Welcome to the conference call on MTU Aero Engines First Quarterly Results 2021. For your information, the management presentation, including the Q and A session, will be audio taped and streamed live or made available on demand on the Internet. By attending the conference call, you grant permission for audio recordings intended for publication on the Internet to be taken. The speakers of today's conference call I'm Mr. Rainer Winkler, Chief Executive Officer and Mr.
Peter Kammerich, Chief Financial Officer. Firstly, I will hand over to Mr. Thomas Franz, Vice President, Investor Relations, for some introductory words.
Thank you, Lynn, and good morning, ladies and gentlemen. Welcome to our conference call for MTU's Q1 2021 results. We will start with a business review presented by Rainer. Peter will start with the financial overview and a more detailed look into our OEM and MRO segment. After that, Rainer will share our view on the current situation and the remainder of 2021.
After that, we will open the call for your questions. Let me now hand over to Rainer for the review. Yes. Thank you, Thomas, and welcome also from my side. Let me start with a brief review of the Q1 of 2021.
Globally high COVID-nineteen infections rates and ongoing travel restrictions resulted in a weak start into the year. So passenger traffic was 70% below pre crisis levels, whereas cargo traffic accelerated 11% in the 1st 2 months. IATA estimates a slightly better recovery of 26% in 2021, which equals 43% of 2019 air traffic. Main driver expected to be domestic RPKs with a plus of 48%, while international traffic remains stable. This is the first positive revision of the ATAS outlook for 2021 since the beginning of the pandemic.
The GTF is one of the products recovering fastest in the aviation market. So the GTF utilization is back to over 80% of pre COVID levels. The fleet wide retrofit program for the GTF engine has been almost completed and supports a high utilization. KLM has received its 1st Embraer A2 jet equipped with GTF engines. This happening in the current situation This is an encouraging sign for the positioning of our products.
Switching to the MRO business. MTU Zhuhai celebrated its 20th anniversary beginning of April. In its history, the facility was expanded twice and currently has a capacity of 4.50 engines per year. The next step up in capacity to 700 shop visits has already been decided and we expect to see the second site in China to start operations in 2024. For another expansion project, the progress is now actually visible.
Construction work of MTU Serbia has started. Sichuan Airlines, which is a long term customer of MTU Zhuhai, As signed a 5 year MRO contract to maintain the B2500 and CFM56 engine fleet. This is once more evidence for our successful strategy to provide customer and tailor made solutions. Also progress on military side. In April, MTU and Safran signed the joint venture agreement for the engine of the FCAS project as we confirmed last night in the press release.
Further, MTU and Safran came to an overall agreement with ITP on the cooperation to jointly develop, Produce and support the next generation fighter engine. Each partner will have a work share of 1 third. Sikorsky announced its first export customer for its CA-fifty three ks heavy transporter helicopter. So Israel ordered the helicopter to bolster its fleet. On the 21st April, our proposal to reinstate the dividend payment was confirmed by the votes at our AGM.
This is an important next step forward towards normality as we move through the crisis. The 1st 3 months in 2021 were still disrupted and we have seen a lot of ups and downs. Anyhow, the current market developments are within the expected ranges that led to our revised guidance in February. Given that we are confident to achieve our targets and we can keep our guidance unchanged. So let me now hand over to Peter for the financials.
Yes. Thank you, Rainer, and also a warm welcome from my side. Let's have a brief look at the financial highlights of the Q1. Please let me remind you that the Q1 in 2020 was a normal quarter with no impact from COVID-nineteen. Therefore, the comparison base is rather skewed and quite tough.
Revenues decreased by 22 percent to almost €1,000,000,000 In U. S. Dollar terms, revenues were down 15%. We had a significant headwind here from the weaker U. S.
Dollar in Q1 2021, where the average rate was €120,000,000 versus €110,000,000 in the quarter last year. Group EBIT adjusted was down roughly 50% to €86,000,000 resulting in an EBIT margin of almost 9%. Respectively, net income decreased to €58,000,000 On the positive side, free cash flow came out at €106,000,000 which is a strong start into the year. This mainly results from a strong cash collection in MRO following a high level of receivables at the end of 2020. So now turning the page and jumping into our business segments, starting with our OEM division.
Total OEM revenues decreased by 32 percent to €337,000,000 Military revenues were down 11% to €87,000,000 Show you typical seasonal effects with a weaker Q1 and a stronger H2 and Q4 as last year. We're going to see the same pattern also in 2021. Commercial business revenues declined by 37% to €250,000,000 And within that, organic OE sales in dollars were down in the high 30s range, reflecting production rate cuts at Airbus for the 2020 Neo platform and Boeing for the Dreamliner. Q1 2021 key revenue drivers were the GTF engine programs. Organic spare parts in U.
S. Dollars were down in the high 30s. V2500 and CF60 and PW1000 engines started a bit weaker into the year as expected. This business mix resulted in a decrease of EBIT adjusted €47,000,000 with a margin of 14%. So turning to the commercial MRO segment.
Reported MRO revenues here decreased by 15% to €678,000,000 while dollar revenues were down only 8%. Core MRO business was down in the low to mid-30s range, widely compensated by GTF work. EBIT adjusted decreased 40% to almost €40,000,000 resulting in an EBIT adjusted margin of 5.8%. The lower margin here results from a higher share of GTF work, as mentioned before, as was already the case in last year. At this point, I'd like to hand back to Rainer for some words on
our guidance 2021. Thank you, Peter. As you see in our financials, we had a relatively slow start into the year. This was not surprising, and Q1 results came in broadly in line with our expectations. The overall developments in our end markets are also within the expected ranges.
Airlines, especially in certain key markets such as North America, look more optimistic into the second half and are planning for a strong summer season. Vaccination progress and a sequential lift of travel restrictions should support this. As a result, we expect to see an improving aftermarket business quarter by quarter with Q4 expected to be the strongest of the year. All of this supports our outlook and we can confirm our guidance as issued early this year. Revenue outlook remains at €4,200,000,000 to €4,600,000,000 based on U.
S. Dollar rate of 1.20. The outlook per segment also remains unchanged. So military and commercial OE sales to be up Slightly, commercial spare parts revenues to be up low to mid single digit and commercial MRO revenues are expected to grow in the range of 15% to 25%. The EBIT adjusted margin should be between 9.5% 10.5% and net income to be in line with that.
And finally, our cash conversion rate is confirmed in the range of mid double digit percentage. Anyhow, the development in passenger traffic seems to remain volatile. We'll certainly monitor the developments closely and will update our outlook if necessary during the year. So thank you very much for your attention and we are now ready to answer your questions.
Thank you very much. We will now begin the question and answer session. Mr. Robert Stallard from Vertical Research, may we have your question, please?
Yes. Thanks so much. Good morning.
Good morning.
I have a couple of questions for you. First one, I was wondering if you could comment on how the Zhuhai MRO business performed in the quarter and whether this did start to see some benefit from the recovery in Chinese domestic flying. And then secondly, Peter, on the cash flow, a strong performance in the Q1. And you mentioned, I think it was from collections. I was wondering if there was any cash flow that was pulled forward from what you may have anticipated later in the year.
Thank you.
I mean, commenting first on Zhuhai. So the equity results from Zhuhai was rather flattish. I mean, we saw the corona impact in In Zhuhai, already in the Q1 in 2020, so we had the Chinese New Year and so we prolonged Chinese New Year. So in Q1, we had a little bit of disruption operations in Q1. But I mean, the pipeline in Zhuhai is full.
So we did the induction pipeline. So we expect also here in Zhuhai regarding revenues and equity results obviously for the consolidated P and L, A small tailwind throughout the year. On Q1, free cash flow, yes, it was A strong start, obviously, to the year. There's no pull forward, I would say. I mean, we had a Strong Q4 revenue wise in 2020 on the military business, on the one hand side also in the MRO.
And There were obviously the respective cash inflow was in Q1. So it was a strong start into the year. But it's not Obviously, the free cash flow for the full year won't be 4 times Q1 cash flow. Yes. Okay.
It would be nice, obviously, but It would be nice.
We'll work on that.
Thank you very much. Thanks.
Thank you for your question. And your next question comes from the line of Mr. Charles Lau from Bernstein. May we have your question please?
Hi, good morning everyone.
Good morning.
First, could you just share the organic experience performance for each of your Three main engine programs. And secondly, there's been some discussions from some of your peers about customers bringing Some repair and MRO work forward to prepare for a busy summer season. So just curious if you've been seeing any of that going on?
Yes, I mean, on the V25, we had something like, yes, in the 50s. So it was organically in U. S. Dollars down in the 50s. CF6 and PW2000 was down slightly, so together, so the CF6 had a little bit weaker start into the year.
It was down in the 10% range, I would say. On the other side, PW1000 was even slightly up. So we had especially, I mean, you might know that PW2000, the major part of the fleet is installed on the military C-seventeen transporter, and that is even growing that business. So that is Supportive year, obviously. So but both together was down something in the 5% range.
So The rest of the portfolio roughly down 30%.
Regarding the MRO activities, yes, we also see More and more customers are asking for shop visits in the next quarter to come. So they prepare, as I mentioned in the Statement before, for a strong summer season, especially in the U. S. Market, we don't see that in the same range in the European market, but Especially in the Asian and the American market, we see demand growing.
Great. Thank you.
Thank you. Mrs. Chloe Lemarie from Exane BNP Paribas, may we have your question, please?
Yes. Thank you for taking my question. I have 2, if I may. The first one is actually if you could comment on the March performance in commercial spares and AAMEO versus the rest of Q1? And are you already seeing some slight improvement versus the beginning of the year?
And how should we think about it going into Q2? What trends are you expecting? I know that you mentioned gradual improvement throughout Each quarter, but maybe quantifying this a little bit would be great. And the second question is on the cost cutting that you managed to do. Can you tell us what the net cost savings impact were in Q1 and what we should expect for the rest of the year?
Thank you.
Yes, on the spares, I wouldn't quantify that. But I mean, Q2, we're going to see a sequential improvement throughout the year. So We expect Q2 to be also on the spare parts stronger compared to Q1, but the main I would say the main acceleration would be rather in the second half of the year. So this year will be a little bit back end loaded obviously In the commercial spares, in the commercial MRO and also as usual, also in a typical year, in a non COVID year, the military business. Cost cutting, yes.
I mean, if you look on our staff capacity, then we have reduced. So from the peak level 1 year ago, we reduced the Full time equivalents by roughly 800 headcounts in the year. So you can translate that into something like €80,000,000 of staff cost, and I mean, that is 1 quarter happened obviously then in Q1.
So eventually you should have €80,000,000 lower?
For the full year, exactly. For the
full year, okay.
Yes.
Perfect. Thank you.
Thank you. Mr. Ben Heelan from Bank of America. May we have a question please?
Yes, morning. Can I ask on the OEM margins were pretty weak? How should Would you be thinking about those through the remainder of the year? And was there anything in particular that we should be aware of in Q1? And then secondly, on SCO, any view on what you're seeing in terms of revenue per shop visit?
We've heard a lot about the potential impact of USM, so anything that you're seeing in there would be helpful. Thank you. So Ben,
I would start with The OEM margin, I mean, certainly, I mean, we had in the OEM margin, we had 2 major, I would say, headwinds for the margin. It's On the one hand side, obviously, a weaker start regarding spare parts and a weak military business in Q1. And that together With a decent level of OE delivers obviously led to that 40% OEM margin. I mean throughout the year, as I commented, I mean we had We're going to have at least a significant tailwind to EBIT coming from an acceleration of spare parts demand and also from a Significantly higher share of military business. So definitely, that is a tailwind for the OEM margin.
Right then exactly will be I mean, With IFRS 15, honestly, so the revenue line is not so easy to forecast, but I mean, we're going From today's point of view, the OEM margin will be definitely higher compared to the 14% for the full year.
The second question was about the scope of the shop visits in the MRO business. Yes, indeed, actually, we see, let's say, compared to previous Quarter is very lower scope of shop visits. So the airlines, they maintain only or they ask only for Minimum of what has to be done, but we also think that, that will change over the year, especially then the second half that we will see a higher content of the shop visits as well.
Any view in terms of what Magnitude scope has been a headwind for your aftermarket business. Is there a kind of percentage number you can put on it?
No, I don't have a percentage on that.
And then it's also very customer specific. For example, if a customer Holds a flight hour agreement, obviously, this customer is not very scope sensitive because this customer pays The scope via a slight hour rate. So on that for these customers, the scope is the same as in the past. So the sensitive part
of the market is obviously a
material market. Yes.
Yes. Okay. No, that's great. Thanks, guys.
Mr. Christophe Menard from Deutsche Bank, may we have your question please?
Yes, good morning. I had Three questions. One follow-up on the comment you've just made on time and material versus contract. Are you seeing a very different dynamic on time and material At the moment, apart from the lower scope, are airlines actually refraining from putting some of those engines in maintenance? And is there a huge difference between contract and time material in terms of your revenues in MRO?
The second question is on the free cash flow. The well, you collected the cash from, I understand, the MRO receivables that you had. On the OE side, are you seeing any impact from Airbus normalizing its production, I. E, less Cash collection in Q1 or would you expect less cash collection in Q1 from the OEs, especially Airbus in the Sure. And last question is on the GTF campaign, OE campaigns.
This seems That GTF is gaining more momentum at the moment, gaining more market share. I mean, Delta Airlines, if I understand well, took the GTF on its neos. Can you comment on that renewed, I mean, I would say momentum, but it seems that it's gaining From market share versus LEAP at the moment?
So I will start with your question regarding time material inside power customers. I mean, From the point of revenue recognition, it's completely identical. So we also with flight hour customers, we book revenues shop visits happens not upon payment and time and material customer, obviously, also when the shop visits has been done And this is delivered to the customers. From the point of revenue recognition, it's identical. But I mean, it's I I mean, on the one hand side, obviously, flight hour customer is not as explained before, not very sensitive to the scope because the payment is stretched over these Flight hour payments at time material customer obviously has to pay the shop.
This is when you really orders or when you send the engines to the shop, then obviously That is very sensitive. And on the other side, it's also airline specific. So when an airline, for example, operates in the U. S, Preparing for a summer season, so he will this customer will do everything that he has, the capacity in the air when the respective customer thinks demand will come So it's on the one hand side, so geographic footprint and on the other side also which contracts does the airline hold. So that And we have a mixture of everything in our portfolio, yes.
But as Rainer pointed out before, we see a Strong demand coming from especially North American operators as the vaccination campaign is there far more advanced compared to the European market. So European market We'll lack probably maybe 2 months or a quarter behind the U. S. Market.
On the cash flow, In the OEM business, there's no change in the behavior of AMET. So it's a normal process in the OEM business. So as you mentioned, the strong Cash flow in the Q1 mainly came from the cash collection in the MRO business.
I mean, GTF market share, I mean, we had Some successful campaign wins in the last month. Also, all the Indigo partner airlines chose the GTF for the AC-twenty You know that was something like a 400 aircraft order from the Indigo Partners airline and also on the A220. I think Breeze Airline takes another 20 A220s with exclusive to the PW1500. So I think but it's always I mean, The last months we are very, very successful, but it's always, I mean, it's an ongoing process. And at the end, so the target is obviously that we have something like a percent market share, is it then 48% or 47% or 51%, nobody knows.
But yes, there were some Very nice campaign wins in
the last month. And maybe the reason is also for that. A couple of years ago, we had some technical issues. So some of the customers or potential customers, They did not select the GTF at that time. So maybe now when also it's All of the technical issues have been more or less solved.
So there's more confidence into the engine and maybe that supports also. But as Peter said, at the end, it will be something around fifty-fifty, what we are targeting for.
Thank you very much. Thank you.
Thank you. Mr. Harry Breach from Stifel, may we have your question please?
Yes. Hello, hello, Reiner. Hello, Peter.
Hello, hello, Erika.
Guys, hi. Can I maybe ask You have 3, if I may, all slightly different? Maybe just firstly, Completely different topic, but ITP and the sale process there, I I think when we spoke in February on the call then I think, Ryan, you said, look, if they open the door So you guys, you might be interested. Has anything changed there? Have you had the opportunity to participate Maybe more in the process, the sale process with ITP.
Secondly, and this one's probably Down to my ignorance again. The new European fighter engine program for FCAS, The work share arrangement of 1 third, 1 third, 1 third, and I guess that was maybe a little bit of a surprise to me given that I guess sort of historically Maybe one wouldn't always have sort of evaluated the sort of modules typically supplied by the partners and The scope of work sort of in those proportions and maybe it's divided that way because the purchase Quantities indicated by the customer countries are going to be in that proportion too. But can you help me understand just The thinking behind that work share on new European fighter engine, if you could. And then actually guys, maybe could we answer just address maybe those 2 first?
Yes, we do. Harry, so first of all, ITP, so Rolls Royce, has not opened the door yet for us. They are still, what we know, just Have invited private equity companies to make an offer for ITP. If they will change their mind, yes, we are still Interested, but as I said, actually, only PE companies have been invited into the process. So we have to wait.
In general, yes, we are interested, but there are some concerns on Rolls Royce side To sell the company to MTU, so they prefer a PE solution. We have to wait whether it will work or not. On FCAS, I mean, that's just a result. When Spain joins the program, they will finance 1 third Of the program of the R and D spendings and as a consequence, the Spanish industry has also, let's say, 1 third of the work share And ITP as a smaller engine company received also 1 third of the engine. It was not easy to find The let's say the perfect packages, but in the last days, we made some progress and we agreed on that as announced yesterday evening.
So Maybe it's not the best way we would prefer another solution. But I think as a consequence Of paying 1 third of the program, they have also the right of 1 third of the work share to get.
And guys, maybe the final question. Again, when we spoke in February, and Ryan, I think you said in the MRO business, I think you said that you had visibility, firm visibility about 4 to 6 months ahead, High certainty in the outlook in 2021. Given what you said earlier on about Increasing demand from U. S. And Asian customers, specifically on the MRO side.
Are you seeing sort of Any sort of maybe movement to the upside in terms of your shop load units for the back half of this year? Is there any sort of I don't know. Is there any sort of increase in how you're looking at work volumes later this year?
Actually not. I would say actually we can, let's say, confirm the guidance we have given before. But let's wait for another quarter and maybe in the end of June July when we release the half year results, we have a better visibility And that's the right point of time to let's say to update the outlook. But actually I would say it's too early for that.
Yes. But just to be clear, Randy, you are seeing sort of increased demand from the U. S. And Asia customers on Yes, great news. Thank you.
Thank you very much.
Thank you. Mr. Alexander Hanstein from DC Bank, may we have a question please?
Yes. Hello, Alexandre from ZBanc. Thanks for taking my questions. Hello. I have two questions actually.
First on the GTF. I heard your comments regarding the retrofits and you said that they are almost finished. Does that mean it's finished by Q1 or Q2 or even later until the end of the year? How should we think about it? And related to that, can you give us some idea about the sequence of overall GTF deliveries, including these retrofits?
I mean, does that mean That you're linearly producing
the or sending
out the normal GTS, but on top of that, you have more, let's say, in the first and second And maybe in the Q3 to be pushed out?
Yes. I mean regarding delivery sequence, I mean, in our I mean, we have we do the GTF In Hanover, we do it in our Lufthansa joint venture in Poland. And we do it from second half of the year. We do it also in Zhuhai. So we're going to see regarding GTF work, we're going to see more revenues coming in the second half of Yes.
I mean, on the one hand side, I mean Hanover is more or less stable. EMEA, the joint venture with Lufthansa in Poland is currently in the phase of ramping up, And the GTF is introduced in Zhuhai in summertime. So and technically, Zhuhai and EME build their work To MTU and we build it to IE. So we have that these revenues in our P and L despite the fact that these are fifty-fifty joint ventures. So that's the revenue wise answer.
And the retrofits will be finished more
or less in the second quarter.
Okay. Thank you. And coming back to the sequence of your earnings Just as a clarification, you commented about the Q4 being the Strongest, was that only related to MRO or in total for the group
in terms of Obviously, From today's point of view, I would say the strongest quarter in the military business will be Q4. We expect acceleration of aftermarket demand Throughout the year, probably Q4 is the strongest on the commercial spares and commercial MRO. And as a consequence also the margin or the absolute EBIT number. For the group? For the group, yes.
Yes. Okay. Okay. Thank you.
Thank you. Mr. Adi Aimee from Alshpres, may we have your question, please?
Hi there. Yes, thank you very much for taking my question and congratulations on the results. I'll be honest, all my questions have been answered. I just had maybe one question left, which is that just based on how you're seeing Q2 starting to evolve with Wino 1 month down And how you sort of start to think the next 2 months evolve. Is there sort of a reasonable chance that your full year guidance would you think about revising your full year guidance In June or do you have your results?
Thanks.
Yes. I mean, it's always the process in any year that Lee, I mean, Q1 obviously is very close to the guidance we released typically in February with the full year results. So in summertime, obviously, 6 months or almost 7 months are behind us. You have you know what you have in the shops And that's the point of time where you where we look take a deep look in our business and our financials. And then based on that, we Going to update the guidance in some form, no?
Right. And based on sort
of how you're seeing it going, do you think there's a reasonable chance it can be revised Higher? Because you seem to be already doing on track and in certain regions, we're starting
to see improvements. If we answer that question now, I think it's We have to make an ad hoc announcement.
Fair enough. Well, thank you very much for your time and congratulations on the results.
Thank you. Mrs. Chloe LeMari from Exane PNB Paribas, may we have a question please?
Yes. Thank you for letting me to reenter the I have 2 clarifications actually. The first one is actually on free cash flow performance. So how should we think Of the performance you did in Q1 versus your guidance, will you face some working capital headwinds, I don't know, maybe linked to the OE ramp up towards the later end of the year, that explains why you should have a weaker cash generation over the next three quarters? Or are you actually expecting to be closer to a 60% cash conversion than the strictly 50% that is guided?
The second question I would have is actually on the impact of the situation in India On your GTF work, I mean, has it shifted demand earlier given that there is obviously poor Air traffic or does it have no impact whatsoever for you now?
First, on the cash flow trajectory, I mean, Throughout the year, I mean, there are, I think, 2 major lines below EBIT to consider. One thing is, I mean, working capital. I think the moving item here is when exactly do we see The higher demand and then resulting in a higher level of inventories. So spare parts, for example, in the MRO shops, A higher level of engine in the shop, obviously, and then as a consequence also receivables. So I think When exactly the acceleration will start triggers finally the working capital level at the end of the year.
And that is To be to forecast that exactly is not impossible, but we're going to see an inflection point throughout the year At a certain point of time. And the second is, obviously, Q1 was CapEx wise, it was a bit weaker. And as Rainer mentioned, I mean, we're going to start construction of MTU Serbia. So Currently, we do our groundwork, so that is below CapEx. But anytime in summer, we're going to start Construction and that is then the higher CapEx consumption, so to say.
So there's also I had to, I would say, from the CapEx side in the second half of the year. And that will dampen a little bit the free cash flow development. But We are, as we sit here today, very confident to achieve a mid double digit cash conversion in the year.
Regarding India, I think it's too early to so actually, we don't see an impact, but we have to look on the situation. But as I said, actually, it's we have to wait a little bit of time to see is there any impact or not.
Thank you very much.
Thank you for your question. Mr. Miro Fotzeck from JMS Invest, may we have a question please?
Yes, good morning. Thank you for taking my question. Miro speaking from JMS. Derek, please.
Good morning.
Good morning. I have basically one central question, which is about, Let's say the mid to longer term outlook because I understand that there is a negative mix effect now from the spares mix Versus OEM and this also depending on the recovery path of the Capacity basically coming back into the market is also will probably persist for a couple of years. I mean depending on what your expectations are. But at the same time, you have also optimized your cost. You have made some restructuring in Germany, you've optimized the production footprint and so on.
The question would be, when do you expect To be back at the, say, 18% to 20% level in terms of gross
profit? You mean segment margin or 80% to 20% or what?
No, the gross profit Margins, I mean, which is now heavily down, right? What's 18%, twenty And before the crisis now 12.5 in last year. Now it should probably come up again, right? So what how Quickly will this come up again? When will it reach, let's say, the pre COVID levels in your basic assumption?
Yes. I mean, I wouldn't say an exact point of time when that will be. I mean, because we don't give a guidance beyond 20 21, but I mean the answer is, obviously, once so capacity demand is back the customer side, so upon list of travel restrictions and so on, so we're going to see an increase in traffic Triggering then aftermarket demand, so spare parts demand and also demand For MRO service, we're going to military business anyhow is unaffected by military business. So in the next 2, 3 years, you're going to really move back to a level we have seen before the crisis. But I mean, If you look on the EBIT margins or MRO, I think we won't come back to 10% or so given the mix in the next 2, 3 years, given the mix with a higher share Of OAMRO work for the GTF that is we continue to be a lower margin business compared to the independent business.
I mean, if you look on the forecast of the passenger traffic development, so I think the common sense is that Passenger traffic will be back on pre COVID level or on 2019 level, maybe 2024, 2025. But within that earlier for the narrow body market where we have an eye exposure, so maybe in the year 2023 to 2024. And as Peter said, so in the next 2 to 3 years, we will reach the levels as we have seen before the crisis.
Okay. Thank you.
Thank you for your question. Mr. Richard Schrum from HSBC, may we have a question please?
Yes. Hello. 2 Hello. If I may, one concerning this ITP. I mean, just a clarification, if you really would Be able to acquire this company, wouldn't that mean that then the whole Process is mixed up.
You just have settled with this FCAS project because through the back door, MQ would then have Much bigger share than Safran.
No, it will not be changed. So the contracts are more or less negotiated now. And but I would say from today's perspective, the probability that we will acquire ITP is not very high.
Okay. But you would say You are not prohibited by these contracts which
are signed. No, no. No, no. Definitely not.
Okay. And second question concerning these issues we hear from Most other sectors currently, namely what's happening on the supply side in respect of prices for materials and volume Shortages, what do you see in this respect? Have you made any preparations in this respect for possible Issues here or are you still relaxed in this respect? What's your situation there?
I mean, We are not relaxed, but we on the other side, we don't see the big issues arising here. So to my understanding, we don't Have any issues on the supply chain actually and also not for the next couple of quarters or years. So different to what we see in the automotive industry, where they have some issues with semiconductors and things like that. So we do not have these issues. The supply chain is stable.
Okay. And concerning material prices, we have seen some very excessive Increases, for example.
One thing is we have typically we have long term pricing agreements with our suppliers And engine prices are typically subject to price adjustments. So in that price adjustment mechanism, there are also the raw material price So the general answer is you can pass the price increases to your pass on to your customer.
No, that's very comfortable then. Thanks.
Thank you. Mrs. Milane Kurner from Barclays, may we have your question please?
Yes. Hello, Reiner, Peter and Thomas for taking my question. Hello. I have two questions. So the first one is on the OEM margin.
Could you comment on the OEM revenue decline impact On your profit that you saw in Q1, was it a headwind? Was it a tailwind in year on year bridge? And also what's the outlook for the rest of The year in terms of profit impact coming from the OE side of the OEM? And then my second question was on spare. Could you also share some color on what drove the deterioration you have seen in the CS6 engine in Q1 apart from the total comps?
Thank you.
Yes, regarding margin, I mean, I would say, I mean, we had a drop in New engine sales of also high 30s in Q1, more or less as high as the spare parts demand. So from an absolute level, we wouldn't expect a big increase of OE deliveries throughout the year. So maybe we expect Rather flat delivery line for the Gen X, which and it was so the one engine for the Dreamliner and Flat to slightly up delivery line for the PW1100. So that's a little bit the question when exactly will Airbus raise production rates and so on. So from we're going to see a small ramp up of the PW1500 for the A220.
So overall, Yes, a small sequential improvement throughout the year, but not so much. On the spare parts demand on the other side, we definitely think that We're going to see from absolute levels a sequential improvement throughout the year, so a significant sequential improvement. So that is that will drive The EBIT margin higher, and that will be supported also by, as mentioned before, by For the military business, so which especially in the second half of the year, we contribute much more EBIT compared to Q1, obviously, and also Q2 will not be something like €180,000,000 like the Q4 2020, So, Magnus, your second question?
Yes. So, and sorry, Peter, just to follow-up on this Yes. Thank you for the color. But in terms of your profit, I mean, given that, I mean, your OE is loss making, so you had Lower volume on one side, but on the other hand, you have more cost versus the volume. In terms of the impact on the profit On the adjusted EBITDA in Q1, was it a headwind or a tailwind in your breach, this high 30% decline?
A headwind, yes.
It was a headwind.
A headwind?
Yes, yes.
Okay.
And for the rest of the year, should we also expect a headwind or?
Small one, yes. Small one.
Okay. Thank you for the clarification. And then my second question was on CS6. I just wanted to understand, apart from the tough comps, what drove the deterioration you have seen, the minus 10% you have seen in Q1?
Yes. I mean, the CF6 is always a little bit of a volatile program. On the one hand side, you have a broad customer base and then you have also The ordering pattern of the different MRO shops in the world, so I wouldn't read so much into that. So It's a typical, I would say, quarterly fluctuation. And I mean, we had a strong typically, you have a strong Q4 in the spare parts business.
So when the global MO shops for the CF680 orders slightly higher level of spare parts Because they get the old prices, typically Q1 is then a bit weaker. So that's a typical pattern. So I wouldn't read too much into that or extrapolating that into the full year.
Okay. Thank you. Thanks.
Thank you. There are no further questions over the phone at this time. Therefore, I would like to hand back to Mr. Thomas Frantz.
Yes. Thank you, Lynn, and thank you all participants for joining. And if you have further questions, contact the IR team. Further to that, I have nothing to add. Wish you a pleasant Friday, nice weekend, and stay safe.
Bye bye.
We want to thank Mr. Rainer Winter and Mr. Peter Kammerich and all the participants of this conference. Goodbye.