Hello together. Ladies and gentlemen, a very warm welcome to MTU's Investor and Analyst Day 2022. After two years of virtual sessions, finally back in person. It's great to see you all. Also a warm welcome to the people in front of their screens, as we have a video feed going out there for the ones that can't join us. What's coming up today? As usual, the attending board members will hold a presentation of their respective responsibilities. Unfortunately, Reiner is sick and cannot join us. I'm sure he watches he event from home, so Reiner, get well soon. Now let's have a look at the agenda. Right after this intro, I'll hand over to Lars, who starts with a look on the actual market environment. Michael takes over and will update you on our expectations in the different market segments.
After that, we will have a short initial Q&A session. After this second part, we will have a lunch break. We prepared lunch in a meeting room on the other side of the hall. This will certainly be a good opportunity to catch up with each other, to join the MTU team and discuss and refuel. Next to our management and the IR team, I have the pleasure to welcome some additional MTU colleagues who will also be available for discussions. This is Andrea Luebke, our Head of Business Development. It is Michele Loeder, somewhere back there. She's the executive assistant of the CEO. We have Eckhard Zanger, Head of Corporate Communications, and Martin Friis-Petersen, Head of our MRO Programs.
After the lunch break, that's gonna be around 2:00 P.M., we will start with Lars giving you an update on topics around production, supply chain, sustainability, and the latest technology projects we have in place. After that part, we will have another Q&A session to catch up immediately after the news. Following that, Peter will provide a view on some selected financial topics, foremost, our expectations for 2023 and beyond. A Q&A makes that part round. With an executive summary from Lars, the presentations will be concluded, and after that, we'll have a combined Q&A session to answer all the questions that might not have been answered until that point. I think for now that's enough, and I hand over to Lars for the market environment.
Thank you, Thomas. Is my mic on? Mic on. Can you hear me? Yeah, good morning and a very warm welcome from my side as well, to our this year's Capital Market Day. If we ever got used to any changes in the past and how to react on that, this is what happened with Reiner yesterday night. He sends his regards and that he can't be with us. He is sick. Reiner, I wish you a fast recovery if you listen to us, and I have the honor to welcome you and to start with our Capital Market Day and some insight on the market environment. As we know, the market environment is challenging, remains challenging, and maybe more than ever.
You see a couple of points that we have put on the slides, and I'm detailing that in the slides to come. Obviously the COVID-19 pandemic is still ongoing, and we have some remaining travel restrictions, mainly in China, and we'll come back to that in details more often actually. When we thought about our industry is ramping up in January, February this year, then we had the Russian invasion of Ukraine and also the related sanctions, and I have some details on that as well. Out of that, in consequence, we've seen the energy supply crunch mainly in Europe, and following that, again, the global rise of the energy prices and the economic slowdown and the price inflation.
We have been seeing supply chain constraints lately, and mainly that started with the COVID-19 pandemic when especially in the U.S., but also in Asia, most of the companies reduced their labor staff, their working staff, almost by 50%. Now we see some additional constraints due to the economic slowdown and the inflation obviously. Last but not least, if you put aside all that, what's happening on the macroeconomics, there's still an ongoing climate discussion. I forecast, we forecast if hopefully we get to a solution on that Russia-Ukraine issue, then especially in Europe, this climate discussion will revise and ramp up significantly again. Let me show you some more details.
First of all, probably I'd like to say despite the fact that we now have a war on European soil, and having in mind the pain and the suffering that the Ukrainian people are going through, the impact of Russia's invasion of Ukraine on the air traffic is limited. It's limited in region and in scale. You see some indicators here on the left side. The global commercial fleet affected is minor, is low, single digit, 3% of the fleet is affected, and that obviously deals with the sanctions that are put in place on basically all aircraft parts, sale of aircraft, sale of parts, engine spare parts, and MRO service to all Russian companies.
A second point on our agenda is obviously the detouring that international traffic needs to do when supposed to fly over Russian airspace. Roughly 8%, 7%-8% of the global international traffic is affected, so we see that also as limited. Our major concerns back then was the supply chain issue, and mainly the support and the supply of raw materials, mainly titanium. There was a lot of issue of titanium when that war began, and meanwhile, I think we have solved the issue as an industry. Some of the companies solved that with higher inventories. Some of them have found alternative sources. Titanium is coming, besides Russia, out of Australia, Japan, but also South Africa.
I'll give you an update on how MTU dealt with that situation in my part on the CEO agenda. What's challenging with these new materials is always in our industry, we roughly need 18 to 20 months to qualify a new supplier. It's not that you can go from one supplier A to B in a month or two months. It needs some amount of time, and I think that was a fear when the situation started, but we have overcome that. Also, a limited impact. Last but not least, we see another trend as a consequence of this war. The German government, but also most of the European governments have increased their defense spending.
There is a EUR 100 billion plan of the German government, and we as MTU are also involved in this plan as a main system partner for engines of the German armed forces. Another point is, as I mentioned, the energy supply crunch, and you see both of that. I mean, natural gas prices increased nearly doubled. I would say they are close to tripling in Europe and in Germany. There are several plans of the E.U. governments to reduce the usage of gas and also to put price limits in place. The good thing on our industry, aerospace companies, we have less than 1% of our sales represent our energy cost.
It's not good to see that, and we have measures in place, we as an industry, but also we as MTU in terms of hedging, energy cost, making, long-term contracts for energy costs, and we have escalation clauses in place, so we can transfer or give these high rising energy costs to our customers. On the second thing, you see skyrocketing oil prices. I mean, we've seen now $120, and I come to that in detail on the next slide. Meanwhile, I would say the oil price is going down again, a little bit. I think just this morning I've read that we have seen on Jet A-1 the lowest price in this year since March.
There's a good direction of reduced oil price and kerosene Jet A-1 for our industries. What's more headwind is the higher ticket prices because of that increased oil price. We've seen if you balance that, the opening of the COVID-19 restrictions in the rest of the world and hopefully soon, some time in China, is leveraging the high ticket prices. We benefit more while the world is opening and traffic is enhanced than we have seen the headwind of the increased ticket price. Speaking of this high ticket price, this is an evolution of the oil price over the years.
As we have seen, as I just said, we have seen a very high peak at the beginning of this year, and now we are slowly decreasing. Some of the measures have been because OPEC announced their production cuts, so they want to destabilize the oil price, but we still see an evolution of the barrel around $90-$100 in the year 2023. What's more, on our agenda is the high inflation in the world. I mean, we are approaching 9%-10% in most of the European countries. We are seeing 20% in Poland. We are seeing, I believe, 80% now in Turkey.
This is definitely on our agenda and is driving the economic slowdown or the recovery, as you might wanna see that. Here you see, obviously, high inflation is also slowing down our GDP forecast. You see on the left side that especially in 2022 and in 2023, we see a sharp slowdown of the GDP growth and then a softening and then leveling in the year 2024 and 2025. That also reflects on the passenger traffic growth on the right side, where we basically only see in the year 2023 a slowdown in the traffic growth because of higher prices, because of less buying power of the final passenger.
Back again an increase of the global traffic, and that's mainly because COVID-19 restrictions will fall sooner or later, and we are waiting for China to ease up their zero COVID policy. This brings traffic back into the air. This brings freight back into the air, and this is a major recovery for the traffic growth in the year 2024 and 2025. Here you see that in the chart again, the traffic recovery since basically the pandemic started in the first quarter, 2020. We are back in the world and this is the yellow curve. We are back to almost 80% on the world pax flight cycles. You see dip obviously in China.
We've touched it several times now because of the zero-COVID policy, but there is a slow and steady recovery towards 80% and even more. What's nice to see for us, for MTU, the narrow body recovery, obviously, and we know that since a while, the narrow body recovery goes faster and stronger than the wide body recovery. That's especially good for MTU as we are mainly working on the narrow body and a fast recovery on that market, on that sector is good for us. Cargo flight, I promise to touch it as well. Cargo flights, you've seen in the upper curve is representing the cargo flights, so we're still somewhere 30% plus of what we have seen pre-COVID.
We do see some softening in that trend as well because obviously if narrow body and the wide body is recovering, the belly cargo freight is increasing, so that puts a little bit of softening on the freighter market. We do believe once again, zero COVID is opening up, then this will be a booster for the cargo market as well. We believe there's a moderate outlook for the cargo rates for the cargo amount, but normalization in the freight rates and we are benefiting from that as well. We touched it several times on our engine program, CF6-80, also PW2000, that come in our shop frequently. What's also important in our industry is park rates and retirements.
You've seen here that the park rates now are going down from a 30% in the COVID year now to a 16%, and we see a further decrease of that park rate coming. That is mainly because the industry, the airlines are not really sure what is the evolution after COVID-19. Is there a steep rise or not? Park rates will go down. Retirements are on a historical low and that deals with most likely the inability currently to ramp up the new platform, the new Airbus and Boeing ramp up.
We will believe as soon as the ramp up is in place, as soon as we have the impact of the higher oil prices, then these retirements will increase to a normal level that we have seen before COVID. Okay. All right, here we go. A view, a lot of numbers on this slide. I think the basic message is, there's a growing demand for the new platforms, A220, A320, also 737. If you see on the right side, for example, there's a huge backlog on the promising platforms that I just mentioned. If you add this up, A220, A320, 737, that's a 10,000 aircraft order book.
We are very much involved in the top two, A220, A320. The rates are increasing. You know about the rate 75 that Airbus is communicating. Also, Boeing wants to ramp up on the narrow body market. The wide body market we see rather in the mid-single digit somewhere. A slow recovery to a rate four or five on these wide body programs. MTU is the partner for both single aisle, so narrow body with Airbus, but also wide body with Boeing, so we will obviously benefit from this ramping up in this environment here. Having said all this, we gotta do something with either the battery or the position here.
The long term, I give you a couple of insights on the short-term overview, but here we try to summarize the long-term fundamentals. You see in all the major KPIs, the GDP growth is 2.5% for the next 20 years. The RPK growth is 3.5% for the next 20 years. We have the cargo development also above 3% for the next 20 years. This is a very good news, we see new aircraft deliveries for the next 20 years of above 40,000 aircraft.
I believe even if you have some challenges in the near term, short term, this is a fine industry to be in if the market is developing like this and we have 40,000 aircraft to be delivered, and sooner or later, Martin, they come in our MRO shops, yeah? You see the distribution, the majority is of the single A. We touched on that several times, and this is the sweet spot also for MTU. With that positive long-term fundamental outlook, I'd like to pass on to Michael to give you some more details about our business. Michael, thank you very much.
Yeah, good morning and very warm welcome to all of you. It's been quite a while since we met here in person, and actually I'm also already a little bit nervous here to make this presentation today after such a long absence. In this context, it's very helpful if some of you ask me today very nasty, very deep drilling questions. Thank you, Andrea, for making me even more nervous. Yeah, thanks a lot. Let's get started. Let's have a look into our business segments. What happened now in the last two and a half years, and maybe even more interesting, what is going to happen in the next years to come. Okay, this works now. What happened really? No choice, no surprise. The COVID crisis has affected the world. It has affected MTU.
It has affected our business and our production units. On the good news is I think the narrow body market has recovered rather quickly and has proven that our business model and our company's more resilient than other players in this market. This is, I think, valid for both of our segments, for the new engine parts production and delivery, as well as for the maintenance division. What helped us in the past years to maintain our liquidity? Yeah, definitely the military business, because military obviously was not affected at all. We had very stable revenues, very stable cash flows out of this business, and a good employment also and utilization of our Munich facility. Airlines have been, and to a certain extent are still in a cash preservation mode. I have to say, we came to good agreements, to good restructurings.
Martin, thanks to you and to your team, to good restructurings of our long-term maintenance contracts. We hardly lost any of our customers, so we could maintain our customer base. This was very important for us because we know that this great crisis has an end, and then we on the ramp up and the quick ramp up start again now. As MTU, I think we did very well not to lay off a single person in our company. We saw layoffs are hindering now the ramp up of some of our suppliers, of some of our peers, especially in U.S. We kept all of our people, all of our competence, all of our capacity on board. Furthermore, we continued our investment program even during this difficult times.
Having said this, we definitely believe that MTU is back on its growth track, and we will expect a full recovery of air traffic by 2024, 2025 timeframe. Very, very soon. We see currently demand signals from the supply chain. That's the one side. We see pent-up demands for shop visits. Actually, all of our engine shops are full as we speak now. As I said, we constantly have to invest in more capacity in order to cope with this pent-up demands. We still see on the bad side, significant supply chain disturbances, which we are faced with geopolitical uncertainties and with macroeconomic effects, which Lars just explains. These effects delay even faster growth of MTU. Let's have a look on our business segments, starting here with the military side.
For the first time since I joined MTU, there has been now a significant rise in the defense budget due to the EUR 100 billion special funds in Germany. With this budget, Germany has the opportunity to reach its goal and the NATO goal of an annual spending of 2% of its GDP for defense equipment. The question is now, are we currently participating from this? The answer is partially yes, in form of spare parts and in form of additional aftermarket sales due to clear demand signs also from our customers and a high availability and high intensive use of this military equipment, especially the Eurofighter, which is involved in air policing on the eastern part of Europe. They need flexibility in the aftermarket, and we are committed to provide this flexibility by adding more capacity to our military production lines.
This increase in defense budgets is even more important for us going forward and looking to the future. In the past, we and the customers, we had always crazy and fancy ideas of what we could deliver, what we could produce and develop, and then we had the issue, the budget was not there, and this problem is solved now. If you see on new programs, and we need new programs, all of these new purchasing programs, all of the new development programs are now backed up by a committed funds, by committed budgets. Budgeting is not the issue anymore when it comes to execution of new military exercises. Any future programs are highly relevant for MTU, as we need a good pipeline in our portfolio and to renew this pipeline also.
MTU has a solid military product portfolio by participating in fighters, transport aircraft and helicopters. Beginning on this slide from the right-hand side, every engine up to the Eurofighter has a very stable and a very solid and a very plannable aftermarket. The TP400, the power plant of the A400M, just entered this phase, but the aftermarket is picking up significantly. The Sikorsky CH-53K is in operation since last year, and we are in front of a huge production ramp-up for the U.S. Marine Corps deliveries. New programs like the Future Combat Air System or like new rotorcraft models are on the horizon now and are being discussed in the European forces. First, let's have a look on our fighter portfolio, which is very important for us since it accounts for about 70% of all of our military revenues.
The Eurofighter engine, the EJ200, is in the middle of its life cycles and is expected to generate revenues over the next decades for us. Until this year, over 1,400 Eurofighter engines have been delivered already. New engine deliveries are secured towards the end of this decade, supported by the Spanish and German order for the Tranche Eurofighter. What will come is an order of about 50 Eurofighter aircraft to replace the aging Tornado aircraft in Germany. We furthermore expect some international sales success, export potential, mainly from Middle East customers. By the beginning of the next decade, more than 1,600 EJ200 are expected to be in service, and this is a solid base for growing the military aftermarket because of high utilization rates and a high installed active engine fleet.
I mentioned briefly another program, the Future Combat Air System, and I'm standing here, and I'm very happy about the way this program is turning now in the last days and weeks. Europe is in desperate need of a sixth-generation fighter aircraft, and the Future Combat Air System is so much more. It's a fighter. It's an integrated system connected by real-time information via Combat Cloud, and it's supported by Remote Carriers to protect the aircraft. For us, it's important because this program will allow us to reinstall a true European supply chain, where we also will benefit on the commercial side. Just imagine that we can build up casting houses here in Europe, that we can support new forging houses and therefore get more independence from today's supply chain structures.
For MTU, this program is very important since we have the opportunity to develop the technologies for the aircraft, for the engine, and we can further enhance our technology basis, which is definitely a plus when it comes to the next generation of commercial engine developments, which Lars will take in his presentation just after lunch. I can see a high revenue potential for us, as much as EUR 20 billion over the lifetime of this program for MTU. It's really a program where we deliver 2,000 engines, which will stay in operation for decades towards end of the century. It will create workloads and experience for about 500 engineers at MTU and therefore enhance our technology base again.
There was a pause now in the program to have the airframers discussing their program structures to also be supported by the nations, Spain, France, and Germany. I think this pause will come to an end, and we remain very highly confident that we can sign this program towards year-end now. Yeah, let's move to the commercial business segment. The good first news is that the growth rate of engines with MTU participation is back to increasing about 6% year-over-year. The active engine fleet with MTU participation is today about 16,000 engines, whereas the installed fleet is 14,000 engines, plus another 1,700 engines coming back to the market from storage.
The split of these engines into the segments is about 60% in the narrow body segment, so the fast recovering segment, 24% cargo and governmental engines, and about 20% wide body exposure. I think there was a very interesting statement the other day from one very well-known colleague, Steve Hazy, the Executive Chairman of Air Lease Corporation, who said by 2025, there are more than 6,000 airplanes turning 25 years of age. We all know that the OEMs will not build 6,000 airplanes in the next three years. There's a gap there. Statement from Steve. To be honest, I like this gap because what does it mean? This gap can be filled only by existing aircraft with existing engines, with platforms on which we are on the sweet spot, on the aftermarket spot.
Our customers will be operating older aircraft for a longer time, which is definitely good news for all of us. Martin Friis-Petersen was last week, I think, in the U.S. hearing exactly this message. I was in the Middle East to speak to customers hearing exactly this message. This market of refurbishing older aircraft, of keeping older aircraft for three, four, five years long in operation, this journey already has started. Again, good for us. Then looking to the future, what will happen?
We will see about 11,500 new engine deliveries with MTU participation, and thereof again, about 9,000 engines on the narrow body market, 2,000 engines in the wide body segment, which is for MTU, our participation on GEnx and GE9X. About 450 engines on the cargo and governmental segment, which is mainly the CF6, still V2500, and also the GE9X and the freighter conversion. The narrow body engine fleet with MTU participation will increase to 58%, which is approximately 9,300 engines. From today, 58% will increase to 68%, which will be about 16,000 engines going forward. Wide bodies will remain stable, and also cargo and governmental engines will remain stable.
As you can see, our near-term future growth is definitely driven by our narrow body expansion exposure. Now let's have a look on our most important narrow body programs, which is the V2500 and the Geared Turbofan family. Starting with the V2500, this will remain a key revenue driver for MTU for many years to come. In summer, the V2500 utilization was about 75% compared to pre-COVID level already. Today it's about 70%, so still good. Park rates of this model decreased from 15% from previously 24%. And as discussed in our last Capital Market Day in 2021, the retirement rates are still very rare. Retirement rate is really among the lowest in the entire narrow body segment. We are very happy about this trend.
This trend will continue since, as I said before, new aircraft deliveries are not at the rate where they should be and where the market demand is. Therefore, the supply chain issues in this time also help us to keep the older fleet longer in the field. The V2500 is a very reliable, very efficient engine. It will remain an important engine which perfectly satisfies a big portion of the short-haul demand going forward. Also, passenger freighter conversions with A321, including the V2500 engine, is something which picks up and where MTU is also a partner with various customers and various conversion houses. The engine is fairly young.
The average age of the engine is 12.5 years, and therefore roughly 65% of all these engines have not even seen a second shop visit, the shop visit where we sell the life-limited parts. Again, high-value spare part business for us. MTU has still a total market share in this engine program of above 35% of the overall V2500 maintenance market, and we are the largest MRO provider for this engine model, so we benefit on the OE side as well as on the maintenance side. Again, for the next 15 years, the V2500 will remain an important pillar of our aftermarket portfolio. Having a look on our Geared Turbofan family. What are the phases of the geared turbofans?
Coming from the development phase, 2010 to 2015, we have invested, we have developed a more efficient engine. With the increasing prices of kerosene, we could convince the customers, we could convince Airbus that it's now time for a new power plant on this, on the A320 family. GTF is the answer. It's a highly efficient engine. It has an extremely high market appeal, and it's a good upgrade op-- it was a good upgrade option for the A320neo aircraft. Investment phase 2015 completed, and then we started the entry into service with the first Lufthansa machines in 2016. The technical upgrades since then led to an improved engine reliability. The customers see the value of this engine. They were flying this engine even during the COVID phase very heavily.
We had a very high production rate until 2019, with roughly about 60 shipsets per month. Then Corona arrived. We saw the impacts on the aerospace industry. Production rates dropped down from 60 to roughly about 45. Still the Geared Turbofan was operated during the Corona crisis because of its efficiency. From this year on, we are now in the re-ramp-up phase. The utilization of the GTF remains very, very high. We have a strong order book for the next six-eight years on this engine program, and we started to accelerate the production of Geared Turbofan engine for both models, the A320 and the A220 aircraft. The A320neo production rate is confirmed at a rate of 65 shipsets for the year 2024. On long term, we are also prepared to support higher demands.
Of course, we are closely monitoring the abilities of a ramp-up in the wider supply chain, especially for forged materials and for castings, but we are committed to support these demands. We have developed the GTF Advantage configuration in order to make the engine even more mature and more cost efficient to maintain. By the way, this is also a perfect engine which suits the needs of the long-range application of the A321XLR and the A321LR. We are convinced that the GTF will be the revenue and profit driver towards the end of this decade. In the period from 2022 to 2030, more than 10,000 GTF engines will be delivered to the customers. High utilization rates will be favorable, driving our aftermarket demand.
With the GTF, we also introduced a new aftermarket business model we call the GTF Network, in order to optimize the cost of the aftermarket. This is also the mission which we have now. We focus currently on optimizing production cost and maintenance cost of this program and hence increase the profitability of the GTF models. In the short term, the profitability will be increased by normalizing of discounts, lower warranty costs, and leverage effects of the volume increase and learning curve. Of course, we will take the lessons learned of the GTF also into account when we have a look on the next engine development programs. Targets are to optimize the existing fleet, improve reliability, enhance the on-wing time to avoid or at least to reduce maintenance costs.
We make design adjustments, we develop repair technologies, and we optimize the existing MRO contracts. MTU has many advantages which will help to achieve these targets. We are successful in the MRO business since four decades. We have a very strong MRO know-how and experience to manage fly-by-hour contracts. We have a high MRO market share on the V2500, where we have proven that it's possible, and we have a broad knowledge about the GTF MRO and work closely together with Pratt & Whitney and the other network partners to reduce maintenance costs. Let's have a view on the remaining key engine program, and I would like to start with the PW2000 program. I repeat myself. The PW2000 is a rather old engine, yes.
30% of the installed engines are used in commercial applications, 757, which is an ideal candidate for passenger-to-freighter conversions and which is also flying as a cargo aircraft for many years to come. The other 70% of the PW2000 engine is installed in its military derivative on the C-17 Globemaster aircraft, where more than 200 of these aircraft are flying and will fly for the next 30-40 years. Especially now they are highly utilized and therefore the PW2000 is anything else than a dying program. Peter, I would judge that even this year maybe we'll have the highest aftermarket revenues on the PW2000, which we ever saw. Similar picture we see on the CF6 program.
40% of the engines are installed in passenger aircraft, but about 60% of the engines are installed in cargo aircraft, and the fleet is daily growing also by customers of us like Amazon Air. We expect the CF6 to continue to fly over the next 20-30 years. Looking on the widebody segment, we gained significant market share through our GEnx participation, which currently holds about 67% of the market. Looking now also on the spare parts revenue distribution for around 40%, we are gaining in the widebody segment, which is GP7000, GEnx and will be in the future the GE9X. Also the business jets account now for roughly about 13%. It's a small portion, but a very highly profitable business. Maybe some comments here on the business jet segment, because we did not touch this too often.
The utilization rates have been recovered to pre-COVID levels, driven by a very high charter demand of business jets. Currently, we have about 8,000 engines with MTU participation in the field, and we like the applications because this journey is continuing. On the new engine models, our PW800, we have delivered already 400 engines to the market, mainly to Gulfstream. The certification of the 812 model of this engine program has taken place this year, and this will serve the Dassault Falcon 10X program, which goes into the field mid of next year. A year later than the PW1100 or 812 also will be applied to the Gulfstream G400. Nonetheless, we are seeing a growing demand in this segment, which leads to a slow but stable growth on the short term.
As I said, it's a very profitable business also. Yeah. Let's move to our last and next business segment, which is the maintenance segment. In terms of sales, which we see on the chart, we have reached the pre-COVID levels of turnover already last year in 2021, thanks to our product mix and the flexibility of our staff. Mid-term organic growth in MRO reported revenues will be in the mid-teens% and is backed up by existing contracts already. We have also succeeded in maintaining and growing our strong order book because of our very excellent market positions as well as our favorable product mix. This will be the basis for our future. For 2022, by the way, we expect revenues in the range of EUR 3.8 billion. Again, significant growth compared to 2021.
I think it's safe to say that we have fully recovered in our MRO business and we have recovered definitely faster than any of our competitors. The sales development is backed up by a very strong increase in flight activities, by a high airline capacity need, which results in turn in strong demands for new shop visits. The supply chain constraints are currently delaying an even faster growth because we lose slots because of longer turnaround times. As MTU, we continue to invest in new capacity also during the pandemic, because we always saw the need to secure our market position as the number one independent maintenance provider. We want to increase the flexibility in our global MRO network, and we want to also invest in existing and new engine programs, in order to ensure to have the right capacity utilization available.
What I don't leave and what I'm not getting tired to mention is we are currently in a kind of a transition phase, as you see it on the chart here, from about a balanced portfolio of hours in the high-cost area compared to best cost area. This is going to change in this decade to definitely an overweight of hours which we are performing in the best cost areas. More than 60% of the hours by end of the decade, we will have in best cost, but we will maintain our competence in the high-cost fields. All in all, this will strengthen MTU's market position. With this growth, I think there's also a second task and a second duty on all of us. We have to harmonize our business processes.
We have to harmonize the customer experience across all of our locations and therefore to gain an additional efficiency and to maintain an excellent customer journey. I was speaking about extending of our network. This is what we are doing. Starting from the left-hand side, we have moved our facility in Canada to a much brighter, much wider facility. This move has been completed last year. The shop is now operational again. We have about doubled the workshop space in our facility in Hanover, also this has been done and performed in 2021 successfully. Similar, we have renewed our logistic area in MTU Ludwigsfelde, south of Berlin, so also this has been done. In Serbia, we have built a new facility which we opened some four weeks ago and which will start to deliver piece part repair beginning of next year.
Our facility, our joint venture with Lufthansa Technik in Poland, EME Aero, is in the ramp-up mode, so all investments are behind us. It's now the question to basically every year double the output of this facility. We are currently looking forward to decide with our joint venture partner in China to build a second facility very close to Zhuhai one, about 30 km away. We establish a second MRO facility with our own test bed in order to cope with the demand growth in the Asian region. Having a closer look to MTU Zhuhai. Zhuhai is our door to Asia Pacific markets. MTU is there well-positioned in this area with this Zhuhai facility and its representations in Shanghai and Singapore.
In 2021, this facility generated about EUR 1 billion of revenues and has a capacity of roughly about 450 shop visits. We are proud, and we are very grateful about our long-term partnership together with the biggest Chinese carrier, China Southern Airlines. Actually, it's a 50/50 joint venture of China Southern. Maybe some facts about our joint venture partner, China Southern Airlines. China Southern operates today about 700 aircraft which they have in operation. They are by far the biggest operator in Asia, number four of the world. A revenue of about $16 billion, 98,000 employees. If you ask me, it's only a matter of time that China Southern will become the biggest airline in the world. Some milestones of this company.
We have introduced just this year the Geared Turbofan model, PW1100, and we started to introduce last year the two LEAP models, the 1B and 1A. Have a look on the Serbian facility. That's another example, another good example of our MRO network here. We opened this facility in October together with the highly motivated staff and together with the government of Serbia, and we expect to be fully operational by December this year, creating output from January next year onwards. All in all, we have invested roughly EUR 130 million in this company, and this shop will provide 470,000 repair hours per year for our network. By 2027, the company will employ 500 high-skilled workers in Serbia.
Our shop is located just north of the capital, north of Belgrade, some minutes away from the Belgrade Airport. Why do we need Serbia? Very simple. We need the capacity. Our repair network will grow from about 1.9 million production hours today to 2.5 million production hours. We need this capacity, and we want to have this capacity in a best cost region. You know our motto, repair beats replacement. This is first of all a major cost saver for our customers, for the airline, but it's also a driver to a more sustainable business. MTU Serbia, I think, offers also a lot of space for fantasies in the future. Another example where we invest is our asset and lease management business in Amsterdam. We call it MTU Lease Services, MLS.
The company has a lease pool different to the chart. I think on the chart we still have the 80 engine. This has changed meanwhile. We have a lease pool now of 100 engines which we own or which we manage, and therefore offering full package services to our customers. MLS engines primarily support our own customers. They give us their engine for service, we give them a lease engine to seamlessly ensure their operation. But we are also now entering the business of third-party customers and also some asset and trading business. The company was founded in 2014, and since then we have established a customer base of more than 300 customers across the globe. Also to give you another number, we perform roughly about 160 engine transactions per year.
It's a real business now with roughly about EUR 200 million turnover per year. As you see on the bar, steadily growing also in the next years. Again, we are very proud about investing in this business and having a complete customer service. To summarize the MRO market and what we are doing in our MRO strategy. We are securing market access by increasing our independent MRO business and by further growing our collaborations with the OEMs of this world. We are constantly working to expand our product portfolio, so we are always in search of new customers, of new OEM partners, but also airline, online partners. This year, for example, we have added the PW800 to our network for our facility in Ludwigsfelde, and we have added also the LEAP engine programs to the network.
We are expanding our global MRO network mainly in high volume markets and securing therefore also access to these markets. Our competitiveness is increased by our market network initiative to strengthen the collaboration among the sites and therefore optimize also the cost structures by moving work into best cost locations. I come to the end of my presentation. Just to sum up all the business segments. All in all, I think we are very happy that MTU emerged stronger, leaner and faster out of this crisis. In the military segment, our fighter engine will remain the key revenue drivers going forward. We have big hope, and we are watching the Future Combat Air System as one of the future revenue drivers for us. We are confident there.
The recovery is accelerating despite significant supply chain disturbances and despite the fact we are faced with geopolitical uncertainties and other effects. We are faster recovery than our peers in the narrow body market and the cargo segments, and this will again result in a very strong and sustainable growth. With our experience and our very wide MRO portfolio, MTU is very well-positioned and will remain the number one in the world for engine maintenance. Thank you. I think now we move to the first Q&A session.
Yes. We should have two microphones. Are we able? Yes. Whoever wants to ask a question, we have the first hand.
Thanks so much. Rob Stallard from Vertical Research. One for Lars and one for Michael. First of all, Lars, you highlighted the decline in dedicated freight activity in recent months. I know there's a lot of China uncertainty here. But are you seeing this starting to impact your dedicated freight aftermarket? What are your thoughts there going forward? Michael, you mentioned that the Geared Turbofan has a different aftermarket structure than what you've done in the past. I was wondering if you could elaborate on where that stands today and equally how you expect that to evolve going forward. Thank you.
Well, I use the opportunity to pass on right to Martin because he just traveled the world to speak to our freighter customers.
We still believe that cargo will be an important pillar of our MRO growth. It's roughly 10% of the entire fleet is dedicated cargo. As you know, P2F, strong development. We see more than 160 aircraft being converted. If you buy into that, you have another 12-14 years of continued operation of engine types that we have in our portfolio. Secondly, I think very important, 10% of the overall fleet, but probably 13%-15% of the MRO market. So that means they tend to be older, the aircraft types.
That's a market where we have historically been, let's say, well-positioned and will continue to be because we need a replacement of the seven four, we need a replacement of the seven five, and that's all 777 , for example, could be one component or A321, all with engine types that we command. We are pretty confident that cargo will remain a strong foothold in our MRO portfolio.
Yeah. Moving to the Geared Turbofan question. I mean, what is different to older types of engine? We sell the engine, but we also sell the insurance solution called the aftermarket contract, which is, say, a 10-year fixed price contract. Now it's for us the opportunity as a partnership, Pratt & Whitney, our Japanese partners and us, to bring all of our brain and knowledge together in order to reduce the maintenance cost. To be honest, we just came from a meeting with Pratt & Whitney in September, which we had, and this was the number one topic to improve the profitability of the product and what kind of actions can we together do to develop new repairs, to industrialize new repair. You saw our Serbia facility.
This is a best cost repair facility, which we definitely want to bring also as an asset to this GTF network. By doing so, by commonly work on product cost improvement on the aftermarket side, the margin is going to expand for the entire partnership. We are not competing anymore like in the old times on our engine platform, but we bring all the brain together to optimize this program together. David.
Thank you. Charles Armitage, Citi. A lot of pent-up demand from maintenance that didn't happen in 2020 and 2021. Presumably at some stage, we're gonna work through that, so that'll disappear. Offsetting that is the recovery in the underlying demand as things come back and just trying to work out, you know, bits going up, bits going down, where do we actually end up?
As regards to the bow wave and the aftermath of the bow wave. If you see our forecast, we are not so much limited and concerned about the demand side. We are currently more concerned about the fulfillment side, so spare part availability and our own capacity. Actually, our shops are full for the next three to four years, I would say, Martin. The question is really how do we balance this now? There's a pent-up demand from the past, but as I said, also the airlines are growing again and the new equipment which would be necessary to cope with this for this growth. I've just come back from the Middle East and customers told me this, "I've got 10 aircraft.
Normally I would have to replace them by a new A320 together with a GTF or with a LEAP, but I cannot get this aircraft in the next three years. So can you please make me an aftermarket offer for the next five years in order to keep my fleet flying? I think there are two elements, the past recovery and the catch-up demand, but there's also demand in the next five years from this situation that the new engine and aircraft deliveries are somehow hindered. I think David was
Good morning, gents. David Perry from JPMorgan. Just two questions on some of your big picture views in your slides. Page nine, the traffic forecast, I mean, they're from spring 2022. I mean, a lot has happened since spring. I suspect the growth is lower, so, maybe either of you care to opine on what you think the traffic growth could be this year and next year. I know it's difficult, but they do look a bit outdated, those forecasts. Then on page 19, I'm just curious about your views on German defense spending, because it looks like there isn't anything official from the government. Just want to clarify, these are your views. They probably look a bit more optimistic than Rheinmetall, which has it much more back-end loaded over the coming sort of four or five years. Thanks.
Well, David, I'm not sure what you mean with outdated, but we see. I think I commented on the generic growth of the traffic. That is, I think you have to see that in regions of the world, Europe is recovering, U.S. is recovering, Asia is recovering. China, we talked about it, that might be a little bit lagging behind. In general, we see a recovering of the traffic over and above 80% to where we've seen that in 2019, the other two years. It really depends on the macroeconomic development that we see next year and maybe even in 2024. There's no question mark that traffic is coming back strongly, let's say middle of next year and going forward.
Yeah, maybe to add on the question of defense, obviously, when Rheinmetall and we have different products and different life cycles. For us it's important that this budget is available. David, you saw that we also signed the Quadriga, which means the draft for Eurofighters already for Germany, but also for Spain. This was in a situation where the budget was there. This is something I can tell you in the last five to 10 years, we always had the struggle that there was a demand there, but no budget. Therefore, I view this development very, very positively. For what we have signed, but what also for what we are going to sign, which is namely the Future Combat Air System. That's the one side.
I also view positively that throughout the government, the political parties in Germany, you have now a common understanding that we want to reach the 2% goal going forward. This again will be a solid basis for further defense spending.
Yeah. Thank you. Hi, it's Harry Breach here from Stifel. Can I just ask a very simple one really about commercial MRO? Looking at, I think slide 28, where we see the capacity and best cost regions rising up to, I think around 60% or above 60% of total commercial MRO capacity. Can you help us to think about profitability of that? Does that mean that when we think about commercial MRO margins going forward, looking out sort of three-four years, should we see upward trend there driven by higher best cost regions delivering greater revenue and the lease business expanding as well, I suppose?
This is definitely the case, but if you remember Peter's presentation from the last Capital Market Day, there's also a slight shift in the mix between the independent MRO business, which is higher margin business, and then this business which we do as a kind of our program obligations, for example, Geared Turbofan. Geared Turbofan growth is significant, and we need also this kind of best cost benefits in order to perform this work on an efficient basis. If you have a look on the mix, how it grows, and if you just pull out Peter's presentation from last time, you will understand that we are forced to go into this best cost in at least to maintain, but gradually also to increase our maintenance margins.
Great. Thank you.
Hi, George Zhao from Bernstein. I guess first question on spares prices. I guess how do you think about, you know, the impact of, you know, whether it's 10% price increase but offset somewhat by used supply? So like, how does that fall down to how you think about revenue per shop visit? And in-service pricing, does that essentially just offset the cost inflation or are you making up more than that and getting better margins?
Okay. You ask a question which Peter will answer in about two hours from now.
His other question would be on GTF, you know, the recent quarters, you know, we've seen lower than expected GTF maintenance, and you've talked about better durability. You know, at the same time, we've seen, you know, elevated levels of spare engine deliveries to the airlines, because the engines have been coming off the wing faster than expected. Can you just kind of reconcile what's going on there?
I'm not sure if I got the question.
Look, we've seen elevated levels of spare engine deliveries from Pratt & Whitney to the airlines, partially to account for the fact that some of those engines have been coming off wing earlier than expected. How does that reconcile with, you know, what you've seen this year that the durability has improved?
I think these effects are not material. I mean, we speak about roughly 30-40 engines, which have been diverted to the maintenance market in order to harvest the material for MRO customers. It's not really material, I think. Again, all this is in alignment also with Airbus production rates, which they can fulfill.
Any more questions for now? I don't think so. As mentioned before, we can have a lunch break now. It's out of the room and then, there's plenty of space to grab some food and connect to each other or connect to the MTU people. Take the opportunity, and then we're gonna be back here at roughly 1:30 P.M. That's especially for the guys in front of the screens. Around 1:30 P.M., we will go back online. Enjoy your lunch. Hello, hello. 1:30 P.M., we are back. I hope you enjoyed your lunch. At least I know that we had good lunch in here. I hope the guys out on the screens also had the opportunity to fuel up a little bit. Yes. Let's get going. Lars, please.
Thank you, Thomas. Welcome back, everyone. I hope you're now energized to listen to some insight on our production and technology roadmap. As Michael pointed out, we are on the growth of recovery, and that obviously needs to be backed up by production, number one, and then to come up with new products for the years and decades to come. Both of that I'd like to address in my speech today. Let's start with supply chain. I talked a lot about it in the macroeconomics in the beginning. Obviously, we do have an issue in the world in terms of supply chain, but I believe MTU worked out great in the past to stabilize its own supply chain. A couple of examples I'd like to give.
We actually started to stabilize or to think about the future state of our supply chain way back even before COVID started. To give you a view of how that looks like, this is a one-pager where you see our current global footprint. We spent roughly EUR 500 million in production material in 2022. We have a worldwide distribution of suppliers, 300-400 suppliers for our production material. On top of that is another EUR 700 million-EUR 800 million for indirect material with even more suppliers, obviously. Here we are focusing on the production material, big in the U.S. and Americas, obviously also big in Germany.
What might be interesting for you guys, how independent or how dependent we are in our supply chain concerning China and Russia. To give you one example, we have one more supplier left in China. This supplier is backed up by a double source, so we do not see any risk of our supply chain in China. We are completely independent of our supply chain in Russia. We talked about titanium earlier, and we have started to make long-term contracts even before February of this year. We have a supply chain in place that secures us with a good hedging as well, looking forward on our raw material and especially on the nickel and on the titanium. Also in the bottom left corner, you see our procurement share.
We do procure 68% of our OEM series and 32% in-house, which we believe is a fair balance, a good balance actually to have. If I talk about double and triple sources in our supply chain, that also implies our own production as an internal source and always to have a backup when anything happens in the global world. This is a result out of our procurement and logistics strategy, which we are always updating every year or every second year, we are updating our logistics strategy. I made a comment to a couple of these points. First of all, obviously, we look to competitiveness, and that mainly comes with different sources, multi sources. We always try to be more competitive than the market out there.
We have a make or buy strategy. We do long-term contracts. That's relatively new again in our environment. The majority of the suppliers try to force us into short duration contracts, but this changed significantly post COVID and most recently, we are lucky and happy to work out 8-10 years contract for our supply chain. We digitalize everything, obviously, meaning we have an early warning system. We do know with our major suppliers about their quantity and their quality of production way ahead before the parts will be shipped to MTU, so we can act accordingly. It's always a difficult endeavor because our lead times are so long. I just said earlier, you can't just change a supplier to a different supplier.
That takes more or less three years. We do need to have a visibility in the production process of our suppliers. Are they shipping quality and quantity of what we expect? Therefore, we have digitized our supply chain with a supply chain control tower. We basically see what's going on in the world. Second item is the technology support that I'm really proud of my teams on this one because we do send our representatives, our technology guys into our new suppliers to make sure we have a first time right approach. Again, with a lead time and something is going wrong in the production process, and it takes six to eight months until this process is re-ramped and redesigned.
We want to make things first time right. This is a lot of work, especially if you come up with a double and a triple source strategy. For the future programs, as Michael pointed out, we are already looking into what is necessary for a next European fighter engine, what kind of technology, but also what ITAR-free supply chain we need to set up in Europe. Looking long-term, I come back to that on my technology slides, what kind of new production technologies and maybe even different suppliers might be necessary for GTF evolution, a second generation GTF. Then on the supplier relations, yeah, my buzzword or my keyword is we do what we say, and we say what we do.
It's not always the case in our industry, but MTU has a good reputation, and that's mostly because of our procurement organization, that we are going into the suppliers and we order what we believe is right, and we just don't order too much and then take less. It's fair to say we have a very good relationship to our suppliers. We are not the biggest one out there. We're somewhere in the midfield, but we do have a very high reputation. Here I come to ESG later on, but I wanted to give you one maybe small example of an ESG in our supply chain. We call it a circular economy.
We roughly use or produce 500 tons of titanium and 1,500 tons of nickel. As you know, both of these material are really expensive. What we're trying to do with our supply chain is we recycle basically the chips that come out of our process, and we sell it back to the raw material provider. It's a small gain right now, maybe somewhere mid- to high-single-digit millions. As we go higher and as raw material prices might increase as well, this is not only good for our you know ESG and footprint and our recycling process, but also good for our balance sheet.
Here, I think it's also necessary to talk about that we have used the COVID period on both sides, OEM and MRO, to think about our organization, our operational organization. We have decided in the OEM setup to bring in a value stream management, meaning an end-to-end head of orchestra, if you want to say. We call him internally head of orchestra. He's basically checking what are the demands and the changes at our end customer side, and then he's pulling, he's giving the takt of what needs to be done in our production facilities, in our supply chain, but also up to raw material.
All that is digitalized as well, so we have a fast reaction time if anything changes at our customer side. This organization we put in place is highly scalable, is a matrix organization with output centers and support centers. They are only focused on delivering what the customer is needing. Again, the challenge is lead time. What happens at the customer, if there's a demand change, you need to think back and order two years ahead of the time some raw material at the supply chain. It's really essential to have a fast and a good reaction on that one, and to have someone who has end-to-end this value stream in mind.
I think that was pretty successful, and that enables us to look positive in the future for any re-ramp up that's now coming. We talked about the rate of Airbus at least. We are ready to serve that ramp up. We also in the OEM footprint, we think about next strategy. This is, we call it a 2040 setup. I showed this slide at the last Capital Market Day as well. It's basically unchanged, but there is some dynamic in that. The target setup is in the future. We have our headquarter, our home base in Munich, where we have high-tech production, and we are getting ready for second generation GTF.
We are getting ready for the military programs and eventually whatever comes out of the new technologies for flying fuel cell. We have our existing OEM factory in Rzeszów in Poland that where we are enhancing the portfolio. The more we load Munich with the new technologies, the more we transfer into MTU Polska. Obviously there's another site on the horizon that could be either induced by a rate increase, a ramp up. You know, if we talk about strategics later on, if we need to increase our output, then we are targeting another site in a best cost environment.
That could also be because we are focused on profitability, and we are focused on our unit cost, that we start to move elements out of Poland, out of Munich even earlier to a best cost site. How that works, you see on the right, there's a chart where you see 2021 labor cost in our Polska and Munich facilities and what is our forecast to be the labor cost in 2035. You see the evolution in Munich. You see even higher evolution MTU Polska that goes with the higher inflation rate that we probably see or currently see in Poland. At the long term, you see the best cost as well on that slide.
On the long term, there's a significant difference between Munich, Poland and the best cost site, and this is where we focus on. This is the benefit out of that. Obviously you have a green field approach to a new facility where it can be really, in terms of operational excellence, you can start from the basics and put up a complete new factory. That is our global footprint. Again, either because growth and capacity or focus on profitability and unit cost or even both. Sustainability is a big issue now these days. First of all, we have put ESG targets in our top management compensation. All management levels at MTU have now an ESG criteria in their remuneration.
To give you some examples what we do, this is kind of a collecting slide, because I don't want to give details of everything, but we are committed to the U.N. Sustainable Development Goals. I mentioned the criteria in our management compensation. Going to the top right corner, clear commitment towards sustainable products and sustainable production. I talked about it, if I remember right, last time. Obviously, our whole technology strategy is part of thinking ahead, thinking about sustainable products, burning less fuel, burning better fuel. This is on our product sides, and our industry has been working on improvements since ever, you know, especially on CO2.
In my next slides, you are going to see that we are focusing more on other climate emissions as well, not only CO2, but this is still a relevant part. What becomes more and more important for us, as for the world, is a sustainable production. I think I have a slide in the following, so I don't give a lot of details right now, but let me come back in a minute to sustainable production. ESG is more than CO2. Obviously, ESG is also diversity. My successor is now Silke Maurer. She comes on board on the first of February. She's not here with us. Actually, it's her birthday today.
She will start on the first of February, and this kind of brings diversity already in the top management. We think about, like, woman in leadership position, woman in our employee base to increase that share. We go to schools. We just wanna foster diversity in our company. We believe, I believe, is the right thing to do. That's part of our ESG context as well. Excellent working conditions. I believe every company tries to say that, but we have an average time of an employee in our company that's average is 14 years. Every year we have 40 years of time within MTU, sometimes we have 50 years at MTU.
I think that's indicator by itself that we have excellent working conditions and open-minded corporate culture. Like I said, I repeat again, the eco roadmap, that's our like top project name to become sustainable on all our production facilities. We started in 2020 with a Munich facility, and then we enlarged the scope to our German facilities in 2021. We have enlarged it again to our European facilities now in 2022, and it will continue growing to our worldwide facilities. What's the plan behind it? We want to be climate neutral latest in the years 2030. We have declared Munich and the German sites already as climate neutral by buying CO2 certificates, but we want to get rid of these certificates and reduce, transform, reduce our CO2 emissions in our internal production.
That means 60% CO2 reduction, and we have a plan for every facility, and that basically starts with reducing our energy consumption, and that's especially valid in these days where we have less and expensive energy available. We buy new machinery. We think about IT structure. We think about regular enhancement in our infrastructure at the buildings, but obviously also when we create new buildings. The latest step we are now doing is to produce our own energy at our sites. We have obviously PV cells on all our roofs. That's a tick in the box. In Munich, we are now thinking about establishing a geothermal plant on our premises to substitute roughly 80% of our CO2 emissions in 2025.
That's going to be the start date of that, geothermal plant. In our MRO facility, Michael, you're also working on some of these elements. It's a mixture of reducing the energy that you consume, but also creating your own energy or transform it towards better biomethane, for example, better fuels or gases that we can use. Whatever is left at the end, you might need to compensate that with some gold standards on CO2, but we try to be better than that. Now, that brings me to a question that many of you asked me over the lunch break, "How dependent are you on gas?" I believe, first of all, good news is Germany's gas storage is above 100%.
That's the news out of yesterday that will certainly and most likely bring us through the winter. We have thought way before that, and I just gave a couple of examples, how do we want to reduce our energy consumption and produce our own energy, mostly in Munich. The gas is used for heating, and we have an energy factory on site that we can use either with gas or with oil in terms the gas runs out. It's obviously not that good for CO2 emissions, but we are, let's say, independent, and we can still produce even if gas is running out. Similar in our German facilities in Hanover and in Berlin.
Berlin might be a little bit specific because we use gas there as well for testing our industrial gas turbines, IGTs. Here we have come up with a backup plan in case gas gets short, but I don't see that right now. It might be an issue in the winter 2023-2024, depending on how the situation on the world market solves. Winter 2022-2023, we don't see an issue, hopefully and most likely. Another good point that comes back to Peter, we have tried to, let's say, hedged in a positive way our energy cost for the year to come, for gas and for electricity. We have very good contracts that we finalized before the Russian invasion.
We are roughly 100% backed on gas, maybe 50% backed on electricity for our German facilities in 2023. The rest we will see when it comes to a decision point when we need to buy the next or finalize next contract on our natural resources. That's a new task force we have set in place. I don't recall that I ever thought about establishing a task force for you know energy prices and when to buy, when to hedge, you know, when to go into a contract discussion. This is the way we deal in operations. When we have an issue, we create a task force, and now we have a task force for energy costs. Let's see. Okay.
Now we come to the second part of the presentation. It's innovative engine concept. As the nature of the game, there's not much to tell every year and so on. We have a technology cycle that looks forward 10, 15, sometimes even 20 years. Obviously we are progressing, and I'm happy to give you some notes on how did we progress in the future. The concept of our engine program are staying the same. I've come up with a new slide because that got a lot of momentum in the previous year. What is going to be the energy source for emission-free aviation? We believe that near term, obviously SAF is the bridging technology to propel all the engines out there because it's a drop-in fuel.
That means you can mix it with regular Jet A-1 kerosene. SAF is a combination out of hydrogen merged with CO₂ that is sucked out of the atmosphere. It's really a we call it a good fuel. The question now is on industrialization. It's a chemical process that is valid right now. It's industrializable, but we don't see big amounts of SAF coming out of the factories, and that's valid for Europe specifically. Now U.S. is catching up a little bit, so we do need some kind of investment to get green hydrogen and afterwards transfer it into or convert it into SAF. SAF was, you know, utilized predominantly by aviation.
We're getting some other discussion in the world that all the other sources of mobility want to use SAF as well as a bridging technology. I forecast there's a lot of fight in the future on this miracle fuel that we are going to develop. I see some good movements now. Even Germany has decided for a pilot factory, or several pilot factories actually. In Scandinavia, there are pilot factories coming up, so it's kind of a hen and an egg problem. When do we start to have quotas in the European aviation industry of 10, 15, 20% of SAF by 2030? Then the industry will start to produce that, otherwise it's difficult to convince an investor to invest into an SAF factory.
There's a lot of political momentum and initiative that we need to have until we see really a 50% blend on this SAF. Long-term, we need to distinguish the different plane sizes if you want. I believe on the long-range wide-body aircraft, SAF is going to be the future for the next 30 years. That's why you clearly need a very efficient gas turbine to either burn SAF on the wide body, but we might come to a single-aisle as well that's burning hydrogen directly. Anyway, you need an ultra-efficient propulsion system because both fuels, either hydrogen purely or SAF, will be very expensive.
This is a tailwind for our industry, for MTU to work further on the evolutionary but also revolutionary setup of our gas turbines. If you come to smaller aircraft, commuter, maybe below 100 seats, I do see that there's a future for either direct burn hydrogen or for a fuel cell, so making electricity out of a chemical process on a fuel cell. I will come to that a little bit later. You see a picture here. The third picture on the from the left is a fuel cell where we start to investigate what are the possibilities and what needs to be done to bring a fuel cell as a propulsion system on a 20-seater aircraft that you see on the right picture.
After that, you know that we have bought together with the German Research Institute, Do 228, a 20-seater that we want to equip one side with a flying fuel cell by the middle of this decade as a technology project, and then we'll see how to scale that up. This brings me to our three concepts, and these are. They are alike as you have seen them last year. We work on the evolution of the Geared Turbofan, eventually coming to a second-generation Geared Turbofan by conventional evolutionary measures. But then the focus also is on revolutionary technologies. I introduced the WET concept, Water-Enhanced Turbofan concept also last year or the year before, where we try to improve. This is revolutionary. This is on the technology scale level right now.
We try to improve the efficiency and the thermodynamic cycle by reusage of water and heat out of the exhaust stream and then bringing it back, the steam into the combustion chamber. We believe it's not rocket science. We believe it's currently done on the IGT, so on ground. There's the technical know-how available. The problem, the challenge is to bring it into the air and make it light and durable. There are a couple of advantages that come with this revolutionary technology. It's not only another 15%-20%-ish CO₂ reduction on top of what we see today. Because of a very homogeneous combustion, we reduce 80% of NOx.
Because you use water at the end, we use water out of the exhaust stream, you also reduce the contrails in the air. These are the three climate emissions, if you say, that foster global warming. That's CO₂, that's NOx, but also contrails. Here we believe we have a solution, at least a technology plan, to come up with a technology that reduces significantly CO₂, even more significantly NOx and the contrails we don't know yet for sure, but we leave in the vicinity of 50%, 50, on contrails. We just recently won a European funding program on Clean Aviation together with Pratt & Whitney and Airbus to come up with a technology readiness level four in 2027 for this WET concept.
Afterwards, we'll see how we can develop this technology into the next decade into a sellable customer product. Really proud of my teams that they have progressed that well on this technology. The last item on the right, I talked a lot about it a little bit already, is the flying fuel cell. Fuel cells are out there in automotive, in trucks and maybe even trains. The challenge obviously is to bring that in the air to make it certifiable and secure. We are starting with small very let's say technology racks, where we investigate on the fuel cell performance really on a small scale.
The project, I mentioned it, is the 20-seater, and we want to be ready and equipped to bring that in the air by the mid of this decade. By then we will see obviously that all depends on is hydrogen available, is green hydrogen available, but at least we want to be at the forefront of the technology to say, "This is possible," or, "This is not possible." These are the three unchanged projects, and I don't believe that this will change significantly in the years to come. Every year I try to give you an update of these three technologies. I believe this is already it. I expect another slide, but this is it.
In a nutshell, from an operational model and supply chain basis, we believe both in MRO but also in OEM, we are well prepared to master the challenges that comes with the ramp-up and the international supply chain. On the technology side, we are investing our R&D budget into these three solution to make a GTF, a conventional gas turbine, evolutionary better, but also revolutionary better. We investigate on a flying fuel cell for aircraft in the range of 20 to 100 seats and more to come. Thank you very much.
I think that's time for a Q&A if. Yes. I see a question.
Thank you. Chloé Lemarié from Jefferies. I'd have two, if I may. The first one would be on the future best cost OEM facility. What kind of OE volumes would trigger that investment for you? Is it the current production rates that have been announced by the airframers, or would you need to go above that level to trigger that investment for you? The second is on the second-generation GTF. What could be the timeframe for entry into service, and what would be the level of investment compared to the other two technology breakthrough routes that you're exploring?
First answer is the trigger for the investment would most likely be a growing volume, not what we have today. We have a site in Munich that is close to 50-60 years old, so we need to do some investments as well in Munich. There is a point in time where Peter and myself and the board of management will decide, is it worthwhile to invest further in Munich, or do we start that investment because we prevent investments in our headquarters. There's a couple of trigger points that we see. Definitely if volume goes up with the next platform next decade, but most likely earlier because of the reasons I gave you, and unit cost improvement as well.
Second generation GTF, you need to be ready when the market is ready. When the market is ready, we just heard from one big airframer in the U.S. that there's no major projects in this decade. I don't believe there will be another platform that early. My answer would be ready when the customer ask for an evolutionary propulsion system. The level of investment, we usually don't share. It's a mixed share in our IAE consortia between Pratt, MTU, and the Japanese. We do invest that much, so we have a good proposal on the table.
Couple of questions. First of all, on lead times and production, given that it's about a two-year lead time between entering your supply chain and delivering an aircraft, presumably you're already at rate 65 for Airbus. Question. Second question. Let's do that one first.
Well, we talked about it over lunch. I'm surprised you asked the same question again, but.
I want everyone else to hear your wizard words.
You know, these two years is the maximum. Not every part, obviously, in our supply chain has a two-years lead time. We are preparing for a rate that we discuss with Pratt & Whitney together. When Pratt tells us to be ready, we are ready. I don't give you a detailed rate analysis right now, but we are targeting a rate increase.
Okay. The next question is on the fuel cells. Why are you the best company to explore fuel cell technology in aircraft when you consider quite how much bigger the market is in other areas for fuel cells on one side? Or is it the certification? Di fficulties that make you believe that you're the right people to do it?
If you compare what we invest in R&D for our conventional gas turbine and our fuel cell, the majority, I believe even 75% or 80% of our R&D budget, goes into the conventional gas turbine to make it evolutionary and revolutionary better. It's not like we risk the company on the development of a fuel cell. We believe we are the first mover or one of the first movers. We have started a while ago to think about a fuel cell, and I don't see many other companies really further in the development process than we are. Obviously, to bring, if that's the point of your last question, to bring a fuel cell from the street into an aircraft, it's not that we can look.
We cannot just like an automotive supplier cannot just take his stack and bring it into the aircraft. It's a certification, and it's a safety issue. You need to be licensed for that. That takes several years to convince FAA, EASA, and the authorities that a flying fuel cell is safe. We believe our company can bring that benefit because we are working on safety regulations on gas turbines since ever.
Final question, if I may, on that. The market for a 20-seater is tiny. The market for a 50-seater probably isn't very big, or rather, historically, the market hasn't been very big. How big do you think the aircraft would need to be for a fuel cell for it to be a big enough market? How big can you make an aircraft be with a fuel cell?
Yeah, that's a good and fair question, and we discuss that every time in our management board. That's a bet on the future. I believe there will be some structural changes in the size of the aircraft because of CO2 and emission constraints. If you see it today, just for a 20-seater market, as we see today, there would be, I guess, no business case come up with a fuel cell. I would say everything under a 100-seater, that is possible with a fuel cell in the middle of next decade, and then you can even scale it up. Not into the wide body, but as a vision, you can see that on a single aisle type of aircraft, different design, but somewhere in 2040, mid or end of 2040.
That technology is scalable. Because of the emission constraints that most likely E.U. and the U.S. will put on the market, I see there's a market opening for smaller commuter aircraft, 100-seater or less, bigger than today.
Thanks, Lars. Just following up on Chloe's question, on the next generation GTF. What sort of timeframe are we looking at this potentially entering service? What sort of fuel or emission savings are you targeting? Could this be easily retrofitted or up-engined, onto the Airbus narrow body fleet? Thank you.
Well, the timeframe I answered already. The timeframe is predicted by the airframe OEMs platform. Give or take, middle of next decade, beginning of next decade. That's the rumors in the market. Will that be retrofittable? I don't think so. If it's a second generation, some parts, you know, might be retrofittable, but this is a new engine per se. Benefits of retrofit is limited from my point of view today.
Maybe I'll ask this in a different way then. If you developed the engine and it was ready to go, do you think you could convince Airbus as a business case to put a generation GTF, two second generation GTF on the A321, for example?
This is normally not the way it works. The way it works is, the big airframers or the customer out there, the airlines, are asking for a new platform, for new efficiencies. Then, Airbus or Boeing, they give a go-ahead, and then we start with the real development of the engine. What we do right now is technology work for enabling a second generation in the years, in the decade to come. It's the other way around, as you said. Oh, Christophe?
Yes, on the WET concept, two questions, please. How does it compare not to your UltraFan, to the Open Fan from one of your competitors in terms of well, characteristics? The other question is, if that goes through, can it coexist with an Open Fan if you have a dual sourcing? I mean, if Airbus and Boeing have dual sourcing on engines?
That's a fair question. From a technology basis, an open rotor has a ultra-efficient gas turbine as well, the main propulsion theme. But we have a fan and an open rotor has a very big rotor. We talk about 3 m of diameter, so it's a different engine setup, and that calls for a different location in the aircraft, more or less. Is it possible to have the same aircraft on both engines? Well, right now, from my personal opinion, I would say not easy. Never say never, but because of the diameter, it will be difficult to put it under the wing.
As I believe, and we believe that there will be a dual engine request from the customer baseline out there, we need to find a solution to have two possible technologies like an open rotor and a geared turbofan on the same platform. That's all I can say right now. We'll see where that develops. We are targeting with that WET engine, like I said, we're targeting all three emissions. I don't see that yet with a competitor, but this is technology at its early stage.
Thank you. Coming back to supply chain and production, please, I have a couple of questions. The first one, can you give a few elements of comparisons of your best cost sites compared to your traditional locations in term of production lead times and production costs? How does it compare today? And the second question, can you give us also a few metrics of on-time delivery in your production? You talked about the supply chain de-risking and organization. What is the on-time delivery today of parts to your assembly lines? What is the on-time delivery of your own complete engines? And what is the on-time delivery on parts in MRO network as well, and what are your plans to improve the situation?
Right. Many questions at the same time. Let's when we look at the OEM facilities, and Michael, maybe you want to comment on MRO, but OEM, we only have one best cost site, and this is MTU Polska right now. MTU Polska has been loaded with labor-intensive activities, so it's not easy to compare MTU Polska's scope with the current MTU Munich scope. What I can give you is the hourly rate. I mean, the wages in Poland is roughly 1/3 to 1/4 to what we see in Munich, and that's why we decided to do so. More and more, obviously, new technology also becomes or gets into the facility.
We think about more automation as well in Poland if it makes sense from the business case. Then if we think about a third one, that might be even a rotating idea to move elements from Poland into further low cost, and from Munich then into Poland or directly into the third best cost facility. The second question on the delivery performance so far, it's difficult to answer because I have or we have two elements that are not delivering on time. Everything else is 100%. The parts, blades, cases, everything is 100% delivered on time to our internal assembly sites, and that is the same for our GTF engine. Michael, we deliver as promised to our customer.
Yeah. I can comment. We have to see where the demand comes from. I mean, if you have got a very short-term demand, and then we may want to use the spare parts of the PW2000 as one example, where all of a sudden the spare part demand popped up, it would be unfair basically to penalize production for a bad on-time delivery rate, no. We are level loading these kind of demands and, as Lars said, today I think we are all very happy with what Lars' organization is delivering, and this is valid for new engines, this is valid for the spare parts. There's no point where MTU today holds a workstop or creates a workstop, neither in the MRO segment, nor in the new engine build segment.
That was a customer feedback. Thank you very much. Internal customer. Harry?
Thanks. Yeah, Lars, just a quick one from Harry Breach at Stifel. Just thinking about GTF, I think you've spoken or certainly Reiner has spoken about work to extend time on wing, improving parts durability. Is there any sense or any sort of numbers you can give us that help us to understand a bit better the improvements you're making in terms of time on wing, part durability, I guess especially for the LLP stack? Anything you can share?
I think Michael is better positioned. We usually don't share this kind of information 'cause it's business case sensitive. Michael, I will see what you answer.
Nothing. No, but you know that in the early days, we had the teething issues, bearing #3, and so we had almost every 12 months we had to remove the engine. This was like five years ago. We are now more and more moving to a status with a more normalized engine removal rate, which is more in line with the expectations of such a young engine. It's going in the right direction. The GTF Advantage configuration will further continue to stabilize the situation because we will have more and an extended life of the long lead time items, and therefore, we are not forced to take the engine off wing every four or five or six years. The journey is continuing.
During lunch, we discussed this within various aspects. It's not so much a complication and the problem. If you remember the early days of the V2500 program, if you remember the introduction of the GEnx, I mean, you need on all these programs every, I would say, five years, a kind of technology insertion program and advantage program to make the engine better, to make it more durable, to fix the teething issues. This is a normal part of our DNA, and it's figured into all the business cases and our numbers. It's not something which really surprises us. It's normal work for us.
I think we have another one.
Yes. Hi. Thank you. Where do you think your work share could get to on the next generation of GTF if you compare that to today with the 18% share you have on the current generation GTF? And what incentives did Pratt & Whitney have to cede share on the program?
Well, yeah. I mean, Michael is at the forefront of this discussion, but I think we've said publicly that we strive for 25% work share on the next GTF program. We are in good discussions with Pratt & Whitney, and Michael, you wanna elaborate on the win-win position?
What's in it for Pratt?
The statement for Pratt & Whitney was always we want to have a solid, reliable, quality-wise, a very solid partnership. If you have less partners on board, I think you can achieve this. The V2500 has proven also, the GTF has proven that Pratt & Whitney, our Japanese partners, and we are a good team. We can make such engines together. The less partners, the less interfaces you have in such a development program or as in a supply chain, the better is for the product, for the customer, and for the OEM. I think this is where we all are striving to have simple setups.
If it happens that MTU takes more share, like we did from the 11% of the V2500, now increasing this to 16%, increasing it further now to 18% on the GTF programs, I mean, it's a logical development that we take more share, take interfaces out of the engines, take interfaces out of the supply chain, and therefore it's really a win-win situation for Pratt & Whitney and for us how to manage this program. We are committed to do it.
Good. Any more?
Guys, I see Peter here waiting for his turn.
No.
We do have another Q&A afterwards, right?
Yeah. I think whatever is left we can cope afterwards. Thank you, Lars.
Yep. You're welcome. Thanks.
Peter, it's your turn.
Also a welcome from my side. Recently we received a lot of questions on how the current inflation environment would impact MTU, so I will elaborate a little bit on that topic at the beginning of my presentation. On that chart, you see the typical sourcing strategy we do have in raw materials, finished or semi-finished parts or commodities. We typically source a certain part from several suppliers. Main reason for that strategy are, on the one hand side, to reduce dependency on one single source should there be quality or capacity issues. We also want to maintain some pricing power, when we keep a certain level of competition, obviously, in the supply chain.
In cases where there are only, let's say, one or two sources in the world for, let's say, high-quality parts, we typically use long-term contracts. I mean, Lars told you about that before, to secure supply and also pricing mid to long term. All of these supplier contracts have different timings, duration, individual price escalation formulas, but typically major pricing adjustments are done when a specific contract is renewed. As a result of that strategy, our purchasing costs are not directly linked to spot market prices. Cost pressures rather do materialize over time, flattened out by these overlapping supplier agreements with very individual escalation terms. Longer-term pricing trends rather materialize with a certain time lag in our procurement cost. It might also be the case that price spikes never hit us.
For example, nickel prices, you might remember in March after the Russian invasion into the Ukraine spiked dramatically to more than $50,000 per metric ton, and now they are back to a more normalized level, $20,000-$25,000 per metric ton. But we didn't have to renew the contract at that point of time, so that price spike won't hit us. What happens on the pricing side? In general, OE contracts have a very long duration, and for that reason obviously include and have always included price adjustment mechanisms. These are typically structured as shown here on the chart. We agree on a certain base price, which is then adjusted according to the price development of the relevant cost factor, input factor into the engine.
In our example here, manufacturing cost of the engine consists of 75% material, 15% labor cost, and 10% other costs, let's say for example, energy. The agreed upon base price is then adjusted based on the weighted average development of the respective input factors. In long-term MRO contracts, you typically pass on spare parts prices, list prices to the customer, and for the labor portion, there are similar price adjustment mechanisms in place. Generally speaking, broadly speaking, cost increases and our possibility to adjust pricing and to pass on prices to the customer via our contractual clauses are broadly matching.
There might be some timing gaps or for some customers or for individual situation, we have special agreements like escalation caps and so on, but the overall impact to our profitability, to our earnings is quite limited. These small impacts, we try, obviously, it's always our ambition to compensate that via cost improvements or efficiency measures. Coming to recent FX trends and the resulting implications for MTU. I mean, as you know, you all monitor financial markets. The U.S. dollar has strongly appreciated in 2022 following the different economic situation in the Eurozone versus the U.S. Obviously, I mean the bigger headroom the U.S. Fed has regarding hiking interest rates, fighting inflation compared to the levers the ECB has.
For MTU, broadly speaking, a strong U.S . dollar is naturally a very supportive situation. As you know, all commercial revenues, commercial OE, commercial spare parts, commercial MRO is booked and billed in U.S. Dollars. We all obviously have also a lot of U.S. dollar denominated cost, but net we sit on an U.S. dollar exposure of EUR 1.4 billion roughly in 2022, which is growing as the business grows, as the commercial business grows. Near term, the FX-induced earnings impact is low as we are hedged strongly near term according to our internal hedging model, which I now briefly want to describe to you. I mean, we have recently amended that model a little bit to take advantage of the current very positive environment.
It allows for higher hedge covers near term in year one or two, and also we can now hedge out to longer maturities until the year 2027 in theory. In our model, we have defined going forward a minimum and a maximum hedge cover for each quarter. Near term, we are more or less fully hedged. You see the maximum, minimum are close together at a very high rate, 100%, 90%, and so on. That goes down in the outer years to a maximum hedge cover of 30%, and a minimum coverage of 0%. We hold a quarterly FX committee internally, and there we discuss the technical implementation of that model, and we proceed with a so-called speed grid.
Here we define which hedges we do in each quarter depending on the development of the respective forward rates. If the forward rates develops in a positive way, we do more, we go more to the maximum hedge cover. If it moves in the wrong direction, we go more to the minimum. That is a very tactical thing. Looking at our hedge book today, I mean, we are fully covered in 2022, 100% hedge cover with a hedge rate of 1.15. Next year, roughly 75% covered at more or less the same rate, 1.16. 2024, 60% coverage, 1.14, and that goes down to in 2026.
We did recently the first hedges goes down to 5% hedged volume to at a rate of 1.04. Here further we modeled what positive earnings momentum we would have if the U.S. dollar stays where it is today, I would say around parity. I mean, we assume an exposure of EUR 1.4 billion in 2022. We model a 5% growth of the exposure going forward. That is really, it's not. You don't have to derive anything. It's not derived from our internal planning or so. It's not an implication for our growth going forward, it's really just a modeling number, the 5%.
We modeled the exposure growth of 5%, calculate the hedged volume at the hedged rate, obviously, and the open unhedged position with parity. Then results in a resulting effective rate. That's the line here, resulting effective rate. It is 115 in 2022, and it goes down to parity in 2026. On the last line, you see the potential positive EBIT impact sequentially. In 2023, which could generate something like EUR 40 million tailwind on earnings out of FX, EUR 100 million in 2024 sequentially, and then 2025 and 2026 then with EUR 200 million or even more should we stay in that FX environment.
Now coming to our outlook 2023, and I want to start with the underlying business drivers, I would say. On the left-hand side, military, I mean, you heard a lot from Michael before. In military for 2023, we expect a continued and stable delivery rate for EJ200 engines for export customers. Major volume and growth next year will come from support, service MRO for the in-service fighter fleets, so EJ200 fleet and Tornado fleet. FCAS, we are prepared to start. Michael talked about that before, but FCAS volumes or revenues are not yet part of our guidance due to timing uncertainty. I think we will have more transparency, more visibility at the beginning of next year together with the release of our full year 2022 numbers in February 2023.
We will update you on that one. Regarding commercial OE, I mean, GTF product, it's clear we grow strongly next year, driven by higher production rates on the A320neo family, obviously also on the A220, and not to forget the E2 jets from Embraer, which also ramp up next year. In addition, we also expect a good growth in business jet production, especially our PW800 platform for the different Gulfstream applications and also Dassault application. Yet widebody, we expect in 2023 a really gradual recovery in GEnx delivery. 2023 will be a slow recovery. More of that will happen after 2023. Commercial spares, major driver will be obviously the growth of narrowbody spares, V2500 and PW1100.
In wide bodies, we expect further growth on GEnx spares demand driven by the higher utilization of the Boeing 787 fleet with the GEnx, driven by the recovery in international traffic. Next year we also expect a recovery in older wide-body platforms such as the PW4000 for the old 777 and also the GP7000 for the A380 platform. Here the driver is really the partial reactivation of the respective wide-body fleets, especially in the case of the GP7000 of the Emirates fleet. In MRO, we expect further growth from our narrow-body portfolio, while the GTF share should stay more or less on the level of 2022. From our freighter customers, on the GE90, CF6 and PW2000 platform, we see a high and stable demand in 2023.
Also, by the way, I forgot that in spare parts business, also the spare parts spares. The freighter spares should stay more or less stable. PW2000 freighter share, CF6-80 freighter share should be on the same level as it was on 2022. No major growth, but it was already a quite high level in 2022. To summarize that in a nutshell, we expect military to grow mid-single-digit next year. As I said before, there might be an update together with the release of our full year 2022 numbers. Should FCAS really start in H1 2022, maybe we can move then this growth rate up to, let's say, high single-digit growth.
In commercial OE, our take is growth rate up 30% next year organically. Both of our aftermarket platform, commercial spares and commercial MRO in the, let's say, 20% range. Commercial spares, high teens to low 20s%, commercial MRO, high teens. Let's say as a ballpark, 20%. GTF share should in the MRO be where it is in 2022, so between 35%-40%. Together with an, let's say, expected FX rate of 1.05 in 2023. The target range for sales is EUR 6.4 billion-EUR 6.6 billion, so roughly EUR 1 billion more compared to 2022. We expect EBIT adjusted to grow in the 20% range next year versus 2022.
Looking a little bit beyond 2023 out to 2025. Rolling forward, basically our midterm outlook by one year compared to last Capital Market Day, we see the same underlying business drivers as we gave you on last year's Capital Market Day. In military business, especially services, for the in-service fighter fleet, Eurofighter and Tornado will drive the business. Possibly, as said, funded technology work for the FCAS platform, which is then growing obviously after 2023 to a higher number, high double-digit million Euro revenue number. In commercial OE, significantly higher rates in 2025 will drive the business. Will it have been, I mean, Airbus, you know, Airbus pushes for rate 75. Will it be 75 finally? Let's see.
What is quite sure is that we're gonna see significantly higher rates in 2025 versus today. Also A220 significantly higher rates you saw for in last presentation, target rate aircraft production 10 on the A220 in 2025. Also, our business jet will grow significantly. PW800 output number today in the 100 module ballpark in 2025, roughly double the size. On the wide-body side, GEnx, we're also gonna see significantly higher output rates compared to today, following higher build rates at Boeing. Finally, after two postponements, the GE9X is poised to enter the market in 2024, supporting entry into service of the 777X then in 2025.
In commercial spares, we're gonna see a strong and stable demand from the freighter market, while growth will definitely be driven by narrow-body engines, so V25 still, PW1100, but see also the first spare parts also in the regional jet fleet for A220 and E2 jets. On the wide-body side, we're gonna see a good level of GP7000, 1,000 spares in the middle of the decade and growing spares of the GEnx. Here, I mean, we have a high utilization of the fleet. We have aging of the fleet that drives a higher number of spare parts, more content per shop visit, and that finally drives then higher spare parts sales on our side.
In MRO, our excellent market position, narrow-body engines, and our big footprint in freighter market, engines will drive the business compared to growing work on GTF engines. Together with the current favorable FX environment, I talked about that one minute ago, that should provide an additional tailwind to sales and earnings. We come up with a rough guidance for the next three years. I just spoke about 2023 guidance. I mean, 2024 earnings should be significantly above 2019 level. 2019 level was EUR 760, you might remember that.
Going out to 2025, our ambition, our target is to generate EUR 8 billion of revenues and for the first time having an EBIT adjusted of more than EUR 1 billion. Finally, looking on our debt structure and capital allocation, I mean, nothing has fundamentally changed in 2022. I mean, we were able to renew our RCF line for another five years with the option to prolong it for a further one year with an increased banking consortium of nine banks. We downsized the RCF a little bit from EUR 600 million - EUR 500 million as we now run the company with, let's say, a higher liquidity buffer.
Our aim is to have something like two months of revenues as a liquidity buffer, which is now roughly EUR 800 million. It's still our firm target to stay investment grade rated with two agencies as that provides quick and easy access to debt capital markets. I mean, you saw that in Corona, in the Corona crisis, we were quite quickly able to tap the debt capital markets with the EUR 500 million bond. Without being investment grade, that wouldn't have been possible. What happens in the next years? 2023, we see the remaining portion of the old convertible bond that most probably will see full conversion. Conversion price is here 124, so no action needed on that one. The new convertible bond that matures in 2027.
The EUR 500 million conversion price, EUR 378. There's still some way to go regarding share price and also regarding time. There's also no action needed. The first real refinancing needs pop up in 2025, that is the EUR 500 million bond, which we did in the peak of the corona crisis, mid-2020. But there's also no action needed this year or next year, we will most probably see how to refinance that in H2 2024. Regarding a capital allocation, that is also a stable picture. We still target 0.5-1.5 net debt to EBITDA.
I mean, in theory, we would love to invest into organic growth, into new engine programs, but we heard before there is nothing new on the horizon, nothing big scale. Dave Calhoun from Boeing side said nothing, no new program, currently on the horizon in this decade. Airbus obviously has also no need to push for a new program. What we currently do is we invest into our low-cost footprint in the MRO to extend here our low-cost footprint. We invest into new production technologies in our Munich facility, like the ECM technology, which is reducing manufacturing costs, reducing warranty costs. Not to forget, I mean, we also invest into our geothermal plant here in Munich to reduce dependency on fossil energy on the one hand side and to reduce also our carbon footprint in production.
Regarding dividends, also stable. We're gonna increase the payout ratio towards our target payout ratio of 40%. Then in the second step, when we are at the lower end of our target range, we will also consider then share buybacks. That certainly has then to fit into the framework of our investment grade rating. Regarding M&A in our core business, I mean, you know all that. I mean, we see limited opportunities here to really do bigger transaction in the engine business. That marks the end of my presentation, and now I'm happy to answer questions you might have. Who's the moderator?
I'm just seeing the mic.
Okay. Catching up. Just the first question from there.
I'm over here. Peter, obvious question, really. What are your thoughts on free cash flow conversion, looking into 2023 and beyond out to 2025? Thank you.
Yeah, the answer is clear. I mean, it's still our target to do a high double-digit cash conversion. Near to mid-term, it's not alone in our hands, I would say. Supply chains are not very stable currently. We have quite long turnaround times in the MRO. We have volatile delivery schedules in the OEM sections. We have program postponements and so on. This situation causes a higher level of working capital compared to the usual situation. Probably it won't be over in the middle of 2023. When you read the comments of Rheinmetall and so on, they expect the difficult situation in worldwide supply chain to last until end of 2023.
That's the reason why, yes, we have the ambition to generate high double-digit, but we have to see what we can do on the supply chain side.
Following up again on the 2023 guidance, what sort of mixed headwind are you expecting in the OEM division? Because if you know, new aircraft OEM is growing faster than aftermarket, that's gonna be negative for margin. Thanks.
Sure. We're gonna have a little bit of a tailwind from FX, obviously. I pointed that out. We have a headwind from OE. I mean, that will grow like 30% compared to the spare parts business. We, from another, I wouldn't call it a headwind, but we're gonna invest a little bit more on the technology side to prepare for the different things Lars just pointed out, yeah? To prepare for Gen2, to prepare for all the technologies which are on our technology table, yeah.
Thank you.
A couple of the first one is pretty simple. Just wanted to clarify something on the 2025 EBIT ambition, because the slides were saying about EUR 1 billion, and you said actually more than EUR 1 billion, so you sounded very optimistic. Do you see it as already relatively cautious? The second is about the 2023 spare parts growth for high teens-low 20s%. Can you explain a bit how you come up with it? What are the underlying assumption for air traffic? Do you think that there will still be green time management? What is the pricing component to it? Do you think it's constrained by capacity or it's delivering at its full potential? Even qualitative comments would be quite helpful.
Last one, I wondered whether you could tell us what is the type of wage increase that you have in your plan. I think you had about 6% initially for 2023. Whether you're still on track with this or more.
Our major footprint is obviously Germany. We are currently in negotiations with the trade unions. They demand, let's say, I think that they want to have 8% wage increase. The final outcome will be a bit lower, I would say. I wouldn't expect. I would expect something like maybe a middle single-digit wage increase in Germany, yeah. That is my personal view on that one. Yes. I mean, that is the EUR 1 billion euro target, that is a little bit wording. We want to be above the EUR 1 billion. It won't be EUR 1.5 billion, yeah. It's, well, not. Regarding spare parts, yes, one component of the spare parts growth is definitely pricing. I think the list price increases are out.
They are in the range average, like, let's say, 10%. I think we want to retain most of it, yeah.
Growth. Like, I mean, spare parts, and as I said, I mean, we're gonna have a little bit more PW2000 growth. We're gonna have pickup in wide-body spares, GP7000. We're gonna have GEnx spares growth. We're gonna have growth on the V2500 and the PW1100G-JM platform. There's also volume growth. It's not only pricing, yeah.
David?
Yeah. Thank you. Two questions on the guidance, one on 2023, then one on 2025. Just on 2023, probably the bit that has most surprised me is the OE up 30%, given your biggest product is A320 and Airbus is not guiding to anything even remotely close to that. Could you just unpick that for us a bit, help us to understand it? Then on 2025, you've got EUR 8 billion of sales, that's 14% above consensus, and you've got EUR 1 billion of EBIT, which is 5% above consensus, which tells us that the sell side is rubbish. Just what is it we've all got wrong on the sales? Is it that we're not capturing inflation or is it we've got the OE bit wrong? Yeah, if you could just help us understand why, where you think we might have got it wrong on the sales bit?
Well, I have not studied each and every model the sales side has, honestly. I cannot really give you an answer to that one, yeah. So.
Well, for example, I mean, do you, is it that, let's say inflation that just passes through your books, so you have higher costs but higher revenues, therefore we're all in about the right place for EBIT maybe, but we all just get the revenue number wrong? Or it could be an FX thing that we've all got wrong. I mean, do you think there's anything that perhaps we might not be understanding correctly when we look out to 2025?
I don't think so. No. No. I wouldn't think there's rubbish in the room. Certainly there are effects in there where possibly one factor is that the pass on element might be a little bit screwed up in the models, but that's certainly something we could discuss off-site to really go into the detailed models. I think that would make more sense.
Yeah. Just on this 2023 OE up 30%.
Yeah, I mean, our I mean, we deliver engines before, significantly before Airbus delivers the aircraft to the customer. Our 2023 delivery has also, let's say, the 2024 A-rate of Airbus in mind, so to say, yeah. It's not that you can say all engines which are on an aircraft which are in 2023 delivered to Airbus customers are our delivery. We deliver, let's say, I don't know what our lead time is, six, nine months before Airbus delivers the aircraft to the airline, yeah.
Question on currency as part of your 2023 and 2025 guide. Could you just verify, so are you using parity dollar to get to the 2023 revenue as well as the EUR 8 billion for 2025 and for the hedging for the 2025 to EUR 1 billion? Are you using the hedge rate you have today or are you assuming, you know, the unhedged position being filled at the
No, I mean, we have in 2025 we have already hedged roughly 30% of our exposure and the open exposure we calculated is, it's between 1 and 1.05. So around parity. It's not the forward rate.
Okay. For the revenue, it's based on parity?
Yeah, exactly.
For next year's margins, you know, last year you talked about MRO being close to 5% or 6% as long as the GTF remains about 40% of the share. You talked about next year being around 35% or 40%. You know, does that provide some uplift to the 5%-6%?
No, I mean, if you look at the numbers this year, MRO delivers a margin of 7.5%. This year is in several ways an extraordinary year for MRO, especially due to the fact that we have a very strong appreciation of the U.S. dollar this year. We have quite long turnaround times this year. You sell today maybe a shop visit to a customer, and you have purchased the parts maybe even at the end of 2021 at a $ 1.20 or whatsoever. You purchase a part at $1.20, you bill it to the customer maybe at parity. You have an implied margin of, let's say, 20% on the spare part.
That is a one-time effect which we see in 2022, but it's when the U.S. dollar is in a stable situation, you have that impact. You don't have that impact anymore, yeah? If it goes in the other direction, then you even might have a negative effect. One can expect that the margin in the MRO next year won't be at 7.5% on this year's level, so a little bit below that. From there, it creeps up again.
Is 5-6 still a good target for?
Yeah, more than 6%. Short term.
Yes. I have two questions. Just coming back on David's question on the OE. When you say you're significantly ahead of Airbus delivery rates, by how many months would you be ahead? The second one was on the CapEx trajectory. Could you just tell us where it will go from 2021?
CapEx?
CapEx, yeah.
Okay. The delivery I just said, six-nine months ahead of Airbus, so in that ballpark. Regarding CapEx, yeah, next year it will be a little bit above this year, I have to say. We have built a new manufacturing plant in Munich. We have to fill that now with machines and so on. What helps is that we have more or less done the whole investment for MTU Serbia in 2022, so we don't have that in 2021. But in our Berlin facility, for example, we invest into the MRO capability for the CFM56-7 and also the PW800, so you need tooling, test cell equipment, and so on.
To provide you the basis for future growth there. We have that geothermal plant in Munich. But it's not, I mean, it's not exploding, but it's gonna be a little bit higher compared to 2022. Slightly above. It's gonna be a little bit upwards, and then it's gonna be stable. 2022 upwards and then more or less stable.
Thank you for taking my question. Victor from Goldman Sachs. I have a question on, cost inflation. You have an interesting slide. I think it's slide 57. I was curious, first, like if your 2023 EBIT guidance includes the potential impact of cost inflation, or the escalation caps that you mentioned on the slide. Particularly interested in whether you could give more color on the proportion of contracts which have caps versus those which don't have caps. Potentially also like some color, if possible, on the timing difference. What has it been historically? Was it like on average one year, six months, two years? That would be helpful. Thank you.
No, there's no general answer to your question because, I mean, you saw that contracts, they are moving. I mean, we don't have a static situation there. You have the overlap of these different supplier contracts, they change obviously. I would say typically you have something like 6-12 months gap between cost increase and your ability to pass that on to the customer. But how big the effect is, we don't analyze that really in detail, yeah. Also, I mean, we don't say 12.3% of our customer have escalation caps.
There are some cases where we do have that, but it's not the majority, I would say, of customers we have, which have these escalation cap clauses in their contracts, yeah. Otherwise, we would suffer more. Yep.
Yes. Hello. Zafar Khan from Société Générale. Could I please ask you to stick slide 60 on the screen, so we can just look at that together? Because my arithmetic is really letting me down badly. Slide 60 is what I'm looking at.
60. Okay, yeah.
60. This is the modeling you've done on the currency assumptions.
Yeah. This one?
Yeah. First of all, the potential EBIT impact that you're showing at the bottom there in the blue, is that a year-on-year change?
No, it's cumulatively. We have from 2022 to 2023, you have 40. From 2022 to 2024, you have 100. If you,
Yeah
If the base year is 2023, you have an additional 60.
Yeah. Okay. My arithmetic works. Yeah.
Okay.
That was a clarification I need. Thank you.
More questions? Doesn't look like for the moment. Thank you, Peter.
Thanks.
Last, may I ask you for the last episode?
You have to do a lot of work as a COO.
No, it was planned that I give the executive summary. Peter, this is yours.
Not that I convert back to hedging and stuff. No, I think you have seen, like a 360-degree view of, like every area of what MTU has on the plate. Very good insight on operations, on programs, finance, and also on the current market environment. To put that, we've tried to work hard to put everything in one slide as an executive summary. I believe it's fair to say that the next one, two, maybe three years are going to be rather challenging. As you get it from today's view or today's speeches, we are very optimistic for the future. We are very optimistic for the future.
Most of these top lines we have tackled today, economic slowdown, obviously, that's what I meant with rough years, is going to develop. We see the recovery, we see the long-term growth of our industry. We have set up operational excellence levers in both our factories, OEM and MRO. I believe the financial guidance 25 was a strong one, 8 1 25 that Peter just rolled out. Supply chain we tackled. Honestly, we believe we are very well positioned on that global supply chain. There might be ups and downs, there might be other macroeconomic evolutions, but right now, looking forward, we are very positive on the supply chain and we do a lot proactively for that. The decarbonization and climate protection issue is not over.
It's rather increasing, as we see that, and that is important for us on our product side, but also on our production footprint side. We have a very good offer to the market if we see the industrial industry reshaping. The GTF is the architecture of the future with a double-digit improvement in fuel burn and operating costs. We have touched as well on the defense and the sovereignty items, where MTU, as I said in the beginning, plays a vital and a very important role in European defense program. We all hope that the FCAS is now getting to a signature soon, very soon. The topic that we did not tackled today, but it's of importance for every company out there, is to retain and to attract talent.
It's getting more and more difficult to attract the best talent and to retain our talents globally and worldwide. We are in the same ballpark with all the other companies. We have a good development. We have a very high retention rate. We believe we are doing something right and we want to continue to do that in the future. So in a nutshell, I have written down for me here, I'm very happy to be in that industry. I'm also very happy to be at MTU. That's a superb company, great products, really innovative technology roadmap. We have a strong management team being here present, but also in our factories on all management levels. We have an enthusiastic and a well-trained workforce.
These are the ingredients that make me happy, and I'm obviously very proud to be at the helm of this organization, starting in January. Saying this, we have a guest here, online, Reiner. Thanks for watching us and listening. I hope I did well. You gotta give me feedback when I'm back in Munich. I understood that some of you wanted to give a direct feedback into the camera, as I've heard. May I ask you to come up on stage, with the microphone probably, and I will close afterwards with a personal note after we have done so. Please, sir. I think this is the best spot you have here.
Thank you very much indeed. This is really to Reiner. I think there are three of us in the room today who were on the IPO syndicate back in 2005. If I've missed anybody else out, I really apologize, but I couldn't find the term sheet this morning. 17 years, no other aerospace and defense CEO, certainly that I've covered, I think any of us have covered, have been doing the job that long. Capital markets are tough. Supervisory boards are incredibly demanding. That, if nothing else, tenure is a tremendous achievement and, you know, really a mark of how well you've done. What I did manage to find this morning was the pre-IPO presentation that you gave. Page 88 is a cracker.
The strap line on the top is, "MTU has a proven track record of increasing profitability in a difficult market environment." At that time, you, Reiner, were talking about the recovery from 9/11. You were pointing to revenues in 2002, 2003, 2004, that were about EUR 2 billion, actually under EUR 2 billion. You were making a margin then of 12%, and the business had a totally different mix to what it has today. Military, almost unchanged to what it is today. MRO, less than 40% of the business, and the rest was OEM. The company today, 3 times the size, very similar margins, better despite that astonishing change in mix. That is, again, you know, what an astonishing transition and performance you've achieved there.
From me, certainly the, you know, other people who have been on the sell side of this period, thank you for tolerating us and our sometimes repetitive and annoying questions. We know they are. Thank you for delivering such consistent reporting and performance. That really matters to analysts, but also more broadly for educating us in the technology, in the politics of this industry and the commercial aspects of this industry over that whole 17 years. Good luck. Very best wishes for the next stage of your career, and we really look forward to bumping into you, hopefully on a chalet line of the next really good air show. Thank you.
Thank you very much. Anything else? Thank you. With some magic, I have the answer of Reiner on my phone. He asked me to pass it on, convey the message. Reiner wants to thank everybody who has supported him and us from 2005 onwards. We all know that being in the market in the beginning wasn't always easy, especially since we're not an OEM. He remembers a discounted market valuation compared to some of our peers. Today, we are well established in the market, and we have a great future ahead. He has one favor. He asks you to continue to be well-disposed towards MTU. The management team is set up exceptionally well for the future. Thank you again to everyone who has been accompanying us, especially David Perry and Harry Breach. Thank you, Reiner.
I hope I transferred that okay. Now, before we come to a Q&A, let me finalize from my point of view with a personal note. You have heard a lot of news now today on the MTU, and I thought you might actually expect as a future CEO some comments maybe where I want to put priorities and the focal point on. First of all, I learned always meet your expectations. I learned that for sure.
Now let me highlight a few points, and please see that it's not a government statement as I'm not in the government right now, but rather a teaser on what I will be focused on and what we in the new management set up together with Silke will work on in the future. First point, obviously, is profitability. There's no surprise that we focus this as number one. You have listened to our midterm outlook and our commitment goes in that respect. We aim to accelerate going back to pre-COVID profitability performance. This mainly deals with the PW1100 aftermarket, but also other programs and some internal and external measures. Second is growth.
We highlighted several times today that the fundamentals and the growth are good mid to long term. We as MTU, I personally want to steepen that growth trajectory beyond market development. Not an easy task, obviously, but I believe we have some good strategies on our horizon. On the OEM side, we said now several times as well, increasing workshare in our existing programs, but also getting prepared for a second platform next decade on the high volume single aisle market. This is our sweet spot and will continue to be our sweet spot. On the MRO side, we have invested, Michael, a lot in our growing capacity, and we want to fill that with existing but also with new programs, and there will be more to come. Portfolio is number three.
We have not seen big acquisitions in the past, and I can tell you we will not be adventurous in the future. The first goal is to protect our core portfolio in OEM and MRO business. However, our industry will change significantly, and there might be some opportunities on the horizon, particularly on the technology side. We have always and ever invested into promising technologies, both on the product side but also on the manufacturing side, and we will continue to do so. Furthermore, we investigate obviously any kind of disruption potential that we see in our industry, again, both on products and our business model, and we want to move proactively to be prepared. Number four is going to be no surprise. As a CEO, I'm gonna watch the operating model.
We have worked a lot on our operational excellence. We are known and we have a good reputation of delivering every time when a customer is needing us, both in MRO and OEM. We will further enhance this performance, and I'm putting a lot of hope in my successor, Silke, as she will bring in new input and new views on operational excellence and her view on the external supply chain. Last but not least is number five, is leadership. Reiner has been a tremendous and excellent leader for MTU, a very integrating, a trustful management style. I believe, and you just said it, the results speak for itself since you are following us. Leadership and corporate culture will also be a major focal point for me personally. We are needing...
We are going to transform and collaborate together. These are the main drivers to make us innovative, to have an innovative and a modern culture. As someone said to me, we are a high-tech industry, but traditional in style. This is what we're trying to work on, but we obviously see the signs of the time and the bills of the time, and we want to further strengthen our digital mindset and our agility. I hope with that you see that this is more an evolution than a big revolution. Please continue to be supportive for us.
We will work on these five important issues in the future together with the whole MTU management team, and there will be plenty of meetings where we elaborate further in details what is the outcome of the discussion inside the management board but also with the leadership team of MTU. In a nutshell, before Q&A, one last word to Reiner. If you're still listening, thank you for everything you did for MTU, for us, and for myself as well. It was a fantastic ride for the last 20 years. For me, for the last eight years. We still have some farewell parties ongoing in the next months, but in front of this audience, again, thank you very much. Have fun in your retirement and stay healthy. See you soon. Thank you.
Perfect. Now I ask, Peter and Michael share the burden of a final Q&A.
The fun, not the burden. Good. Final round of Q&A, whatever is left. In the front row right there.
Just a-
The mic is not on. Oh, well, it's working now.
Just a couple of final ones. This is probably for Lars. If Airbus does decide to go to rate 75 on the A320 in 2025, can you do it? Secondly, in your new role that's coming very soon, what's your long-term thoughts on China? You know, the relationship with the USA, for example, isn't so great at the moment. Do you feel that the risk in China has gone up from when you started with the Zhuhai relationship?
Well, these are two questions. I think I have to get prepared for these kinds of questions. Let me tackle it. The rate 75 is an Airbus ambition, and I believe the market is there. Would we be ready in 25? This question we discussed with Pratt & Whitney together, and I told you earlier, I don't wanna make this commitment yes or no. We are ready when Pratt and we together at IAE decide we need to be ready. That is an ongoing discussion between, I would say Airbus in general and the OEMs. Fair to say? Yeah. All right. The question on China is also a difficult one. I think no one has a crystal ball. China is a big market for us and will continue to be a big market.
Right now, the relationship between the U.S., and maybe even Europe, and China is not that well. Let's just hope we overcome this issue because it's a tremendous market for everyone. If there's something happening on China, Taiwan, then the world has a different problem, a much bigger problem than we talked about today. Two things, big market and the hope that we are going to settle what's in between these two nations or these two blocks. Statesman answer.
Thank you. I have a pretty simple question, but you gave a clear series of targets for 2023. When we look at last year, given the same for 2022, almost nothing happened as planned for the year 2022 in the macro environment. The environment is still pretty volatile right now. Today, in the trajectory that you set for 2023, the key elements of challenge you really need to be focused on to make sure that you deliver on your ambition?
What was the question? I didn't really get it.
Where is the challenge in reaching the 2023 target? What is the one thing you need to deliver on?
To reach the 2023 figures.
I would say supply chain, basically. I mean, we have long turnaround times in the MRO. What I mean, in order to generate revenues, in order to generate EBIT, you have to finalize a shop visit, for example. You have to send it to the customer, you have to bill it to the customer, and so on. If supply chains don't work, you cannot book revenues and you cannot book profits. I think to manage the supply chain is the most difficult part of 2023.
That comes before demand in your risk analysis. Supply chain is bigger than demand.
Our take.
Yeah.
Demand. I would say demand is there. This is not so much a topic. Don't forget we come out of the biggest crisis of this whole industry. To make now a forecast for 2023 and how fast the ramp up will be. There's a ramp up, which we explained to you, but how fast this ramp up is really depending what the industry is doing, what our supply chain is doing, what the OEMs are doing. There are a lot of elements which we have to put together. The good thing is the demand is there. The second good thing is we are there with our capacity and with our competence, since we did not lay off people. All in all, in the macroeconomic effects, we are in a very volatile situation. You know us, we are sometimes a little bit conservative also.
Hello, Harry Breach here from Stifel. Maybe one for Peter, a couple for Lars, if I can. Peter, and forgive my ignorance. Thank you for the escalation clause slide. That was very helpful. Does the escalation formula apply to PDPs as well as the payment on delivery for the engine? Or is it, if you will, solely a balancing calculation made at the final payment? For Lars, if we think about commercial MRO, I remember you mentioned earlier on that your growth forecasts for that were well supported by existing contracts in place. When we think about available capacity you have across the network in coming years, when would the next available free position be for induction into your network of shops?
Finally, given just how important Zhuhai is becoming in the context of, if you will, the 100% of the MRO network revenues, obviously you only consolidated equity. Can you give us any sense of the sort of where we are roughly with margins at Zhuhai today, maybe at an EBIT level and the sort of where those could get to?
Zhuhai, I mean, you can read it up in the annual report. In theory. I mean, Zhuhai is currently at roughly 10% margin, yeah.
EBIT.
EBIT margin. Yeah.
Yeah.
Lars.
Direction of travel, Peter, is there expansion plans to-
Yeah, I mean, Zhuhai will see the same situation which we have on the whole MRO that you heard from Michael, is we introduced the PW1100 there. We introduced also LEAP there, so new engine programs, big material content. So that will, we'll see in Zhuhai, we'll see a tremendous revenue growth in the coming years, but that will be a little bit margin dilutive. But I mean, Zhuhai will generate an above average margin compared to the whole MRO portfolio. That is, I think, fair to say, yeah. Now, into the question on induction slots. Obviously we prioritize our customers, and if a customer has a real need for a slot, there will be a slot available. The question is it in the next week or is it in two months, yeah?
We make sure that there will be a slot available. Don't forget, we also have a long-term planning forecast, how the capacities, the demand and the capacity side will develop. We are investing also in this capacity. For example, in Poland, we will create an additional 100 slots in 2023 just for the PW1100G-JM engine, and this journey is continuing in this decade.
Yeah, I believe you have seen, and Michael, we have commented on that, we have continued to invest in our MRO capacity even over the crisis. That benefit, we're benefiting from that right now.
Thank you.
You're welcome.
There's one more over there. Christoph. One moment.
Sorry, the escalation clause. It's the final payment, yeah. Right. The performance does not apply to PDP. No. During the final. Thank you.
Yeah, one question on the passenger traffic growth next year. The assumption is that it's gonna continue to grow. How robust is this assumption? What could make it derail, I mean, if we enter a real bad recession? Or you think it's you have enough visibility to make it robust and, at the end of the day, it's you're very, I mean, you believe your assumption is very conservative at this stage?
Well, what I presented in the beginning, but maybe I ask Andrea later, is our head of strategy. We see two levers on that. One is the recession we said that might be decreasing, the other one is the opening up zero-COVID in China. If that happens, and I believe sooner or later that needs to happen, then this is outpacing the decline we see because of recession. From my point of view, that's pretty robust. There's even upside potential. I'd like to ask Andrea. Yeah? Good. All right. One last question over there.
Just two very quick questions. On the escalation formulas, are they based on U.S. indices or German indices, or is it a blend of the two?
It's a.
What's the best index?
It's a broad labor index. It's not a German index because the final operator doesn't care where the engine is manufactured. It's a broader worldwide labor index, yeah.
Okay, great. Could you give any color on maybe where the caps are sitting at or where the bands are, where, you know, it passes to the customer or where you have to start eating some costs?
Well, I didn't get the question.
As in the caps on the escalation formulas. Like, is there a cap where?
Yeah, yeah.
Inflation is too high and now you have to eat the cost instead?
That I would pass on to Martin, if you want to. Mic is on the way.
Basically on the MRO side, as Peter also derived, we have a similar structure. That means a large extent of our order book is long-term contracts, and that means similar approach. We link it to the CLP, the OEM CLP to one extent, and then the labor indices. It's exactly the same. So as Peter mentioned, to a less extent, we are exposed. It's very marginal where we are. We have caps in our contracts.
I believe it happens to be the last question.
I think it doesn't.
You wanna close that? It seems like we're done. I say thank you very much to our board, to my colleagues that supported us, and to my team. I also thank you for joining us here in person and the people at home or in the office joining on screen. I think it was great to reconnect, and I'm very much looking forward to the next events and/or the next meetings. Thank you very much. Have a safe trip home or just around the corner, whatever. Enjoy the rest of your day. Bye-bye.