Good day, and thank you for standing by. Welcome to the MTU Aero Engines GTF Update Conference Call and Webcast. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you need to press star one and one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one and one again. Please note that today's conference is being recorded. I would now like to hand the conference over to your first speaker, Mr. Thomas Franz, Vice President, Investor Relations. Please go ahead, sir. Yes, thank you. Ladies and gentlemen, welcome to our update call on the fleet inspection program for the PW1100. We start with a quick view on the program and how the situation developed, presented by Lars. Peter will talk about the financial implications from this program. After that, Lars will walk you through the impact on our guidance and midterm outlook. Following this, we will open the call for questions. Let me now hand over to Lars. All right, thank you, Thomas, and also welcome from my side. Guys, let me first say I'm sorry that we have to come together today due to these unexpected events, and I also want to apologize for all implications this situation is causing. As you're all aware, RTX released an update to the previously announced HPT inspection program. This was deemed necessary as a result of a rare condition in powder metal Pratt & Whitney is using to produce certain engine parts. At the time, there was an expectation about the scope and impact of the program. On Monday of this week, RTX issued a press release and held a conference call with a couple of changes to this inspection program and a more detailed outlook of the implication, which I summarize here. On the one hand, the scope of the program has been increased with respect to the suspicious parts, as well as a number of engines that might be part of the program. Following this expansion, the previous expectation to be able to handle this program through a high number of quick turn shop visits didn't hold. The actual program assumes that the majority of the necessary shop visits will now be heavily work-scoped heavy work scopes and reside in 600-700 incremental shop visits. Given the already tight situation in the MRO network for the GTF engine fleet, this leads to even longer turnaround times and an elevated AOG situation in the global customer fleet. With setting up this fleet management plan, Pratt & Whitney also modeled the financial implications. But before Peter talks about the financials, I also want to comment on the future of the GTF program. We are certainly convinced of the medium and long-term success of the GTF. The engine itself had the right forward-looking architecture. The current challenge is not a technological or fundamental problem, but a manufacturing problem. The GTF is only in its seventh year, with 25 or even 30 more years to come. And currently, there are around 1,600 aircraft in use with a GTF at 60 different airlines, and orders for around 10,000 more engines are on the books. This overall picture leaves us looking optimistically into the future of the program. Now, Peter, I hand over to you for the financials. Yes, thanks, Lars. Indeed, Pratt & Whitney has communicated the overall financial impact in a range between $6 billion-$7 billion for the total program, as you know. That translates into a Pratt & Whitney operating profit impact for their 51% program share in the range of $3 billion-$3.5 billion. Further, they plan to book the major share of this impact as a non-recurring sales and pre-tax operating profit charge in Q3 2023. On cash flow, they expect a headwind of $3 billion between 2023 and 2025, with a yearly roughly distribution of roughly $0.5 billion in 2023, $1 billion in 2024, and $1.5 billion in 2025. Based on the release from Monday of this week, we are currently assessing MTU's liability for the related cost based on the risk and revenue scheme in place. This process is not finalized yet. Based on the numbers Pratt & Whitney provided, we might be burdened by these effects by building up liabilities for the program, resulting in a one-off charge in Q3 2023, reducing reported revenues and reported EBIT. In order to provide an ongoing comparability of our KPIs for prior and future periods, these extraordinary impacts would be adjusted for in sales and EBIT adjusted. The cash flow impact associated with this fleet management plan is expected to materialize at MTU's accounts in the years 2024 to 2026. We currently do not expect a major impact in 2023. Following all of this, we are already working on measures and driving forward activities to reduce this possible impact on our business. First, together with our partners, we obviously tried everything to reduce the overall impact for customers and the program as a whole. For example, to build up additional MRO capacity as quickly as possible or to design smart work scope to reduce the anticipated 250-300 days wing-to-wing time. Further, we will obviously also enter negotiations with Pratt & Whitney on commercial conditions for additional MRO capacity, which will be needed for additional 600-700 shop visits, but also on other ways to compensate us for the hit we probably have to take. Internally, we will launch an efficiency program to streamline CapEx plans and other costs, while keeping in mind that our underlying business is strong, and we have to deliver on the strong customer demand in all of our business units. As we speak, we are working all of these actions to offset at least part of the potential impact, from this program. But to be clear, we are going to see an impact in our cash flow generation in the affected years, 2024-2026. Lars, can you now share the revised view on our outlook? Yes, I will. Thank you, Peter. As mentioned, the recent announcement from Pratt & Whitney presents a major blow for the program and our major and a major challenge for the partners and the MRO network. Together with our partners, we are working hard to find possibilities to reduce the current expected impact on operations and financials. This news overshadows the performance and improvements that have been achieved. We are confident that the engine itself and the benefits it provides to its operators will reassure customers of the value of this technology, while the GTF A will bring further improvements. Now, coming to the broader picture. The overall market environment remains very strong. Passenger traffic as well as freight cycles are very favorable and supply chain pressure eases slowly. Based on this and on an adjusted basis, we remain confident to reach our sales and EBIT guidance. Also, on the free cash flow adjusted side, we are confident that we can still achieve an amount above the 2022 actuals. Now, looking beyond the current developments to our midterm ambition, we communicated at our CMD in November of 2022. We are very confident that we will exceed revenues of EUR 8 billion in 2025, with a corresponding EBIT adjusted of more than EUR 1 billion. This marks the end of the presentation, and we're now open for questions. Thank you. As a reminder, to ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. Once again, please press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. Please stand by while we compile the Q&A roster. This will take a few moments. We are now going to proceed with our first question. The questions come from the line of Kseniia Maslova from UBS. Please ask your question. Hi. Hello, thanks for organizing the call. Hello. Thank you for taking my question. I have two, please. So in their update on Monday, Pratt & Whitney referred to issues on HPT disks and compressor disks. Can you just please explain specific issues in more detail, and most importantly, if all of them are solely related to metal contamination issue? So maybe let's answer this question, then I'll ask my second one. Yeah, well, Ksenia, I think we can reiterate what Pratt and RTX clearly said on Monday. We are talking about a powder metal material that is used for certain parts in the engine, and here specifically the HPT disk 1 and disk 2, and the IBR, the integrated bladed disk on stage 7 and stage 8 of the compressor. So because of this powder material, we have identified in the current work scopes and the shop visits that there might be cracks, potentially cracks in these disks while producing these disks. They now need to be reassured on a safety call that we inspect these disks, that there is no crack available, and then either replace them again, or install them again, or replace them again. So, the root cause of the issue is the powder metal, and then associated to that are the parts that are affected. Okay, understood. Very clear. Thank you. Then maybe also, if you could help us understand the free cash flow impact in 2024, 2026. Maybe just any more color there, like around phasing or, and key moving parts. In particular, how do you estimate compensations to airlines? And if there is any risk, basically to estimates provided by Pratt, we think that it could be too low, the number they communicated. I mean, today, as we speak, we can only rely on the numbers, I mean, Pratt & Whitney gave you. I mean, they, they are the face to the customer. They, they administrating the, the fleet management plan to, to, towards the airlines. And, I mean, they indicated, the $3 billion cash flow impact. So in the, in the yearly distribution, I just, I just reiterated. We are working, obviously, on measures to reach at least, that number or to even, to be able to reduce it. But I mean, in our, in our, I would say in our accounts, we expect it to be somehow distributed to the years 2024, 2025 and 2026, maybe, so that is our expectation. But I couldn't tell you the exact numbers per year now. It's just too early for us. I mean, we have the information of today, so. Okay, thank you. Thanks very much. Thank you. We are now going to proceed with our next question. The question's come from the line of Phil Buller from Berenberg. Please ask your question. Oh, hi there. Thanks, thanks for letting me ask a question. Firstly, can I just follow up on the answer you gave to the previous question? It's obviously difficult from the outside to know exactly what's going on between yourself and Pratt & Whitney. I assume you're not happy with the communications between yourself and them. And if that is the case, what is it that you're able to do proactively to ensure you across the issues with some of your partners a little bit better, please, if I can ask that upfront? Thanks. Well, so how should we answer on this one? Obviously, this is a long-term, very important and very successful partnership with Pratt & Whitney, and we always had a very good communication on all these issues. It is, in fact, true that we started to be involved on a technical perspective on what's happening with these Powder Metal parts. But this time it really occurred that we only got to know the financial impact on Monday morning, and this is probably also because of the magnitude of the problem. And we also all have a regulatory issue that we need to stick to. For me, this was not a good communication, but it was an understandable communication on this program. But this should not lead to any kind of misunderstanding. We have a very good relationship with Pratt & Whitney and been informed on the technical issue as early as possible. Okay. Thank you. And, the question I was gonna ask, just to clarify a few things, if I can, please. Of the 250-300 days, I think that's what you said, how much of that is just waiting around time? I assume it's most of it, in which case, is the decision to replace all of the HPT disks due to the fact you've got plenty of time to produce those due to a lack of shop slots? Is that the right way to think about it, or is the change in scope due to the failure rate being higher than previously assumed? So let me start with the first part of the answer. I also believe that the majority, maybe half of that, is probably waiting for induction, because that's our track record in the past on heavy shop visits in the amount of 150- Hundred days. 100 to 150 days-ish. Yeah. I have technically not heard that we have a different assumption on the crack prolongation and crack movement. So I would consider what you mentioned to replace a disk because of the long wing-to-wing turnaround time might be the better condition and the better situation in order to enable our customers to have a fully working GTF back on their wing. Okay, that's great. And then just finally for me, if I may, obviously, we're gonna have a few hundred A320s sat around at any point over the next few years. But at the same time, it sounds like Airbus still plan to deliver hundreds of GTF-powered new A320s over the next few years while all of this is happening. So from your perspective, what is more costly to you? Is it paying a penalty for an out-of-service aircraft to be grounded for 12 months, or how does that compare to slipping delivery of a new engine for 12 months in order to support a spares pool? So how do you think about that trade-off, and what are you assuming in the guide, and where are you in terms of discussions with Airbus and your customers, please? Thank you. Well, you know, we don't comment on these kind of questions. I mean, obviously, we're trying to fulfill our customer needs, both on the MRO, so the flying fleet, but also on the OEM side, the Airbus needs. And what we do together with Pratt is obviously optimizing both elements. And the final discussion on which customer gets what engine is done by Pratt & Whitney, because they have the contacts to Airbus, and they also have the contacts to the allies- Other customers, yeah. Okay. Thank you very much. We are now going to proceed with our next question. The question's come from the line of David Perry from JP Morgan. Please ask your question. Yes. Hi, Lars- Hi. Peter, thank you for doing this call. I've got three questions if I can, please. Mm-hmm. I mean, the first one is, you started with an apology, which I think is very gracious of you, because ultimately, it doesn't really feel like it's your problem that you caused. Now, I know on the last call, there was a philosophical discussion with another analyst about RRSPs, and I get it, you share the risk. But I'm just curious, in a situation where one partner has so obviously been at fault, and for such a ridiculous reason, in the contracts, is there any force majeure clause? I mean, is there any sense of the, the RRSP to have 49% stake together, coming together and, and trying to get recompense from Pratt? That would be my first question. My second one is, have you actually been able to audit the $6 billion-$7 billion? I mean, you've taken two days, which is totally understandable, to communicate, but how does one even begin to audit that number in such a short space of time? And the third one, maybe I'm clutching at straws, but are there any silver linings here for you? I mean, the V2500 spare sales, are you gonna change your assumptions on that? Thank you. Well, David, these are three questions. Let me start with the first one. I don't, I don't comment on the public note now, how we deal within the contract. It's obvious that we have a look into the contract, that we start discussion with Pratt & Whitney, but after two days, it's too early to say what the outcome will be. The second one is on the audit, if you want. I mean, we are trying to understand, and we are sharing the assumption that gave Pratt the way to the $6 billion-$7 billion. And as we speak, there are teams trying to challenge these assumptions, trying to understand that in order to find common ground there. So that is done during this week. But so far, I mean, Pratt is the OEM partner. I have no, no, no doubts, no, no reason to think, that this is even, higher or lower than, than, it's over-exaggerating. So, we're trying to understand the, the, the assumptions behind that and, compare them obviously to what we think it's necessary and possible. And the third one, it's also too early, Peter. I don't think we are now updating any kind of guidance in the different programs. We usually don't do, but, it is clear that when you have less GTF in the, in the, in the air, that older fleets, and here, especially the V2500, is flying more and longer. Naturally, that probably leads to a kind of an increased more maintenance work for other narrow body programs, for standard sales, for other narrow body programs. We're going to look at that obviously in our forecasting, in our budget planning, but it's too early now to do that. All right. Well, look, thank you and good luck. Thank you. We are now going to proceed with our next question. The question comes from the line of George Zhao from Bernstein. Please ask your question. Hi, good afternoon, everyone. So first on the cash, you know, I know you said you're not going to give exact number per year, but if you take the total cash impact over 2024-2026, is that, should that be close to the EUR 1 billion impact to the EBIT that you talked about, so the total cash impact over the three years? And second one is on, you know, on the MRO side, you know, for the MRO shops that you have that can perform both GTF and also other independent work, you know, can you prioritize on the GTF work, or how do you balance between the different requirements from all your different customers? Hmm. I mean, on the cash profile, I would say, I mean, let's say it takes for a minute, the one billion, probably that's an item which is tax deductible, so 30% tax credit, so EUR 700 million cash flow impact. That is—I mean, I would say the focus is 2024, 2025, and we're going to see some spill over to 2026. So that is the rough profile which I could share today. On the capacity, George, I mean, MTU successfully build up more capacity for MRO activities since 2019, and we continue to do so over, even over the pandemic. And we are still able to to provide more capacity to the GTF. And we have been asked, and discussing that with Pratt, due to the to the prior ERI issues. Now, that is obviously another on top demand for shop visits. And here again, we are in discussion with Pratt, what we want to do, what we can do, what's needed to do, and how to balance that with our independent business. Because obviously, we have we have contracts with our independent partners that we need to fulfill, and this needs to be balanced. But again, too early to say after two days, how do we go forward the next three years? Both need to be done. Both, we want to do both of them, independent and GTF work, and there's a balance to it. But that has obviously to come with the right commercial conditions now. So if we cannot replace independent business with high margin independent business, with low margin GTF MRO business. That is not conceivable, it has to come with a higher profitability and with obviously a very low working capital. Got it. Thank you. We are now going to proceed with our next question. The question comes from the line of Chloe Lemarie from Jefferies. Please ask your question. Yes, good afternoon. Thank you for taking my question. I have two. The first one is actually to go back on the discussion that you're having with Pratt. I mean, around what do these focus? Are they really just how you share the extra cost visits, the extra shop visit costs? Is it more around, you know, the responsibility on the compensation side, or is it just to assess what is really program cost versus Raytheon costs in what they've announced? The second question is actually, could you explain how the number of shop visits required expanded from 1,200 to now 3,000? Because it feels like it's above the number of A320neo GTFs that you delivered over the 2016 to 2021 period. I'm just struggling to understand how it reached the 3,000. Thank you. Well, let me try to pull that up for the second question first. When we went public, RTX went public roughly four or five weeks ago. We talked predominantly on the HPT disk 1 and 2... and that came with a population of 1,200, 200 of them, where we didn't have an a proper angle scan record, and the 1,000 that are due because of licensing issues. And we want to just be sure that there's no crack in there, and there will be limited life. So that is the first population of 1,200. Now, we explained earlier that we are now looking at all the powder metal parts, and the IBR 7, IBR 8 are the two examples of that. Obviously, that increases the population. And we, it is not correct, Chloe, that we have not delivered 3,000. Obviously, it's more than 3,000 engines delivered, but the population right now is roughly that 3,000 engines have at least one part of ME16 inside. So that drives the number of engines and, but out of this population, we still only see 600-700 incremental shop visits, because the majority of these shop visits now needed have already been planned in the past, so they're not incremental. And that deals with licensing, predominantly with licensing. It's a re-inspection after roughly 3,000 cycles, and so far we have a life expectation of, I think it's 6,500 or 7,000 cycles, 5,000-6,000 cycles. So this is driving the amount of shop visits. And the first question is basically, we all do three of them. We do all three of them, so we are in daily communication with Pratt. I would say, first of all, we need to see that we get a nice and a smooth operational system ongoing to serve these shop visits, to have capacity available, to have spare parts available. And secondly, and in parallel, we do the financial discussion with Pratt and RTX. Very clear. Thank you. We are now going to proceed with our next question. The question comes from the line of Tristan Sanson from BNP Paribas Exane. Please ask your question. Yeah, good afternoon. I'm Tristan from BNP Paribas Exane. I'm sorry, the line is bad on my side. I'm on the road, so apologies. I have a couple of questions for you. Apologies again. The first one, you're not going to be able to fully answer it, I'm afraid, but I have more hopes on the second one. The first one is, I wanted to know whether you could share your level of confidence on the fact that the issues that we are talking about will be contained to high pressure compressor and high pressure turbine disk on the PW 1000, or whether you still see a potential possibilities as an extension to the V2500 or to a larger population of the PW 1000, the more parts or number of engines? That would be helpful. The second one is more an accounting question. I wanted to understand whether the charge that you're planning to take in Q3 will encompass the whole of the cost that would be incurred, or whether there's a possibility to have also a future revision of the PW 1000 support margin. Pratt, I think, mentioned 100 basis points of margin pressure in 2025 as well. Will we get an impact over time that will be estimated with your budget at the end of the year as well, or will everything be booked in Q3? Thank you so much, and sorry for the bad line again. No, we could understand you very clearly, Tristan. Thank you. So the first question, you referred to PW 1000. This is our nickname for the whole GTF fleet, so small and big GTF. Right now, we are looking only into the PW 1100, and with the information we have so far, the smaller GTFs and other engine programs are not affected by this. Yeah, regarding accounting, I mean, we have started discussions with our with Pratt & Whitney on the one hand side and with our auditors on the other hand side, since Monday. So we are not as far as RTX and Pratt & Whitney is obviously, but I mean, a possible... Therefore, I cannot confirm today the way we're going to account for that in Q3 2023. But a possible outcome could be that, I mean, the major part of the customer compensation, so customer concessions, customer support costs, that could be booked as a one-off, obviously will reduce. It's going to be liability which flows directly against revenues and against EBIT reported. So that would reduce reported revenues and reported EBIT. We would adjust that for that in sales and EBIT adjusted, obviously. And I mean, in practical life, it probably is difficult to differentiate between shop visit costs for that kind of inspection or exchange program and normal work on the shop visit. So it could be that part of the, especially the shop visit cost, goes into the fleet management kind of for the single, for the individual airline customers, and as such, would then reduce the margin for the PW 1100 in the aftermarket. I cannot comment on the 100 basis points. That's an estimate Neil Mitchill gave on the call. I mean, we're gonna evaluate that ourselves in the coming weeks, and I think we will know more together with Q3 2023. That’s helpful. Thank you so much. And again, thank you for setting up this call. That's very useful. Thanks. We are now going to proceed with our next question. The question comes from the line of Ben Heelan from Bank of America. Please ask your question. Yeah, good afternoon, Lars. Peter, thank you again for the questions. First one for me is: you have talked in the past about going to around 25% of the GTF programming, the next derivation of the program. Do you think that that is still the right strategy for MTU? Is that still the right path to be going down, increasing your share of this program? And then maybe one for Peter. Peter, in those opening remarks, you talked about efficiency programs to try and offset the impact from the cash perspective. Appreciate very, very early days, but is there any kind of early indication how we can think about what you think you can save from the streamlined CapEx budget from an efficiency perspective? Thank you. So yeah, Ben, thank you for the question. Here at MTU, we don't change our strategy within two days. So the 25% were wisely chosen. And like I said at the beginning, I really believe mid- to long-term, the GTF will be a successful program. We still have more than 10,000 orders. We still will have 20-30 years to go on that program. And I have a clear view that in the next couple of years after this encapsulated issue that we are talking about now, we will have a successful life and in-service usage of the GTF. So it's natural that when there is a second generation of GTF, we want to be part of that program, huh? The strategy has been 25%, and I don't change that in two days. We'll see how we further develop on this GTF story, and then we'll say we either want more or we want less. Yeah, I mean, regarding, I mean, the line was quite that dense, but I kind of got a comment on the efficiency program a little bit. So on the one hand side, I mean, we have that cash flow impact over the next three years, probably. On the other hand side, we have a huge demand increase over the next years. So we have to wisely prioritize, I would say, all of our CapEx budgets. We look on CapEx spend, try to push CapEx into the future, prioritize CapEx spending and so on, and the same is true for other spendings, like projects, IT projects, internal projects. So we really have to focus on the very, very important projects, which enable us to deliver on the customer demand over the next years. So there is some room for, let's say, compensation internally. But as I said, as I said before, we will also talk to Pratt & Whitney about methods to compensate us for the cash flow hit. That's super helpful. Thank you. Lars, just a quick follow-up. Is there a way going forward for you to be more involved in the quality and planning of these programs, almost to kind of socialize these risks away from just one manufacturer to the consortium? Is that something that could happen, or am I completely misplaced in thinking that that is potentially something that could happen? Well, I think in a positive way around that, so obviously these numerous issues now we have seen that would lead to even stronger collaboration in the future on all these kind of manufacturing and quality perspectives. So I would say yes, there's room for an improved, even improved collaboration on this one, but let's face it, at the end, every manufacturer and every designer has to go through its own audit. But we had examples in the past where we used a mutual audit program, and we'll put that on the discussion list now with Pratt & Whitney. Can we support? Can we help? Do we have competencies to support our partner in their topics, but also vice versa? Very clear. Thank you both. Appreciate it. We are now going to proceed with our next question. The question comes from the line of Milene Kerner from Barclays. Please ask your question. Yes. Hello, I hope you can hear me okay. Yeah. I have five questions, so if that's okay with you, I will ask one by one. So my first question, I wanted to see on the production of the HPT and the HPC disk that needs to be replaced. Is it all produced by Pratt, or are there other suppliers? They are produced by Pratt. Thank you. Related to this, in terms of the ability now to produce the HPT and the HPC disk constraint, given that you need to replace 3,000 engine, plus you need to ramp up on the A320 production, what's your view on this? Well, Milene, I didn't say we have to replace 3,000 engines. I said it's an inspection and/or replacement program, so, we might also decide to keep on going. If we find in the angle scan inspection, we don't find anything suspicious, then we might also decide to put that disk back again into the engine and bring it back after the complete life. So it's not--don't see it as a complete exchange program now. And obviously, RTX and Pratt commented already on the laser focused supply chain, how do you say, to ramp up both competencies and capabilities to do this powder metal disk that we're talking about. I believe, as I know, Shane, he's fully focused on achieving this ramp up and all the parts that he needs for this exchange and inspection program. Thank you. Then my third question is: how do you think about this 250-300 days turnaround time? Do you think it's appropriate? So if I would say yes, that's the best. Pratt is a very experienced OEM. We have a clear view on what's happening in our shops worldwide. And like I mentioned earlier, the pure turnaround time is currently roughly 150 days, sometimes less, sometimes more, depending on the work scope. I think we commented several times that already a high buffer for induction of these GTF engines, and this additional 600-700 will lead to even more congestion. It's our task now to think about a lean and a very smart way to bring in as many engines as possible into the shop, from the induction buffer into the shops, and then achieve a turnaround time that's way below these 150 days. That's a task that we have already started, but Pratt also as well, and the other shops in the network as well. So I would say this is a good base knowledge right now, and it needs to be our task to reduce it by far. I mean, that's the major level, obviously, to bring down AOG compensation. Maybe that helps the customer and helps us, no? Yeah, no, I mean, sure. I mean, it's the key metric here. So I just wanted to- Yeah. Understand, obviously, I mean, how can that change over time? Because, I mean, you're going to add 7 GTF facility and MRO facility in the next three years, and also, I guess, everyone will increase their capacity. Then I just wanted to see with you, because, I mean, obviously on RTX call on Monday, it was really soon. But do you have more color on what happened with Air China during the weekend? Well, this is ongoing airworthiness investigation. So no, I don't have more insight right now, but what we all believe, both Pratt, RTX, and MTU, that this is not connected to the powder metal issue that we're just talking about. And then, I mean, obviously, I mean, the question we all get is: what could be the impact long term in terms of your market share, and your pricing? Could you comment on this? What's your thoughts here? Hmm. Too early to say, Milen. This is a period of time where we need to go through this, and it's obviously very frustrating for all of us, obviously, including our customers. But the GTF, I repeat myself, the GTF is a very fine product. When it's under the wing, when it's flying, everyone loves it. The economics are correct. So, looking into the next 20-30 years, like I mentioned, I believe we need to be able to keep our market share or even improve it. But this is a long time to forecast it, and we are confident that we can at least stabilize it on the level we have right now or even improve it. So, I'm an optimist here. I mean, thank you so much for the call and for replying to our question. Thank you both. We are now going to proceed with our next question. The questions come from the line of Marc Zeck from Stifel. Please ask your question. Yeah. Hey, and thank you for taking my question. I've got a question on spare engines that maybe you can help me to understand if this issue will impact what you expect to sell in spare engines in 2024 and 2025. I would assume that selling spare engines to those affected airlines will reduce the compensation claims for these airlines. So will you or are you able to sell these engines then at market rates, or will they be sold at a, or likely to be sold at a discount, or for free? Or how do you think this issue? That would be my first question. Thank you. I mean, yeah. I mean, we have to balance the demand. On the one hand, as Lars commented earlier, I mean, we have to balance on the one hand side, deliveries. I mean, we have a tight supply chain. We have to prioritize demand to for Airbus to ramp new production. We have obviously spare engines, but you can use also, let's say, the material for to go to the aftermarket and use the material for doing shop visits. And so we have to balance that in the eyes of the fleet management program. So that is done by Pratt & Whitney. We have to deliver in all of these three channels I just mentioned there. Okay, I understand. But, if I then, let's say, talk about the 2025 adjusted earnings guidance, I would assume that, if you need to balance all this out, then that there would probably be a negative impact on the adjusted earnings for 2025, no? No, no. ... All right. Okay, then, maybe same question then would be on the wing-to-wing time. What is the risk that we see another increase in the wing-to-wing time? Is this just the next risk is just that congestion and capacity is just too tight? Or is there any, assuming it doesn't spread to other disk or whatever, is there anything that can increase wing-to-wing time even further? What should we say right now? I mean, we have the first 3 or 4 engines in the shop. The first one was a quick turn, so we don't really have a lot of experience. I would say this is a proper estimation of what's happening, and you know that the majority of the work of the shop visits will happen in at the end of 2023 and in 2024. So we will just have to get to know what's happening. But our network, MTU, Pratt and the other partners, we always found clever ideas how to decrease the turnaround time. So that's our scope, but I wouldn't say already we have a risk of increasing this number. We all work towards reducing it by far. Yeah, and I understand that, and, best of luck and much success in reducing the number that was all from our side. Thank you. We are now going to proceed with our next question. The question comes from Orlando. Marius Schmitz from ODDO BHF, please ask your question. Yeah, thanks for taking the question. It's just one on your rating situation. You are Baa3 at Moody's currently. Has Moody's implied to you already what it could mean for MTU? Because most recently, it seemed you would qualify for an upgrade next year. And so do you think they see this as a point in time issue, or do you fear downgrade there? Which would mean you would lose your pure investment grade status. I think to be investment grade across the rating agencies is quite important for MTU. So how do you see the situation? And maybe as a help for you, I think that Moody's was quite relaxed on RTX the other day when they issued a little paper on the situation. So do you hope they will treat you the same way, or do you think you could be temporary Baa1, at least for a year or two? I mean, we've got to have discussions with Moody's in the next days. So we don't want to give you a prejudice, but I'm quite optimistic that we can keep investment grade rating, yeah. Okay. Yeah, and thanks for that. We are now going to proceed with our next question. The question comes from the line of Danji Huang from DLW. Please ask your question. Hi, so just now you mentioned that the further recalls unrelated to, like, the Air China engine failure is not related to the powder metal issue. But we all know that the engine on that plane that caught fire was PW 1100, which is the one we are talking about today. So will we expect further surprises from RTX regarding further testings and recalls? Thank you. Well, Danji, I said earlier, this is part of the current investigation. From everything we know right now, we don't expect other surprises. We had a couple of topics in the past with the GTF, and I have reason to believe that this incident will be part of this incident we had in the past. But, like I said, the investigation, we now need to... We don't even have the engine in the shop. No, it needs to be mounted off wing. Then we get into the shop, and then we know what's happening around it. But I have no reason to believe there's an additional topic from what we have seen in the past. Thank you. We are now going to proceed with our next question. The question comes from the line of Zafar Khan from Société Générale. Please go ahead with your question. Thank you very much. Good afternoon, everyone. Could I please just seek some clarification on these numbers of engines? 'Cause, you know, we've heard 600-700, we've heard 1,200, 3,000. How many engines will need inspection over the next few years, and how many engines will need heavy shop visits? Can you help me understand that, please? Well, I believe the figures are quite clear. So, we are saying, Pratt said, we said that 3,000, around 3,000 engines have at least one part made of ME16. So naturally, all of these engine need to have some inspection at some point in time. But obviously, there have been a lot of shop visits already planned for these 3,000 engines. That is why we only believe there's a 600-700 shop visits increase. The rest were already planned in our figures and forecast, and I think I explained why we jumped from 1,200 to 3,000 because of a different. Yeah. Additional part that, Yeah, that, that I understand, the 1,200- Yeah -to 3,000. It was just the 600-700 incremental that I was struggling with. The other thing- Incremental shop visits, not engine. Yeah. Not engines. Yeah, yeah. Incremental shop visits. Okay, so what, what's the difference, incremental shop visit? Isn't one engine- No -visiting the shop, 1 shop visit? No, it's incremental. So, if you would have asked me, four to five weeks ago, then I would say- Yeah ... we have a certain number of shop visits planned for the flying fleet, yeah, in the next three years. Now we have this ME16 powder metal issue, and with all the- Yeah ... know-how, and knowledge we have right now, we say this root cause activity increases the demand of shop visit by additional 600-700. So it's not like- Okay ... we say there will be additional 3,000 shop visit because 3,000 engines are affected. Yeah, yeah, yeah. Part of that, the majority has been planned already in the regular shop visits. Okay. And the HPT disks issue that came up on stage 7 and 8, does that affect every stage 7, 8 disk, or is it just those which have the ME16? 'Cause I think, Pratt was saying that each disk has its own serial number, so they know which disks have ME16. So- No ... how many disks would need? All of them. The clear answer is all of them. Now, we have a powder metal, Okay ... issue, and that Powder Metal- Yeah. Mm-hmm ... is used to produce IBR 7, 8, and HPT 1 and 2. So that is nothing to do with the serial number. All of them, at one point in time, need to be inspected. I understand the inspection. I'm just thinking about the replacement. Because Pratt was saying that some of these things, because the life limitation had gone down, when they come in, they'll just replace them, so that when they go out, they are then have a long life and don't need to come back again anytime soon. Oh, yeah. So, um- This is the optimization we are just currently- Yeah ... thinking about. I understood- Ah, I see. ... that we have a life limitation of, Yeah ... no, sorry, of life limitation of 6-7, 5-7 thousand cycles somewhere. We have a retep- Yeah ... repetitive inspection interval from 2,800 to 3,000 cycles. So for me, mathematically, you could do one inspection and then put the disk back again in the engine and then pull it off after the second inspection interval, which comes in another 3,000. Let's make the numbers easy. 3,000 and 3,000- Yeah ... gives the life limitation of 6,000. Yeah. If we have, and that is our plan, enough, disks to replace them at the first shop visit, then obviously they have a full life, and this is our ambition and our objective: to give the customer, to give to the customer an engine that is certified for full life and hence can fly for the next, years or decade. Okay. Now I understand you make the HPC stages one to four. Is that correct? Yeah. So whose disks have you used in that? Are they supplied by Pratt or somebody else? What do you mean? The disk seven and eight is only coming from Pratt. No, I mean, we produced our blisk ourselves. Yeah, we produce one to four and even five and six. Part of that, we produce in our facilities. Okay, but where does the powder metal come from? It's not from powder metal. It's titanium. Titanium or nickel- Oh, okay ... depends on the stage. So, the- One to four is titanium. five and six is nickel. And then seven and eight are powder metal? Yeah, because it gets hot, hot and Yeah ... lower pressure. Yeah. Yeah. Yeah. Okay, that's very clear. I must apologize. I was a bit aggressive with you guys in the last call, but it was just, I was very frustrated that, you know, this was nothing to do with you, and you were having to bear such a big cost. Interestingly, you might be pleased to hear this, that in the Pratt call, a lot of the U.S. analysts were asking Pratt if the RRSP partners, the 49%, would cough up their share. So, all is not lost, so there's still hope, I hope. Next, suffer. Okay. We are now going to proceed with our next question. The question comes from Miro Zuzak from JMS Invest. Please ask your question. Yes, good afternoon, gentlemen. Can you hear me? Yes, loud and clear. Thanks for taking my question. I have a couple. The first one would be, is the overall burden for you, depending on the share of actual shop visits done by you? So if you do more than 80% of this extra shop visits, will the burden be lower, or does it depend on that in any way? No, on the one hand, just answer your first question. I mean, on the one hand, we have out of the RRSP contract, we share 18% of all, or we would share 18% of all program-related costs. That's the one side. On the other side, in our MRO shops, we obviously do more compared to the 18%. So we'd rather to move, let's say, 25%-30% of the shop visits. If you would do more shop visits for the PW1100 with the right commercial terms. It helps to mitigate slightly the burden we have, but only slightly, yeah. It's a tiny portion. Okay. Second question. I think $6 billion-$7 billion, they are based on this, lead times of 150 days, according to Pratt & Whitney for- Yeah, lead time 252. Wing-to-wing time, 250-300 days. That's what the wording, no? Exactly. Now, I mean, there might be a learning curve. You have mentioned it before. You said 100 to 150. Obviously, this has a huge impact on the aircraft on ground penalty payment that you need to pay. Now, if you take the full P&L hit of EUR 1 billion in Q3 this year, and you have a learning curve, and the cost will be the actual burden will be lower than the EUR 1 billion, that would lead then to additional revenues and EBITs, right? Going forward. Yeah. I mean, if we would—I mean, whatever we book in Q3 is obviously an estimate and subject to a re-estimate. I mean, we learn over the course of the next three years, obviously, how things develop. And if we would do better, obviously, and finally come to the point where we can really, we are really very sure that the actual costs are lower, we would obviously then reduce the liability or the accrual. But also, I mean, once as we have adjusted for that number in Q3 2023, we would also adjust it the other way. So, it wouldn't help even adjust it. Yeah. Okay, very clear. Let me, let me be, again, specifically, clear on the, on the turnaround time. The, the number given by, by RTX and, where we are right now is wing to wing. These are the, the 200-300 days. When I said 150-ish, is the, the turnaround time in the shop. Once we started with the engine, and we deliver the engine back to the customer. Induction to delivery. So what is on top of that is waiting time. Clearly, we are on the path to decrease that pure turnaround time in the shop. That's a learning curve, and if we would have unlimited capacity available, we would decrease it to probably 100-150 days. That was my message. Now we need to see how much capacity is available and how, by how much can we reduce the right now standing 200-300 turn days in turnaround time, wing to wing. Okay. A question regarding the AOG payments, the next one. What are the modalities of these payments? Is this like a daily charge that you have to pay if an aircraft is on ground for one day, or how does that work exactly? I mean- Some commingling with, you know, like, shop visits done at no cost, I don't know, left pocket, right pocket, or if it's just at a charge, the aircraft is on ground, you have to pay, or the RTX or IAE, you have to pay. I would say that, I mean, that is a question you would have to ask RTX, but, I mean, there are different ways, obviously, to compensate the customer: aftermarket credits, daily rate for aircraft on ground, covering of leased-in aircraft or whatever, to replace the aircraft on ground. So there are different buckets or different ways. So it's a mixture, typically a mixture of both and very customer-specific, yeah. Okay. Then the next one, if, like, the major part of the overall cost is AOG payments, and, like, the waiting time is roughly half of the time needed for the turnaround times, does this impact your capacity planning going forward? I think your current shops are not fully utilized yet on the GTF shops. Does it... And in which ways does it impact your capacity plans going forward? You probably might be very, might have a very high interest in reducing the wait times. I think we have mentioned or commented that earlier already. We are now balancing the need that we have on an independent MRO with the need we have on the GTF. And yes, we might have, and we do have some capacity available, and this is discussion now with Pratt & Whitney for the right commercial terms. We slot in more GTF, and obviously, we have also a responsibility for the program. So these are favorable discussion we have with GTF right now. On the other hand, we need to respect the contracts we have with our independent partners. That is a balancing act that we are currently doing for the weeks and months to come, and potentially then we are obviously increasing our worldwide capacity as we speak, and that should enable the situation to a positive trend in the years to come for both independent and GTF customers. Okay. And then the last one is probably the most difficult one. Can you please explain how this cost is exactly booked on which, in which entity? Because I'm struggling a bit. We're talking about cost. Typically, we take provisions or, like, future costs. Typically, one might take provision, which would not impact revenues, but both RTX and you, you talk about impact on revenues. Can you please tell me, and also you mentioned before something about provisioning or accruals that you make. Can you please explain exactly how this is going to be booked? ... If I told before that we have not yet finalized our discussions with Pratt and also not with our auditor. So I can tell you what might happen or what possibility is, that we book a so-called refund liability. So I mean, in easy words, so when you get money from the customer, you book revenue, but when you pay back money or when you pay back money to your customer, you reduce the respective revenue. So the refund liability is booked against the revenue and translates directly, obviously, to the EBIT. So there's no difference. So if I book EUR 500 million refund liability, it reduces revenues by EUR 500 million and also corresponding the EBIT by EUR 500 million. That's the way the accounting mechanism works. Okay. And if you will actually have then this liability on the liability side of the balance sheet, you book it against revenues? Exactly. Exactly. You book a revenue, and that impacts then not cost of goods sold, but, but directly the revenue line, yeah. Okay. Yeah, one last question for me. You mentioned before that you have to negotiate the commercial terms about the circumstances that need to be given that you are extending capacities and so on. Is it fair to assume that these additional shop visits, they're gonna be... They will not dilute your margin as much as the GTF shop visits did in the past? Exactly. I mean, the conditions, the pricing commitment has to be in a way that it at least matches the independent margin we replaced by the PW1100 shop visits, and obviously can't come along with a lot of working capital. We would have a huge cash burden for the AOG payments, and obviously we want- we don't want to have additional cash burden by building up working capital for additional PW1100 shop visits. That is clear. Okay. Thank you very much. We are now going to proceed with our next question. The question is from the line of Charles Armitage from Citi. Please ask your question. Hi there, sorry. Just going back, these 3,000 engines is... I just want to be precise. These are engines that have powder metallurgy disks that were made between whatever it was, 2015 and 2021, and because of lead times and inventory, et cetera, they have hit more engines than one would think that were delivered in that. Is that correct? Well, the first part, yes. The second part, I doubt that because I mentioned the increase of the population came because we put IBR 7 and 8 into the game and into the suspected part list. Okay, but it's still all the things coming out of the plant, 2015 to 2019, sorry, 2021. 2021, Q3 2021. 'Cause one would have thought that the vast majority with the HPC and the HPT would be, they would have them both in because they were made at the same time. Okay, fine. Then going back to the compensation, I mean, the vast majority of the costs are compensation, and so it's a duration problem. How quickly can you get it done? Is that 250-300, the critical number, or are there other factors such as, are there other factors that can play a part? No, I would say the 250-300, that is the critical number. I mean, that drives finally- Okay. the number of aircraft on the ground, and that drives finally, the customer compensation payments, which represents 80% of the estimated cost. I mean, that is the major lever to bring that down, to reduce, to reduce, obviously, customer- I agree. disruption and the payments, no? Got it. Okay, thanks, sir. Thank you. We are now going to proceed with the last question. The question come from the line of David Perry from JP Morgan. Please ask your question. Oh, thank you. It's very kind of you to let me back on. Just one question as a clarification, and then one is a new question. Lars, I think you said quite confidently that the smaller GTF variants are not affected. I think you're referring to the PW variants on the C-Series A220 and the Embraer. I thought Pratt left that more open-ended on their call the other day, so I just wanted to check exactly you are on the same page on that. My second question, which is a completely new one, is just over the summer, we've had some very interesting updates and commentary on pricing in the aftermarket. You know, very big increases in price from Rolls-Royce, which seem to be sticking. GE and Safran have raised their prices in August. Can we assume Pratt & Whitney and its partners are doing something similar? Thank you. So, David, let me start with the first one. Obviously, the situation is very dynamic, but from what we know so far, and that clearly deals with the lower thrust and the reduced stress on the different parts. Currently, our opinion is, and shared opinion as well, is that the smaller GTF models are not impacted because they come back into a regular shop visit where we can see what's going on, so there is no incremental, no additional shop visit plan. On the second one, it's gonna be in the same ballpark. I wouldn't comment on the exact numbers, but yeah. So are you having a summer price increase as well? Sorry, what was that? Are we having a summer price increase? a summer price increase in the catalog price, which is what GE and Safran have done. I think it didn't happen in the summer. It's current- October. It's going now online in October. October. I'm not sure if every product is identical, but some, but the comparable to last year, the step-up should kick in from October onwards. October, now. All right. That's, that's great. All right. Thank you so much for letting me back on. All right. We have no further questions at this time. I'll now hand back to Mr. Thomas Franz for closing remarks. Thank you. Yes, so yeah. Thank you all for joining us, and thank you for letting us answer your question as good as we can. As Lars mentioned, it's a very dynamic situation. We'll keep you posted, as soon as we have good news to share, I hope. All the best. Stay safe. Bye-bye. This concludes today's conference call. Thank you for participating. You may now disconnect your lines. Thank you.