellent. And just the German aircraft rescued 5,400 people out of Kabul during this 2 weeks emission. And speaking to our air chief 2 days ago, he was really happy about the performance of this aircraft. And we were happy that also yesterday, Indonesia signed a contract for another 2 aircraft of A400M platform. So the A400M export gains momentum, definitely, this is something which we can see in the market. Another program where we were very happy about the progress beginning of the year is definitely the European fighter program, FCAS, next-generation European fighter and also the next European fighter engine where we participate together with our partners, Safran and ITP. So what are the achievements? First of all, we could create a joint venture company based here in unit with our partner, Safran. We have invited ITP to join the program also beginning of the year. So the contracts are signed. Every one of us has got an equal work share of 33%. And we have got released a funding from the government by June this year for the start of the development and technology phase. The work share distribution is fairly simple. It's aligned with the best asset principle. MTU does hope compressors and is responsible to define the aftermarket business. Safran contributes the turbine and the combustor and is responsible for the design integration of the engine, and ITP Aero provides us the low-pressure turbine and also the aftermarket -- the after flow of the engine. Benefits for MTU is clear. It's the backbone for European defense forces. It's a program where we can generate over the lifetime of the program until 2090, we can generate a total revenue of EUR 60 million to EUR 70 billion. And most important, it's a real technology boost for MTU with a good spillover to our commercial activities. Yes, commercial activities. At this chart, I normally tell you how the airframers will develop their new aircraft. What is the story for the next 10 years. Now you see the chart is empty. We are definitely convinced there will be a widebody development. Maybe it's a performance improvement of an existing widebody. And we are definitely convinced there will be in the next decade a narrowbody development. But now with COVID, with the changes in the market regarding to sustainability, I think it's not really clear at this point in time what will happen and what will and when will it happen. For us, it's most important that we are prepared from a technology standpoint, to support each and any of these initiatives, which will come up there. We'll tell you a little bit more in the sequence. To summarize the portfolio of MTU in 4 bullets. MTU has a very strong participation in up to 23,000 engines in the coming 10. So the order book is full. Out of this, our program participation of the gear turbofan will provide us the opportunity to bring 14,000 engines to the market. And again, our strong maintenance footprint is tailored to maintain about 14,000 engines, perform 14,000 shop visits in our commercial MRO. And all in all, this will generate up to EUR 80 billion in terms of aftermarket sales for our future. So this is a really strong basis for the future. It's a strong basis for the growth. And now it's really the question of how we manage this growth and how we manage it in the most sustainable way. And that's something which Lars Wagner has prepared for us. Lars?

Yes. Thank you, Michael. Quite an impressive summary already, and I'm happy to share with you how our technology road map is actually preparing participation in the future aircraft programs. On top of that, you will see I'm going to introduce somehow some more on our enhanced production and how the growth will be managed from MTU point of view and OEM side that goes also for all 3 of global engineering footprint, production footprint and also procurement. Let's dive right into the technology road map. I believe you have seen this chart in the last Capital Markets Day already. And you can see in the upper line, the evolution of the gas turbine; in the lower part, the electric; on the right, you see the different application and ranges; and on the lower part in the bottom, the time line. We have enhanced this quite a bit since we've seen last time. But I'd like to start with 3 good news. First good news is actually there is a future for a gas turbine. You see some evolutionary GTF development on top of that also some revolutionary engine concepts. I'm going to detail that a little bit in the next slide. The second good news is we believe we have a powerful suite of technologies available for providing an answer of the overarching question about future of flight. And then thirdly as you see on the time span, all these technologies mature either at the end of this decade or in the middle of the next one. So really perfectly aligned for any new aircraft platform that might arise in the meantime. A little bit of details you see, and I'm focusing on the gas turbine and then the flying fuel cell because these 3 concepts actually is what MTU sees as the most promising concepts looking forward. One on the left side is the evolutionary development of our volume program, the geared turbofan, the so-called second-generation Gen2 of the GTF. And it's -- I'd like to mention it is very important but we -- you can see that we drifted apart from just talking about the decarbonization, so the CO2 number. In fact, there are 3 elements to watch when we talk about a climate neutrality that is on the one hand, CO2, it is on the second hand, the NOx, the nitrogen oxide and as well the contrails, and all 3 elements basically need to be addressed in any future technology development. On the left side, you see the Gen2, we believe we can make it 10% more fuel efficient whenever this program is necessary on the market. We want to see the NOx slightly. The contrails might be on a similar level as the -- because of the design of that engine. But if you merge that and if you fuel that up with sustainable aviation fuels and that's the green bar, the green bar on that we believe it's actually CO2 neutral. As you know, the SAF is tended to suck up the CO2 out of the atmosphere, mix it with hydrogen and then you have the fuel available that is a like with the current Jet-A1 fuel and you can blend it and you can mix it certainly up to 100% in the future with today's existing Jet A1. With that, the contrails are reducing significantly. It's roughly in the numbers roughly 60% to 70% of the contrails, which is helping already to reduce the climate impact of this engine. When we talk more revolutionary, we have a WET engine concept in place, I believe I introduced that last time already. It's a gas turbine with a steam injection into the combustion chamber. And we also recuperate the water out of the exhaust pipe is known as a WET combustion. And this -- and the benefit is visible over there. It's a 20% CO2 reduction compared to today's first-generation GTF, and NOx will be reduced significantly by 80%, and that these 2 help also to reduce contrails in a similar extent as you have seen on the left side with SAF. So the WET engine is similar good as the Gen2 GTF with SAF. And if you then put us on top of it with a WET engine, you have 100% CO2, you have 80% NOx and you have a significant improvement in contrails. This is our concept to go forward and to really answer the question of the future of flight. Both engines, as you see here, will be able to burn either hydrogen SAF, as mentioned, or regular Jet A1. And obviously, the reduction numbers that you see on CO2, that is we call it a specific fuel consumption, 10% or 20%, respectively, is also helping the emissions but also the direct operating cost of our customers, the airline. And then on the right is another revolutionary concept, we focus on the flying fuel cell. We believe there will be a market out there for completely zero emissions. You see 100% less CO2, obviously, because of the design and the hydrogen that is being run. So no CO2, no NOx and no contrails at all. This principle is good for urban transportation for regional and short-haul transportation. We don't see it as a long-haul transportation technology just because of the volume and the mass of hydrogen you need to store in the aircraft. There's a lot of challenges to put so much hydrogen in the aircraft to make it a long distance aircraft. So these are the concepts. You've seen the time line. We are working on that, and we're preparing the answers whenever the airliners and the airframers are ready to talk to us and our partners about these new technologies. The way until we have these engines in place is obviously driven by our technology initiatives, and I'm focusing here on a couple of these initiatives and also even some achievements. And not to name all of them, but we are -- obviously, this is our constant drive for innovation on our world-class components on the low-pressure turbine, but also on the high-pressure -- low- and high-pressure compressors. We have ground tests and flight test insight for the engines that I just talked about. Actually, we have the first small mini test engine for a flying fuel cell here in Munich and in operation. And you might have seen the news that we align our forces with the German Center for Air and Space at DLR, and we have for an aircraft and actual aircraft want to make it fly with the fuel cell in the middle of this decade, have the technology demonstrator that this is possible. We have hydrogen test for our engines available here in Munich, and we are developing the first subsystem rigs, we call it. So some elements of the WET engines are displayed and demonstrated on the ground demonstrator and then eventually later on at the end of this decade when we into the first aircraft. On additive, we have advanced -- we are advancing and that's especially valid for the FCAS, for the nearfield that Michael mentioned, the lightweight and the high temperature materials, a lot of work is going on as we speak in the fiber-reinforced plastics and the new powder materials. And then the whole question of sustainable aviation fuels has been mentioned already and the effort in digitalization also is imminent and it's visible, especially when we talk about a simulation of our efforts to reduce our unit cost and to have a digital twin available for our end-to-end value stream. What is valued for our products is also valued for our global production. I believe it's our task as a management for the society to come up with solution as well for sustainable production. And MTU has launched at the beginning of this year, end of last year, a project that's called ecoRoadmap, and ecoRoadmap will merge -- will bring our global production site into a climate neutral production -- into climate neutral production sites. We have actually declared our headquarter and main production site here in Munich as climate neutral in the beginning of this year, meaning we have a road map available that we use as a CO2 emission by 60% in the next 10 years. And this will be done by, we call it, avoidance by transformation. So we're buying a green in gas and electricity and also the rest that is still available is compensated with a very high gold standard. Meaning, there's a project now from Munich to only focus on energy-efficient machines. As you see here on the chart. We have plans for alternative power production just introduced our solar panels on top of a couple of these buildings here in Munich. We are thinking about geothermal factory here on our site. All these efforts are paving the way for this climate-neutral reduction. And what we do in Munich, we will try in next year to our other 2 German sites, Hannover and Berlin and then towards the European and then the international site. So that's a road map available. And I'm very proud that we have started this way as well. Let me come a little bit on the cost leadership, we call it cost leadership. During the crisis, we have really worked on our future, and you can see some of the items that we have come up with during this -- it's almost 1.5 years now. So first of all, we are starting -- we have started with the new Matrix organization in my Reszowz. It's basically an increased process efficiency for all the units in the Reszowz when to come up with a faster decision-making and a smooth and the preparation and there was very important, the preparation of a smooth and cost-efficient reramp-up, as Michael has mentioned earlier. Then a lot of projects on Industry 4.0, basically to bring the standard into the MTU, mainly here in Munich, but also in the other sites to increase foremost reliability, the quality of our parts and the cost leadership. There are 5 projects running, and I have shown to you 2 of these projects at Capital Markets Day, and I bring in a couple of sites -- I bring 2 other projects that are either running already or will run in the beginning of next year. And we need to be prepared that the next big thing that comes out of the Industry 4.0 is the data, the data out of these machines, which we use for either predictive maintenance for the -- but more importantly, for predicting the quality of the part and hence, reducing the physical inspection, the physical quality inspection afterwards. And during the crisis, well, we have put up a supply chain radar, as we called it, to really manage our external supply chain regarding the operational but also the financial performance. We believe that we are in a good shape with our internal but also with our external partners to follow the re-ramp up. We have successfully finished some of the double and triple sourcing for our volume path with some very competitive and long-term contracts, which was, by the way not possible. The long-term contracts were not possible before the crisis. Now we've seen the opening up of the big suppliers of the monopolies or duopolies in the world to come up with a competitive and long-term contracts. And all that needs to be digitally connected as well. So we came up with a digital supply chain control tower to really have a view on our products from the raw material until the delivery to the customers in one digital supply chain tower. So we know what's coming and we know what to do -- what to deliver. The other element we worked on during the crisis, and I'm particularly proud of this because it has been a group-wide exercise is a major unit cost reduction program, which we launched slightly before the crisis in Q1 last year, and we maintained it over the crisis. And I can tell you, it delivered, it delivered. We had really innovative ideas and workshops throughout the value chain. And we have achieved, let's say, a very high double-digit million savings throughout our different products, materializing mainly in '22 and the full potential visible in '23. This was indeed only possible by the integration of all departments, and we have sharpened -- in this process, we have sharpened as well our unit cost controlling process. So we have a top-notch unit cost controlling now in place for the future at a regular process. Next one is 2 examples. I'm not going into details, but this is example #3. As I've mentioned, that's really a cool technology -- it's a fully automated flow path hardware manufacturing cell with autonomous robots. You can see that next time, I hope I can show you that here in Munich, this system will go live in Q2 '22, and this is basically an ecosystem of the most modern machines available for producing the Flow path hardware -- and I think it's 5 or 6 manufacturing cells with a dozens of autonomous robots who will supply the parts and all the tooling for these flow path hardware. It's a very high quality, it's a repetitive quality because the machine is able to offset every temperature, for example, or mismeasurement of the parts. So we really have a repetitive quality available. And the good thing really is we have a lot size 1 feasibility, which comes more and more -- which is more and more important as we go forward. And you see the benefits, the 20% -- roughly the 20% plus of unit cost reduction is a very significant increase of quality and the lead time is improved by 20%. The second project is running already stably since second quarter of this year, the so-called fully automated HPT blade, vane and structure parts manufacturing here as well. We have 4 autonomous machines. We have robots serving these machines. And the highlight probably for me is we have a 66-hour possibility of unstaffed production, meaning the system is running 24/7 is able also to work on a lot size one, but obviously also scaling up to hundreds or thousands of blades and vanes -- And here, the benefits as well is a 20% cost reduction, significant and repetitive quality, same principle as earlier, and it's working 24/7. What's important for us was this an easy adoption for future projects, for future products that might arise. So this is really a universal and a flexible cell that is in production since 6, 7 months now here in Munich. So let's come to my last agenda point is the extended global footprint. If all this is coming into place, what Rainer and Michael, I told you earlier, roughly MTU needs to double its production until the year 2035 in the middle -- end of next decade. And to prepare that, as we have significant lead times in preparing this production growth, we have started a global footprint exercise that is focusing on 3 elements, mainly on the engineering, on the manufacturing and on the procurement. And just to give you a couple of inflows on the engineering, Michael mentioned the FCAS and the NEFE project, which is -- for the time being, this is the biggest demand and the biggest challenge for our engineering department. We need to -- we are hiring -- actually, we are hiring hundreds of engineers to work on the technology -- R&D technology of this program, and we have the target to raise the headcount in all 3 different engineering sites we have already. You see on the left, our North American footprint, AENA. You see our headquarter here in Munich, and you see our engineering footprint in Polska. And all of them, we raised simultaneously at the same time. And we either -- on top of that, we identified some low-cost opportunities where are reached in the world where it makes sense to build up another nucleus of MTU engineering power in the world. All in all, we have to increase probably from currently like 1,000 engineers at MTU up to 1,600 maybe in the peak, even 1,800, if all these programs that we are anticipating come into reality. We feel very, very prepared. We still have a little bit of time, but we started thinking of what activities need to go to what engineering center and where do we identify low-cost opportunities. Similarly, and that needs even further preparation time is the extension of our manufacturing footprint. You know that we have a big manufacturing center here in Munich as our headquarter. We have a fully loaded factory in Casa in Poland. Meanwhile 1,300 employees. And both of these will be the cornerstones of our global footprint. We focus on the high-tech procedures on military programs as it needs to be manufactured in Germany and very highly automated production systems here in Munich. We are extending and enhancing the portfolio in Poland, where currently we have the blade production, blade and vane production, and we have the assembly of all our LPT modules in Poland. We will bring more parts into Poland. We bring additive manufacturing, the post-processing part to Poland. And that means we need to find another best cost site where we move some of the existing elements we have in Polska. So if you want to see it as a ring exchange that is quite valid. We have not identified this best cost base, but we are in the process of doing so. And this -- we ramped it up as we have ramped up MTU-Polska 12 years ago. Meanwhile, with some simple parts for training purposes and then later on, more enhanced portfolio, but also the labor-intensive task, and the manual production will go into this OEM best cost site. And last but not least, new design parts, you manufacture parts, meaning also you have to procure parts. And here's overview. In total, we have procured roughly EUR 2.5 billion of volume in 2020. EUR 1.5 billion roughly goes into the MRO parts that we buy from our OEM partners worldwide. EUR 1 billion is purely for our OEM production. And you see an overview of where our footprint in the world. But please focus on the right for my last message on the future procurement strategy. Obviously, we need to be technology ready with our partners and our suppliers to fulfill what's necessary in a Gen2 in a work engine in a fuel cell, but also on the military aircraft. This needs to happen very competitive. Raw material is an issue. Raw material pricing is an issue right now. We have hedging in place for these very expensive raw materials, and we keep on going with our multi-source strategy worldwide to have several suppliers available for 1 product family. Sustainability is an issue for our procurement. And last but not least is supplier relation. I believe we are doing something very good because we have a partnership, we have an ecosystem in our supply chain. We have this digital supplier network and our suppliers basically trust us. That's why I foresee right now, we do not have an issue ramping up to the figures that I currently mentioned on the market. And as a summary, I truly believe that we are well preprepared for, a, answering -- giving the answers for the technologies that are necessary to prepare the future of flight but also when it comes to execution, when it comes to manufacturing of these products, and there's a plan in place, as you've seen -- And with that, I'd like to close and hand over to Peter to give you some insight on the financials. Thank you very much.

Thanks, Lars. [Technical Difficulty] Our fixed prices for work packages, such as assembly, disassembly or testing. Moreover, and that is most important, each purchases their spare parts at list-price from IAE. Before a shop visit is conducted, IAE defines the work scope together with the shop. Typically, shop visits today are a mix of warranty, proactive replacement and regular aftermarket activity. At the end, the shop visit is still back to IAE, including the spare parts at this leading to a very high revenue contribution in our MRO segment. Keep in mind that we do PW11 MRO, not only in Renova, but also in our 2 joint ventures in EME in Poland, the one with Lufthansa technique, and Zhuhai in China, the one with China Salem. All of these shop visits are part of our MTU revenue line. As although both joint ventures are not fully related, the joint ventures technically build their shop visits to MTU, MRO, and we finally bill then to IAE. Regarding EBIT contribution, there's obviously 0 profit on spare parts. Spare parts are purchased at list-price and build to this at list price. And the pricing framework for the labor portion allows only for a small profit contribution for our MRO division. The policy here is that almost all of the aftermarket EBIT should be generated on partners level at IAE through the profitability of the different airline contracts. So on the next slide, you can see the principal setup of the PW1100 aftermarket from our perspective. We stand in the center holding all airline contracts, I've just spoken about the relationship between IAE and our MRO division here shown on the upper right. Now how is the relationship with our OEM segment shown on the lower right. Obviously, we manufacture all spare parts out of our work scope. So LPT spare parts and half of the compressors. We get as a first step, a compensation for the manufacturing costs we incurred per sold part. This pricing has been accretive at the beginning of the program. Here, our margin depends on our ability to control and reduce manufacturing costs. In the second step, we could get our program share, the 18% of the aftermarket profitability, which is the addition in principle of all different airline aftermarket contracts. So in that field, we have to work with our partners to reduce cost of these contracts and to optimize profits. So what does this mean for our MRO. We have a secured workload without the need for sales activities because we get shop visit allocations from IAE. That was very especially helpful in 2020 when we saw the deep corona-driven demand in the independent MRO market, and the GTF volume helped to partly bridge that gap. For our financial KPIs, on the one hand side, the GTF volume creates a very, very high revenue contribution and has caused MRO revenues significantly outperformed the market in recent years. If you look on the global engine MRO market in 2021, the volume is roughly 60% of 2019 level, which is pre-corona. Our MRO, however, will end full year '21 when you read our guidance correctly, between EUR 2.7 billion and EUR 2.8 billion of revenues, which is already the level of 2019. However, on the earnings, it only provides fixed cost coverage and only a small positive EBIT contribution. As a result, we have seen MRO margins being compressed from the 9% to 10% where we were before the crisis, so in 2018, '19, to the 5% to 6% where we stand today. As the GTF MRO volume has risen from 0% in 2018, you see it on the chart to a level of 40% where we stand today and where we forecast it to be also for the next years. So after that brief excursion into GTF MRO, I want to give you a first glimpse into the year 2022 and how we think our businesses will evolve next year. Starting with military. New engine deliveries were grown next year, driven by Eurofighter export customers and also to a lower extent, the A400M delivery cadence. Our support and services business for the in-service fleet should broadly stay stable next year, while the major source of growth really comes from funded technology work for the next-generation fighter engine. On commercial OE, most of the growth will come from narrowbody engine output, which will grow strongly next year, driven obviously by rate increases for the A320neo and to a lower extent, also from the A220 platform. On the widebody side, GEnx output should creep slightly up, while business in the growth path driven by the different applications for our PW800 engine family for heavy BizJets. Also, commercial space will be driven by our narrowbody platforms. Obviously, the V2500 and the PW1100, driven by the worldwide strong recovery in the domestic air travel and leisure travel and engines with freighter applications will remain strong and roughly stable. That is in our spare parts universe, the PW2000 and CF680. The business drivers for our MRO business are very much the same as for our spare parts business. So what does that mean for our reporting segments? We expect military to grow in the mid-single-digit range next year. Commercial OE should be up mid- to high teens; commercial spares, mid-teens; and commercial MRO will show a very strong growth next being up very strongly in the mid to high 20s. And as I said before, the share of GTF MRO should stay around 40%. On the basis of an expected FX rates for the U.S. dollar in the range of 115 to 120, we expect group sales in the range of EUR 5.2 billion to EUR 5.4 billion. EBIT adjusted should grow in the mid-20s and together with a stable financial result and a broadly stable expected tax rate of 26%, net income should grow in line with EBIT adjusted. So after our first indication for 2022, I'm going to talk a bit about the main business drivers over the next year out to 2024 and starting commercial OE. This part of the business should grow on average mid- to high teens over the next years, obviously driven by a dynamic growth in Airbus A320 rate increases but also by slowly increasing A220 and also E2 deliveries. On widebodies, we expect a gradual recovery in GEnx output in 2023, we have -- or we expect from today's point of view, the entry into service of the GEnx engine. Business jet engines show a stable growth out to 2024, driven by the different applications for the W800. Commercial spare parts should grow low teens over the same period supported by a faster domestic and leisure travel and the main growth platform will be the V2500 and the PW1100. Spare parts from widebody will be solid, but show only a moderate growth, more driven by a significant footprint in the freighter market, with the CF680 on the Boeing 767 freighter and the GEnx on the 747-8 freighter. Military business will grow mid-single digit, rather than driven by an increasing aftermarket and services business for the in-service fighter and transporter feed and the fast-growing customer finance research and technology work on next-generation fighter engine. New engine deliveries for Eurofighter export customers will peak in 2022 and 2023, 2024. From today's point of view, we have only the Quadriga volume from Germany in our planning. So our MRO segment growth in the mid-teens over the next 3 years and independent MRO and OEM should roughly grow at the same pace. So as I said before, GTF MRO should represent roughly 40% of MRO volume. That is underpinned by strong contract wins over the last years for narrowbody fleet for V2500, for the CFM56, but also for freighter fleets. So CF680, [ PW2000 ] and in the MRO division, also the G90. In OEM, we expect a rising demand for PW1100 MRO as the fleet grows and matures. In total, we expect a solid growth and solid revenue growth. And if you add up the business segments, you will end up with an average growth rate for the group in the mid-teens range. On earnings, also for the group, I think EBIT margin is not the appropriate KPI to describe the development since 2019 and also not going forward as our revenue structure has significantly changed since then. I spoke about the margin development in the MRO segment before being compressed to 5% to 6%. In addition, the group margin suffers further through the fact that the lower margin MRO business today has a share of 65% of group revenues. And back in 2019, it will be around 50%. The ORM margin, however, definitely can revert back to 2019 levels in the range of 25%. We showed that already in Q3 '21 nearly where we were at 23% roughly. Rather speaking of absolute EBIT until 2024, we think we can exceed the 2019 level of roughly EUR 750 million based on an FX rate in the range of EUR 115 million to EUR 120 million. And that means earnings should grow faster on average until 2024 compared to revenues, meaning we expect a margin expansion in that time frame. Cash conversion should go back to high double-digit level, although in near term, we have to face headwinds from rising working capital levels driven by the strong volume growth we see for the next 1-2 years in OEM and MRO, but that is rather a positive sign. Finally, on capital allocation. We still target a leverage ratio between 0.5 and 1.5x EBITDA. Right now, we are comfortably in the middle of that range. Our cash deployment strategy stays unchanged with a high priority for organic growth meaning investments into new attractive programs with a solid business case fulfilling our hurdle rate. Our payout ratio target is still at 40%. In 2021, we were obviously a bit cautious. We paid 23% for 2020. Next year, we'll be rather in the range of 30%, 35% for the year 2021. On share buybacks, I mean that is an instrument we're going to use opportunistically to limit deleveraging or to manage dilution. So that marks the end of my presentation, and I hand over to Reiner for a summary and final remarks.

Yes. Thank you, Peter. I would like to start with some words on our ESG efforts. First of all, we are aware of the extensive responsibility we have when it comes to ESG and be sure this is not limited to environmental protection only. We have committed ourselves to the United Nations Sustainable Development Goals, and we contribute to 8 goals. I would like to highlight goal #9, which is industry innovation and infrastructure; and goal #13, climate action, where MTU made and will also make major contributions in the future through sustainable engine technologies and also energy-efficient production sites. Lars showed you some examples here. In 2020, we, for example, MTU reported more than EUR 100 million -- more than EUR 180 million in R&D investment, and we have more than [ 150 ] technology projects, which focus on sustainable flights. And furthermore, in the context of our Eco Roadmap, our Munich facility, as mentioned, [indiscernible] climate neutral by the end of this year. To work towards these goals, we identified 6 initial fields of actions, which are the basis of our CR strategy. On one topic, Lars gave you some insight, the actions, use from our operations. Another example is the implementation of our CR Board with a focus on pushing ESG efforts into our organization. So these are only 2 examples for our activities in these fields, but be assured, we take ESG responsibility seriously. And as already mentioned, we have a clear CR strategy with identified fields of actions and respective goals for 2025. But we certainly have also long-term targets and the vision with regards to our production and products, and we are always committed to reach the 1.5-degree target. So this is a point where I would like to summarize today's presentation. First of all, we have secured our future prospects and our profitable growth path. Improved vaccination rates support the lift of travel restrictions and market recovery is taking hold. Michael showed you that our product portfolio showed resilience in the middle of the crisis last year and is benefiting now in the recovery phase. And that is the basis to outperform market growth also in the future. Lars gave you an overview of our technology initiatives and our investments in enhanced product -- production facilities and also our global footprint. This will pay off and we are ready for the re-ramp-up. And as also indicated by Michael, our ongoing strong MRO order intake, secures growth and our competitiveness. And last but not least, Peter gave you as every year a first indication on the 2022 numbers, and he also showed you how we will come back to pre-COVID financial performance later. So ladies and gentlemen, thank you for your attention. We are now looking forward for answering your questions.

Yes. Thank you, Reiner. Thank you, Michael, Peter, Lars, for this broad view on MTU and our future performance, which we expect. We now move on to the Q&A session. [Operator Instructions] So that's it. And I think we can get going. First question comes from Robert Stallard. Robert, it's your turn.

Can you hear me okay?

Yes. No, we hear.

Good old technology. A couple of questions just to start things off. First of all, on the GTF generation 2. What's your anticipation of when this new variant will enter service? And will this require an increase in your R&D and CapEx spending? And then secondly, on the freight markets in the OEM division, principally, how sustainable do you think this level of demand that you're currently seeing will be particularly as belly freight on wide-body passenger aircraft starts to come back.

And maybe starting off with first question. As I said, I think the market is not organized yet to answer the question, really, very beginning of the [indiscernible] this will be beginning in the mid of the. [indiscernible] So this is something which is totally open here. I think we will not have to invest in further CapEx as we are capitalized also today already for rate-65. So this will not be an additional headwind. But that's really a question where technology first has to play out. sustainability legislation has to play out. And then such a question will be answered in the next couple of years. Freight, yes, freight will continue to evolve because, first of all, the Amazons of the world have a main immense journey behind them, and this will continue to be like this. And secondly, the widebody market will not be in a recovery mode in the next 5 years. So you will need additional freight capacity and you will need this freight capacity very, very quickly. Just as [indiscernible]71:47 had breakfast with a well-known lesser in the spot and they are really preparing also to ramp up now passenger-to-freight conversion program because this capacity is needed in the market. So we are very confident about this.

And the Gen2 GTF. Okay. So next question comes from George Zhao.

Hello, you hear me here. So I guess the first question. So given your comment that there's no margin spread between the regular MRO and the warranty work on the GTF. So can the MRO margins ever improve meaningfully from the to 6% range? Or is this a structural change based on the contract profile for the GTF they talked about. And I guess same question on the spare side for 2022, the mid-teens. Is that all driven by the V2500? Or can the CF6 and PW2000 still grow, given the freighter? Or is that completely offset by the passenger side on the aircraft?

On the margin side, MRO, my answer would be there is -- in part, it's a structural shift because, as I said, the policy in the GTF aftermarket setup is that almost all of the profit is really generated on partners level on, which then distributes it to the OEM partners. So there's not a lot of margin in the MRO, which is a difference compared to other programs. But I mean, today, we are between 5% and 6%. So when the program matures, so you have less material involved, you have more labor portion. Over time, you develop more repairs and things like that. So you have more labor content we can move the margin maybe upwards to [ chord of ] 6% to 7% or so in that range. But being back to 9% to 10%, that is not realistic, honestly. Spare parts guidance, I would say it's -- I mean, -- the major, major source of -- 90% of the growth really comes from the V2500 and the PW1100. So for narrowbody spare parts growth in the range of 25% to 30% next year. And there's a small increment of growth coming, for example, from the GEnx, which will grow slightly next year, at least that is our expectation. A little bit of comes from the business chats, so the PW2000 and the CF680 should develop more in a stable manner. A part of that is coming from freighter sure, but in case of the PW2000, also, part of the story is that the PW2000. I mean, 1,000 engines are on the C-17 transporter, which is a military application that should also stabilize the program.

All right. Next question comes from Harry Breach. Harry?

Can you hear me, guys?

Yes. Yes.

Maybe a couple, Peter. Please forgive my terrible hearing, earlier on, you were talking about the outlook to 2024. And you were talking about the EBIT adjusted margin. And can you just remind me, I think I heard you say OEM will be back to 25%. Could you remind me what you said also about around that time? Secondly, just on everyone's favorite subject of MRO margin. And one other dynamic that is I think important here really is understanding how Zhuhai will affect us because as Zhuhai grows its top line, and hopefully, margin potentially as well, with the contribution from Zhuhai, which is equity account, it should be margin positive for commercial MRO overall. So I'm wondering if you can sort of help us to think about sort of top line growth of Zhuhai out to 24 and how that can maybe affect margin for commercial MRO.

Zhuhai will grow also, I would say, mid- to high teens in that period of time, so between 2021 and 2024. And part of what I said on the total MRO is also true for sure. I mean, we introduced the GTF in Zhuhai. Zhuhai has the same agreement, with the same conditions, as we have in Hannover. So the margin issue is obviously a bit better due to the lower labor rates in Zhuhai, but it's not skyrocketing. But yes, I mean the equity contribution of Zhuhai is a slight positive for the margin. That's true.

And Peter, just those margins out to '24 for the segments. Can you just repeat what you said earlier.

I said, I mean, there's always a question, when are you back on the levels of 2019 where we were, I mean, MRO was at that point of time, 9% to 10%, OEM margin was 25% and group margin was 16%. So and as I said in my presentation, so MRO margin, we expect in the range of 5% to 6%, maybe slightly above 6% in that time frame. But for the OEM margin, we can, I would say, quite quickly return to the 25%. I mean we have shown that in the third quarter. I mean, you were on the quarterly call. So the OEM division had that 23% already. So there's no reason when we have the respective sales mix, why we can't go back to the pre-COVID margin in the OEM segment.

So now I have a question from Ben Heelan. I'm reading that out, a few questions indeed. So the one is margins for 2022. Can we have some color on the breakdown of MRO and OEM? The guidance implies a very limited margin improvement. What are the key moving pieces.

I mean I just gave the key moving pieces. So I mean, we have very strong growth, obviously, in the aftermarket business. So on the spare parts side, a slight growth in the military division, a very strong growth in OE. And the overarching growth comes really from the MRO. I mean, we expect mid- to high 20s in the MRO. So that is obviously a drag in the margin. I mean OEM margins will expand next year compared to 2021. But when you have a segment which grows far stronger than the other segment, and that segment is the lower-margin business and 5% to 6% in the MRO segment, that is a drag on the margin. So...

Maybe I can add one. I think it's important what Peter said before, that we -- if you look on margin development in the next coming years that we have to differentiate between the OEM segment and the MRO segment. In the OEM segment, as Peter said, we are on the way on a very fast way back to the margins. We have seen pre-COVID on that level. But in the MRO segment, we see that structural change by having this big, let's say, portion of MRO revenues so that we, in that segment will not back to the levels we have seen before in the range of 8%, 9% or 10%. So but in the OM segment, it's absolutely possible and we will see it very soon.

Okay. So another question from Ben is, how should we think about the outlook for the independent MRO book and shop visits for medium term? Or is all of the growth GTF?

They are growing more or less equally, I would say. We have invested in new capacity like Peter said also in China, which is about half -- which is about 2/3 for independent and about only 1/3 for OEM. So both segments will grow.

Okay. So R&D outlook, how should we think about R&D/sales medium term, R&D compared to sales medium term back to where it was in fiscal year '19?

I would say, I mean, customer -- not customer, company-funded R&D, maybe end the year by roughly EUR 160 million or so capitalized and cash. So that will grow probably 15% next year. So that -- we see that level also sustainable going forward. I mean you have just seen last is technology agenda. So you don't get that new emission-free flying for free. So we have to invest into new technologies. Also, we have the improvement programs, the different improvement initiatives on the PW1100 on the agenda. We pushed a lot. So from the -- so we pushed back a lot of things in the corona years, so but now we have to do all that work. So part of that is capitalized and part of that is expensed. So that is a little bit of story that 15% growth next compared to 2021. On the other hand side, we have the customer financed, customer financed R&D, which is today at the level of EUR 50 million, EUR 60 million. And that will grow, I would just say, dramatically over the next years, driven by that next-generation fighter engine funded technology work. So over that time frame out to 2024, that should increase by roughly EUR 100 million. So at the end of that period of time, going to have something like EUR 150 million of funded technology book.

[Operator Instructions] So the next question is still from Ben is GTF breakeven point, when can we get to break even on the new OE deliveries?

That's -- it will take some time. A little bit -- it depends also a little bit on the volume, obviously, I mean, because you know that a lot of manufacturing costs in context of PW1100 is depreciation. So it's highly automated, so building the [indiscernible] facility and so on. So I would say somewhere in the middle of the decade, we can be nearly at breakeven nearly.

Maybe it took us about 10 to 15 years to come to a breakeven at the V2500. So if you take this as a rough guideline, it's exactly as Peter said, it's about a bit of a decade.

And we have had all these cost down initiatives, last spoken about. So these are not all already in our P&L. So some are out. So and if they really get -- will be effective, then we will be there in middle of the decade.

Okay. So next one comes again from Robert Stallard.

Okay. I'm unmuted now, hopefully. Just had a quick question for Peter, a technical question. On the IAE profit share, where do we see this in the P&L? And does the P&L accounting event be matched by cash payments as well?

Yes. I mean, technically, it's reflected in the spare parts margin. So it's part of the profit which comes -- which flows into the OEM division together when we book the spare parts. With the cash flow, it's a bit more difficult. I mean, IAE is a company. IAE collects obviously proceeds from the airlines via their flight hour payments. They sell engines, they sell spare parts to the MRO shops and so on. That's their cash in. Obviously, they have also cash out. So they pay the shop visits for the -- all the shop business in the network. They pay the manufacturing cost of the parts or of the new engines and so on. And there is a cash distribution policy within IAE, so that a certain share of the cash balance is distributed to the partners. So this cash destitution is obviously part of that is as profitability and then part is also prepayments from airlines, I would say. So it's a mixture of that.

Okay. George Zhao again before we move on.

Peter, yes, thanks for that color on the MRO margins earlier. Just a follow-up to that. How do we -- how should we think about the GTF spare margin potential? I mean you talked in the past about the proactive work should lead to lower cost. When should that lead to higher margins for these versus the GTF? And over a longer horizon, do you think that GTF spares can eventually reach the margin for a V2500 spares. And separately on the MRO, when you think about out to 2024, you have demand recovery, you also have a lot of capacity expansion. So which one will just take the pace of your revenue recoveries that the capacity engine or the demand return?

No. I mean first question on PW1100 profitability versus V2500, that is obviously our goal. I mean we are working on that. But on the V2500, I mean, we have had 20 years of time where let's say, prices of the spare increased by, let's say, 4% -- 5% over a year. And obviously, the manufacturing costs are not increasing 4% to 5% a year. So there's -- and that over 20 years. So we are at a very good level of profitability right now. And on the PW1100, we are just at the start. So it will take some time to get to the same level of profitability. Technically, I mean, what happens is that, I mean, IAE has a certain number of aftermarket contracts with airlines. And obviously, we work together with, IAE to bring costs down by increasing time on wing and so on more durability of parts, reduce costs, reduce cost of shop visit and so on. and we reassess each year all contracts. And once we see that a contract has stepped up to a higher level of profitability we book then going forward the spare parts with a higher profitability. And so that is true for the one contract. But I mean we book finally, the addition of all the contracts of IAE. So first, you have to do really your homework, avoiding shop visits, bringing costs down, increasing time on wing. And then when you do recalculate the business case and the business case shows that the profitability is higher of that, you can book then higher profitability going forward.

He has one more question. So... demand versus...

On your question on the demand or capacity side, maybe I'm a bit overly positive there just after [ Dubai Air Show ]. But I think that the demand is there and continue to increase. On the capacity, we are investing, as we said before, we're investing in China, in [indiscernible], in the Hannover facilities. But what I see also is a kind of a question mark is really the supply side. So do we get enough spare parts from the suppliers. Lars mentioned also that we have to work with suppliers quickly. In our case, in the MRO side, it's more the supply side of getting repairs in time back to the shop, getting the spare parts from the big OEMs- back to our shops. I think this is where we focus currently a lot, and we have to focus in the next 2 years a lot.

So we are a little bit struggling with some technical issues from a few of you out there. That's why it's a little bit tricky currently to follow the discussion and the questions. So one more from Ben, capital allocation, do you see potential for M&A?

As we always said, our focus definitely -- is definitely on organic growth. And I think we showed you that there is a lot of potential in the market, both divisions in the OE division, but also in the MRO division. I would say in the core business, as what we do today, there is a limited potential for M&A activities. We have not so many ideas which targets it should be. But if you look into the future, new technologies, as Lars said in that road map, there could be eventually an opportunity to acquire the one or other smaller company to get better access to these technologies. But I would say for the existing business, our clear focus is organic growth.

Okay. So David Perry asked a few questions. The first one, firstly states, thank you for providing guidance on spares growth through to 2024. Could you help us with some detail on the assumptions you make? In widebody spares, so you see CF6 and PW2000 dropping, but GEnx offsetting that, what GEnx sales in 2024? And a narrowbody spares, when do V2500 spare sales peak and what contribution from GTF spares in 2024?

I mean, David, on the widebody side, we think if you combine PW2000 and CF6, that should be a broadly stable picture until 2024 and both programs separately also will be stable. I mean on the PW2000, you're going to see really the commercial spares for the Boeing- 777, 757 in passenger operations or rather dropping to 2024. The military portion will increase over time and the freight -- I mean the freighter footprint in the 757 is compared to the CF680 are rather small -- I mean definitely the smaller compared to the CF680 fleet. . On the CF680 fleet, passenger demand will certainly go down spares wise, but freighter spares will rather increase. So both should broadly offset each other. And so -- and on top of that, we have the GEnx. On the GEnx, in the next 3 years show a slight growth in spare parts sales, you see incremental growth. But I mean if you transfer that on total spares sales, then I mean the contribution from widebody is not very meaningful. So really, the driver behind our spare parts growth will definitely come from narrowbody engines. So on the V2500 we expect growth -- we expect really to grow the V2500 until 2024. But by that time, 2024, 2025, so spare parts demand should peak for the V2500. Obviously, PW1100 will continue to grow throughout the decade. That is absolutely no question. I mean it we grows and grows and grows, at what pace we still have to see, it depends a little bit on the rate discussion on the A320 platform. But is it 60% or 70% or 75%, that is not so important. I mean it's going to continue to grow throughout the decade.

So two more from David. The one, thanks us for giving some color on 2024 EBIT exceeding 2019. But he would like to hear a tightening up comment like it is exceeding by 5%, 10% or 15%. That's one. And the other one is, as we are having a strong balance sheet, why not raise dividend payout ratio to 40% now?

If you would have loved to give more detailed guidance [indiscernible] we would have done that. I mean today, I mean it's we are just in -- at the end of a global crisis, I mean giving then a more precise forecast for 2024, I think that is really too early, but we are quite confident that we can exceed the EUR 750 million, which we had in 2019. And obviously, that means...

Only by 1% or 2% by 2024 will be exceeded by 2024, and the cash flow, I think the dividend payment is -- I think we are coming from the level of what it was last year.

23%.

23%. And we said always our policy is to grow step by step towards 40%, but not within one step. It's also clear.

But I said, I mean, in our last speech, we want to target something like between 30% and 35% for 2021 and 2022. So it's a quite significant step forward towards the 40%.

Okay. So Harry Breach again. Harry, you have to unmute yourself.

Better now?

Yes, now it's good.

Perfect. Sorry. Maybe just a couple on GTF, if I can. Can you give us any sense as we think about 2022 about sort of production volume or delivery numbers. And looking at it another way, I guess, one of the issues over the last couple of years was reduced spare engine demand. Can you give us maybe your best idea about whether we're going to see a sort of normalization of the mix of installed versus spare GTFs next year. Second GTF question was, just thinking about sort of market share of the backlog. Can you give us any sense about where we are on the A321 model in particular for GTF? And this might be a bit difficult. But on the XLR as well, it would be very interesting sort of understanding any picture you can give of that. And then very, very final question -- sorry, this one is completely different. But just with the installed base, can you give us a sort of sense for the current percentage of sort of PW2000, on 757 versus the F117 on the C-17 that sort of military civil mix within your PW2000 spares?

That one is easy. So you have something like one PW2000 and C-17 and something like 500 engines on, let's say, freighter and commercial passenger aircraft. So 1/3-2/3, that's the mix on the PW2000.

Maybe continuing with the production rates, I think, after using 450 engines approximately this year, we are targeting like EUR 550 million next year and then EUR 650 million the year after. So it's an increase of about 100 engines per year. Our portfolio and our footprint on the XLR, I think that's really too early to say this. We know that the gear turbofan engine is perfectly positioned because of its power range and also because of its fuel consumption for this application. But I think it's too early to say how much the XLR basically, we steal away from the widebody market. How much they will steal from the 787 from the aircraft. So this is really the question, how this narrowbody market for long haul will develop? I think there's a very good chance given the fact that not too many widebodies only back in the fleet and will not go back to the fleet that this market is basically eaten up by the XLR and DLR. Was there another question?

Market share.

Market shares or delivery shares about 45% currently versus the LEAPs. And I think we have about 60% on the A321.

[Operator Instructions] We have one more currently from -- or 2 from Olfa Taamallah. The one is, could you please comment on supply chain health and ability to meet Airbus ambitions to reach rate 70% or even 75% by 2025?

Well, like I mentioned, for the current production volume and for the rates that are envisaged in the next, let's say, 12 to 24 months, I don't see a risk on MTU side. Where the rates finally will be, I think that's a discussion necessary between the air framers and the engine OEMs. MTU feels very well prepared, both on raw material, also on detailed parts and finished parts on the worldwide supply chain to cover that demand. We've been at 63 before the crisis. So we are invested for this rate as well. I hear rumors that others have issues on the supply chain. So far we are doing pretty well managing that external and internal supply chain. So we are well positioned.

Okay. One more question from Olfa, basically on 2021. How do you see Q4 development in particular for spares and how much are you comfortable today for 2021 guidance? Do you think there is some room to exceed fiscal year targets -- full year targets?

Yes. Obviously, we just reiterated the guidance together with Q3 release. So we are very confident, obviously, to reach the guidance. Let's say, I mean, what we foresee is I mean you had Michael. The shops are full in MRO. We see a very strong spare parts quarter in Q4. If you're finally going to exceed the guidance, I mean, you know we are always guiding a little bit more on the conservative side.

As of today for Q4, we have a very good track to achieve the targets.

Okay. So questions come from Brian Perry. Brian? Are you unmuted? Otherwise, we would move on. Let's try with Alexander Hauenstein. Alexander?

Hello, can you hear me, gentlemen? Yes, I've got a question with regards to your guidance for the year 2020, you had a title on it, acceleration in recovery. I was wondering what is the underlying assumptions regarding the COVID-19 current developments and we currently see the infections rates going through the roofs in some of Europe's main countries and also on a worldwide basis, we see here and there. That things are not improving. I was wondering how much of that or what kind of way of thinking have you already baked into the guidance here? Or could you give us some kind of a scenario/sensitivity in case that things will become much worse than you expect. And I was curious to hear what kind of underlying base case you implied here. But if things get worse on that front, would that actually imply for your guidance on a sales basis? And finally, also on the profitability line, which are the most vulnerable parts here? and maybe you can lead us through here, how to think about the development for the next, let's say, 5 to 6 months or so.

The most vulnerable part is definitely the spare parts development because of the profitability level we have on the these parts. But first of all, we have to be aware what we see actually, I said at the beginning, is today more in, let's say, European issue and mainly within the mid of Europe, it's not Spain, it's not Portugal. It's actually, it's more Germany, Austria and these countries. Could it be worse? Yes. I mean, if we fall back to what we have seen last year, then it would definitely have an impact. But we have also seen in the year 2020 that our business model is quite robust and that we could even in these times, let's say, achieve more or less our targets. I mean it could always be worse, but we have based our -- for next year guidance, on the actual IATA forecast for passenger traffic, the it's only, let's say, the frame for the guidance, as we said, due to our business mix and product mix, we have -- we are a little bit more resilient on the overall development.

Okay. So that would imply that even if things are getting a bit worse, then you have less revenues, but on the other hand, your group margin is going to be a bit better, right?

Today, it's more a European issue or a German issue within -- it's not a worldwide issue. And you can see -- you could see in the charts, China is back to pre-COVID levels. U.S. is quite very close to the pre-COVID levels. And it's just a little bit here in Europe, where we are behind the development. So therefore, I think it's -- we today feel very comfortable with the guidance we've given.

So again, a few to be read out from me. [ Jeremy Bragg ] asked the question, can you comment on your ability to break even on the GTF in the context of PW's commentary on the same issue? PW has stated that GTF losses grow until 2025 of -- and peak thereafter.

We have obviously a different work share, different cost base, different form of accounting. I don't think that I would like to comment on Pratt & Whitney's cost assumption versus ours they have not the bases to comment on that actually now.

Okay. I have one. Brian Perry couldn't make it on the phone or on the line. So I read out the question. Could I ask follow-on to Harry's question from earlier? There was a slide showing V2500 versus CFM56 share A321. Would you expect that to be representative of the GTF share?

Yes, I can -- you can take this as an assumption overall the A320neo. I think there won't be so dramatically shift in this kind of program shares. It's a fair assumption of it.

Okay. Richard Schramm asked supply chain issues seem to have not been a topic at all for you? Will that remain so, especially when production volumes picks clearly up?

Well, let's that's difficult to forecast, and I wouldn't see it has not been an issue, but we manage it quite well. If the rates go up 30% in the years to come. And most likely, we will see and encounter any problems. But as I've said, we have developed quite a well ecosystem and a partnership with our suppliers. And I'm quite positive in this like I mention. If things occur, let's say, that the downside of a COO job, if things occur, you need to manage it. But we are preparing that quite well, and we ask our suppliers to put this data into our digital system and to simulate the rates that are envisaged. So we manage.

Good. So [indiscernible] asks on the leasing business, the buyout of Sumitomo, any desire to grow this business beyond just supporting your MRO activity?

Yes, always. I mean this business has been built up to support our MRO business in 2 aspects, first of all, for short-term leasings, but also to gain assets in the market and manage also these assets. So what we have to decide, we need to focus basically on these 2 elements, and we would like to grow this business. Therefore, we also decided that the central -- procurement of the central management organization for used material will be taken over now by this MLS team. And that hands them also the reason why we had now took over 100% control about the company. Is there a market also for third parties? Yes, definitely, especially in the next couple of years when the market is going to pick up again, you will see a lot of transactions of engine removals. You will see a lot of engine lease returns where we are also specialized. So it's our firm intention also to grow this market beyond our traditional MRO contracts.

Harry has another question. Harry?

Just following up, sorry, Michael. Earlier on, I think I was just asking whether you could throw any light on the GTF on the mix of installed versus spare engine delivery sort of looking forward compared maybe with this year.

Yes. Sorry, I missed, I missed it. You are right. We came from a quite high spare engine ratio, which I think was about close to 14% of the installed. And it's now the intention to bring this back to a more normalized level, like 10% of the installed fleet, which is quite healthy. But in addition, also customers are buying our spare engines last year, approximately 20% to 30%. And that's a number, obviously, which will increase also. So if we put both together our own spares of the IAE lease arm plus the customers spares on the long term, mid of the decade, I would expect that we are now on normal spare levels like 10% of the fleet.

Okay. So [indiscernible]Lee is about to ask a question now.

Can you hear me? I have 2, please. The first one is just around your interesting slides on digitization and automation. I was just wondering if there is any way to benchmark, I guess, your level of automation versus peers, how are you doing compared to the wider industry? And then just more specifically, for example, on additive manufacturing, I think [ you in fact not have ] commented on being quite keen on advancing in that area. Any thought on, I guess, just any way to quantify, for example, what percentage of your parts today are being manufactured through 3D printing and how that might change in the future? And how -- just generally, how do we think about the impact of your investments on the margins, please? That's my first one. I'll leave the second one for after...

Okay. I tried to work through that question in terms of automation and Industry 4.0. It's difficult to say where we stand vis-a-vis our peers, I would say MTU has always has been a strong company and strong efforts in making our cost base and unit costs, especially here in Munich very competitive. So I'd say we are in the top 20% maybe, like I said, higher, well, I try to be conservative, but somewhere really high up the chain vis-a-vis our peers, with the made in Germany brand and all that partnership we have with Siemens, for example, and other companies. So we see us some were very high on that pyramid. Regarding additive, yes, I've seen the announcements of the colleagues and the peers. We have put a lot of effort in additives throughout the last maybe we have a couple of serious parts in production already. And we intend to grow that ratio, especially on the military side, where we have a couple of very promising projects of very huge additive parts but also making the additive really work because of the [indiscernible] design, which is the essence of the additive technology. The question of the share, I know we calculate it back then, roughly 30% of our parts are likely and are positive possible to be manufactured additively. I would say we stepped back a little bit from the figure but give or take, in the next 10 years, maybe 15% to 20% of our parts, of our own parts, might be able and ready to be produced additively. It's a very powerful technology where we still are in the child steps, if you want, at the beginning of using the full potential of this technology's.

[Technical Difficulty] such as science-based targets, any plans on that, please?

So yes, the one would be in Munich, we have done that already. Otherwise, you cannot communicate or declare your side -- your production side is climate neutral. So it has been audited and very [indiscernible] -- I don't know the name right now, but we can provide that name by a third party, which is why we declared our site here already as climate neutral, and we're going to follow up with the sites, as I said, the other German site and the European and the worldwide sites in the years to come. So yes, the answer is yes, we do it.

Maybe I can add one point. ESG targets are also part of our compensation system since beginning of this year. So especially as part of the short term incentive, and if you have these targets in your short-term incentive system, it has to be audited by the auditor, which is [indiscernible] actually.

One last one from Olfa Taamallah. During the Q3 call, you have mentioned the accelerated retirement risk and the spares may not recover totally. I think you're talking about the V2500. What as substance are you factoring at volume loss by 2024?

Maybe if you focus on the V2500, I think everybody is aware that we will not see exactly the level what we have seen before as the peak. So I think in average, you can say, maybe around 10% lower than the peak has been forecasted before the crisis.

Okay. So as I do not have any more questions, I think this basically marks the end of the Capital Markets Day 2021. A big thank you to MTU's management for giving all these insights we had. And another thank you to the participants out there behind the screens. And hopefully, next time, again, in person without technical limitations as we experienced today a little bit. To all of you, stay safe, and enjoy the rest of the day.