Welcome to the conference call on MTU Aero Engines AG H1 2023 results. For your information, the management presentation, including the Q&A session, will be audio taped and streamed live or made available on demand on the Internet. By attending in the conference call, you grant permission for audio recordings intended for publication on the Internet to be taken. The speakers of today's conference call are Mr. Lars Wagner, Chief Executive Officer, and Mr. Peter Kameritsch, Chief Financial Officer. Firstly, I will hand over to Mr. Thomas Franz, Vice President, Investor Relations, for some introductory words. Yes, thank you, and good morning, ladies and gentlemen. Welcome to our conference call for MTU's H1 '23 results. As usual, we start with a review and some key messages presented by Lars. Peter will start with a financial overview and a more detailed look into our OEM and MRO segment. After that, Lars will walk you through the recently updated guidance. This will end the presentation part, and we will open the call for questions. Let me now hand over to Lars for the review. Yeah, great. Thank you, Thomas. Also, welcome from my side, everyone. Let's start with taking a look at the latest trends in our market environment. According to the IATA, total passenger traffic reached almost 96% of pre-pandemic levels in May 2023. For the second month, actually, in a row, domestic air traffic outperformed 2019 pre-pandemic levels, being up 5.3%. Recovery in international traffic is accelerating, reaching 90.8% of pre-COVID levels in May. In its June forecast, IATA even expects the total passenger traffic to reach 88% of 2019 levels in 2023 and a full recovery back in 2024. This is supported by a constant strong demand despite economic challenges and supply chain constraints. We always talk about freighter. Dedicated freighter flights also remain strong, with 26% above 2019 levels, despite weakening cargo demand and recovery of available belly freight capacity. In June, the Paris Air Show has returned after a 4-year-long break. Airbus and Boeing concluded the show with record orders of over 1,000 passenger aircraft, the majority of them for narrow bodies. MTU also benefited from the positive sentiment and received orders worth more than $1 billion. With more than 400 engine orders placed, the GTF accounted for the lion's share of the Paris Air Show orders. The enormous demand in our industry for modern aircraft with better fuel efficiency is also reflected in orders for the Dreamliner's GEnx engine and for the GE9X powering the B777X. At the Paris Air Show, we were also in a position to update our guidance for the current year. Revenues and growth rates were left broadly unchanged. The EBIT adjusted expectation was lifted to above EUR 800 million, while free cash flow is expected to be at least above the amount achieved in 2022. I will come back to this in a few minutes. Further exciting news are also on the military side of our business. At the Paris Air Show, we signed a memorandum of understanding with Safran to create a 50/50 joint venture with the intention to develop a new engine for the European Next Generation Rotorcraft Technologies project. This project does not only complement our already established partnership with Safran on the next European fighter engine, but will also further strengthen our position in the European military market over the long term. Before I hand over to Peter for the financials, I would like to provide you some key messages on the GTF durability, which were also part of discussions of the Air Show. First of all, the GTF is the most fuel-efficient and sustainable engine for single-aisle aircraft. The GTF time on wing is already on a higher level than the V2500 at this point in its service life, while the durability is subject to continuous improvements. Pratt & Whitney, MTU, and the other RSP partner have introduced several technical upgrades since entry into service, and currently 60%, 60% of the GTF engines are already equipped with the latest technical upgrades. We expect that 90% of all engines will receive these upgrades in the next 2-3 years, and the GTF Advantage will provide further improvements. Even while we see the program well prepared for the future, we currently see the fleet in a more difficult situation. In combination with industrial execution challenges and relevant upgrades to be put into the fleet, we see several GTF-powered planes to be out of service temporarily. On top of these known challenges, an additional HPT inspection program, will put further pressure on airline fleets and our customers. Together with our partners, we are working on this topic to limit the impact on our customers as far as possible. The mentioned program targets a specific population of engines in the field that has been produced from Q4 2015 until Q3 2021. By mid-September 2023, 200 engines from the fleet shall be inducted into the inspection process.... Further engines, partially already scheduled for maintenance in the coming months, will also be part of this inspection program. This is certainly not a situation we want to be in, but generally, we are aware of the challenges, and together with our partners, we will ensure an efficient management of the situation. This inspection program will have an effect on our financial performance in the coming years. This will look differently between the impact on EBIT and cash. On the EBIT side, the cost for the inspection program will be part of our regular contract accounting, and thus be spread over a longer period of time. This results in a comparably modest effect on our profit expectations in the coming years. On the cash side, the impact is more concentrated and will form a headwind for our free cash flow number over the time of the inspection program. The program and its detailed implications are still under evaluation. There are no detailed numbers we can share with you at this point in time. The inspection program affects engine that have been delivered in the past. This is not a design issue. It's not affecting new engine or spare parts production. To make it clear, this will be a challenging period for the months to come. We certainly see headwind for our customers and us as a consortium. However, we strongly believe in the benefits of the GTF architecture. We continue to see the engine as a key revenue and profit driver in the future. Let me now hand over to Peter for the financials. Peter? Thank you, Lars, and a warm welcome also from my side. In the first half year, 2023, total group revenues increased 25% to EUR 3.1 billion based on growth in all business segments. In US dollar terms, revenues were up 24%. EBIT adjusted increased 40% to EUR 405 million, resulting in an EBIT margin of 13.1%. This high profitability was supported by an ongoing favorable business mix and cost benefits that prevailed longer than initially anticipated. Net income adjusted was up 45% to EUR 300 million. Free cash flow at EUR 135 million, working capital headwinds prevailed in Q2, while delayed deliveries of certain engines reduced the cash collection ability. Turning the page and jumping into our business segments. Total OEM revenues increased 31% to roughly EUR 1.1 billion. Military revenues were up by 7% to EUR 229 million. Commercial business revenues in EUR rose by 40% to EUR 832 million, and within that, organic OE revenues were up in the 30% range, which is in line with our full year expectations. Revenues were driven by higher GTF, GEnx, and Business Jet engine deliveries. A slightly increased IGT output was also supportive. The overall share of spare engines remained on an elevated level. On a quarterly basis, OE sales were up 20%. Organic spare parts sales in dollars were up in the low 20% range, driven by growth in all platforms, in particular, wide-bodies, CF6 GEnx, also GP7000, and also IGTs. On a quarterly basis, spare parts sales were up 10%. The very favorable business mix, combined with lower general cost at our German sites and a positive FX impact, resulted in an EBIT adjusted of EUR 262 million, with a margin improvement to almost 25%. Let's move to the commercial MRO segment on the next page. Reported MRO revenues increased 22% to roughly EUR 2.1 billion, while dollar revenues were up 20%. The strong growth came predominantly from GTF MRO, wide-bodies and freight engines, IGT and MLS lease engine business. GTF MRO growth was driven by a further ramp at MTU Shanghai and EME Aero. With the revenues, the GTF MRO share was roughly 35%. EBIT adjusted increased by 40% to EUR 141 million, resulting in a margin of almost 7%. The lower EBIT margin in H1 2023 is a result of a higher share of GTF maintenance compared to last year, where it was at roughly 30%, and furthermore, the margin in 2022 benefited from FX tailwinds. At this point, I would like to hand back to Lars for some words on our guidance 2023. Peter, thank you. Even recognizing current news, we reconfirm our latest 2023 guidance, which we published at the Paris Air Show, with an adjusted EBIT of more than EUR 800 million and a free cash flow to be above the previous year level of EUR 326 million. The outlook on revenue remained unchanged as well, at EUR 6.1 billion-EUR 6.3 billion, with growth expectations for the segments largely unchanged, with the exception of the military revenue outlook, which was increased from 10%-15%. Let me put this, before I finish up, a little bit in perspective. The GTF quality issue came as a surprise, we are in excellent collaboration with Pratt & Whitney, we will know more about it in the coming weeks. I'm very positive we will manage and overcome this, and I'm also confident about the architecture and the concept of the GTF. In the future, it will contribute largely to the profitability and growth for MTU. Thank you very much for now, for your attention. We're now ready to answer your questions. Thank you very much. We will now begin the question and answer session. If you would like to ask a question, please press star one one on your touchtone telephone. The operator will announce your name when it's your turn to ask a question. In case you wish to cancel your question, please press star one one again. Our first question comes from the line of Robert Stallard from Vertical Research. Please go ahead. Thanks so much. Good morning. Morning. Good morning, Robert. I have a couple of questions for you, on the GTF issues. First of all, on the high-pressure turbine recall, what exactly happened in the last 10 days or so that prompted the recall? Secondly, perhaps for Peter, perhaps you could walk through, you know, the financial structure of how this would flow through to you. I understand you don't have a final number yet, but just theoretically, how would the additional costs of these overhauls flow through to MTU? Thank you. Well, Robert, let me start with what happened. This is not a thing that occurred over the last 10 days. I mean, Greg and Chris pointed out yesterday, whether we started to see an issue on the V2500 five years ago. We had a view on the topic as well at the end of 2022. This is just a regular safety process that we update our calculation models. We were able to contain the population. We are seeing now with every shop with it, these discs are coming in, we see a picture of that situation. These contamination, these anomalies that we are talking about, they were inspected, and they will be fed into our calculation model, safety risk analysis. This was a finding we had over the last couple of days and maybe weeks, and that cost this inspection program that we launched yesterday. I mean, regarding the mechanics of the cost, I mean, we are an RSP partner in the PW1100 program, so theoretically, we would share 18% of the cost for that for that extra inspection program. So what we do, what we did now in H1, I mean, we did a rough estimate of the extra cost coming from that additional HPT inspection program. You know, we do contract accounting, so we put that extra cost into the cost sheets of our different aftermarket contracts, and booked in already in H1. That, I mean, that extra cost obviously reduces the margin of these contracts slightly, and we did already in H1 book with the slightly reduced margin. That extra costs reduces aftermarket profitability, and from there on, we calculate with that profitability. Obviously, as Lars mentioned in this statement, so the cash flow impact will be there when the cost occurs. I mean, we did a robust estimate. Obviously, at that point of time, it's difficult to estimate what the cost exactly will be. We based it on the V2500 inspection program 3 years ago, as Lars mentioned, but there is some volatility, obviously, in that estimate. I think we will know more in some weeks when we know what the work scope will be, what the turnaround will be for that inspection program. Not forget, I mean, there's a lot of intersection with our already planned shop visits in 2024. Now, Pratt & Whitney, and we contribute also our share, that's already the planning, how the shop visits will happen throughout 2024. Currently, we do not know that, yeah. Just to follow up, Peter, I mean, though, yesterday, RTX said a $500 million impact negative on the cash flow in 2023. Is that in any way useful to us when we're trying to calculate the impact on MTU, or is it still too early to know what your slice of that could be? That is definitely too early. I don't know how they come up with EUR 500 million. That's not a question I can answer. We did our own estimate. I mean, we, as you can read, we confirmed our free cash flow guidance for 2023 being above, at least on the level of 2022 or even maybe above. How RTX estimates their cash flow impact, that's not a question I can answer. Okay. Thank you very much. Thank you. We'll now move on to our next question. Ksenia Maslova from UBS, please go ahead with your question. Hi. Thanks for taking my question. Just two on my end. Can you please update us on supply chain situation and lead times in your shops, given the incremental GTF shop visits expected, what's your expectations on the parts lead situation? Secondly, on spare engines, it seems like the share remained elevated in Q2, and again, given the GTF situation, what are expectations in the second half of the year? I think originally we were expecting to see some normalization there. Thank you. Well, first of all, on the supply chain situation, we've been commenting that for a while, that the situation is improving. It's probably worthwhile to mention that. Because of this HPT inspection program, we don't see an impact on the supply chain, because as also RTX mentioned yesterday, the fallout rate after inspection is seen to be very, very low, about 1%. That for sure, gives not an additional supply chain constraint. On all the other factors, we see an improving situation with regards to parts availability, which at the end is also improving of our throughput and turnaround times in our shops. The picture is slightly improving, but nonetheless, this adds an additional burden, and this capacity needs to be created and found. Both shop visit programs, inspection programs, are running at the highest priority in our company as well with Pratt & Whitney. Spare engine, spare engines, I yet I have no visibility on this one. There has been no information on this one. That needs to be seen and discussed while we speak in this week. Sorry for that. Thank you. Thanks. Thank you. We'll now move on to our next question. Dave Perry from JPMorgan, please go ahead with your question. Yeah. Hi, gents. Hi, Dave. I was actually out of the office much yesterday. I feel a bit one step behind, so if I ask a question that's a bit annoying to everyone else, I apologize. Can I just ask, how many discs are needed to will need to be made to replace? I think I've read that 1,200 engines are being inspected. I'm just trying to understand. It's not correct. I just mentioned there's this is an inspection program, we anticipate that 99% of the discs that we inspect are good to go. That's why I said no supply chain issue on this one, because the 1% fallout rate can be replaced easily. It's inspection and not an exchange program. Okay, maybe this is an unfair question to you, 'cause you're not the analyst, we're the analysts. Having been out of the office mostly yesterday, and I see RTX's market cap is down $15 billion, yours is down EUR 850 million. There seems a disconnect between maybe what the financial market is worrying about and maybe what you're suggesting. It's a very hard question for you, but what is it you think the market is extrapolating here that we might be misunderstanding as you see it? I mean, is there a potential financial cost here that could be significant? Because that's what the financial market's assuming. As you say, you guys are the analysts, but, let's state maybe I was also surprised about the big hit yesterday, on Raytheon and MTU. Especially, while seeing that not everything has been clarified and the financial impact is not yet calculated. We need a couple of days and weeks maybe, but I was surprised that both of us, we were hit that badly. Like I said, I'm still very positive. The GTF is the architecture of the future. It will generate profit and growth. We just have to bridge this time now for the duration of the inspection program. Okay, just the last one, maybe it's more for Peter. You have some provisions on your balance sheet, warranty provisions. They've come down quite a bit in the last few years as you've used them. I think it's about EUR 200 million now. Do you think you have enough provisions for what this problem may be, and would that include any potential compensation to airlines? I mean, I wouldn't strip down the cost for that inspection program in, let's say, in shares or something like that. I mean, we have taken a view on the cost for that inspection program. We have put them into our cost estimates. As I said, we have reduced the margin we book for the PW1100G-JM spare parts, that's what we technically do with every spare parts we deliver into the consortium. We book a provision for the future, let's say, shop visit costs, we also share according to our program share. That's the mechanics, how it works, we continue to do so with updated estimates now coming from the fleet inspection program. Airline compensation, is that over and above the margin assumptions, or is that part of it? It is part of it. It's part of it. Okay. Part of the total cost estimate we envision for that, fleet inspection program. I won't give you a number right now, David. Well, let me try one more, if I may, then I'll let someone else have a go. I mean, you've been quite bullish in the last, up until yesterday, in recent communications. It's mostly been good news in terms of your guidance, and you've talked about the OEM division being well set for a 25% margin. Do you think that is still possible given the latest news, or is there a change in that view? No, I think the reaching the 25% margin is still doable. I mean, as I said, I mean, we have at H1, and we have already used the reduced PW1100G-JM margin. As I said, we have the 25% in our OEM segment. Over the next few years, you would still believe that is what you're aspiring to and could realistically do? That is still our target, and we will reach that. Thank you. Appreciate it. Thank you. We'll now move on to our next question. Ben Heelan from Bank of America, may we have your question? Yeah, morning. Thank you for taking the question. I have a few more to follow up, I think on Rob's questions on GTF. First of all, it doesn't sound like you expect this to impact your deliveries of GTF to Airbus, but just wondering if you can confirm that. I'm just worried that are there going to be more engines that need to go into the spare engine pool to help manage the disruption of the fleet? If you could confirm that. Peter, you said that you have made an assumption in terms of what this is going to cost. Can you actually tell us what that assumption is? I think I've tried to work it out in the back. I think it's kind in your refund liabilities maybe is how you think about it. If you could just tell us what you're assuming that's gonna cost, that would be helpful. In terms of airline compensation, so it does sound as though you do anticipate that airline compensation is gonna be a part of this. Is there any context you can give in terms of maybe prior issues that you've had with the GTF, and so we can try and size what that compensation angle can be? Because obviously the fleet is going through a lot of issues prior to this anyway, so this is gonna put a huge amount of strain on the airline. I'm assuming the compensation cost could be quite large. Just any help around that would be helpful. Thank you. Let me start with the first question. This is Lars. As you, as we pointed out earlier, this inspection program per se, will not have an impact on OE deliveries to Airbus because it's an inspection program, and once these disks are inspected, reinserted, these engine go back into the market. No supply chain pressure on this one. The other discussions probably behind the scenes between Pratt and Airbus on the OE deliveries, I cannot comment. This needs to be addressed and answered by Pratt & Whitney. I mean, regarding costs, that doesn't make sense to put a number out there. I mean, the assumption is very dependent on what you assume, what is the turnaround time of that inspection. If you only do, let's say, the inspections or the work scope, the work scope is still worked out. Pratt & Whitney does it together with ourselves. Before that is not clarified, it doesn't make a sense to put numbers out there. I mean, you have to give us some weeks until we worked it out together with our partners. I mean, we have made a robust assumption, yes, but it's still, I mean, it's a bandwidth on what is the actual outcome of that. Today, I wouldn't give you a number on that one now. Okay. Then a quick follow-up, obviously, you talked about kind of 1,200 inspections over the next 12 months, or Pratt did yesterday. How are you gonna find the capacity to do this? Because, you know, the narrative, I think, around MRO has already been the backlogs in these MRO shops are quite full. There have been labor constraints. It's been hard to find people. Are you realistically going to be able to do 1,200 shop visits on top of what is already quite a stretched situation around MRO? Well, also, let me put that into perspective. At least for MTU, we didn't talk about labor constraints in our worldwide maintenance shops. Secondly, this 1,200 is not a net view on additional shop visits. We expect a big portion out of that number, it needs to be understood. A big portion out of that number will come into a shop visit anyway, in the next 12, 9-12 months. The final logic and logistics behind that is still being worked out, but it's not per se and on top number. Then from what we know today and what we expect today, there is no testing needed afterwards. We can have a look on free capacity worldwide and not necessarily being around the test cell. There might be some opportunities for us, but also for Pratt, us as a consortium, to find industrial capacity for the shop visit. Obviously the question is, where is the labor coming from? You need to give us some time to work on that. The teams are working on that one slow down as we speak. Okay. Okay, super helpful. Thank you. Thank you. We'll now move on to our next question. George Zhao from Bernstein, please go ahead with your question. Yes. Hi, good morning, everyone. Good morning. On the free cash flow again, you know, if you can't put a number on the GTF impact, you know, how are you comfortable reiterating the free cash flow guide for this year? I'm assuming the guide takes into account some impact later this year. Any color on that? Second one, spares. 10% growth in Q2. You know, previously you called out some supplier challenges to the V2500 leading to softer growth. Where do those challenges stand, and could we see some catch up in H2, given that, you know, the flight cycles for the V2500 remain strong? Thanks. ... I mean, regarding cash flow, I mean, cash flow is obviously a volatile number. There are a lot of elements in the cash flow, which you can manage, you know? I don't know exactly today what the working capital at the end of 2023 will be, obviously. There are a lot of head and tailwinds regarding free cash flow. I mean, we, as I said, we have done our estimate regarding the cash impact into 2023, and we think we can manage the additional burden with other positive effects. There are a lot of levers you can take: reduce CapEx or cost, receivable collection, prepayment. There are a lot of levers you have in hand to cover the additional cash out for that inspection program. As Lars said, I mean, it's not gonna be a big working capital hit because the fallout rate is in the magnitude of 1%, so there is no, let's say, you do not have to provide extra working capital or so for the inspection program. If I understood correctly, the supply chain question on V25, that is dealing with one of our suppliers that had a big fire in the first quarter of this year. It's probably too early to assess a very positive tailwind, but we are certainly better than we expected on our recovery path. All the activities, different sources, but also the re-ramp-up of this facility, is showing a better trend than we anticipated, and that hopefully will be beneficial for the V25 situation. Thank you. We'll now move on to our next question. Chloé Lemarié from Jefferies, please go ahead with your question. Yes, good morning. Good morning. Thank you for taking my questions. Just, I just have 2, if I may. Shifting gears a little bit, and going about the spare parts. You obviously had to slow down in Q3, so I was wondering if you could share a little bit, your level of confidence, in terms of the acceleration, you're expecting, for Q3 and Q4, and which programs, will be driving this? The second question is on the comment you made on CapEx, potentially slightly lower CapEx to offset some of the GTF headwind to free cash flow. My understanding was that Raytheon was facing actually some slightly higher CapEx on the back of this, MRO tooling and potentially investment in spare engine pool. Could you share with us, maybe a little bit more on what you're seeing on the CapEx side for the GTF on your end? Thank you. Regarding, regarding spare parts, I mean, spare parts growth rates are always a bit volatile, and it's more due to the fact that, more due to the fact that the comparison base in Q2 2022 was higher. It's not that, let's say the absolute number of spare parts goes down. Now in H1, we are in the magnitude 20% growth rate, and we envision, I mean, the full year expectation is a 20% growth rate for spare parts, and we envision more or less the same level of growth in the second half year. That's, there's no disruption in spare parts sales or something like that. I mean, regarding CapEx, I mean, we're gonna look on CapEx, not necessarily, it's not only for that inspection program. I mean, let's see how the work scope is and what we need on extra tooling or extra. It's not, I mean, the CapEx for the inspection program will be a limited number. It's not, that is definitely managed. I mean, we have a CapEx budget in the magnitude of EUR 400 million annually. That is, in comparison to that, it's a tiny number, yeah. That is, we're gonna look on other CapEx spendings. Obviously, if we agree with Pratt & Whitney that we do X, Y% of that inspection program, we have to invest into CapEx. Sure. On the one hand side, that will be compensated somehow. On the other side, as I said, compared to the total budget, it's a tiny number, yeah. Maybe just a follow-up. On the total CapEx that you're spending this year, maybe could you share how much goes to the MRO network? to the MRO network, that's roughly 25%, so in that range, in the EUR 100 million-EUR 150 million range, that is the MRO CapEx, yeah. Thank you very much. I mean, that is CapEx for MRO facility. It's not building up, new MRO sites or so. Yeah, understood. Thank you very much. Thank you. We'll now move on to our next question. Phil Buller from Berenberg, may we have your question? Sure. Hi. Thanks. Good morning. Hi. Sorry to labor the point, obviously a question on the GTF. I guess, given that you and Pratt have known about this risk for years now, I don't understand why we're surprised by Pratt being able to share a figure yesterday, or why we don't have a very clear view of what the cost of these inspections and the fix would be in the event that this known risk was realized. Why is that not the case, please? Is the big unknown here purely in terms of the customer compensation and scaling that, and that's a figure which I understand you couldn't share just yet. I'm asking really because the market reaction, in share prices feels like a lot of the concern is around there being a control or a management issue, if we can't put a clear number on this known risk, as opposed to it just being a historic quality escape issue. Thanks. Well, that's difficult to answer because I wouldn't agree to say we've known the risk for years. Again, I think I mentioned that several times today. We've known that the issue exists, but we've not seen, you know, a deterministic approach to analyze the life the possible life of these discs. That really came in with new calculation methods, updated calculation methods, in the last couple of days, maybe 10 days, maybe two weeks. Clearly no issue known in that magnitude for years, so I would disagree. And now we are working on the work scope. The work scope will define the AOG situation and the impact on the customers, and we don't have a figure yet. This needs to be tried out. We need a couple of days. I'm fully in line with the Pratt message that we cannot give detailed figures. It doesn't make sense to give a rough order of magnitude and then to call back in a couple of days. That's all I can say. Okay. Thank you. Thank you. We'll now move on to our next question. Zafar Khan from Societe Generale, please go ahead with your question. Thank you very much. Good morning, everyone. I have a very basic question. Forgive my ignorance here. The risk and revenue sharing partnership, the agreement, I know it's confidential, so unfortunately none of us can have access to that. What the discussion is suggesting is that one partner can make big mistakes, and then everybody suffers proportionately. Am I correct in understanding that? Here, the high pressure turbine supply issues solely with Pratt. MTU do not supply that part, yet you will bear 18% of the cost, and I imagine also the liability with the consequential liability with the airlines. Am I correct in understanding that? Well, Zafar, we are in a great collaboration with Pratt & Whitney, these are the terms and conditions of a risk and revenue share. Yes, you are correct. What incentive is there for any of the partners to make absolutely sure that everything is 100%? There doesn't seem to be any consequence. Let's say I were a partner in this relationship, and I'm trying to save my co- We, as a consortium, we try to build, develop, and build the best motors, the best performing motors ever. There is no hidden agenda. Obviously, the consequences are what you are describing, and we're gonna talk to Pratt about this, obviously. The intention of a consortium, of us as a consortium, is to build a high-performing motor. Point, huh? Yeah, I mean, this is like communism, isn't it? Everybody works hard, but, you know, the concept is a good one, but what is the check and balance here? I don't understand this. This is looks like a Pratt problem, yet you are your shareholders are bearing 18% of the responsibility for this. I don't understand this agreement, and respectfully, I don't know how to describe this, but it's pretty crazy kind of agreement saying, you know, "You can go ahead and screw things up, and I'm going to bear the consequences of that. Situation these days, you know, but I'm not gonna commenting on our collaboration agreement. This is a great partnership. Would you agree with me that it raises this question in terms of, you know, the equitable basis there for an agreement? It's one partner can be at fault, and everybody suffers. Well, it could be, It could also be the vice versa, that MTU-. Well, I always look at the downside and upside looks after itself. Here we've had downside. I think there have been three issues that Rob highlighted in the Raytheon meeting yesterday, and this is the third issue. Anyway, I'm very surprised. It'd be very helpful, I think, to all of us looking at MTU to get better understanding of what the main elements are of this RRSP. I know it's confidential in its nature, but yesterday I had a lot of clients calling up and asking if you guys are on the hook to the same extent that Pratt's were, and I wasn't really in a position to be helpful to them. I think it will help us to understand this agreement better, maybe Peter could do a teaching at some stage. This is an appeal, please, you know, help us. We should do that today. These are the terms and conditions since 20 plus years. Yeah, we're certainly not discussing on the framework of this collaboration agreement today. Maybe we have a separate session, or you can talk to Thomas on this one. Let's not do it in this conference call, please. Okay, that's fine. Then I have just a question on the OEM segment, please, which is the 24.7% margin in the first half this year. I think in the note you say it's a mix of business mix as well as under proportional cost in the first half. How much was that under proportional cost? Can you give us some idea of year-on-year, what the difference is and what the margin would have been if that under proportional cost hadn't been around? Well, roughly EUR 20 million or so, in that ballpark. EUR 20 million? Yep. Okay, that's very helpful. Thank you. Thank you. We'll now move on to our next question. Tristan Sanson from BNP Paribas Exane, please go ahead with your question. Yeah, good morning, gentlemen. Thanks for taking my question. A few quick one. The first one, I understand that the 1,200 shop visits we're talking about in the inspection process are accelerated or anticipated shop visits that were due to open for most of them in the coming years. Which mean that on top of the inspection, you will have to complete a number of Block D upgrades and other maintenance events. Does it create any supply chain stress here? Or can we consider that this part is gonna be totally manageable for you, securing the right part on top of the HPT disk? That's the first question. Second is very simple. Can you put a number today on the total contingencies and provisions that are covering the GTF on the balance sheet? I'm not so sure about where to look at. Third question, between the EBIT adjusted and the EBIT reported in Q2, you have two one-offs that are netting each other. One is EUR 22 million headwind from litigation. The other one is EUR 21 million tailwind from provision release related to Ukraine. If you could give a bit of color on this, that would be helpful. If I can squeeze in a fourth one, when do you think you will update the market on the reason of the inspection? You say it's gonna take a few weeks to get a better view. Should we wait until Q3 reports, or you think together with Pratt, you can come up with some more details there than that? Many thanks. Well, let me state again, I begin and then hand over to Peter. First of all, the reason of this inspection, we have mentioned now several times. Brett did it yesterday. We did it this morning. It's a material anomaly. We've updated our licensing model. This is the reason why we're now cautious and inspecting these disks. Again, on the shop visits, these 1,200 neither additional shop visits, nor are they shop visits that are already expected. It's kind of an in-between solution. We have to do the logistics around that. From the figure 1,200, there will be a certain amount of shop visits that are on top, and this situation is going to be analyzed, and the supply chain out of this topic is not an issue. Again, the disk will be inspected and then will be reinserted into the engine if everything is fine, follow-up rate to be 1%. On the other supply chain issues, on the Block D, et cetera, this is normal business as we do since several months and years. I told you, supply chain is generally improving. We should see that in shortened turnaround time, and then improving the AOG situation towards our customers. I mean, regarding balance sheet positions of the PW1100G-JM, we don't split them out by pro-program, but I mean, it's obviously part of the major part is the PW1100G-JM obviously creates a significant part of our refund liabilities on the balance sheet, but that is created in a regular process. I mean, as I described it before, with every spare part we deliver into the consortium, we put up a provision on the balance sheet for the future aftermarket cost, for basically the shop visit cost. It's built up by selling spare parts, and it's consumed by receiving the billings from the aftermarket network. As the market grows, obviously, or the aftermarket grows, in general, that balance sheet provision is built up net. Part of the EUR 1.95 billion at the end of June? It's part of the refund liability, yeah, and it's. Yeah, the total were EUR 1,000,000,093. Yes, it's total, but it's obviously consists of a lot of refund liabilities of different program, but the major part is, but it's not 90% of the refund, but liability, you know? Oh, very, very clear. It's the big. Obviously, it's the biggest program. It's, and it creates most of the, or significant share of that position, but it's not, let's say, 80% or 90% or so. Regarding you asked about the adjustment, and these are two points. The one, Ukraine adjustment is the following. We had last year, I mean, we leased in four engines from lessors, and we leased these engines out to Russian operators. Obviously, due to the Ukraine war, you don't get the engine back. We compensated our lessors for the loss of these engines in Russia, and we took the hit last year, so the EUR 20 million and adjusted it in a positive way. We adjusted the burden. This year, but these engines are, we have an insurance coverage for these engines, but we couldn't book that insurance claim last year. I mean, under IFRS, you have to have an unconditional cover letter from the insurance company, otherwise you cannot book the insurance claim into your account. We hadn't, didn't have that last year. Now we have it. We booked the insurance claim, so it's part of the other operating income. It's a positive contribution to other operating income, the EUR 20 million, and adjusted it backwards. No, it's the other way around compared to last year. Yes, clear. That's the Ukraine thing. The other thing, I mean, you might have followed the Raytheon call yesterday, or the Raytheon presentation. They had also that we have that Go First insolvency, that they are under Chapter 11, and in a, let's say, a precautionary move, we fully wrote off the net asset on our balance sheet. That were the EUR 22 million. That is an airline insolvency or credit risk, as you want to put it. We have adjusted that. Okay, that's super clear. Thank you, Peter. Thank you. On timing on communication? I mean, I think we are in the backseat. Normally, I would say in Q3, if Fred communicates earlier, then we would follow, obviously, yeah. Yeah. Okay. Clear. Okay, thank you so much. Thank you. Thank you. We'll now move on to our next question. Jorge Gonzalez Sadornil from Hauck Aufhäuser Investment Banking, may we have your question? Hello. Thank you very much for taking my questions. In fact, I have two. The first one is more of a clarification. Regarding the guidance for free cash flow, can you clarify, please, if you have already included these potential headwinds for the rest of the year, linked to the inspection, or if you still need to study the impact now and maybe adjust that later on? I'm especially asking this because yesterday, RTX, without specifying any number, yesterday's free cash flow for the year, for more or less $500 million. That would leave a small room, no, for your free cash flow target in the year, if I look the consensus for 2023. So it would be interesting to know that. Regarding the commented modest effects in PNL from these inspections, do you see the impact related to more visits, or you are already expecting to maybe move some of the part business or to lose some part of business for these potential replacements in the future, in the next few years? Thank you very much. The first answer is easier. Maybe I answered the question earlier. I mean, I don't know how Raytheon came up with the $500 million guiding. I think that guidance downgrade they did for 2023. Yes, we have taken an assumption on the cash flow burden. We have to bear in 2023, that's included in our view that we can confirm our latest guidance. Yes, it's included, yeah. I think I didn't get your second question, what really the question is. Yeah, no, I was curious, the impact in PNL. F rom these inspections, the future, because obviously- Yeah. I understand that the impact in free cash flow in 23 is related to these first 200 quick inspections. Later on, this impact that you are expecting is because you are expecting to provide some parts for this for the. I mean, not parts. I mean, as Lars Wagner said, I mean, the follow-up rate is expected to be quite low. If you calculate that 1% on 1,200 inspections is 12 parts, which really would have to be replaced. The amount of new parts that is really tiny. That's no extra stress for the supply chain. It's no extra incremental cost. Now we have to work out how many additional shop visits that really creates. I mean, we said before, there's a lot of intersection with already planned shop visits in 2024. This 1,000 inspections does not mean we have 1,000 extra shop visits. As we speak, I mean, the logistics are worked out, but the number of parts is not the cost. I mean, you have transportation costs, obviously, these engines are port. You have disassembly, assembly work, also might be some compensation for airlines when the aircraft is on the ground. These are the major costs, not so much the spare parts needed, yeah. Okay, I understand. Thank Thank you very much. Thank you. We'll now move on to our next question. Milene Kerner from Barclays, may we have your question? Milene Kerner from Barclays, may we have your question? Hello? Hello. Yeah, Milene. Hello, Milene. No, Milene, we just heard you. Oh, yes. Sorry. Yeah, now I can hear. Sorry, I had. Oh, okay. issue with my phone. Sorry about this. Yeah, good morning. Thank you for taking my question. I have two, please, for you, Peter. On the EUR 50 million of positive cost phasing benefit you had in Q1, could you tell us how much have reversed in Q2, and how much do you expect to reverse in the second half of this year, given that you have now the wage increase that are effective from June? Within the OEM segment, I mean, the first half benefited from the spare engine mix. What do you expect for the second half? I mean, the cost benefit has increased a little bit in Q2. I mean, we just spoke about EUR 20-25 million headwind we have for the half of the year. I mean, it's gonna, let's say, In H2, it's gonna rewind. I would say, EUR 10 million remind in Q3, EUR 10 million in Q4, in that ballpark. Yes, we have now the, we have now the wage increase since the beginning of June, at least in the German plants, not the international plants. That's more or less the pattern now. Our cost spending is a little bit shifted to the right in that year. On the other side, I mean, we're gonna have a strong H2 regarding military business, for example. I mean, we are now more or less half of our, let's say, at least half of our guidance, EBIT. We're gonna deliver again EUR 400+ EBIT in the second half year. The EUR 10 million cost headwind in the second half year is definitely manageable. Regarding spare engine, well, I think it's not only, I mean, it's not only the PW1100G-JM, it's also the GEnx program, for example. I mean, we have no clear visibility on that one, but I think it's gonna be a little bit lower compared to H1 2023, but not significantly, yeah. Thank you. Thank you. We'll now move on to our next question. Philip Buller from Berenberg, please go ahead with your question. Hi. Thanks for letting me back in. Just a quick question, if I may. You seem relatively confident in the scope being that 99% of these disks will be good to go once inspected or the replacements being limited to 1%. I guess, how do we get confidence in it not being 2% or 10% or some other number? Or is the fact that we're calling out these first 200 inspections, are they gonna be providing something of a sample set for the next 1,000 inspections, please? Thanks. First of all, these are figures we are receiving from our partners, Pratt & Whitney. I believe, like we discussed, these inspections have been done in the regular shop visits throughout the recent years. I would say this, the confidence should be pretty high. I'm not saying we're using the next 200 to come up with a potential fallout rate increase or decrease. This figure seems to be coming out of the recent years' shop visits. Okay. Thank you very much. Thank you. There are no further questions at this time, so I'll hand call back to the speakers for closing remarks. Thank you very much to everybody. Thank you, Lars. Thank you, Peter. Thank you for the plenty of questions. We're perfectly on time. Wish you all a pleasant rest of the day. For additional questions or remarks, just let us know. Bye-bye. Bye. We want to thank Mr. Lars Wagner and Mr. Peter Kameritsch, and all the participants of this conference. Goodbye.