Mtu Aero Engines Hldgs Ag

Good morning ladies and gentlemen. Welcome to MTU's Q1 2025 results call. As usual, we will start with a look at the past quarter with a review from Lars. Peter will give a financial overview and a deeper look into the segment results. Following that, Lars will walk you through the pre-release guidance update for 2025. This then ends the presentation and we will open the call for questions. And with that, I'll hand over to Lars for the review.

All right, thank you, Thomas, and a warm welcome from my side. Good to have you with us today. Let me start with some words on the market environment. Global passenger traffic increased by 5.3% in the first three months of 2025. Within this, international traffic improved by 7.7%, while domestic traffic increased by only 1.4%. Global load factors remained high at around 80%. The number of scheduled flights for April and May looks very promising. Dedicated cargo traffic has continued its growth with a slight increase in Q1 by 2.4% in CDK. This start into the year is very promising for air traffic and the outlook remains positive. Anyway, the announced tariff environment creates uncertainties in the global markets. It remains to be seen how passenger and cargo traffic will be impacted in the coming months. A downturn in the global economy would undoubtedly affect the aviation industry and us. Therefore, this topic is on everybody's watch list. Really good news for the GTF program. In February 2025, the GTF Advantage received its FAA certification, marking another important milestone in the success story of the GTF engine family. The initial deliveries of the GTF Advantage to Airbus are on track for later this year. The Advantage offers the lowest fuel consumption and CO2 emissions for single-ail aircraft, providing more thrust and value, especially for longer-range aircraft like the A321XLR. It delivers 4-8% more take-off thrust, enabling higher payload and longer range. Based on an extensive test program with over 100,000 hours of test flights and 38 million flight hours of in-service operation of the GTF-based version, The advantage ensures increased robustness in service and on-wing times, enhancing customer satisfaction. And to expand the improvement to the actual in-service fleet, the certification of an upgrade package is in the making. This targets to incorporate significant durability improvements from the advantage configuration into the existing fleet during MRO shop visits. Target is to have this package available for its customers next year. Let me conclude the GTF news with some updates on the GTF fleet management plan. The program remains on track and we see progress in shop turnaround times and material flow. Therefore, we are quite optimistic that the aircraft on ground situation will start to trend down in the second half year. Overall, the GTF fleet management plan remains consistent with our previous comments. On the MRO side of the business, we have exciting developments. In March, we celebrated the official opening of our second MRO shop in China, MTU Maintenance Shuhai Gen1 branch, a new site focusing on PW1100 engines. Initially, it will add a yearly capacity of up to 260 engine shop visits, and combined with the main site, MTU Maintenance Shuhai, it will become the largest MRO facility in the world with over 700 shop visits annually. This positions MTU maintenance for continuous strong growth in the global engine MRO market and strengthens the GTF maintenance network with increased capacity and expertise. The new facility was built in just 18 months, with its engine test cell already in operation since summer 23. And the GIN1 branch will start with around 280 employees and will grow to 600 engine experts once fully ramped up. coming from China to the other side of the Pacific, where we are very proud to announce the expansion of our footprint in North America. This expansion allows us to introduce MRO services for the LEAP 1A and 1B engines and implement GenX full-engine MRO services under a new agreement with GE Aerospace. This expansion represents a multi-billion-dollar revenue potential for MTU over the lifetime of both engine programs. MTU Maintenance has been named one of six exclusive premier MRO service providers for LEAP engines globally, allowing us to offer full performance restoration and extensive repair capabilities for these engines. The LEAP is one of the largest engine programs globally and demand for capacity and expert support is high. In addition to the LEAP engine, the Fort Worth facility, which includes a 43,000 square meter space with an engine test facility capable of up to 100,000 pounds of thrust, enables us to also offer full overhaul capabilities for Gen X engines, enhancing our competitiveness and service range in North America even further. By investing heavily in the ramp-up of our MTU maintenance Fort Worth site, we are transforming it from a pure on-site service center into a comprehensive disassembly, assembly, and test facility, delivering state-of-the-art engine maintenance for narrow-body and wide-body engines. These are just two examples of our MRO expansion, GIN1 and Fort Worth, showing that we are expanding the depth and scope of MTU's engine MRO solutions worldwide. thus underlining our trust in the long-term outlook in this business. We are extremely well placed globally to expand our market share and benefit from the outstanding market opportunities in this field. This brings me to a less popular topic of additional US tariffs. US tariffs have caused significant confusion and uncertainty in global markets, making it difficult to predict the impact on air travel. However, We aim to share some information on how we assess the situation and provide some estimates on the direct impact on MTU. As you know, MTU has locations in Europe, Canada and Serbia that are not directly affected by tariffs, especially since aviation products have not been subject to countermeasures by the EU or Canada to date. The main burden of tariffs therefore falls on our US partners and customers, which could potentially increase their costs as tariffs are normally borne by the importer. Our sites in China are either located in a free trade zone or use privileged customs procedure, so we do not expect any direct burden from Chinese import duties on US engines or spare parts here either. We do not see our collaboration with our US partners at risk, as we have established long-term relationships through our RRSP partnerships over the years. Additional capacity and engine maintenance are globally scarce and require significant investments, making quick alterations difficult and impossible. All this cumulates to a possible headwind for our profitability. Before mitigation effects and based on actual delivery routes and volumes, the impact has been assessed to a mid to high double-digit million amount, double-digit million euro amount. Having said this, we are actively monitoring tariffs and are in direct contact with our US partners to mitigate the impacts of the tariff environment. As one example, we are already starting to implement alternative delivery routes on certain modules and achieve an effective avoidance of tariffs on these parts. Now let me hand over to Peter for the financials.

Thanks Lars and also a warm welcome from my side. The first quarter of 2025, we booked group revenues of nearly 2.1 billion euros, marking a 25% increase from last year. In US dollar terms, revenues rose by 22%. Adjusted EBIT increased 38% to 300 million with a margin of 14.3%. This strong margin was primarily driven by a favorable business mix in commercial OEM. Similarly, Adjusted net income improved 41% to 221 million euros. On free cash flow with 150 million euros, we had a very strong start into the year. So now let's go into our two business segments and starting with the OEM segment. Total revenues increased 11% to 620 million euros. Military had, as always, a slow start into the year with a small decrease in revenues to 113 million euros, which is a typical pattern. Commercial business revenues in euros rose 17% to 507 million euros. And within that, organic revenues grew 5%, driven by a rather strong spare engine sales volume. Organic spare part sales in dollars increased mid-teens, supported by mature widebody platforms and narrowbody engines. Adjusted EBIT here was up 35% to 176 million euros, resulting in a margin of 28.4%, primarily reflecting the very favorable business mix in the commercial OEM business. Turning the page and moving on to the commercial MO segment. Reported MO revenues increased 33% to 1.5 billion euros, while US dollar revenues were up 29%. This strong growth was primarily driven by the PW1100G, the CF680, GenX, and the GE90 engines. Adjusted EBIT increased 42% to 125 million euros, resulting in a margin of 8.2%. EBIT margin improved mainly due to volume effects and a better profitability on certain engine programs and contracts. At this point, I would like to head back to Lars for some words on our guidance in 2025. All right, Peter, thank you very much.

On our guidance, we already informed you all early last week with our ad hoc news on the 25th of April. In our business segments, we can confirm the organic growth drivers in our different segments. Based on this, the adjusted revenue outlook on a US dollar basis remains unchanged, while it has been reduced in euros in light of recent exchange rate development. Adjusted revenue is now expected to reach between 8.3 and 8.5 billion euros in 2025. So far, we had forecasted a range of 8.7 to 8.9 billion euros. The updated forecast is based on the US dollar-euro exchange rate of 1.10, instead of the previous assumption of 1.05 US dollars per euro. As announced, we further confirm our guidance for 2025 for adjusted EBIT, adjusted net income. On free cash flow, we are also confident to reach 250 to 300 million euros, as outlined with our full-year release in February. On all this, please keep in mind that given the high volatility and uncertainty on the broader tariff environment and possible market tensions, we have not incorporated any effect thereof into these estimates. This closes the formal presentation. Thank you for your attention, and 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 11 on your touch-tone telephone.

operator will announce your name and when it's your time to ask a question in case you wish to ask to cancel your question please press star one one again from jeffries may we have your question yes good morning larson peter uh thanks for taking my question

The first one would be on tariffs because Lars, you commented on how your manufacturing footprint and the MRO activities are largely shielded from the direct impact, but still at the top end of the impact that you're quoting, it's still relatively significant. So just trying to get a bit more color on what specific flows would lead you to paying those tariffs. And if you could comment on the mitigation measures that you could put in place and whether that could help you stay within your current guide. The second is actually on the strike at RTX Arlington facility. So just if you could give any color on what it could mean for GTF deliveries or powdered metal parts production this year. Thank you.

Right. Yeah, on the first one, no. Like stated, it's very volatile, the situation. And we have assessed that thoroughly in the past couple of weeks. And we have a cross-site, cross-function team available to assess every news. But what we have, our baseline is basically the movements of OEM and MRO inside and outside of the U.S. That has been the baseline for the calculation. And it's still to be proven and seen what kind of terrorists will finally show up And we are working with PrET and also internally MTU on countermeasures that could be rerouting of engine modules to prevent any kind of border crossing into the US and back in force. We are revisiting the shipments of different parts, spare parts, but also modules. The key word is always the country of origin. versus the country of export, so the origin is where you substantially transform the part or the engine. So we are in thought and in discussion with different partners, how do we manage or verify the country of origin. And then last but not least, contract management. We do have some contracts that are allowing the tariffs to be pushed to the customer, and some of them are not, so that needs to be seen. in a nutshell, the activities we are investigating. But let me state, I continue to be an optimist. The aerospace industry is an oligopole, so these terrorists would burden everyone in our industry. So I'm kind of optimistic that we'll find a good solution with both entities east and west from us. And the second one on the strike, we don't yet have information. As you know, we have warehouses where commissioned engines are available, and it needs to be seen what kind of impact that has. I don't have any information for you as of this morning.

Okay, thank you. Just on the guide, should we be adding part of the impact that you've coded as a headwind to the guide, or are you still comfortable with the level that you've maintained with the release?

No, I wouldn't add it right now. I'm comfortable.

Perfect, thank you.

Benjamin Keelan from Bank of America may have your question.

Yeah, thank you. And yeah, morning, guys. Thank you for the question. I had a couple, please. Firstly, on the OEM business and the margin, the comment that you made that the spare engine and leasing contribution supported the margin. Can you just help outline, you know, kind of how significant that was and how big of a margin and By not increasing the guide, my assumption is that a lot of that is pulled forward. Can you just kind of help us understand a little bit how to think about that? Second thing is maybe one for Peter, but it looks as though the equity accounted investment contribution to EBIT ramped very significantly. I think it was roughly 59 million in the quarter versus 17 this time last year. Can you just help us understand why? Is that sustainable? Is that what we should be thinking about for the rest of the year? From memory, the majority of that goes into the MRO business. So is that a big driver of MRO this year? And then a question on cash. Obviously, you've done the kind of $150 this year. You've got it for $250 to $300. It's not implying a lot of cash in the last nine months of the year. And from memory, you talked about more program participation costs in the second half of the year. And obviously, you have potential tariff impacts. So do you have any views at this point of where net debt will end this year? Do you think there will be an improvement in net debt? Those were the three. Thank you.

Yeah, so I take all of the three, I guess, then. So starting with the last question regarding cash flow, I mean, the 150 was a very strong start into the year. That compares quite favorably to the 300 or 250 to 300, which we guide for. for the full year, but keep in mind, I mean, free cash flow is always another very linear development throughout the year, throughout the quarters. I mean, the cash flow was a small, let's say, source of disappointment in Q4 2024. You remember that the 180, so we had a very strong November and December regarding revenues, and so the 150 is, let's say, the cash flow spillover of the quite strong business we had at the end of 2024. So that will not go on like that. And so we are rather cautious to increase the guidance after one quarter with a very good cash flow. At equity results, both things are true. So the one is a strong contribution from Shu Hai, as you know. But the other thing is also that the LeaseCo, so the entity in the U.S. which provides lease engine support for the GDF, has also made a quite good result in the first quarter of 2025. So these both companies contributed favorably to that one. OEM margin. I wouldn't split out that. I mean, we had a higher share regarding deliveries for spare and leased engines. Net pricing for spare and leased engines are higher compared to involved engines. And I would say that contributes maybe one or two percent points to the to the margin in the OEM segment. But 28% will not be the sustainable level for the full year. You know, I mean, OE is going to ramp up throughout the year, also picking up, GenX will also pick up throughout the year as the GTF engines. So that will normalize. Okay.

Okay, Peter, sorry, just one quick follow-up on the equity-accounted investment, because it was a $40 million swing year-on-year. It was quite material. How should we think about that for the remainder of this year? Are these positive results going to continue, or will it normalize back to this kind of 2025 level that it's been historically?

Yeah, rather. So the next quarters will rather go down to the historic level.

Okay. Okay. Thank you, Peter. Thank you.

floor for Morgan Stanley. May we have your question?

Hi, morning everyone. Thanks for taking my questions. The first one is just on the MRO growth. Can you give us the GTF share of revenues in the quarter? Second question is on your US expansion with GE. Can you maybe just profile the kind of revenues and profit generation potential from that deal over the medium term? And then last one, if I may, just on OEM. A follow-up to a previous question, so what was the commercial series OE sales growth in the quarter? Or maybe ask a different way, what was the percentage of spare engines delivered in the quarter? Thank you.

What we say is that OE growth was 5% revenue-wise. That's which I gave in the call already. OE net sales grew 5% year-over-year in Q1. The GTF share was the low 30s in the MO. 34%. 34%.

And the opportunity with GE, medium term?

You know, this program, they spend about 20 to 30 years So it's a rather long-term investment. We're building up capacity for that as we speak. We are saying here it's a multi-billion opportunity, but let us highlight a bit more details during the capital market day in June in Paris. We are prepared for that over there.

Okay, thanks very much.

Christoph Minna from Deutsche Bank. May we go ahead with your questions?

Yes, good morning. I had three questions. The first one is on R&D and the steep increase you had in Q1. It's only Q1, quite obviously, but can you comment related to this R&D increase, whether it's linked to the WET program and the fact that you had to switch a little bit gears on this? Second question is on the MRO growth. You mentioned GTF, you mentioned the wide body. You haven't mentioned V2500. Is it just because it is growing less, or are you starting to feel some pinch from lower level of induction because of GTF on the V25? And the last question is on FX. The current situation, is it changing anything to your strategy of hedging? Are you slowing down? Are you... Basically, I mean, it's an open question on your FX strategy at the moment.

Thank you. So, Christoph, I'm going to start with ethics strategy. No, we won't trade. As you know, we don't speculate. I mean, we have a bandwidth for the next, let's say, 16 quarters, and we go a little bit up and down, so it's a little bit opportunistically, but we keep our path. So there's nothing that we see that we hatch now. we fully hatched for the next three or four years or so. So as you see, I mean, we are fully hatched more or less this year. Next year, roughly 60%, then 30% or so, and we're going to continue to do so. So there's no principal reassessment of our ethics hatching strategy so far. On R&D, no, it's a one-timer, which we had in Q1. You know, we have We have an 18% program share on the GTF, and as such, we have to contribute also 18% of all R&D efforts, and related to the GTF advantage in our work share, so we didn't do a lot of, let's say, alteration of the parts and spent own R&D efforts, but we have to bear the full development cost, 18% of the full development cost. So it was a kind of an imbalance payment related to R&D, which we capitalized. So we shared, let's say, 18% of the cost President Whitney did for their work share, in easy words.

And maybe let me comment on the wet activities, Christoph. It's insignificant. Plus there is a funding involved in that program, or it was, so you won't see a pike for these kind of R&D activities in our balance. And then maybe last one is on the V25. We haven't mentioned it because it's stable. this program continues to be a contributor and I think we said last time around 800 shop visits are continuing certainly this year and that this program keeps on being strong but stable and therefore we didn't comment it.

Okay, that's very true. Thank you very much for all the details.

Hi Lars, hi Peter.

I'm actually really greedy and ask four questions, please. They're quite short. One of them, just in the press release, you have this sentence, it says, talking about the growth in the OEM business. It says, it was primarily leasing and spare engines that drove revenue growth. Can you just clarify what's the difference between a leasing and a spare engine there? Can I just start with that one?

I mean, when you sell, you can either sell an engine to Airbus, then it's a installed engine, or you sell an engine to an airline as a spare engine, then it's a spare engine. And typically, a spare engine has a better pricing, or you give less discounts because it's useless. but not so frequently and there's less aftermarket so that's why the oe price is higher or the other side of the metal is you give less discount and the least engine you sell to a third-party leasing company so that's that's the difference but basically they're the same they're both spare engines i just wanted to check it with spare engines it's not a leasing business per se No, no, no, it's a spare engine. You can send it to the other or send it to a lesser. So these are the two, but finally that's a spare engine and a different owner.

Okay, fine, but it's the same activity. Exactly. Just to repeat Christoph's question on FX, and he talked about FX strategy, which I know you won't change because it's been the same for 20 years, it's worked well. But just in a hypothetical situation, we go into a period of dollar weakness. What industrial levers do you think you have? Do you think your successor will be able to find cost reduction if needed? Or have you left such a lean? Are you leaving such a lean business? There's not a lot of fat there. That would be one. I'll rattle through the rest of the questions. So I'm not sure if you answered Ben Healan's question about the timing of the next entry payment on LEAP. If you did, sorry, I missed it. And the last one, Lars, is just with the, I know it's only been a month since Liberation Day, any signs at all of stress in the supply chain or are you worried about kind of paperwork, litigation stuff that could jam up the supply chain? Thank you.

Let me start with the first one that's probably rather easy. No, I'm not concerned right now. I'm on paperwork. That is my least concern in all that tariff environment. You got to look at the worldwide ecosystem. And I'm more concerned on pricing availability than on paperwork. But as I said in the beginning, I'm an optimist and this industry is so important for every country and state that I believe we're going to see some ease up in the hopefully days and weeks to come. And we have, as I mentioned several times, we have a multi-source supply chain that is especially valid for MTU. So it's worse come to worse. We have flexibility shares on different suppliers when you have double, triple, or quadruple sources. So I think I'm good stressing other sources more than the ones affected for higher tariffs. Okay.

I mean, regarding reaction to a strong U.S. dollar weakness, probably we would have to look into our cost base for sure. But I mean, typically the reaction scheme would not be, let's say, going into the U.S. with production also. So moving production from the euro to the U.S. dollar to reduce exposure, as I think we mentioned that before. I mean, it takes a lot of years to, let's say, relocate parts get all the certification stuff from FAA and the other and so on. And the U.S. is also a low-cost country. So it's not, let's say, that we can produce with a very low cost base in the U.S. compared to Europe. So that's also not the case. But yeah, if there is a dollar weakness, we would have to look into our cost, into our manufacturing footprint, but probably not. with the result that we're going to relocate parts to the U.S. or so. I don't think that will be the final outcome.

But here again, as every company, we are continuously looking on our unit cost and our cost base, and we are giving some more details, again, on the capital market day, how do we transform the company into the next decade, and unit cost improvements are certainly on the agenda of the whole board.

As on the LEAP, the near term, there won't be another payment. So I won't give you the payment plan, which we agreed the OEM, but nothing to expect this year or next year.

Thank you.

Once again, if you would like to ask a question, please press star 11 on your touch-tone 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 have a follow-up question from the line of Chloe Lemarie from Jefferies.

Please go ahead.

Yes, thank you very much for allowing me back in the queue. I just wanted to follow up on the performance from AML because last year it was a pretty strong performance. So just commenting on this for Q1 and whether you had an impact on your margin performance. The other one, was actually in terms of the, within your cash flow, you had a pretty significant headwind from provision. So just wanted to check that I understood what was driving this in Q1 this year, please. Thank you.

So you mean MLS margin, comment on the MLS margin, so the leasing entity in the Netherlands, yeah?

Yes, sorry.

Yeah, okay. So the margin was a bit weaker in Q1, but that's a natural thing. So in quarters, we have, let's say, a lot of Asset management transactions, you have a strong margin, and in others you have a little bit of a weaker margin. I mean, if you look at the MRO margin sequentially, we had Q3, Q4 had a margin level of 9%, where MLS did something like a 20% margin. Q1 was a bit weaker, maybe 15 or so in that ballpark. So that was also the reason why we are a little bit below the 9% level which we had the last two quarters. so 8.2 i mean 8.2 is strong compared to the 7.7 we had last last year in q1 but sequentially it's a little bit weaker so higher gtf share and a little bit reduced mls margin but that so the next quarters will be different so nothing to worry about on that side um and your second question was Provisions, yeah, provisions, that's always a difficult animal to look only on the provisions line. I mean, you have to, especially in the context of the GTF fleet management plan, you know that a lot of airlines get in the first step credit notes, and then you technically consume the provision, but on the other side, you instantly build up a liability. So you have to look on both lines together, so that it's not only on the provisions line. And so in our case, I mean, we paid roughly $70 million in the first quarter of 2025 for the fleet management plan of the GTF. But as I said, it's difficult to look on in the provisions line, so we cannot do that now.

Sorry, the 70 million is the compensation that you paid, or if it's... Exactly.

Money which flowed out of our accounts towards airlines through a different line in the cash flow statement.

Perfect. Very clear. Thank you.

I should see if there are some agency partners.

May we have your questions?

Oh, fantastic. Thank you. Good morning. I just have a couple of follow-up questions. One is mitigation for the PW1100G in the event that tariffs become very difficult. Would it be possible, and have you been discussing with Pratt & Whitney, for you to assemble all the PW1100Gs for Airbus for Europe and China? at MTU in Europe rather than splitting them between Europe and the US. And then my second question is on R&D. Your company funded R&D went up 22 million in the first quarter, but your capitalization of R&D went up 27 million. And I wonder if you could just explain what the spending is on at the moment, given that you have completed the GTS advantage certification and how you see that developing for the rest of the year. Thank you.

So maybe on the first one, it's obviously a theoretical question right now, but I would say it's obviously possible that MTU is doing more than we do today, but we have a physical limitation in our test set. So there is a limit of how many engines we can test here in Munich in our facility. But then again, if worst comes to worst, we would find slots in our MRO facilities in Hannover, for example, or in Poland. So I'm not able to answer the question fully, but there are scenarios that we weigh a little bit the engine assembly between the US and Europe.

I mean, the capitalized R&D had a quite significant spike. And I answered that earlier, that we had a one-off payment in the first quarter, which is an imbalance payment related to the P-1100 GTFA. And that won't happen in the next three quarters. So that's always only once a year. So the run rate regarding capitalization for next quarter is rather in the ballpark, 20 to 25 million per quarter.

Thanks so much. Apologies, my line dropped for that. Thank you.

No problem.

Eileen Kerner from Barclays, may we have your question?

Yes, thank you. Good morning, Lars, Peter, and Thomas. I just had a quick question. I'm sorry if you have answered it before. You had a very strong organic growth for your MRO, excluding the GTF in Q1. What are your expectations for the remainder of this year, excluding GTF?

Excluding the GTF, so it's more or less, I would say, more or less Between 10 and 15%, I would say. But I mean, GDP grows a bit stronger as we expect to go from, let's say, 30%, which we had last year, to rather, let's say, a 40% share, 35% to 40% share. So that implies already that GTF will grow a bit stronger, maybe in the ballpark of, let's say, 20% to 25%, and the remaining MOs, excluding GTF, rather between 10% and 15% there.

Thank you, Peter.

And the follow-up question from the line of Benjamin .

Yeah, thank you, guys, for the follow-up. Obviously, your competitor, CFM, has had some challenges in terms of delivery, and you've obviously just won the certification of the advantage. Can you talk a little bit about what you're seeing kind of in terms of campaigns, medium term, and if you're seeing customers or airlines potentially shifting more towards you or not? I'm just interested how the market share dynamics have played out given the challenges that CFM has had. And then just a final one, so it sounds like there's going to be a business update at the air show. Is there going to be a medium-term guide that we can expect at that event? Thank you.

Can you answer the first one for the C&D? Yeah, I mean, it's always a challenge to give a medium-term guidance in a, let's say, environment where we are today with unsecure outlook, what the tariffs will put. We will talk about the next five years in a little bit more or less detail. Let's see. But we will give a rough picture for the next five years, yes.

Let me comment on the market share. We stated several times that the campaigns for the deliveries in the next two or three years have already been done years ago. We are now looking at campaigns more or less aiming towards the end of the decade and beyond. don't necessarily believe that the current weakness of deliveries of the CFM engines have a big impact on these. What we can say, the sales of the GTF last year were pretty successful. I think we sold around 1,950, I believe, was the number of GTF engines. And that was still with the base in mind, but now we have the advantage certified. So obviously, we are hoping that the advantage can prove all the improvements that we are promising to the market. And then the market share and momentum kicks in for the, like, next year or in two years when we have the first results visible for our customers from the Advantage.

Okay. Very clear. Thank you.

I've got a question.

Please press star 11 on your touchscreen telephone. Thanks very much for having me on.

I've been kicked off the call more times than I have the patience for, which I'm sure is a UBS issue. So if the question's been asked already, do please just pass me the transcript. Just thinking about cash flow, inventories reduce very materially quarter over quarter, which seems abnormal with normal seasonality patterns that we see. How is this, and it seems to be a major driver of cash flow, Why did they decrease? Is this persistent? How should we think about that? Very similar question for receivables is disclosed in your presentation. Also seems to be a major driver of cash flow. Is this trade, contract assets, or imbalance payments? And is that linked in some way to capitalized R&D? Maybe you could help us think through that. And then obviously large moving payables, which I assume is an offset to the receivables. So maybe you could just help us think through the...

I think if you want to go into very deep details, then you have to talk to IR. The general thing is that we obviously had a very strong Q4. Shop loads, all of our MO shops were full, so that reflects a high amount of POC receivables. So unfinished engines in the MO shops are all accounted for as POC receivables. And then you ship it to the customer. that it's transferred from a POC receivable to a trade receivable, and finally the customer pays, then it goes out of working capital. And I mentioned that I think before, that we had a quite strong Q4, so working capital moved up in Q4, so cash flow in Q4 was a little bit disappointing, and now we had a lot of customers paid, and also we had a strong cash flow in Q1. So that is a little bit the phasing in the receivable line. On inventories, I mean, that's also more of a typical pattern that MO shops MRO shops acquire spare parts at the end of the year, in some cases for the old spare parts list price, then you have, let's say, a higher level of inventories, and once the inventories are consumed, are allocated to certain engines in the shop, then the spare parts move from inventories to the POC receivables and goes down the road as described before. But in general, going through working capital line item by line item is not really... I would say if you want to go into every detail, I think Thomas is very happy to do the exercise with you.

I have a follow-up question from the line of Christophe Nenart from Deutsche Bank. Please go ahead.

Yes, thank you for taking the questions. I have two follow-ups. The first one is on the tariff. Just to be clear, you're going to be sharing the cost with Pratt & Whitney of the types of your components being shipped into the US and also on the types of the component of your Japanese partners shipping into the US. That's the way we should be thinking about it on the OE side. So that was the first question. Second question is on GTF advantage. I mean, quite obviously, you will be delivering in series those engines at the end of the year. But airlines may require some upgrades of the existing GTF to GTFA. How will it be visible in your P&L? I mean, is it an MRO element that will be coming, I don't know, in 2026, 2027, or is it part of the warranty cost?

Christopher, I'll start with the first one.

This is my understanding today. Everything that is on the OE side goes into the IAE, and then it's shared to the work share and the percentage that we have on the program. That is clearly valid for the OE environment on the 1100. On the GTF, I don't understand the question. we are doing these upgrades within the regular shop visits starting somewhere targeting for next year. Can you? Okay.

Oh yeah, my question is if I have today a GTF, a normal GTF, and I want this to be upgraded to the GTF-A, do I need as an airline to wait for my next shop visit to be upgraded or can I be upgraded before? And when it comes into the shop visit, the normal shop visit, will the airline pay an additional fee or is it part of the standard warranty work that you're doing on the GTF?

Christoph, so far it's called an upgrade package. I don't have the information right now whether this is paid extra. For me, it's certainly not warranty. but this needs to prove. I can't answer right now.

Okay, thank you very much.

Thank you. There are no further questions at this time, so I'll hand the call back to Thomas for closing remarks.

Yes, thank you. This ends our Q1 results call. Thank you a lot. Thank you, Peter, for presenting, and to you all for your participation. Looking forward to get in touch in the coming days and weeks and looking forward to see as many as possible of you on different meetings at the Paris Airshow. Thank you.