Welcome to the conference call on MTU Aero Engines first half-year results 2022. 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. Reiner Winkler, 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.
Thank you. Good morning, ladies and gentlemen. Welcome to our conference call for MTU's H1 2022 results. We will start with a review and some key messages presented by Reiner. Peter will start with a financial overview and a more detailed look into our OEM and MRO segment. Finally, Reiner will guide you through our latest outlook on the remainder of the year. This will end the presentation, and we will open the call for questions. Let me now hand over to Reiner for the review.
Yeah. Thank you, Thomas, and also a very warm welcome from my side. I would like to start with the latest developments in our market. The air traffic recovery continues to gain momentum, so passenger traffic in May reached around 70% of pre-COVID levels. Domestic travel improved to 77%, while international traffic is now at 64%. Backed by these positive developments in air traffic, the IATA raised its 2022 outlook for passenger traffic to reach roughly 82% of 2019 levels. Previously, they have only predicted 74%. Cargo traffic is expected to continue to support the industry performance and should operate around 12% above pre-COVID levels. This solid recovery could be even stronger if the challenging situation of airlines and at airports would improve.
Current ongoing challenges, such as COVID-19, Ukraine war, price inflation or labor shortage, create uncertainties that need to be monitored. Nonetheless, the current developments are a strong foundation for the continuous recovery of our business. On the global aircraft demand side, the narrow body market is reflecting this trend. The recent order of 292 A320 aircraft by Chinese Airlines demonstrates this impressively, especially given the current situation in China. Other positive signs can be derived from last week's Farnborough Airshow, where MTU products had order intakes of nearly $600 million. The strong order book in the narrow body market and the penetration of the A321XLR into the wide body segment are a solid base for ramp up in production rates. As already mentioned at the Q1 results, the supply chain remains challenging but stable at the moment.
Our sourcing strategy and supplier management ensure a stable flow of materials and parts. Nonetheless, some suppliers are still challenged by difficulties to ensure a timely delivery in the MRO segment. One of the biggest concern in the market at the moment seems to be a possible limitation of gas supply. Many investors approached us with questions about how we use natural gas and what impact an interruption in the gas supply would have on MTU. Generally, at MTU, natural gas is used primarily for heating and to a small extent for production or test runs for industrial gas turbines. Overall, we have alternative plans in place and would be able to install alternative sources if necessary. Regardless of the current situation, MTU already relies on a mix of renewable and non-renewable energies and selects energy resources based on security of supply, cost effectiveness, and ecological aspects.
In addition, we are investing into a geothermal facility which is scheduled to go into service beginning of 2025. At the Berlin Air Show, Spain signed its order for 20 new Eurofighters. Together with Germany's order of 38 Eurofighters, the engine program's utilization is secured for many years. The increase in military activity has led to further efforts to improve the operational readiness of the German Armed Forces. From our side, we have prioritized the maintenance support for the engines of the Eurofighter and the Sikorsky CH-53. This supports the effort to ensure that Germany, together with its allies, can fulfill the current demands. Let me say a few personal words about the change in our management board team. After more than 20 years in the management board of MTU, I now see the time has come to pass on my responsibilities.
I'm extremely thankful that I was allowed to help to shape the successful development of MTU over such a long period. It appears to be a very suitable moment due to the company's expected new growth phase, as well as the excellent succession plan at the top of both the Supervisory and the Management Board. Lars is an excellent successor at the top of MTU and has been a potential internal candidate for some time. With his experience in both MTU and the industry and his convincing personality, he will lead the company into the future, which will be characterized by far-reaching technological innovations. Having that said, I would like to hand over to Peter for the financials.
Yes. Thank you, Reiner, and also a warm welcome from my side. In the first half year, total group revenues increased 23% to roughly EUR 2.5 billion. As you know, we had quite some tailwind from FX.
With an average rate of 1.09 in H1 2022 versus 1.21 in H1 2021. In U.S. dollar terms, revenues were up 12%. EBIT adjusted increased 53% to EUR 290 million, resulting in an EBIT margin of 11.7%. Net income adjusted increased respectively by also 53% to EUR 207 million. Free cash flow at EUR 168 million was slightly below last year's figures. This is perfectly in line with our full year expectation. Free cash flow generation in H1 2022 was strongly influenced by working capital headwinds. While the U.S. dollar spot rate, end of June, at 103 also pushed working capital levels upwards, volume-wise, we are already preparing for higher output volumes in the months to come.
On the other side, to counter shortfalls in the supply chain, we have increased our buffer stock in certain fields. Certainly, internal turnaround times are currently also higher than usual due to a shortage of skilled workers, corona infection rates, and longer lead times in the supply chain. Our earnings numbers are adjusted by a one-off effect in the quarter. The main one was a EUR 24 million write-down on our participation on the T408 engine powering the CH-53K heavy transport helicopter. The write-down results from a weaker business outlook for this product, following the decision from the German government to choose the Boeing Chinook as the next heavy transport helicopter. Turning the page and jumping into our business segments and starting with the OEM division. Total OEM revenues increased 15% to EUR 810 million.
Military revenues are up 14% to EUR 230 million, mainly driven by spillover effects from Q4 2021. Commercial business revenues rose by 16% to almost EUR 600 million, and within that, new engine deliveries were down roughly 10%. GTF deliveries improved while others, like the GEnx, are still lacking progress. Here, we are still waiting for Boeing and the FAA to resolve the current issues. Organic spare parts were up in the mid-teens year-over-year, and so perfectly in line with our full year guidance. Main drivers were narrow body and freighter engines on the one hand side, and on the other side, we also see good demand for business jet engines as well as for the GEnx. This favorable business mix resulted in EBIT adjusted of EUR 165 million. EBIT margin improved to 20.4%.
Moving to the commercial MRO segment. In that field, reported MRO revenues increased 26% to EUR 1.7 billion. U.S. dollar revenues were up 15%. Within the revenues, the GTF MRO came in lighter than our expectations for the full year. During the first six months, we saw a lower number of GTF engines in the shop. In addition, these engines needed a smaller work scope than anticipated due to a better durability of certain parts in the engine. For the second half of the year, we expect more GTF MRO activity to be conducted as we are ramping up the activity, as well in Zhuhai and also in our EME joint venture with Lufthansa in Poland. The material content of the shop visits should remain below our previous expectations.
The higher EBIT adjusted margin was the result of the mentioned favorable business mix and the current U.S. dollar exchange rate. The EBIT adjusted increased by 61% to EUR 124 million, resulting in a strong margin of 7.3%. At this point, I would like to hand back to Reiner for some words on our guidance 2022.
Yeah, thanks, Peter. Based on the results of the first half year and the current environment, we have refined our guidance only slightly. Our group revenue outlook in euros remains unchanged in the range of EUR 5.2 billion-EUR 5.4 billion. This is now based on an FX rate of 110 after 115 in the previous outlook. Within the revenues, we lowered our expectations for the commercial MRO to a high-teens growth after mid-to-high 20%s growth before. This is mainly resulting from lower GTF MRO demands in the first six months, as Peter has explained. Our core MRO business is developing as expected and should grow in line with our previous expectations. The top-line outlook for the military, commercial OE, and spare parts business remain unchanged. Expectations on EBIT adjusted also remains unchanged to a mid-20%s growth.
The outlook for the cash conversion rate remains at a mid-to-high double-digit percent range. This ends the presentation, and we are 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, press star 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 again. Your first question comes from the line of Robert Stallard. Robert, your line is now open.
Thanks so much. Good morning.
Morning.
Good morning.
Two questions from me. First of all, on the GTF, Raytheon Technologies said yesterday that they're a bit behind on deliveries into Airbus so far this year. I was wondering if you're aligned with that situation, when you expect to catch up and what the risks are to that forecast. Secondly, on your comments on European gas rationing. You mentioned the contingency plan that MTU has in place, but what is the situation in your supply chain? Thank you very much.
Starting with the first question, GTF. Yes, there was a little bit of a shortage in the first half year. It's, we are now back on track, and we do not see a risk for the second half. Everything is, I would say, on track. For the second half, as I said, we expect a growth in deliveries, compared to the situation we had in the beginning. It was, I think, especially in the first quarter, the shortage.
70 engines.
70 engines. Yes. Yeah. Regarding gas, it's a good question. At the end of the day, I mean, there was a statement, I think last week from the CEO of BMW. He said, "We at BMW, we have no issues with gas or on the small one, but if one of our smaller suppliers has an issue we cannot finalize or assemble our cars at the end of the day." I think it's not possible to monitor the entire supply chain whether all the suppliers have enough energy, gas and things like that. I think at the end of the day, even if we're able to fulfill our commitments regarding deliveries to Airbus, if other parts in the for Airbus are missing, then the aircraft cannot deliver to the customer. I think that every current company has to manage this thing by themselves.
Okay. That's great. Thanks, Reiner.
Your next question comes from the line of Ben Heelan. Your line is now open.
Yeah, morning, guys. Hope well. First question was on the guidance. Obviously, you've kept the profitability guidance. It implies quite a material slowdown year-on-year in the second half of the year. I think on my back of the envelope math coming out with a 10% margin, it seems quite a deceleration. Is there anything particular that's gonna be driving that in the second half of the year that we need to be aware of? Then my second question is on FX. I saw there's been some small updates to the hedging profile. Obviously, you know, very, very attractive environment at the moment. Are there any plans to be accelerating hedging to kind of lock in these rates as they are at the moment? Thank you.
Now, regarding the guidance, I mean, we had in the first half year, as you see, I mean, we had a very beneficial business mix. I mean, new engine deliveries were rather down. I mean, we had a healthy spare parts business growing in the mid-teens. We had also in the MRO, I mean, a very good H1 with more than 7% margin. Also, due to the fact that we had only, let's say, GTF MRO in the MRO division was only 30% of the revenues, compared to 40% last year.
We do expect this going into H2 that I mean we're gonna see an acceleration of GTF MRO as EME and also Zhuhai ramps up. Volume-wise, we're gonna see more. As Rainer said previously, we're gonna also see an acceleration of new engine deliveries in the second half of the year. On the one hand side, I mean, we are all hoping for Boeing and FAA to resolve the situation regarding the 787, so we will be able to deliver also more GEnx engines to Boeing. Also, I mean, we see ramp up in A320 new engines and ramp up also for A220 engines in the second half year.
That's natural. I mean, as the business mix changes a little bit, it's a natural development that the margin will be slightly lower. On the other hand side, I mean, looking on the full year for the MRO division, we're gonna be above the 6%. It's definitely a better situation compared to last year. Yeah. Regarding FX hedging, yes, I mean, you see in the appendix that we have stepped up hedging activity, especially also for the longer end of the hedge book. If, for example, I think, in the last quarter, we had an average FX rate in 2025 at 1.16-1.17.
Now we could definitely lock in a forward contract at 1.06-1.07 at the point of time where euro versus dollar was at parity. The average hedge rate for 2025 has come down to 1.12 currently. Yes, we do that, but we stay in the range of our step hedging model.
Can I just follow up on that? Why, you know, why are you so focused on staying in that range of that historic model? Why? Is there any particular reason why you wouldn't accelerate that a little bit more and take advantage of this environment?
I mean, it's always difficult to assess whether it's a good point of time or not. Looking in the past, it was always a good idea to follow that hedge model and roll it forward. I mean, also at the point of time where the U.S. dollar was at the spot rate at 1.10, everybody said, "Oh, it's a very good point of time to lock in hedges at 1.15, 1.16 for 2024." Then the U.S. dollar fell to parity nearly. Yeah.
Nobody knows whether or not in three or four months we are at 0.99 or whatever. I think it's a wise thing to not Put all your cards at once on the table.
Okay.
Do a averaging. No?
Very clear. Cool. Okay. Thank you.
Thanks.
Your next question comes from the line of Milène Kerner . Milène, your line is now open.
Yes, thank you. Hello, Reiner, Peter, Thomas, and the rest of the team.
Hey.
Follow-up question on the guidance after Benjamin Heelan, I would like to comment on your sales guidance for 2022 regarding the offsetting effect of currency on the lower GTF MRO. There are three parts to that question, sorry, it's gonna be a bit long. Firstly, if I start with the GTF, your updated MRO guidance implies that the GTF share will now be roughly 35% for the full year, compared to roughly 30% in H1. What gives you confidence that the GTF overall revenue will accelerate in the second half? Secondly, just coming back on the currency effect. Your guidance is now based on an exchange rate of 1.10.
Peter, you mentioned the exchange rate was 1.09 in H1. The current spot rate is at 1.01. In case the spot rates remain below 1.10 in the second half, could you help us understand a bit more the currency sensitivity for the full year? Could you remind us how much of your sales are in dollar? What's the currency sales sensitivity for every cent change? Could you also confirm that if the exchange rate remains favorable in the second half, your EBIT for the second half should benefit from the conversion of your dollar revenue that are covered by dollar cost via procurement? That's where I'm getting to the point on the guidance on the offsetting effect of currency on the EBIT.
Given that you have now lower GTF sales, that does not flow through your EBIT, but the conversion of your dollar sales naturally hedged by dollar cost does, why did you not change your EBIT guidance for the year? Thank you.
Maybe I start with the first question, and Peter has a moment to think about your question. What makes us confident that the GTF will ramp up in the second half? I mean, we have a very high visibility. I mean, we know the customers, we have the contracts for to specifically know engine by engine when the engines will come into the shop. I mean, there's a high visibility on that. Peter, now it's for you.
Yeah. To add that, I mean, we ramp up. I mean, we have just introduced the GTF in Zhuhai, so we have inducted the first engines at the end of last year. Zhuhai will ramp up, and we'll do more, a higher number of shop visits. Also EME, the joint venture in Poland, is in the phase of ramping up. In the second half, we're gonna do more volume. That is clear that H2 versus H1, we're gonna see higher GTF MRO revenues. Regarding your FX question, I think the answer to all of your question is quite simple.
I mean, if you look in the appendix of our presentation, you see the hedge book for 2022. That means that more or less 100% of our U.S. dollar exposure. Yes, we have U.S. dollar revenues. We have U.S. dollar cost, and the net exposure is $1.4 billion. More or less all of our exposure is hedged with forward contracts in 2022. Any change in an FX rate wouldn't mean any impact on EBIT. Or a very, very tiny impact on EBIT.
If the FX rates would be more favorable compared to our assumption of an average FX rate of 1.10, it would inflate the revenues. Therefore it would have an impact. The impact would be on our complete commercial portfolio. Commercial business, you can say 100% is U.S. dollar. Commercial MRO, 100% is U.S. dollar, so it would increase the revenues while EBIT adjusted would stay more or less untouched. I mean, the whole benefit for—I mean, the flip side of the coin of doing hedging with forward contracts.
The benefit from the current strong U.S. dollar is in we can lock in very beneficial forward contracts for the future for 2023, 2024, 2025, but for 2022, EBIT sensitivity is close to zero, yeah.
Sorry, Peter, if I can follow up on this, maybe, I mean, it's just I didn't understand. For me, I mean, what you have on slide 10 and your hedge book, I mean, yes, the transaction exposure. So-
Yeah.
...the revenues that are in dollar with cost in euro are hedged. I thought that on conversion, given that it's naturally hedged, if you end up having more sales in dollar, but I mean, the margin will remain the same, that should flow in profit.
That's what is shown here, the net exposure. It's U.S. dollar revenues minus U.S. dollar costs. That is our U.S. dollar exposure. For 2022, the complete exposure is hedged with forward contracts.
Yeah, I mean, on this, sorry, it was really just regarding the conversion, not the transaction, because as you said, I mean, transaction there is no tailwind. Okay. I will follow up then with Thomas. Lucky you, Thomas. Thank you.
Your next question comes from the line of Christophe Ménard. Your line is now open.
Yes, good morning. I had three questions, I guess. The first one is on the GTF MRO. Could you tell us? I mean, you are mentioning 35% as the split between GTF MRO as part of the total MRO in 2022. What is the expectation in 2023? Is there any catch-up or do we have, I mean, the kind of return to the 40% that you mentioned earlier? That was the first question. The second question is, you mentioned on the call that there was on GTF MRO, specifically lower shop visit content. Is there any impact on spare part growth related to this or it's minimum? The last question was on the core MRO.
You mentioned, I think in full year and Q1 that the supply chain and HR issues could be resolved by H1. Is it the case or, I mean, I understand you're still seeing some of those issues at the moment. When do you think you will have those issues addressed? Thank you.
I mean, regarding 2023, I think it's a little bit early to say if what we see in 2022 will have any impact on 2023. What I can say is that, I mean, last time we looked at our, let's say three to four years planning, the share, regarding GTF MRO was more or less in all years at, roughly 40%. I mean, we're gonna do a full new valuation of all, let's say on the one hand side, all flight hour contracts, but also, on our MRO activities in autumn together with our budget planning.
Sure, I mean, what we see is currently that spare parts consumption regarding GTF is lower than expected, so that has to do with the fact that the durability of certain parts in the engines are better, so you don't have to exchange these parts earlier, which is basically a good news. The engine has a longer time on wing, a higher durability. We need less spare parts. We also have in the GTF environment less spare parts compared to last year. That is good.
Once we do the full re-evaluation of all flight hour contracts, that is a positive thing because the profitability of these PW1100 flight hour contracts will be better.
Regarding supply chain in the MRO facilities, yes, we see an improvement. There are still some issues, especially for outside vendors. But we see in the last couple of, I would say one or two months, we saw already improvement and we expect further recovery in the second half.
Thank you very much. If I can, I have a follow-up on the spare parts. I mean, you have lower spare parts sales. I mean, spare parts needs on the GTF. Does it impact your spare parts, your specific spare parts growth, or it's parts that are not related to your-
That's a minimum. Only a small example.
Thank you very much.
Your next question comes from the line of Chloé Lemarié. Your line is now open.
Yes. Thank you for taking my question. Most of mine have already been asked, but I do have a few follow-ups. The first is on the GTF volume on the OE side. It's good to hear that you have no concern in terms of reaching your commitments, your delivery commitments. I was just wondering how confident you are headed into 2023 with you know further step up in production, and if the disruption and delays that you'd seen in H1 had caused any sort of cost increase on that front. The second one was just a clarification on the hedging. You mentioned already 100% hedged in 2022.
How hedged are you for 2023 from today's perspective? Thank you.
Maybe I'll start with the first question, what makes us confident for 2023. Yes, as Peter said, the main reason for the slowing in H1 was that we started in Zhuhai and in Poland with the GTF MRO work, and we are now ramping up that and for next year. The capacity is available, and that makes us confident even for 2023.
Sorry, Reiner. I actually meant on the new engine deliveries, not on the MRO.
Oh, sorry.
shop visits.
Excuse me. Also for the new engine deliveries, I mean, Airbus actually, I think at a rate roughly around 15 a month will further increase next year. From our side, we see we are prepared for that. That includes not just MTU, it includes the consortia, the IAE.
Okay. You didn't experience any cost related to the slow-
No.
Okay.
No.
Perfect.
Well, regarding hedging, I mean, it's on page 10 in the appendix. We have roughly EUR 1 billion hedged, which is roughly 70% of our exposure. In a situation where we had parity or so, we definitely will have a tailwind on earnings next year.
All right. Thank you very much.
Your next question comes from the line of Andrew Humphrey. Your line is open.
Hi. Thanks very much. I've got a couple. One is a sort of extension of the durability point you've made on shop visits. Clearly, that's positive for the life of the program. I wanted to kind of drill into that in a bit more detail, if you're able to. Clearly, we went through kind of a number of upgrade packages for the GTF in 2017, 2018. I wonder if you can kind of talk about which of the areas of the engine you're seeing more improvement, whether that improvement is a direct result of those upgrade packages you went through. You kind of alluded to potential kind of upgrade to margin assumed on those programs over time with the higher durability.
When is the time that we might see that? That's the first little cluster. My second question is on an eventual ramp-up to the equivalent of rate 75 on the A320. Pratt & Whitney obviously said the other day that they're targeting that or they believe that's feasible by sometime in 2026. I wouldn't expect you to comment on their comment, but clearly you're also seeing or taking delivery of some of the longer lead time components for assembly into engines. Is that sort of ballpark consistent with what you're seeing in terms of, you know, when your suppliers are kind of ramping up those larger, longer lead time engine components?
I mean, starting with the first question, what parts of the engine? First of all, yes, it's a result of the improvement packages which were introduced in the last couple of years. I don't have all the details, but one example I can tell you is the combustor with a higher durability. It's not our part, it's a Pratt & Whitney part. But it's only one example. I don't have all the details, technical details with specific parts are responsible for the higher durability. Rate increase, yes, there are discussions with Airbus. What is the right time for the rate 75? Is it then 2025, 2026? I don't know. At the moment, I think the final agreement on that has to be made, maybe two years in advance.
That's a question of more than 2023, 2024 to be done with it. At the end, I think it's not as important as many people think. Is it in the second half of 2025, or is it in the first half of 2026 or the second half? I think we are talking here about one year difference in the discussion.
Thank you. Just on the margin impact on the program margin assumption on the GTF, what is the plan?
I mean, what we technically do is, we have to, we have a high double-digit number of aftermarket contracts that we have to. These are all, let's say, 10, 12, 15 years. It's a basket of different contracts, and we have to reevaluate all of these contracts so that we have the basis to really change the margin that we book on the PW1100s. We do that typically. Together with the planning we do in the second half of the year.
Great. Thank you very much.
Thanks.
Your next question comes from the line of Harry Breach. Your line is open.
Yeah. Good morning, Reiner, Peter, Thomas.
Morning.
Morning.
Morning. Thanks for taking my question. Can I ask maybe sort of one question on commercial OEM and one on MRO? With OEM guys, and this is a difficult one, and it depends a little bit on what proportion of spares that you or IAE sell directly to shops as opposed to distributors. I'm wondering whether you have any sense about whether you're seeing kind of restocking effects by spare parts customers, or if really the buying patterns are just consistent with the rise in number of shop visits. Moving to MRO, I remember back in April and even in February, you both spoke about engines that are lined up outside at Hannover, and I think you were sort of saying you had at least sort of six months visibility.
Can you give us your current feeling on the amount of visibility you have of sort of engines to be inducted into Hannover and the overall network at commercial MRO? Looking over on the margin side at commercial MRO, I guess what was particularly impressive to me in the second quarter was that with the mix at about 30%, if I remember well, of GTF versus legacy shop visits, you had a margin of 8.1%. I appreciate that the lower material content would have helped.
I'm just thinking, as we look into the second half of the year and we see that sort of mix maybe turning towards 40% GTF, you know, should we be thinking about if the material content stays where it was in the second quarter, should we be thinking about second half margins at MRO maybe around the 7% level?
I mean, the MRO margin, I would see, I mean, that for the full year, we're gonna be above the 6%. I mentioned it earlier. If you assume, for example, let's say 6% for the second half of the year, you're gonna end up with 6.5% margin roughly for the MRO. I think that is a reasonable assumption. I mean, we mentioned several times that GTF volumes in the second half year will be higher compared to the first half year due to the ramp up of EME Aero and Zhuhai. In the first half year, let's say 30% share GTF MRO. Second half year, 40% share GTF MRO. Average for the year, roughly 35%.
You asked about stocking or restocking of GTF spare parts, so there is none. There are no independent spare parts distributors. There it is, we have a network of GTF MRO shops, Pratt, the Japanese, our joint venture with Lufthansa. It's a handful or two handful of MRO shops in the world. I think the shop visit assumptions are quite transparent. There are no big stocking or restocking effects regarding spare part sales to independent distributors, yeah.
Peter, can you comment maybe a little bit on the V2500 side and the other legacy engine spare parts?
No, I mean, there we see definitely a very dynamic growth in the market. As well, I mean, we have, I mean, you have seen our spare parts growth, and that is definitely driven by the V2500 spare part sales. Not only also, let's say PW2000, we see a healthy growth more driven from the military side. You know, the PW2000 powers the C-17 military transporter, especially from the U.S. Air Force, and currently heavily utilized for transporting equipment and troops from several parts of the world to Eastern Europe.
We have, let's say, the CF6-80, which is more or less a stable situation. I mean, we had also already last year a very healthy spare parts demand from the commercial freighter market. That is more or less unchanged. Yeah.
Mm.
This channel activity is also quite good.
Peter, I guess with these legacy programs, do you have any visibility or any sense about whether customers, whether there's any sort of restocking that's driving this, the growth in spare sales on V2500 and, in particular, or is it just more or less in line with the number of shop visits on V2500?
It's in line with the shop visits.
Yeah. I mean. In line with shop. Okay.
Yeah, it's in line with shop visits.
Good. Okay. Great. Just the visibility in terms of commercial MRO sort of-
I think.
Engines coming into the shop.
You typically have, I would say, between one and two quarters higher visibility. I would say two quarters is a good number. You know.
Yeah.
Very clear what will come in in the second half.
Yeah. Great. Guys, thank you very much indeed.
Thank you, Harry.
Your next question comes from the line of George Zhao. Your line is open.
Hiya. Good morning, everyone. First on-
Good morning.
You know, inflation, you know, clearly has still not seemed to have impacted your margins so far. You know, if inflation continues to run at the current rate, you know, can your escalation clauses continue to protect this, considering, you know, there are usually caps in place for these clauses? You know, you know, with the labor negotiations you have at the end of the year change any of the outlook for that? The second question, you know, coming back to your guide. You reiterated the total revenue for the company and also for MRO, so it applies to revenue, reported revenue for the OEM, you know, is also reiterated. Yet there's clearly FX benefit within OEM, but you also reiterated the, you know, the mid-teens percentage for spares and the mid- to high-teens percentage for OE.
I guess, what are we missing here? I mean, is it just rounding differences? You know, how can you have the currency benefits, the same organic growth, but also the same, I guess the revenue reported?
I mean, the answer to the second question is, I mean, the growth numbers we mentioned, these are U.S. dollar growth rates. The spare parts grow, let's say mid-teens spare parts growth means spare parts sales grow in U.S. dollars at mid-teens. Naturally, if you give growth numbers like that, there's no FX benefit to the growth numbers. These stay unchanged. In MRO, it's the case that we lowered a little bit the growth rate in U.S. dollar, yes, because of the lower GTF spare parts consumption in the MRO.
The FX in euros is a tailwind, so the euro number stays the same.
Regarding inflation, typically the contracts allow us to hand over the inflation to the customer. There are some, I would say maybe in some contracts, MRO contracts for example, you have a clause or a cap sometimes, or we call it the hyperinflation clause. If it's above a specific inflation rate, then you have to share it with the customer. It's, I would say, that's not the range where we are actually in.
Your next question comes from the line of [Eric de Sante] . Your line is now open. Eric, your line is now open. We will move on to our next question. Your next question comes from the line of Aymeric Poulain. Your line is open.
Yes, good morning and thank you for taking my question.
Morning.
Morning. I have a follow-up question on the inflation side of things. What's your current rate of inflation for wages in particular? And secondly, I think your partner, Pratt & Whitney, mentioned continued supply chain bottleneck risk. What do you see are the main tensions in the supply chain, and where are these risks actually most present? And last but not least, I think in the Q2 you mentioned hope for a signature of the FCAS between Dassault and Airbus. I think the situation seems to be at a standstill. Could you quantify the risk if indeed this is not signed and this project comes to an end?
What did you assume for FCAS in 2022, and what should we assume now?
Regarding wage inflation, I mean, we have negotiations with the unions upcoming in autumn, September, October. Currently we have no wage inflation here in Germany. We're gonna see what I mean, given the other union that was in the magnitude of 6% wage increase for next year. It was not our union, but it was something comparable in Germany.
Still.
Still.
It was not for one year, it was for 18 months.
18 months.
Mm-hmm.
I think it's wise to expect something similar also for our union for-
It will not be for 2022.
No, 2023.
It's for 2023.
For next year, supply chain, I think, I mean, what we see is that in our MRO division, especially our outside vendors. I mean, we use outside vendors for certain parts repair techniques which we do not have in-house. There we see that turnaround times or lead times are quite long. That causes in our universe a higher working capital level because you have to wait for the repaired part in order to be able to ship the engine finally to the customer, I think. We counter that with, let's say in some fields you can counter that with buffer stocks and so on. Finally, it results in a higher working capital level.
Customers are not happy because they get their engine late. I think every MRO shop in the world has to face the same situation.
Regarding FCAS, in our guidance, we have no revenues from FCAS for 2022. We have it for 2023. Originally, we had a little bit of customer financed R&D for the second half, which we have now excluded. Our assumption is that the program will start beginning of next year, and that is a small amount for 2022. That could be compensated by a little bit higher spare parts for the other military programs like Eurofighter and Tornado.
Perfect. Thank you.
That the guidance for the military is unchanged in total.
Perfect.
All right. I think if we do not have additional questions, this marks the end of our conference call. Thank you, Rainer. Thank you, Peter. Thank you to all the participants for joining and have a good remaining day. Bye-bye.
Bye-bye.
This brings us to the end of our conference. You may now disconnect.