Mtu Aero Engines Hldgs Ag

Good morning, ladies and gentlemen. Welcome to our conference call for MTO's Q3 2024 results. As usual, we start with a review and some key messages presented by Lars. Peter will start with a look on overall financials and more details on our OEM and MRO segment. Lars will continue with the latest update on the 2024 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.

All right. Thank you, Thomas. And also a very warm welcome from my side. Let me start, as usual, with a view on the market environment. Worldwide passenger traffic in August grew 8.6% year on year. Within that, domestic travel traffic rose 5.6%, while international traffic increased 10%. The Asia-Pacific and Latin America regions experienced double-digit growth, while other regions grew between 4 and 10%. As in previous months, strong ticket sales and consistently high load factors reflect sustained high demand for air travel. Cargo flights remained at elevated levels as it continues to benefit from rising e-commerce demand, particularly from consumers in the US and Europe, as well as ongoing capacity limitations in maritime transport. This strong growth reflects the favorable demand environment for air traffic. The demand meets a constrained level of new aircraft deliveries still suffering from supply chain challenges. As a result, older aircraft are kept in service longer than previously expected, resulting in lower retirement rates and a very solid demand for aftermarket services for these platforms. Limited MRO capacity and parts availability provides a solid base for price increases for future MRO services, spare parts, as well as aircraft and engine leases. So what are the effects on MTU? Lower delivery numbers of new aircraft are resulting in a reduction of new engine shipments to air framers. This allows an increased delivery share of spare and lease engines to customers. We have seen this already in the first half of the year and this trend continued in Q3, resulting in an ongoing favorable mixed effect on our EBIT line. MRO demand remains robust for mature engine platforms like the V2500, V2500, V2500, V2500, V2500, V2500, V2500, V2500, V2500, V2500, V2500, V2500, V2500, V2500, V2500, V2500, V2500, V2500, V2500, V2500, V2500, V2500, V2500, V2500, V2500, V2500, V2500, V2500, V2500, V2500, V2500, V2500, V2500, V2500, V2500, V2500, V2500, V2500, V2500, V2500, V2500, V2500, V2500, V2500, V2500, The spare parts business performed strongly in Q3, particularly for narrow-body and mature wide-body platforms, reinforcing confidence in meeting our full-year targets. Regarding the GTF fleet management plan, we are continuing the execution of the program in alignment with our program partners and are progressing in line with expectations. The output in new parts production as well as MRO output is improving. RTX further reported on the progress in customer settlements. Now 28 agreements covering 75% of the fleet are signed. Key factors to watch remain improvements in turnaround times, growth in MRO capacity and the availability of exchange parts. Pratt & Whitney is continuing to ramp up the production of these parts and we anticipate additional improvements through the coming quarters. And finally, Last week, as you've seen, we published an ad hoc statement with our strong Q3 key figures and were able to raise our earnings forecast for 2024. Our EBIT is expected to exceed 1 billion euros already in 2024, reaching our 2025 target a year ahead of our previously communicated outlook. I will provide further details in a few minutes. Let me now hand over to Peter for the financials.

Yes, thanks Lars, and a warm welcome also from my side. In the first nine months of 2024, we achieved adjusted group revenues of 5.3 billion euros, up 14% from last year. This growth was supported from all business segments. In US dollar terms, revenues were also up 14%. EBIT adjusted increased by 25% to 744 million euros, driven by a strong contribution from our MO segment and a favorable business mix effect in the OEM segment. EBIT margins stood at 14%. Net income adjusted was up 23% to 541 million euros. And free cash flow ended at 213 million euros. Ongoing supply chain here issues continue to put pressure on working capital also in Q3. Let's have a look into the business details. And let me start with the OEM segment on the next page. Total OEM revenues increased by 11% to roughly 1.8 billion euros. Military revenues were up 16% to 426 million euros. TP400 and EJ200 aftermarket and funded development work for the next generation fighter engine were the growth drivers in that segment. Commercial business revenues in euro rose 9% to almost 1.4 billion euros. Organic OE revenues in dollars were up in the low 20% range, mainly driven by higher GTF and IGT deliveries. As in previous quarters, we saw a healthy volume of spare and lease engines supporting profitability. Organic spare part sales in U.S. dollars were up high single digit. Main growth drivers were the V25, white-body platforms as the PW2000, and the GenX as well as business chat engines. EBIT adjusted in absolute numbers increased 19% to €444 million, resulting in a margin increase to almost 25%. The EBIT benefited from the strong growth in military revenues, a more favorable business mix in the new engine sales, and an increased volume of spare parts sales. Now, let's turn the page and move on to the commercial MRO segment. Reported MRO revenues increased by 15% to roughly 3.6 billion euros. US dollar revenues were up in line also with 15%. Main revenue drivers here were G90, the V25, GenX and CF34 and our Engines business. The GTF share was at 31% which remains slightly below our full year expectation of 35%. EBITDA trusted increased 35% to 300 million euros resulting in a margin of 8.4%. The higher margin was the result of a better contract mix in independent business and a lower share and material intensity of GTFMO. Furthermore, the strong results from our engine lease and asset management business continue to be very supportive on EBIT. At this point, I would like to hand back to Lars for some words on the updated guidance 2024.

All right. Thanks, Peter. And guys, as announced on October 15th, we updated our guidance for the year 2024. While the organic growth outlook as well as the free cash flow guidance are unchanged, we raised our earnings guidance for the financial year 2024. Adjusted EBIT is now guided to slightly over 1 billion euros. Our previous guidance implied an EBIT adjusted between 950 and 980 million euros. This upgrade was based on the strong development we presented in the Q3 results as well as the outlook for the remainder of the year. At our capital market day in 2022, we issued our ambition for 2025 with 8 billion of revenues and 1 billion of EBIT adjusted. 8, 1, 25. These challenging targets were well received by the market and being able to cross the finish line on EBIT adjusted one year earlier greatly demonstrates the potential of MTU, our teams, and the market we are in. And to put this into the right light, we achieved our absolute profit goal one year ahead of time. While some of the results are supported by trends that came more pronounced than expected, we are very pleased by this development. And to sum it up, MTU has taken advantage of all the opportunities the market offered and will continue to do so in the future. With the current tailwinds, we are heading into the future and will continue to benefit from the significant growth opportunities in our industry. Thank you very much so far for your attention and we are ready to answer questions.

Thank you very much. We will now begin the question and answer session. If you'd like to ask a question, please press star 11 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 11 again. We will now take our first question. Mr. Robert Stallard from Vertical Research, may we have your question?

Thanks so much. Good morning. Morning. Hey, Robert. I have two for you. First of all, on the timing of a GTF fleet management plan compensation. Do you see these payments moving to the right, but the overall total remaining about the same? And then secondly, on the spare engine mix, very strong year to date, but when do you expect that mix to revert to something more normal? Thank you.

mean peter here rob so uh i mean regarding the the payment schedule of the fleet management plan i mean you heard probably the the rtx call so they expect one billion of payment um for for the for the full year and we see it in a similar way i think it moves a little bit a little bit to the right if you look only into 2024 and uh 20 25 and 2026 that has to be seen how the exact allocation to the two years will be. But Neil Mitchell said, I mean, 2025, 2026, the payments will probably be done for the full provisioned amount.

And the mix on the spare engine, we would see what is the mix in the market, how fast, obviously, Airbus is able to ramp up its production. We are also laser focused on supporting their delivery stream. And whenever there's a potential opportunity, we go into the sales and leading market. That's great.

Thank you very much.

Thank you. We will now take our next question. Mr. Ian Douglas Pendant from UBS, please go ahead. We may have your questions.

Thank you very much. Firstly, on the spare parts sales, could you comment to what extent has improvements in the supply chain allowed for this result that we've seen here versus your expectations at the beginning of the year and the challenges that we saw? Has that eased up maybe quicker than you thought? And secondly, on the MRO side, can I just confirm that you're Contract terms have not changed in any way that allows this increase in profitability on the core maintenance work. Thank you.

I wouldn't attribute it to different conditions. As we said in our presentation, I think the strong leasing business, strong asset and leasing management business in our Netherlands facility, that was, I would say, the main driver And the contract mix and engine mix, that is also a small tailwind, but the major tailwind came from that part of our business. And equity contribution from Shoei was more or less flat year on year. So we reduced the losses from EME in the quarter slightly. So that is the effect we see on the equity contribution. These are the two elements I would say.

And regarding supply chain, I mean, I'm okay with the status of the supply chain. Am I happy? Not yet. But some of the parts have improved and recovered way earlier than we expected. And some of them will do so in the remainder of the year or even next year. The powder metal itself is ramping up very quickly. Is it enough? Not yet. But I see a good trend here as well. So in general, supply chain is improving to the better side.

Thank you. We will now go to our next question. Ms. Chloe Lamourie from Jefferies, may we have your question?

Thank you for taking my question. I have two, if I may. The first one would be actually on the leading business in MRO. Could you maybe share a little bit more color on this? So how much it represents in the total now? and maybe help us understand the scale of the year-on-year contribution to EBIT from the leading business. The second one was actually on the free cash flow guide. So at this point, you're obviously not refining the guide. So I was wondering whether you still have some high level of uncertainty on the compensation payment amount for Q4, or if it's got to do more with inventory and other line items. Thank you.

I mean, the latter. I mean, we have two moving parts, two big moving parts, obviously. So the situation in the working capital, so depending a little bit on part supply across all programs in the MRO, not only GTF, obviously, also all other engine programs suffer from not very extremely stable supply chain. That's the one element of volatility, and the other is the exact timing of... payments to airline. And so that is why we don't refine the guidance. The outcome can still be in a broad range. So that is special to that year, I would say. Leasing business, I mean, for the full year, we expect something in the magnitude of 500 million for that unit. So for the nine months, it was in the magnitude 350 or so. And we don't strip locations out EBIT-wise. But it has significantly above average margins compared to the average MO marginal.

Very good.

Thank you. I mean, what we do there is we buy basically used engines, lease these engines out to airline customers, our MO customers. And at the end of the lifetime, we typically tear it down, extract the used material, use the used material in our own shop or sell the used material to other shops or we do also to engine trades. So buying the engine, selling the engine directly. So there are all kinds of, let's say, asset management operations, which you find there and that's under the roof in Amsterdam.

And it's a very good business and we see that as a continuing very good business. So we are We're actually focusing how to grow this business in the future. And you can see now this year, it's a significant benefit and impact on our EBIT line.

Perfect. Thank you. Thank you. We will now take our next question. Mr. George Zhao from Bernstein, may we have your question?

Hi, good morning, everyone. I wanted to ask for some clarification on the OEM numbers. Year-to-date organic growth for the commercial OEM was plus 9. In H1, that was plus 16. Do you have the Q3 organic number? In either case, it seems like there was a huge gap between the Q3 organic and the 18% reported growth for commercial OEM. So what is driving that gap?

George, I think we have a slightly different baseline there from the growth numbers. I think that's something that we can clear up between the IRs from our side with you, if you want.

Okay, but what's the Q3 organic growth for the OEM business?

So at the end, the organic growth year-to-date is what Peter has illustrated. So low 20% range for the OE revenues and high single digit for the spare part. And how that comes up to the overall number, that's, I think, a detail we should clarify between ourselves.

A lot of different small elements in revenues play a role there. So it's a very detailed question, actually.

Okay, we can follow up on that later. Separately, on the increased EBIT guys, could you talk about kind of how you think about margin targets to the division? I mean, clearly MRM, last quarter you said 8% for H2, you're above that. How do you see that sustaining the currently elevated levels for Q4 and potentially into next year?

In Q4, it will be more or less in the same ballpark. A little bit below, I would say, maybe a little bit below below 14%. I mean, if you do the math, I mean, we're going to have a Q4 in the magnitude 2.1 billion euros of revenues. So we're going to see a pickup in even more MRO volumes. We're going to see also spare parts growth. We're going to see a strong military quarter, so a very strong revenue quarter, 2.1. If you take the midpoint of our guidance, 7.4 versus the 5.3 after nine months. And if you do the math, I mean, we expect something like 180, 190 of EBIT. So we are a little bit above the 1 billion euros. And that translates into a margin of, let's say, high 13%, 13.8, 13.9. But we have to see how, let's say, the spot rate at the 31st of December plays out and so on. That all plays a role how revenues come in. So yeah. So that's the picture more or less for the fourth quarter. And then going forward, I mean, for 2025, I think you should wait for the capital markets. They were going to speak about 2025 revenue drivers, so how the delivery skyline would be roughly from our point of view and so on. So there's nothing I think we should talk about on the nine-month call.

Okay, cool. For Q4, I was thinking more about by segment. That's the Q3 strong MRO margins. Could that be sustainable in Q4?

In that magnitude of 9%, I would say. Is it then 8.8% or 9.2%? Let's see. All right. It all depends. Let's say which shop visits you build, is there a high material intensity or lower material intensity? So it's not completely clear how the exact revenue number will be. But in the range of 9% is a reasonable estimate.

Thank you. We will now take our next question. Mr. Carlos Iranzo-Perez from Bank of America, may we have your question?

Hey guys, good morning and thanks for taking my questions. I actually have two. The first one, I just wonder if you could comment a little bit, how should we think about the MRO split in GTF versus independent? for 2025, and then any color you could share in terms of pricing dynamics on the independent demo road that would be really appreciated, please.

Revenue split in 2025, that's also something we will give on the capital markets day. So it will be in the range of 35, 40%. So in that ballpark, we're going to stay in that range. that ballpark, I would say. Pricing environment in MO is obviously a good one. We have a very high demand and limited capacity and in that environment, obviously, it's a very good environment for pricing. On the other side, I mean, we have obviously long-term contracts with our customers. So in a running contract, you have maybe escalation clauses, but it can directly increase prices, but for new contracts, obviously, and for contract extensions or so, you can renegotiate or negotiate higher prices. You're going to see that tailwind for some years.

Thank you. We will now take our next question. Please stand by. Mr. Phil Buller from Berenberg, may we have your question?

Hi, good morning. Thanks for the questions. I also have two, if I may. I'll go one at a time. Firstly, you've got some pretty favourable dynamics at the moment. You referenced the word elevated in the text, which makes sense. But do you believe that anything has changed or will change structurally in the minds of customers in terms of their planning for average retirement ages being structurally higher as they are temporarily? Or should we not expect that average age and the pricing dynamic to change? reverse at a similar pace as soon as the line of sight improves for Airbus and Boeing deliveries. I appreciate that might be a way off, but I was wondering if there's anything that you think may be structurally changing on that topic first, please.

A little bit of crystal ball, honestly, Phil. Maybe on the other side of the Atlantic, you see what's going on there right now. On the Airbus side, I know there's continuous focus on the rate increase. I would just say we benefit from that as long as we can, but I have no crystal ball to say how long is this ongoing. Plus, you know, we are ramping up our production line and our MRO facilities, so we continue to serve the market, and this is our task to benefit from every possible upside that we can see. I have difficulty to say yes on that question.

That's understood. Thank you. And then in terms of the competition, I guess when markets are this attractive, normally other people want a piece of the action. I'm thinking about the likes of Fortress, which feels like it's a growing threat. Maybe that's wrong. But do you have any thoughts on how the competitive environment is evolving and is there anything you're doing differently to gain share or fend off Potential new entrants, please.

Thanks Well, you know obviously in our industry there are only a handful of players who can do What we need to do and MCU is very well positioned and number one independent MRO provider So so we will benefit from that tailwind for sure and We have a look at what's happening at Fortress, and we're going to make up our own minds of how to react to that and eventually giving some light in the capital market day, but this is not a strategy call here. So we will investigate. We are investigating, but for now we feel quite comfortable with our number one position on the independent market.

Got it. Thank you.

Thank you. We will now take our next question. Mr. Ross Law from Morgan Stanley. May we have your question?

Yes, good morning, everyone. Thanks very much for taking my questions. So two from me as well. On the GTF share in MRO, so you've tracked at around 30% for nine months, but you've maintained the 35% expectation for the full year. That would imply a tick up to around 50% in Q4. So is that the right interpretation and what's driving that very large uptick in Q4? And then secondly, On spare parts sales growth in Q3, could you give us a split between volumes and price, please? And lastly, if I can just squeeze one in, delay of the 777X, what's the impact on your business? Thanks.

Delay 777X, I mean, we monitor the situation. Compared to our expectation, it's a small delay. I mean, ultimately, it will result in a slightly higher level of working capital as we've as we produce parts and modules and they don't find their way finally to the customer. So the time for delivery is higher and the level of our consignment store is slightly higher. So ultimately we reside in a higher level of working capital and a slower and later ramp up of revenues and delusion of margin, because also that program at the beginning will be slightly negative. Pricing, I mean, you know how spare parts price lists are increased. It's in the level of, let's say, net, let's say 6% on average, I would say, because there is so... The average, I would say, increase of spare parts prices, labor rates, maybe 2-3% upwards. And you can take the blend of both. So I would say 4-5% tailwind from pricing. And the rest is volumes. So GTF in Q4 will be above the 31% definitely, and it's both. So we're going to ship more engines, and that has to do with, let's say, the continued ramp up we have in our Shuhai facility and in the EME facility. So that ramps up throughout the year, and also we're going to build more engines with, let's say, a higher material content. So that will drive revenues upwards in Q4. Is it then exactly 35%? Let's see. It could also be 33% or 34%, but it will be higher compared to the nine months.

Okay, thank you very much for the colour.

Thank you. We will now take our next question. Ms. Milene Koerner from Barclays, may we have your question?

Yes, hello, Lars, Peter and Thomas. I also have two questions. The first one is on your R&D. The expense of material rising Q3, what do you expect for the full year? You had £178 million expense last year, and you have already spent 148 at the nine-month stage. And then my second question regards the GTF. Could you help us with some context on how much powder metal production needs to increase from the current level to satisfy all the demand you have from the airframer, but also in service without the need to balance on the MRO side?

That's it, Mylène. Tough one to answer. As you know, right now every new engine is fully equipped with unlimited discs and powder metal. The MRO still needs to increase and that ramp will continue over the next years as we're getting in more engines over the years to come. So powder metal, we said at the beginning, is an issue that travels through 24 until 26, most likely a little bit into 27. Then the replacement powder metal should be done. And there is a double-digit increase necessary, mid-double-digit probably, year over year until this year. And then it falls back into the pure OE lines. So it is an uptick that we need for three more years, and then it goes to normal level that is in line with our delivery rates. There's no powder metal issue afterwards.

Very helpful. Thank you, Lars.

Regarding R&D, so after nine months, we had 172 company-expensed R&D, and we expect something like 50, 60 million for the fourth quarter. So in total, let's say 220 or something in that ballpark. Depends a little bit on the timing also of the payments we do here in that respect.

Thank you, Peter. Thank you. We will now go to our next question. Mr. David Perry from JP Morgan, may we have your question?

Yes. Hi, Lars and Peter. Congrats on the numbers. Two questions, a little bit technical, maybe for Peter. One, just a clarification on the comment Raytheon made a couple of days ago when they talked about the one billion of compensation. Is that just their share or is that the total compensation for all the consortiums? So if it's a billion, you would have 18% of that. Just wanted to clarify that.

Right. I mean, that is our understanding that the 1 billion is the 100% share. And they obviously have a 51% program share and we 18. So the 1 billion is the 100% share. And initially, I think they gave a guidance of 1.5, and that is the indication that it moves a little bit to the right if you only look on 2024.

Okay. That's helpful. Thanks. And the next one, sort of conceptual, I guess, but if you look at your comments a few minutes ago on MRO margins, could be nine in the quarter, gets you to about eight and a half for the full year. you're sort of getting back to levels you were at pre-COVID. I know it was better in 2018. But you were around the kind of eight and a half, nine and a half. So you're back at those levels, but you're carrying, you know, 1.8 billion of GTF sales at basically close to zero margin, I think. So I'm just trying to understand what is it that's made the underlying sort of traditional MRO work much more profitable, if the question makes sense. And is there something temporary, or is this the kind of new normal for core MRO? Thank you. A tricky question.

I mean, we're going to talk about that on our capital markets. I mean, why we are, why the margins are so strong currently. I mean, we have that market situation. much more, let's say, demand compared to supply. So you have a favorable, let's say, pricing environment in the current year, I would say the current, let's say, 12 months, the last 12 months. We have a very strong, really very strong contribution from asset management and lease business. And we have also, I mean, that's a technical answer, also a strong equity contribution from Schuhe. I mean, Schuhe is a very profitable location. and equity contribution grew, and you know we have only the PW1100 portion of the revenues in our, let's say, MRO revenue line, and the EBIT, we take 50% of the net income into the EBIT line. So that also, let's say, gives a certain tailwind to margin. So on the long term, I think we have head and tailwinds, but we're going to talk about that in our capital markets today.

Yeah, okay, so if I could just try one more, and I know you don't want to give too much away ahead of the CMD, but is there any sort of the same question as Phil about are there any exceptional benefits right now? Is there a risk that you're going to tell us that MRO margins are at peak in 24 and they come down, or can we assume that they can at least stay at this level, maybe get better, if I'm allowed to ask that, ahead of the CMD?

At least it's not our intention, not our target, that 2024 is the peak level.

For MRO. For MRO. As in any other business, David, we have ambitious targets. And that goes up and not down.

All right. Look forward to the CMD. Thank you very much.

You also. Thanks.

Thank you. We will now go to our next question. Mr. Emerick Poulain from Kepler-Shiver, please, when we have your question.

Thank you very much. I've got some follow-up questions to David's questions on the MRO. What is the turnaround time today at this MRO, if I may ask? And then on the associate, you mentioned Suhai as a driver of growth, but if you look at the EBIT contribution from the associate, it's growing at a lower base year-on-year than the MRO top line. So what's driving the drag on the EBIT line there? And then on the OE side, you said the V2500 organic growth was a negative in the first quarter. It was coming back up in the second quarter. What was it in the third quarter, if I may ask as well? And then looking at the decision to cut the dividend in the first half, given the very strong progress you've had, so far and the ambitious target you have. Is there a reason to assume that you may actually resume the 40% payout sooner than later? Thank you.

There hasn't been a decision made regarding... I mean, we have finally canceled dividend policy for the 2020-2024 until 2026, so the time when we expect the payout for the fleet management program. And I would say... We're going to revisit the reinstatement of our dividend policy after we are above the hill, I would say. So more or less at the end of the fleet management program. So we have the lion's share of the airline payments behind us. And so we have a very good picture going forward regarding cash flow. regarding an ad equity contribution. I mean, in the P&L, if you look on the P&L of companies accounted equity, it's an increase from 66 to 74. So it's basically an increase. MLS is not an equity. So MLS is fully consolidated by 100%. It's not in the ad equity line. In the ad equity line, you find you find the lease call from the GTF and you find the EME joint venture with Lufthansa in Poland.

The other third question was about the turnaround time at MRO, but you need to specify because we have plenty of engine programs. Is it in general or is it one program in specific?

In general and how it's evolved throughout the year.

Well, I'd say, well, you know, this is, we have, I don't know, 20 programs in our facilities. I'd say overall, and this is in line with what we said all the time, you know, supply chain was dampening a little bit the turnaround times, but we're improving on every program. So the average time, I would probably say it's three-digit, and it needs to go down to ideally double-digit, high double-digit in overall across programs and the more specifically on other programs you can you can touch base with our ir if you're more interested but the trend is decreasing in turnaround times generally for all our shops thank you we will now take our next question mr jorge gonzalez said orneal from

Hawk, Hofhauser Investment Banking. May we have your question?

Hello, good morning. Thank you for taking my questions. Two, if I may. First one on the spare parts and the spare parts increase in prices. Can you confirm from which month these price increases were started? That would be my first question. And second one, and again, on the growth of the OE segment. I am wondering if you can give us more or less the growth in output in general of engines in the period in units, if possible, just to understand this growth, taking into account that normally the spare parts was understood to be like two-thirds of the revenue. Now, at the base, it... went up in the ninth month. Looks like you are selling more engines at full price. Could you give us some color here? Why the OE revenues are going up at this pace, taking into account the spare parts business in the ninth month were not as high as what you are expecting for the end of the year? Thank you.

The pricing is effective October 1st. Typically, we have something like a split two-thirds, two-thirds spare parts, one-third OE. That's a rule of thumb. That can obviously fluctuate. You have engine mix, obviously, small engines, large engines. That's why it does not make sense to add up deliveries. That gives you no information. If you have a quarter where you sell a lot of business jet engines, the revenue impact is lower. If you have larger engines, then the revenue impact is larger and so on. So to add up deliveries does not really make sense. And yes, I mean, the growth is supported by, I mean, spare engines come at lower discounts, so the revenue impact is higher. So that one spare engine is delivered has more revenue impact than one engine installed. That's true. But as a baseline, you can always say two-thirds, one-third.

Okay, but then let me follow up on this. So for the commercial engine, sorry, for the organic commercial spare parts, are you here including also the spare engines you are selling at full price or only the parts itself?

No, only the spare parts are spare parts, no engine. So the spare engine goes into the commercial OE.

But then we can say that you are selling more engines at full price and not at discount?

At a higher price, yes. Sure. Okay, but this is because... We mentioned that two or three times on the call that currently the share of spare and leased engines is higher than, let's say, a typical quarter.

Okay.

Yeah.

But maybe I have not – my question was not clear. So is there any trend on lower discounts in general for OEs, or that remains more or less the same, and it is just a mix of this quarter and maybe the year?

Yes, the latter.

Okay.

Thank you very much.

I'll go back to the line.

Thank you. As a reminder, if you'd like to ask a question, please press star 1 1 on the touch-tone telephone. The operator will announce your name when it's your turn to ask a question. If you wish to cancel your question, please press star 1 1 again. We will now take the next question. Mr. Olivier Brochet from Redburn Atlantic, may we have your question?

Yes, thank you so much and good morning, gentlemen. Thanks for taking my question. I would have a couple on leasing and on the portfolio. What is the asset value broadly that you have on your books for the leasing assets? And what's the average duration of the lease on the portfolio? That's the first question. The second one is, could you give us an update on the timeline for the advantage, please?

I mean, we don't disclose the asset value, but we have, let's say, a little bit more than 100 engines in our portfolio covering, let's say, especially the engines we have in our MO portfolio, because that is a typical exit. After you, when you purchase a used engine, you use the green time on the engine, and when you have flown down the green time, you induct it for teardown and use the used material. So we have a natural, let's say, exit via via used material a typical duration part we typically as i said by use the green type engines you typically have let's say three four years on average screen time on the engine so we have it typically three four years in our portfolio and then you um and then you uh tear it apart for the least engines as i said we have to also asset management so that can also mean you buy an end you buy an engine and sell an engine directly

Thank you. And the advantage, Olivier, is I would say we are on a final approach towards certification. And what we said throughout the last month is that entry into service will happen in the year 25. Don't point me and pinpoint me on the month, but it will happen in 25. Certification first, obviously, and then some months' time until entry into service.

And not a month, but a quarter or half Try my luck.

No, there are some variables also from the bureaucracy and from the authorities. I wouldn't. It's not the Q1.

Okay. Thank you for that. I appreciate it.

Thank you. As there are no further questions, I would like to hand back to Mr. Thomas Franz, Vice President, Investor Relations, for closing remarks.

Yes, so I'm just seeing that we just arrived with another question, so we can digest that one more and then we close the call.

Of course, no problem. We will take the last question. And the question comes from Victor Allard from Goldman Sachs. May we have your question?

Good morning, everyone. Thank you for squeezing me in again. Just a question on FX. Looking at the evolution of the hedge book versus 2Q, We can see that rates for 25 and beyond are, in most cases, seeing a deterioration of one or two cents, which seems that, in terms of the incremental edges in Q3 that you've seen, coming at significantly lower rates. I'm talking in comparison with what we've seen in terms of evolution of forward and post rates. I'm just wondering if there's been a change in your approach recently, or should we just look through this free Q evolution?

The latter, yeah. I mean, you have to look through. I mean, we have a step hedging model. So we have a range, let's say, a range of hedge quarters for each quarter. So translating into, obviously, hedge covers for the year. And we roll that model forward and execute it and try to be not at the very low end. So we roll it forward. And we had a period of time when we had, let's say, a spot of 111 or so, a little bit above the 110. And then if you add the forward premium, then you increase, let's say, the hedge book with rates obviously a little bit above 110, 113, 114, and that increases then the average hedge rate for the specific year, especially obviously when the total volume of hedges is lower, like in 2026, for example. But there's nothing specific to that.

Okay. Very clear. Thank you.

All right, so thank you all participants. Thank you, Lars. Thank you, Peter. Thank you for your questions, and if anything remains, get in contact with the IR team. Thank you very much, and have a good day.