Ladies and gentlemen, thank you for standing by, and welcome to the Rolls-Royce plc 2020 half-year results conference call. At this time, all participants are in listen- only mode. After the speaker presentation, there will be a question- and- answer session. To ask a question during the session over the audio, you will need to press star one on your telephone. You may also use the Ask Question tab available on your webcast page to submit your questions online. I must advise you that this conference is being recorded today, Thursday, 27th of August, 2020. Without any further delay, I would now like to hand the conference over to the first speaker today, Isabel Green, Head of Investor Relations. Thank you. Please go ahead.
Welcome, everyone, to our 2020 half-year results presentation. With me today are Warren East, CEO, and Stephen Daintith, CFO. We will start the slide presentation shortly with an introduction from Warren, followed by a more detailed review of results by Stephen, and an update on our plans for the future from both Warren and Stephen. In all, this should take about 50 minutes, leaving time at the end for Q&A. Before I hand over to Warren, please take note of the Safe Harbor statement on slide two. This results presentation contains forward-looking statements that involve risks and uncertainties that may cause the actual results or developments to differ materially. Thank you, and over to you, Warren.
Thank you, Isabel. Well, it feels as if this year has been all about COVID. Although we came into the year, and indeed started with good momentum, COVID-19 arrived in Q1 and has had a material impact on the whole of the Civil Aerospace sector, and it significantly affected our first half performance and our outlook for the future. Lower activity in Civil Aerospace to over 24% reduction in group revenue, and that led us to a GBP 1.7 billion operating loss in the period. Now, when COVID hit, we acted quickly. We acted quickly to keep our people safe, to minimize operational disruption, and we provided practical assistance in the countries and communities in which we work. We acted quickly to strengthen our liquidity position with new borrowing facilities established.
We rapidly responded on costs, driving immediate short-term reductions in discretionary spend and CapEx, with GBP 350 million delivered in the first half of the year, and we're on track to achieve our target of GBP 1 billion of savings for the full- year. Looking a little bit further ahead, in May, we announced the largest restructuring of Civil Aerospace we've ever undertaken, fundamentally resizing to align our capacity with expected future demand and save at least GBP 1.3 billion of ongoing costs across the group. We also want to take steps to rebuild our balance sheet in the medium term. Today we've announced planned disposals to generate more than GBP 2 billion of proceeds. We'll come back to that later on. Turning to slide five. This is an outline of what we're going to cover this morning.
As you know, we're in the middle of an unprecedented shock to the civil aviation sector, and that's going to take a number of years to recover from. We have a clear strategy, however, to lead Rolls-Royce through these difficulties, and we're creating a leaner and a more balanced company for the future on the other side. Today's presentation is split into four sections. Stephen will talk through the interim results in some detail and our plans to strengthen our balance sheet, and I will cover our extensive restructuring program for Civil and the wider strategic priorities. With that introduction, over to Stephen.
Thanks, Warren. Good morning, everybody. As Warren said just now, although we started the year with positive momentum from a strong 2019, COVID-19 has severely impacted our business. The worst impact was very clearly in Civil Aerospace, with large engine deliveries and flying hours each down around 50% in the first half of the year. ITP in the Civil Aerospace sector was similarly affected. Power Systems has been less severely impacted, with industrial markets suffering the most. Defence has remained resilient with good support from ongoing government programs. You'll see that in the slide attached. Slide seven. You can see on slide seven the impacts of COVID on our divisions in more detail.
In Civil Aerospace, looking at that chart there on the top left, flights were grounded around the world from around the middle of March, with April the worst month, when large engine flying hours was down around 80% compared to 2019. For the second quarter as a whole, flying hours were down around 75%. The data since then has shown modest recovery but remained weak as governments try to find a balance between containing the virus and protecting their own economies. Business jets and regional flights have been less impacted, with fewer cross-border routes. We've been working closely with our airframe customers, particularly Airbus and Boeing, to reschedule engine deliveries to match their reductions in build rates. We expect to remain at lower levels until at least 2022. Power Systems was less impacted.
Industrial end markets were hit by economic disruption. Marine and Power Gen has actually held up relatively well. As you might expect, our Defence business was resilient with no material impact from COVID and delivered a strong profit growth in the first half of the year. Moving on to the next slide. Here are the group underlying numbers. Revenue is down in the first half, mostly due to the significant reduction in the contribution from Civil, as you can see from the chart. Our underlying gross loss of GBP 967 million included GBP 1.2 billion of COVID-related one-off charges. What are these? These results include significant negative contract catch-ups, GBP 866 million in revenues and GBP 814 million in gross profit.
As a reminder, a catch-up happens when there is a change in projections that results in a recalculation of the future value of our long-term service agreements. Now this case, it was negative because of a decrease in the forecast of engine flying hours over the term of the contracts. These are due to revised assumptions around things like utilization levels, parkings, and retirements. On average, there's been a modest negative impact on expected contract margins as a consequence of these revisions. Also in Civil, and in addition to the catch-ups, we incurred a GBP 309 million charge for estimated future losses on a small number of contracts. Most of these related to Trent 900 engines, and there was also a GBP 95 million charge for specific customer provisions and customer credit rating changes.
As a reminder, when we have a contract that moves into a loss-making position, we recognize all expected future losses up front. Unfortunately, this period, we have a small number of contracts which have either become loss-making or where expected future losses have actually increased. Our underlying loss before tax of GBP 3.2 billion also included a GBP 1.46 billion underlying finance charge to reduce our US dollar hedge book. We took the necessary decision to reduce our hedge book because the industry downturn left us overhedged by around $10 billion. Had we not done so, there was a risk that a further weakening in sterling would leave us in a much more impacted position. In addition, we were net purchasers of US dollars in the first half of this year and unable to utilize our hedge book in the period.
This means that our underlying results are presented at an effective rate of $1.24 to the pound in the first half of 2020. That's pretty much the spot rate in the first half of the year. This compares to the hedge rate achieved in the first half of 2019 of $1.53 to the pound. Next slide. A quick run through of our underlying business results now, starting with Civil Aerospace. Revenue was down 37%, as you can see from the chart, with steep declines in both original equipment, OE, and aftermarket services. We reported an operating loss of GBP 1.8 billion, and that includes that GBP 1.2 billion that I referenced earlier of one-off charges that mostly came as a result of COVID-19. Total shop visits were up marginally on the prior year.
We eliminated aircraft on ground due to Trent 1000 durability issues and performed scheduled overhauls and check and repair visits on high cycle engines that were mostly booked in before flights were grounded. We continue to expect the final Trent 1000 fix to be certified and ready to fit to the fleet by the end of the first half 2021. Moving on to time and material profits. This includes the V2500 flying hour payment. That's reduced with the lower aircraft utilization. The benefits of profit from fewer loss-making large engine installed deliveries is more than offset by lower business jet and large spare engine sales and under recovery of fixed costs. You recall, as announced in early August, we have found some signs of wear to IPC blades in some Trent XWB-84 engines at the first shop visit.
This was identified during proactive checks we had in place. None of the engines had suffered in-flight shutdowns and none of our customers have been significantly inconvenienced as a result. We've put in place a process now to check all engines over 2,300 cycles on a regular basis, and until a permanent solution is found, we'll now replace this part as standard at the first shop visit. The annual financial impact is not actually considered to be material. Notwithstanding this matter, the Trent XWB remains the most successful engine launch we have ever had, and the early performance of this program has been successful both operationally and financially. Some of you will have noticed that we've not reported our usual operating metrics today. Average OE loss per engine, for example, or the aftermarket margin.
We're still tracking these internally and striving to deliver fundamental improvements. The extraordinary circumstances that we're facing have affected the usefulness of reporting them. For example, the benefit of lower losses on a single engine are offset by lower plan utilization. As we move into the second half of the year, shop visit activity will start to reflect the drop in fleet utilization as engines reach service milestones more slowly. Also, the actions we took in the first half to slow down procurement, eliminate non-critical spend, and reduce pay will start to offset some of the performance declines. An important term trajectory in the second half of the year. Moving on to the next slide on Power Systems. Looking at the Power Systems numbers, revenue was down 11% to just under GBP 1.3 billion, with similar falls in revenue for both OE and services.
On the OE side, our customers in industrial markets were the most impacted by lower activity levels, particularly those with exposure to oil and gas and mining. We experienced a reduction in demand for smaller yacht engines, with submarine yards closed for much of the second quarter. On the government side, our marine business performed relatively robustly. Power gen activity started the year well but did experience a slowdown in the second quarter, most notably, in fact, in the U.S. Order intake included 40 MTU engines and generator sets. These will be used for main propulsion and onboard power generation for five new Type 31 general-purpose frigates for the Royal Navy. We've also celebrated a sales success with Irish Rail, ordering 41 hybrid-ready power packs during the second quarter, and there's potential there for a further order of around 30 hybrid power packs per year starting in 2023.
Good momentum there. Services revenues were negatively impacted by lower fleet utilization, particularly in transport and oil and gas markets. For Power Systems, operating profit was down 79% to GBP 22 million, showing the underutilization of the fixed cost base, which was unable to react to the speed of the downturn in demand. It also includes in that number an inventory write-down of around GBP 20 million on the back of weakness in commodity market demand. Despite the challenges of the current market condition, we're still focused on benefiting from structural trends and increasing our share in fast-growing markets. We've added two bolt-on acquisitions to enhance our Power Systems offering, with the addition of Qinous in January and Kinolt in July.
Qinous brings electricity storage solutions to enhance our microgrid offering, Kinolt provides uninterruptible power supply systems that are great addition to help us grow our share of the mission-critical backup power generation market. Our push to expand into China remains high on our agenda, and we've expanded our partnership with VPower Group, enhancing the relationship to include distribution of our MTU products in China. Moving on to our Defence business now, on the next slide. Our Defence business saw limited impact from COVID-19 and performed well in the first half, delivering another strong set of results. Demand remained resilient, and our government customers remained supportive in both our key markets, the U.K. and the U.S. Revenue of just over GBP 1.5 billion was marginally higher than the prior year, with increased service revenues relating to a growth in naval repairs and higher spare parts sales.
OE revenue was also up, helped by favorable phasing of deliveries. Operating profit was 19% higher, driven largely by mix and benefit of group-wide efforts to cut costs, including salary reductions and lower travel costs. Mitigating actions to manage the supply chain risk and operational disruption from COVID-19 were successful, with no material impact to us or our customers. Our Defence business is steadily growing, and we're investing for the future with investment in facilities and people. We completed the revitalization of our operations facilities in Indianapolis over the summer. This will be one of our most productive sites enabled by digitalization and technology. Finally, moving on to ITP. ITP has faced the same challenging market conditions, unsurprisingly, as our Civil Aerospace business.
Demand for OE and services was severely impacted by the grounding of fleets and the reduction in build rates for our OE customers, particularly for wide body engines. In Defence, ITP saw lower OE volumes on the TP400 and adverse phasing on the EJ200 activity. Operating profit of GBP 10 million was down 70%, despite significant management efforts and actions to cut costs. Returning to the group results and looking at our cash flow, the summary funds flow in the first half of the year, which is a really important slide, this one. There are five key drivers that reconcile the underlying operating profit of a loss of GBP 1,669 million to the group free cash flow, again, an outflow of GBP 2,801 million. There are five key drivers that reconcile those two numbers, let me go through these one by one.
Starting with the Civil Aerospace net Long-Term Service Agreement balance. That grew by GBP 788 million in the first half of the year. This may seem counterintuitive given the significant fall in flying hours that we're highlighting today. This is the result of the GBP 866 million contract catch-up to revenues that I referenced a little earlier. Typically, we do see an increase in the LTSA balance. However, if we adjusted out the catch-up effect, we would have seen a reduction in the LTSA balance as revenues, which are driven by shop visit costs, were larger than the reduced level of flying hour receipts. I hope that makes sense. Secondly, CapEx on property, plant, and equipment was over GBP 100 million lower.
In fact, to be precise, GBP 127 million lower than last year, as we immediately stopped all non-committed spend in March to save more than GBP 1 billion of in-year cash costs. That's in total across all of our efforts to mitigate the impacts of COVID. Similarly, on the third point, CapEx on intangible assets was down by around GBP 100 million, with lower capitalization of new civil engine programs as we reassessed our near-term investment priorities. The fourth bucket, working capital. There's a lot going on here, so we've got a separate slide on that coming up, and I'll go through this in detail shortly. Finally, the movements in provisions.
The growth in provision balance is the net result of just over GBP 300 million of new provisions for onerous contracts, my earlier comments, offset by approximately GBP 500 million due to a reduction in provisions related to the Trent 1000 in-service costs. The lower flying hours this year, and in our forecast, means that more of our Trent 1000 engines will be able to have the final fix installed at the next shop visit, reducing forecast shop visits and customer disruption costs and saving around GBP 300 million. The other savings come from an improvement in onerous contracts, with reduced losses as a result of lower engine utilization. Moving on to the next slide and a deep dive on working capital. Starting with inventory build of around GBP 300 million. That's the top half of this chart.
We acted quickly to control our supply chain to mitigate the impact of COVID-19 on our operations. We secured access to all the parts we needed while minimizing the build of any excess parts. Some items, as you know, are ordered many months in advance, a build in inventory was unavoidable. We also saw an increase in finished but undelivered engines as our customers adjusted their build schedules. We expect a significant inventory unwind to take place during the second half of the year as we settle down to the new, lower normal pace. The change in net receivables and payables includes GBP 1.1 billion from our decision to stop invoice discounting. Previously, we had used this to pull forward cash due from air framers who have fairly long payment terms. This provided us with short-term liquidity.
This year, in light of our drive to cut all the necessary spend and our strong liquidity position, we decided to stop doing this. The remaining GBP 400 million deterioration of working capital comes about almost mechanically. In our Civil Aerospace business, it works with a negative working capital pattern. We collect any money owed to us from our customers ahead of carrying out the work. If business shrinks, we see an outflow of cash as the situation unwinds. The good news is that this will stabilize when the market starts to recover and reverse when we return to growth. Moving on to the next slide and our expectations for the recovery. We base our forecast on a thorough review of all the data. We've included current airframe r build rates, industry, and macroeconomic forecasts together with a bottom-up analysis of our own fleet.
We believe the worst is actually behind us in terms of the severity of the impact on wide-body engine flying hours. They dropped 80% to the low point in April before recovering to between 70% and 75% down in May, June and July. Based on our base case scenario, we expect our large engine flying hours in the full- year 2020 to be 45% of the 2019 levels, and you can see that in the table there up at the top. Before recovering to approximately 70% of 2019 levels in 2021, and 90% of 2019 levels in 2022. We don't expect a full recovery until 2024. Why do we believe that this will be the shape and timing of our recovery? A few things here.
According to the latest IATA forecast, global revenue passenger kilometers, RPKs, are expected to recover to 64% of 2019 levels in 2021, and then to fully recover by 2024, with domestic travel expected to be stronger than international travel. During the first half, Rolls-Royce large engine flying hours were down 46%, and they outperformed those revenue passenger kilometers that were actually down around 58%. There are several explanations for this. First of all, it reflects the impacts of falling airline load factors. Now, we're not exposed to how full planes are. It's the flight that matters to us. Secondly, we've seen resilient demand in freight and domestic travel, which account for approximately 20% of our flying hours. Thirdly, we have a greater exposure to China and the Far East, which have seen the fastest recovery to date.
Finally, worth reminding ourselves, we have one of the youngest fleets with an average age of around nine years. Younger, more efficient, and more versatile wide-body planes like the A350, where we have the sole engine supplier with our Trent XWB engines, and we're seeing much higher utilization levels there. We expect that these factors will continue to benefit our install base, leading to accelerated market share gains with lower retirements of Rolls-Royce wide-body aircraft in the coming years. Of course, we all recognize, though, the pace and shape of the recovery is uncertain and no one has a crystal ball. Therefore, in addition to our base case, we've considered a plausible and severe downside scenario to make sure we are ready to take the necessary further actions.
As a guide, we estimate that each percentage point movement in large engine flying hours are worth about GBP 30 million in flying hour cash receipts, and I'll come back to this point later. You can see on the table there how we've highlighted what the downside scenario looks like in respect of engine flying hours. On the next slide, we're expecting to see around GBP 4 billion of free cash outflow in 2020. That implies around GBP 1 billion outflow in the second half of the year. It's a significant improvement from the GBP 2.8 billion outflow we're reporting today in the first half numbers, with a relative benefit from inventory unwinding and an increase in spare engine sales. The GBP 1.1 billion impact from invoice discounting was a one-time hit in the first half and won't reoccur.
Our cost mitigations delivered around GBP 350 million in the first half of the year. We're confident in achieving at least GBP 1 billion in total. That implies at least GBP 600 million of mitigations in the second half of the year. Headwinds in the second half, however, include lower engine flying hours and a further expected reduction in income from time and materials. In addition to the free cash flow, we expect to incur in the region of GBP 400 million or so of costs related to our restructuring program. This compares to GBP 87 million in the first half, which mostly related to the tail end of the 2018 program. Based on this guidance, we're forecasting therefore a net debt of around GBP 3.5 billion at the end of 2020, a deterioration of around GBP 5 billion over the year.
We do expect further free cash outflow overall as we look across 2021, but at a significantly reduced level compared to 2020. Helped by a little seasonality, we are targeting a return to positive free cash flow during the second half of next year. Warren will come back to this point later. We aim to restore annual free cash flow to around GBP 750 million as early as 2022 as we look beyond 2020, driven primarily by our expectations for market recovery, restructuring savings, and the non-recurrence of the working capital headwinds that we have in 2020. Both of these targets are before the impact of any potential disposals, and they also exclude costs related to the restructuring program.
Both targets do, as a reminder, include around GBP 300 million in each year of costs related to the reduction of our over-hedged US dollar position that I referenced a little earlier. Our 2021 and 2022 targets are stepping stones in our recovery, and they do rest on the base case assumptions we have made. If, as is entirely possible, the world takes a little longer to get back to normal, then these targets could take a little longer to achieve. We are confident that the self-help actions we are taking will get us there in the end. I'll pass back to Warren now to talk about the steps we've taken to restore our financial performance. Warren, over to you.
Thank you, Stephen. I've said before, this crisis is not of our making, but it's what we do about it that matters, and that's what we're focused on. That's why we took the decisive actions early on to strengthen our liquidity, and that's why we acted quickly to begin the restructure of our Civil Aerospace business. I'm going to talk about that soon. I'll start with this slide, however. The phrase, "Cash is king," has never been more apt than it has been for us this year. Those of you looking for some precise cashflow guidance here, please put your rulers away. This is not a calibrated chart. It's an illustration of our monthly free cashflow based on what we've seen so far and our expectations for recovery.
Our target is for a sustained return to positive cashflow at some stage during the second half of 2021. It's based on the drivers that are shown on this slide. First of all, a gradual recovery in engine flying hours. Secondly, a stabilization of the rate of procurement as we adjust from previously higher levels of production and output to expected lower levels. Thirdly, achieving our planned savings from our restructuring program. Of course, it's also helped by the usual positive second half seasonality that we see in our business. Nevertheless, we expect overall, this recovery to be sustained as we go through into 2022. This slide illustrates how we expect this to play out over time. Let's move on. This slide shows the cash bridge from 2020 to 2022, and it shows clearly the three steps in our plans for sustainable recovery.
We expect a recovery of our Civil Aerospace aftermarket. We expect to see savings from our restructuring plans materialize, and we expect recovery in Power Systems to combine with ongoing resilience in our Defence business. Stephen has already spoken about the GBP 1.8 billion working capital outflow this year in the first half, and why we don't expect that to recur in 2021 and beyond. Similarly, we don't expect a repeat of the in-year mitigating actions to save costs in 2020, with most of these only delivering a one-time benefit. The restructuring benefits will replace that one-time effect. Now I'll talk about these three things in more detail. Firstly, the recovery of the Civil aftermarket.
We expect our large engine flying hours to recover to 90% of the 2019 levels by 2022, as Stephen mentioned a minute or two ago, as global travel once again becomes a normal part of people's everyday lives. That's supported as well by ongoing fleet growth. The chart on the top half of this slide, which I showed with our full year results in February, reminds us of the relative use of our fleet, which Stephen referred to a moment ago, and consequently, our expectations of market share growth as airlines shrink their fleets through retirement. As flying hours recover generally, this market share is what really matters to Rolls-Royce flying hours, and therefore our aftermarket revenue. However, I should stress the timing and shape of recovery remains uncertain.
If the flying hours take longer to pick up, then our journey back to GBP 750 million will be slower. We're assisted a little by the diminishing annual cash costs related to the durability issues that we've had on the Trent 1000, and that diminishing cash cost is a helpful tailwind. These costs are projected to fall as we roll out the fixes, and by 2022, we expect the headwind from this to be between GBP 200 million and GBP 300 million, which is GBP 250 million less than what we're seeing in 2020. Next slide shows the second driver, and this is about our restructuring program. As you know, the world around us has changed, we're changing, too. We're undertaking the largest reorganization of Civil Aerospace in our history. Net net, we're shrinking our capacity by about a third.
We remain committed to retaining our expertise and our capability, and we will continue to focus on the high-value manufacturing and services that differentiate us. A severe downturn has caused us to take some difficult decisions, and that results in an unfortunate but absolutely necessary reduction in roles. In total, we're proposing the removal of about 8,000 roles from Civil Aerospace and a further 1,000 mainly from central functions. Nobody likes to make compulsory redundancies, but we are, therefore, doing what we can to help support our people as we make these very necessary changes to our business.
More than 2,500 voluntary severance and early retirements have been agreed in the U.K. We've moved some of those people who've been working in at-risk roles successfully over to our Defence business, which has continued to see strength on the back of its large installed base and high levels of order intake that we've seen recently. As of today, with more than 4,000 departures this year globally, with another 1,000 expected by the year-end. The cash cost of restructuring is expected to be about GBP 800 million in total, with GBP 400 million this year, GBP 300 million in 2021, and the remainder in 2022. That roughly mirrors the pace of these departures. We don't expect to see OE demand recover for several years. A consolidation of our manufacturing facilities is inevitable.
As part of our detailed analysis to establish the right balance, we're moving certain activities to fewer sites in order to optimize utilization, and that will help us be more efficient and productive. The first phase of the proposals includes consolidations shown on this slide. From three sites to one for wide body engine assembly and test. From two sites to one for fan blade production. From two sites to one for advanced turbine blade machining. From three sites to two for blisk production. Now, not all of the sites losing work will close completely. Some will continue with other activities. By the end of 2022, we expect to save a total of GBP 1.3 billion in costs from our restructuring program, GBP 700 million from headcount reductions, and the rest from lower indirect costs and CapEx. Moving on, our restructuring is not just about job losses and consolidation.
A lot of our parts are made in-house, and we get most benefit from owning the supply chain where our engineering and experience is a differentiating factor, especially where we have design and manufacture that are closely related. We're reviewing our manufacturing activities to explore further outsourcing opportunity, and that would lower our capital intensity and increase the flexibility of our cost base. It's not just in OE that we're making changes. In our maintenance, repair, and overhaul, or MRO shops, we're driving efficiencies to adapt to the post-COVID world. We have a growing fleet of young engines, so despite the near-term shock to flying, we will actually need to grow our MRO capacity over the coming years, and we plan to maintain that capability, consolidated into fewer locations, and meet the future growth by enlarging our external network.
Overhauling engines, an important part of our TotalCare package for airline customers is the provision of spare engines. We typically spend between GBP 50 million and GBP 100 million each year on spare engines, which support our customers when their engines are off wing. We're looking at a number of possible ways to reduce the number of engines that we hold on our balance sheet, and therefore reduce our capital intensity. All of these actions are supporting a more flexible cost base with lower capital intensity, better returns for our shareholders. Historically, our investment in CapEx in proportion to sales has underperformed that of our peers. Through these changes, we believe that we can narrow the gap. Stepping away now from Civil Aerospace to the third key driver of the recovery on slide 23.
Diversity in our business has helped us to weather this crisis, and that continues to be a key pillar of our strategy for overall group resilience. Our Power Systems business on the top of the slide. Our Power Systems business is exposed to a broad range of sectors, and whilst it also has suffered from the impact of COVID-19, that is to a lesser degree than in our Civil business, and we're forecasting a faster recovery. In Power Systems, we expect most of our end markets to recover by the end of 2021, and we're targeting a full recovery to 2019 revenues levels by 2022. Switching to Defence. Defence has been a resilient sector throughout the whole COVID-19 disruption so far and shows every indication of continuing that way.
We're benefiting from strong order intake over the last five years, and we've got an installed base of more than 16,000 engines, and still growing, that we have to maintain. Now, I'll be back to talk about our strategy expectations for the future in a moment, but before I do, Stephen's going to lead you through our plans to strengthen the balance sheet. Stephen.
Thanks, Warren. Let's get back to the numbers. As Warren said earlier, cash is king, and we have an important journey ahead of us to make sure we maintain our strong liquidity and to restore our balance sheet. This slide shows our sources of and uses of cash and the actions we've taken to ensure we have enough liquidity. We started the year with GBP 6.9 billion of liquidity, and we used about GBP 3 billion of this in the first half of the year. We preemptively drew on our GBP 2.5 billion revolving credit facility, and we added a new revolving credit facility for GBP 1.9 billion that remains undrawn. We also used the government's Covid Corporate Financing Facility scheme to draw GBP 300 million of loan notes.
We're thankful again for the government support, not just on that facility, but also as they partly guaranteed our new undrawn GBP 2 billion term loan facility. Taking all that into account, we had GBP 6.1 billion of liquidity at the end of June, plus the new GBP 2 billion term loan, so near term liquidity is strong. Looking ahead for the next 18 or so months, let me take you through the key factors influencing our liquidity. Taking our starting point of just over GBP 8 billion, over the next 18 months, we have GBP 3.2 billion of debt maturities. You can see those in the chart below.
We have an aggregate GBP 800 million of restructuring costs, that's mostly Civil Aerospace related, we have the last of our deferred prosecution agreement payments, as well as our expected free cash outflows in 2020 and 2021 that I outlined a little earlier. As you might expect, both in our base case and downside scenarios, we're taking several actions so that we can maintain appropriate headroom. These include a program of potential disposals to generate at least GBP 2 billion. The reassessment of Civil Aerospace's make versus buy strategy, which will reduce our capital intensity, that Warren talked about a little earlier. We're exploring new forms of industrial collaboration. Finally, we continue to review a range of additional options to further strengthen our balance sheet and liquidity. This includes the refinancing, of course, of the debt and RCF maturities that are on the horizon.
We'll come out of this downturn with considerably more debt than we started with. As such, it won't surprise you to know we're pursuing a number of potential actions to strengthen our balance sheet. Moving on to my last slide 26. A strong balance sheet is essential in our line of work. Strengthening it is one of our top priorities. This is why we remain committed to our ambition of an investment-grade credit profile in the medium term. We are considering a number of options to help us return to a net cash position. Further to the self-help that is behind our free cash flow recovery. Going back to my earlier comments, we've identified more than GBP 2 billion of proceeds from potential disposals that could be achieved within the next 18 months.
One of the potential disposals we're considering that we're announcing today is ITP Aero. As part of this process, we're exploring options that would enlarge the scope of ITP's capabilities, increasing its value prior to disposal. Whether or not a sale takes place, ITP Aero is a key partner and we will retain a long-term relationship with it across our Civil and Defence programs. You'll recognize, I can't go into too much detail at this stage on this, or indeed, any other potential disposals, as we're still in the early stages. I wouldn't want to impede the consultation that would be needed before we reach any certainties. Of course, all disposals are subject to finding the right buyer, and most importantly, the right price. I'm confident we can achieve substantial proceeds and at the appropriate value. With that, I'll hand back to Warren. Thank you.
Thank you, Stephen. Just a few more slides on our strategy before we open up the call for your questions. Starting on slide 28. We know COVID has changed the shape and the future of the Civil Aerospace market, some of the changes are obvious today and plain to see, others will only become apparent over the years as the world begins to recover. We have to make some fundamental changes, too. We've taken this crisis as an opportunity to really rethink and accelerate some of the ways in which we do business, from manufacturing, to what we outsource, to the facilities we need, and how we collaborate with partners for the long term to reduce our future capital costs and risks. Taken together, these measures should mean much improved operational gearing as the market recovers and we return to growth.
It will be a very different Civil Aerospace business in future. Looking forward, we see a lower carbon technology as being essential. If anything, the changes over the last few months have accelerated the drive towards better, cleaner power solutions. The world is demanding cleaner energy. We need to find the right approach that enables us to continue to lead the way in our markets without taking on unacceptable costs and risks. Slide 29 shows the strategic focus areas to improve returns in Civil Aerospace to really benefit from the large installed base we've built and growing market share as we continue to build it. Firstly, we need to improve our manufacturing efficiency. Post-COVID, our consolidated footprint and smaller fixed cost base will do just that.
Secondly, we see a substantial opportunity for improvement in our aftermarket returns by extending the time on wing, and working with MRO partners as our base of over 5,000 installed large engines grows. That's where we have real alignment with the needs of our airline customers, and it's key for us to benefit from the annuity-like characteristics of our model. Thirdly, we're looking to reduce the amounts that we need to invest to get new technology to market. We already have a number of risk and revenue-sharing partners in manufacturing, but as technology develops, we need to think more broadly and work with more industrial partners to accelerate those developments and to share the upfront investments. Moving on to slide 30. There are, of course, exciting opportunities in Power Systems and Defence as well.
In Power Systems, we have structural growth opportunities as we increase our share in growing regional markets like China and India. Right across all the sectors in which we operate, we look to build on the large installed base we have and increase our services penetration with long-term service agreements, similar to those that we've successfully deployed in our Civil business. We have the right products too, for mission-critical power generation market, and we're leading the energy transition with our hybrid and microgrid solutions. Power Systems also has the potential for even better margins as we shift manufacturing to some lower-cost locations. Moving to Defence. In Defence, we've been well supported through this period by our government customers, and we've seen commitment from them on new programs. In the U.K., we've welcomed new partners to Team Tempest, where we continue to make good progress.
In the U.S., there are two very exciting opportunities on the horizon with a combined estimated lifetime value of GBP 7 billion. We submitted our proposal for the B-52 re-engining to the Department of Defense this year, and we look forward to submitting our Future Vertical Lift proposal with Bell in 2021. Longer term, being pioneers of lower carbon power remains at the heart of our long-term strateg y. Earlier this year, you will have seen us join the UN's Race to Zero campaign. Our breadth of activities uniquely positions us to develop and deliver solutions that will change the way people travel and access power. We believe our work on sustainable aviation fuels, which is developing momentum, is the fastest way to achieve net zero long-haul travel. It can be adopted without any change to the existing engine architecture and infrastructure.
We're also looking at hybrid and electric solutions with an ambition to pave the way for regional hybrid aircraft by the 2030s. In Power Systems, we aim to be the leader in hybrid power solutions. We were the first to market with our hybrid RailPacks, and with a yacht system under development. Our environmentally friendly mobile gas engines entered service this year, powering a passenger ferry, and a second ferry is currently under construction and scheduled to enter service at the end of the year. Our small modular reactors are gaining traction. These are really game-changing and could materially accelerate the transition away from fossil fuels for both grid power and standalone applications. We also see a significant opportunity for SMRs to generate carbon-free electricity and create sustainable aviation fuels.
Combined with the appropriate carbon capture, this, which would be a truly net zero carbon solution, potentially producing SAFs on a scale and cost that will accelerate their adoption. Slide to summarize. We started 2020 with good momentum. External events quickly overtook us in Q1 and placed us on a very much more difficult path. However, we've taken some fast, decisive actions, strengthening our liquidity, launching our largest ever restructuring of Civil Aerospace to step change our performance. We believe that the worst is behind us in terms of the severity of the impact on wide body engine flying hours. We're now looking at a range of options to repair our balance sheet, led by self-help, with potential disposals already identified. We're absolutely unwavering in our commitment to improve returns.
We're well-placed in each of our markets, where each remain attractive over the long term, and we're looking forward to continuing the path to becoming a broad power group, leading the way to a lower carbon future. With that, I will stop and hand over to Q&A.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, please press star one on your telephone keypad and wait for your name to be announced. Your first question comes from the line of Chloe Lemarie from Exane BNP Paribas. Please ask your question.
Yes, good morning, Warren East, Stephen Daintith, and Isabel Green. Thank you for taking my question. I had a couple. The first one is on the ambition to return to investment grade over the midterm. Can you give more color on the timing? I mean, when you'd feel you absolutely need to return to investment grade? Would that mean that you need to return to a net cash position, or is it actually more driven by EBIT performance? The second set of question is related to Civil Aerospace operating profits. If we exclude the COVID-19 one-offs, you recorded about a GBP 300 million loss in H1, and that was about the same, the level of cash losses you recorded last year just on the large engine OE. How should we think of the H1 2020 OE losses and the rest of the business?
Should we think stable OE losses and the rest was just a zero due to lower volumes? Any color on this would be really helpful.
Okay, thank you. Stephen here. I'll cover the first question around return to the investment grade. Returning to investment grade is important to us, given the industry that we're in. Our customers are committing to us when they place orders, making long-term commitments around engine programs that will be on their aircraft. That's an important commitment that we're giving them. Our credit rating is an indication of the health of Rolls-Royce. Returning to that investment grade is important. I think right now it's not as important as perhaps it has been, given that we're unlikely to see big, new engine program orders over the next two or three years, given the markets, but also given where we are in our engine program developments at the moment. It's a priority, but not as important a priority as it has been.
On the question around what is it about. Well, I think returning to net cash is important to us. We referenced that today. We'd like to get there over the next two or three, four years. Similarly, growing our profitability and cash flows is an important lever as well. Of those two, the second one of those is the most important one. We've highlighted today that we are targeting to return to free cash flows of around GBP 750 million as early as 2022. That'll be driven really by the pace of the restructuring program that we're driving today, that we're going through at the moment, sorry. It will also be driven by the pace and shape of the recovery in engine flying hours over the next 12-24 months.
Both of those factors will be important for as we look to get back to investment grade status. The other question was about civil operating margin or operating profit in the half. There are fundamentally three reasons here. We've got lower activity, and that lower activity is driving things like lower V2500 payments, lower time and materials, and so on. There's a little bit of lower spare engine sales too, to sit alongside that lower levels of activity. Because we've been unable to right-size our fixed cost base as quickly as the change in activity levels, then we have got some underutilization as well in our facilities, which has pulled things down, so under recovery of those fixed costs. I think that just about summarizes it.
All right. Thank you very much.
Your next question comes from the line of George Vriel from Bernstein. Please ask your question.
Good morning. Stephen, you talked about getting to 70% of the 2019 engine fly hours by 2021, partially based on the outperformance of the IATA projections. The 64% recovery forecast from IATA you cited refers to total passenger traffic, not just international. How much contribution of your fleet is intra China that gives you confidence that despite the all wide-body fleet with 80% exposure to commercial traffic, that you can still outperform the total passenger trends? Second question related to that, we talked a lot about the trend of the flying hours, but the other side of the equation is the dollar per hour rate. Given the airlines may be flying the aircraft but at much lower load factors, have they tried to negotiate for lower rates on existing contracts or looking to pay lower rates on the newer contracts? Thanks.
Okay. Thank you for your question. Yeah. On flying hours, I'm glad you pointed this out. The geographical mix of our engine flying hours is really important. When we look at our top five markets, we have China, Japan, and South Korea are all in our top five markets. The other two are the U.S.A. and the U.K. We are well-placed there given the shape and stage of recovery in those markets. China in itself is around 20% of our coverage, and around 6% of that, so in other words, 6% out of the 20% that is domestic China.
That's helpful for us, and this goes to my earlier comments during the presentation just now, around it's important to look at the granularity of engine flying hours for us, the engine programs that we're in, the geographies that we're in, the routes that we're flying, the age of our fleet. All of those are important factors. It may be misleading to look at an average across an IATA statistic on revenue passenger kilometers, and it's perhaps better, we believe, to look at engine program by engine program and route by route and so on. That's how we've arrived at our numbers today.
Yeah. Your second question was a little bit about, well, are people trying to ask us to compensate them for lower load factors effectively? Of course, we recognize the fact that some of our customers are under severe pressure and there is an ongoing commercial discussion. To balance that sort of thing, in many of these contracts, we have minimum utilizations and so on. I don't think there's been any material impact whatsoever from actual renegotiations. We're trying to support our customers through this phase as much as we can, but we've also got our own business to run.
Thank you.
Your next question is from the line of Celine Fornaro from UBS. Please ask your question.
Yes. Thank you. Good morning, everyone. I'll have three questions, if I may. The first one is regarding your 2022 cash outlook, which is now guided for GBP 750 million, whereas before probably was more at least GBP 750 million. In this number, you're now benefiting from a GBP 330 million cash tailwind, I would say, on the 787 lower cost incurred. What has gone worse? Do you already know early July that you would have lower 787 cost? That's the first question. The second question is regarding the sizing of your disposal, approximately GBP 2 billion plus. I know Stephen addressed it, some of it in the presentation. However, I'm not really sure how I understand how you get to that number given the slumping performance in ITP.
How do we think about how we get to GBP 2 billion, and is it a lot of small divestments or a big, large chunk? Maybe you can help us, and if you think of selling any MRO participations, your JV. My final question would be regarding the shape or the timing of the shop visit costs, and the timing of those, I guess, beyond 2020. In 2021, do you expect more shop visits than in 2020? If you could compare that would be great in your assumed scenario. Thank you.
Thanks, Celine. Okay, well, I'll kick off with the GBP 750 million. Just as a reminder, we've said as early as 2022. Very much still in significant uncertainty around the shape and pace of the engine flying our recovery. Just to put that qualification around it. If I just go through the sort of key building blocks to how we get to that number. Well, first of all, in 2020, we'll have seen that GBP 1.1 billion one-off impact from ceasing invoice discounting. There's a benefit there in 2022 that won't be repeated. We'll also sort of see the benefit of the GBP 1 billion large working capital outflow that we're going to see in 2020, across inventory, but also receivables and payables movements. Rolls-Royce Civil Aerospace, in particular, is a negative working capital flow business, given that we often receive cash from our customers in advance of activity.
When activity starts to wind down and reduce, that impact goes the other way. We've seen a headwind from that this year, which we don't expect to see in 2022. At the same time, we're expecting, and this is the single biggest driver, an improvement in the civil aftermarket, driven by engine pricing recovery, largely in excess of GBP 2 billion. We also are going to see, to your question, lower Trent 1000 costs, and we're going to see time and materials improvements as well. We're expecting to see our Trent 1000 costs around GBP 300 million lower than 2020 numbers, which is about GBP 100 million lower in 2022 versus the old guidance. By the way, when we gave our GBP 750 million number in July, we already knew that impact of the Trent 1000.
That was actually implicit within that number that we get, when we gave you that number in July as well, just to explain that one. We're going to see a modest benefit in Civil OE as average losses continue to recover. That's another part of the bridge. We're going to see higher profits in each of Power Systems, Defence, and ITP, particularly Power Systems and ITP versus the 2020 numbers that we're highlighting today, and that will be there for the full year as well. At the same time, we're going to see an improvement in the cost base as well. The restructuring that we're doing in Civil Aerospace, the pace that we can get through that. We're highlighting today 4,000 headcount reduction already this year, with a further 1,000 to follow before the end of the year.
Certainly, I think by the middle of next year, we'll be well through that restructuring program, Civil Aerospace, to give us good confidence about that GBP 1.3 billion of restructuring savings that we're expecting for 2022. Those are the key drivers that get us to that GBP 750 million. Flagging again, there still remains uncertainty around how flying hours profile over the next couple of years. Warren, you want to take the next question?
Okay. The next question was around the GBP 2 billion. I think the first thing to note is that, actually the price at which we bought in or bought back the share of ITP that we didn't own was actually quite a good price. I think the difference, although the valuation might be down a little, as a result of COVID, is where you start from is quite important. Of course, our target of GBP 2 billion comes from a series of potential disposals here. There are other assets involved. We're not being specific this morning, and we can't be specific this morning about other assets. I draw your attention to no track record, and, as an example, the disposal of L'Orange a couple of years ago, where we weren't talking about a whole chunk of activity that we regularly report on.
We were talking about an asset that sits within one of our businesses, where we thought it was time to do an intelligent recycling of capital. That's the sort of thing that we're looking at. There isn't a small list here. There's a list of several potential assets that we're looking at at the moment. As and when we're in a position to talk about something specifically, we will. The statement we made this morning is that we're confident of more than GBP 2 billion over the next 18 months or so. I think the third question about shop visits and shop visit timing and what happens over the next couple of years with shop visits. Yes, we do expect this to grow beyond 2020 because our fleet that is continuing to fly is growing and it is maturing.
Shop visits have slowed in 2020, simply because of the depressed levels of flying activity. We will see that recovering. Of course, we will see the engine flying hours recover as well. The actual aftermarket margin will grow as well.
I think that's the three questions.
Yeah.
I've got a couple of questions coming in online now, which I shall read out for management. Jeremy Bragg is asking for a little bit more detail on the timing of when we're looking to restore the balance sheet by, and in particular, if or when a rights issue might be needed. Is it better to wait for things to get better or risk that they get worse?
Okay, well, I'm not going to be drawn on any speculation about a rights issue. On the balance sheet, are we waiting for it to get better? First of all, key message. We have strong and adequate liquidity today, more than adequate, in fact, when we look at our base case scenario, as you'll see that's highlighted in there.
Long term, we have an ambition to return to a net cash position, going back to my comments just now, that question from Celine. The drivers of returning to a net cash position, what are the key things that are going to get us there? Well, first of all, the self-help stuff that we're doing on costs, the GBP 1 billion of cost mitigations this year that we announced as early as April, the GBP 1.3 billion of restructuring savings that we've announced in May, on May 20th. There will be an unwind of some of the cash mitigants in 2020, of course, around pay deferrals and so on. Some of those items will unwind going forward, pay cuts, and so on. At the same time, we're anticipating a significant recovery in the aftermarket that will help our net cash position.
The disposals that Warren just talked about, at least GBP 2 billion. We have good confidence and conviction around those and delivering proceeds there over the next 18 months. We continue to assess a range of other options as well. That's how we're thinking about balance sheet at the moment.
Another question we've also got on the webcast here from Benjamin Heelan. He would like to ask if we can give some more information on the industrial partnerships we talked about.
Yeah, I don't think there's anything specific that we can give about that. Of course, if you look at our history, we've always done a certain amount of partnering. We have a handful of risk and revenue-sharing partners that are part of our existing civil programs.
As we look forward, these new products that we contemplate, things like UltraFan and beyond, have a greater range of new technologies within them. Developing those technologies to make them really ready to put into engines is a lengthy exercise, and it's a risky exercise. We'll be continuing to look for new partnerships, perhaps a little bit more at the development end around new technologies to share some of that risk. Also, frankly, accelerate some of those technology developments so that we can get the benefit of them sooner rather than later. That's the direction of travel that we're talking about. Nobody specific, but probably a wider range of players than we've historically been involved with.
Your next question comes on the line of Chris Hallam from Goldman Sachs. Please ask your question.
Yeah, morning, everybody. Just two quick questions from me. First, on the 2022 free cash flow guidance. You sort of already answered my question with your earlier response to Celine. Is it fair to say that the only working capital assumption you're including in that GBP 750 number is no working capital outflow, i.e., a non-repeat of the big 2020 outflow? Given you're a negative working capital business, wouldn't you expect to be seeing some degree of inflow in 2022 as activity improves? That's my first point. Secondly, on disposals, again, you've already covered some of the ground on this topic, but given the outsourcing comments, I suppose it's fair to say the revenue number for ITP is going to look different.
How should we think about the push and pull between higher revenues at ITP due to more outsourcing from Rolls-Royce, versus lower revenues due to lower overall activity in the civil world? Where would you expect the net to shake out relative to 2019? Thanks.
Okay, thanks. Thanks for your question. On working capital assumptions for 2022, the assumption that you stated, the answer is broadly yes. We could see a modest positive contribution from working capital in 2022. It is a very modest assumption, though, in our modeling. It's not a material number. One item that I should have referenced, whilst I've got the opportunity to talk about 2022 as well, that's within our GBP 750 million model that I just ran through.
There is also the headwind of the GBP 300 million or so of hedge cost as we settle that over hedge position for that particular year. That's at the spot rate. That's through the FX forward contracts that we've taken, and that's about the GBP 300 million hit. That GBP 750 million number is after that exposure. That's a good way of thinking about it. The question next, Warren, for you on ITP?
I don't think we can be specific, I'm afraid, on a revenue number for ITP in 2022. I think the question is basically correct in terms of pushes and pulls when you look at ITP and call ITP a partner. What matters to us is overall profitability. We talked about make versus buy. It's a constant question that we're asking about make versus buy. We have to recognize that you can't just make snap changes and have them effective within a matter of months, because lots of these parts have to go through a qualification cycle when they move from one manufacturing location to another. It's far too complex, really, for us to be, frankly, misleading people with guidance on specific numbers. Your question's right.
There'll be a little bit of a balance there. The number will be what it'll be. I just can't give you the answer right now.
Okay. Thanks very much.
Next question comes on the line of Nick Cunningham from Agency Partners. Please ask your question.
Good morning. Thank you. Yeah. It is sort of famously W-shaped with an outflow in between the reporting date. Presumably with the factoring gone and Civil Aerospace smaller, it will be less. What I wanted to ask was if we could remove the overlay how much liquidity you need to have at the beginning or end of a period to be comfortable to get through that normal seasonality. What is it? How much headroom do you need? I think a less important question, but presumably [audio distortion] during the first half, because you have been doing the shop visits, but the flight hours have not been undertaken. That is some cash that should come back. Is that relatively near-term and therefore built into in the sort of beyond 2022 period?
Yeah. Okay, thank you for your questions. You were cutting out quite a bit, but I think that we heard enough of the first question to answer it and might have to have another go at the second question. I'll do the first question to begin with. The W shape. No, I, for one, will be quite pleased to see the back of this, that W shape. I think the cessation of invoice discounting means that it should go away. There should not be material seasonality in our business. That will be a consequence of that. Your question was then around the cash flows and, I'm trying to recall the second bit of it now. Yeah, I think the sort of the headroom area. I think you should be thinking about low single digits of billions of GBP for what is meant by comfortable headroom.
That's what we've used in all of our statements and modeling. It's not a zero case, it's very much a low single. GBP 1 billion-GBP 2 billion or so of comfortable headroom. That's the sort of number that we've used in our modeling.
All right.
Look, I'm afraid on the second question, you just broke up too much. Can you have another go at the second question?
Yeah. I apologize. If you can't understand me, stop me. The question is, have you been effectively banking off, and so therefore, either one place where you [audio distortion] anyway, and so therefore that's effectively cash to come back in at some future date. Is that already in the near term cash flow forecast or is that to come back later?
Yeah.
Not there.
I think we're still slightly struggling.
Well, I think the point is on this.
We're struggling to hear the question, really. I'm sorry.
I think the question is around, is there a big benefit from the lower number of shop visits, and I think that's what it is in terms of cost. The answer is not really, in that we have fixed costs that are part of our MRO network that don't go away. There's a cost in that in itself, in any event. We shouldn't regard this as being a material benefit. I think that's the gist of your question. Sorry, it's just that I'm not answering your question. It was just very difficult to hear it, that's all. I think another point just to reinforce is that shop visit volumes have not fallen materially in the first half in any event. Although the mix has changed, the volume has remained pretty much flat year-on-year. Thank you.
Well, if you've still got a question, maybe take that as a call with our investor relations team offline after the event.
Your next question comes on the line of Mr. Khan from Societe Generale. Please ask your question.
Thank you very much. Good morning, everybody. I have three questions, please. The first one is just on the JV and associates contribution, which is quite encouraging. Could you just tell me where that's coming from? Presumably MRO and leasing, or is there something else there? That's the first question. Second one is just on the tax charge and the cash out on tax this year and perhaps next year because of the mix of profits and losses is geographically quite skewed towards Germany and U.S. Just want some idea on that. The old topic, I'm sorry to come back to this, but the long-term service agreement contract balance change. I've been looking at this for a couple of years now, but I still cannot get my head around this.
I would have imagined in the first half of this year, that would have been a big negative number, yet it's a very big positive number. Is that just backing out the losses that are in the line above in the underlying operating profit? It's kind of canceling that. How does it actually work? I know, Stephen, you touched on this in your presentation, but you were going quite fast for my brain to process all of that.
All right.
If you could just please help me and tell us what that looks like for the full year. You've said in the past that as an ongoing number, that should be around about GBP 300 positive per annum. That's not been the case.
Right. Well, why don't I do the LTSA balance first? Sorry if I went too quickly in the presentation. This actually grew by GBP 780 million in the first half of the year. That's a credit to that balance in the year. Now, just as a reminder, though, the contract catch-ups that have taken place, or when they do take place, they are a revenue adjustment. The double entry in the case of a sort of negative contract catch-up is a debit to revenues and a credit to the LTSA balance. That number that we're highlighting today in the first half is GBP 866 million. That's down to that sort of reassessment of engine flying hours around our engine programs. I should also point out at this stage that the 700 and the 900 were the two biggest contributors to that GBP 866 million.
That makes sense given the, number 1, for the Trent 700, the amount of revenues that have already flowed through that mature engine program, the materiality there. Number 2, the Trent 900, which is the most impacted engine program when we think about future engine flying hours, and you'll have read all the press around the Trent 900 retirements and so on. When you take off that GBP 866 million, you're then into a reduction in the LTSA balance from that GBP 788 million that I referenced earlier. That's an GBP 80 million also reduction. One might have expected it to be larger than that. I just think it's worthwhile just highlighting the difference between invoiced engine flying hour receipts, but also the cash receipts that come in as well. There can be a disconnect between the two.
I think that's just another factor to take into account. Hopefully I've given you some of an explanation there around that one. We don't expect more catch-ups in the second half. In fact, they could actually shrink in the second half as well. I think that's an important factor to bear in mind. I'll very quickly cover the cash tax item as well. Just as a reminder, we don't pay cash tax in the U.K. where we have, number one, sufficient accumulated losses to offset any future profits. At the moment, our U.K. business remains an unprofitable loss-making business. We pay cash tax in the U.S. and Germany. We're expecting that, well, in 2019, it was about GBP 175 million.
First half of this year, GBP 34 million, that's largely driven by the reduced profits in our Power Systems business that we've highlighted today. Going forward, I think for 2020 across 2021 and 2022, as the U.S. and German businesses grow, I think you should be thinking about GBP 250 million or so as a good guide of cash tax in each of those two years. Warren, do you want to cover the first question that was asked in this one? Sorry, this is about sort of the JVs.
The JVs.
Go on.
I think the MRO networks have sort of continued to operate in spite of the depressed environment. As we said a moment ago, the shop visits have essentially been flat in the first half of the year. That's really the driver of the performance from those JVs.
Okay, thank you very much. Stephen, just on the tax rate that we should be looking at for 2021, 2022. Any kind of an underlying rate that you can guide us to?
Yeah. It's a really tricky question. It's very much driven by the sort of the mix of profits across territories. It's hard to be precise. I would think of the tax rate as being a low negative number. There's no deferred tax asset, so there's no credit on the U.K. loss that we have seen in previous years. You'll recall last year we stopped adding to the deferred tax asset. This year, in fact, we de-recognized some of the deferred tax asset in light of a revised view of when U.K. profits are likely to flow through. For your modeling on effective tax rate, I would assume a low negative percentage number.
Sorry, a low negative % number means a tax credit?
Sorry. Full- year, 20%, same as in the first half.
Yeah. Okay.
I think that's sort of the Yeah.
Yeah. Thank you.
Okay.
Our last question from the line of Andrew Humphrey from Morgan Stanley. Please ask your question.
Thank you. Just a couple from me. I wanted to ask about the kind of make versus buy decisions that you're making, and specifically, what benchmarking exercises you've done versus peers to work out what the optimum level might be on that. Secondly, you've given us some benchmarking versus peers on tangible CapEx. I wonder if you could give us a bit more detail on the overall investment levels, including intangible and R&D. I know that's an area you focused on in recent years. To give us an idea of where overall investment ratios might turn out in the medium term compared to some of the peer group.
Yeah. Okay. Well, look, on the make versus buy, I can't go into specifics at the moment. This is a constant exercise. I think all we're highlighting is that the changes we're making r estructuring that we're doing in terms of site consolidation, that we announced this morning in terms of overall headcount reduction, creates a catalyst for looking at that make versus buy again and saying, "Are we really doing what's right for us?" What's right for our peers might be completely different.
We're seeking to look at make versus buy from a point of view of profitability and deployment of our capital. We'll come out with the answer, which is right for us. I expect that will probably mean a little bit more buy, and a little bit less make, which is essentially being less capital intensive. Transferring more of essentially our fixed costs into variable costs, giving us a bit greater flexibility.
The comment we made on the slide a little while ago in the presentation about making our capital intensity a bit closer to the range of our peers, was simply meant to illustrate the fact that, if you see us move in that direction, this is a healthy direction. It makes us more competitive. I think you can see from the first part of my answer, obviously it's making our business more competitive.
On the investment question. You'll recall that over the last few years, we've actually ramped up investment levels across both R&D and CapEx. Number one, as we've brought several new engine programs to the market, and number two, as we've increased our capacity for the volume we were anticipating, particularly OE volume and Civil Aerospace. Coming out of that, for natural reasons around the engine program development, but also COVID related, R&D cash spend GBP 1.1 billion cash spend in 2019. I think you can expect to see that decline modestly, as we get towards 2022. Think maybe declines may be GBP 100 million-GBP 200 million reduction in R&D cash spend. I think CapEx, I think that's where you're more likely to see a material change in profile. We spent around GBP 750 million in 2019.
That number for 2020 is more likely to be about GBP 600 million, so quite a material reduction. Again, I think if you're thinking around 2022, you're probably looking at a number of somewhere between GBP 400 million-GBP 500 million in 2022. I think that's a decent guide on capital expenditure, where having built the capacity, we think we can manage at those lower capital expenditure levels that I've just highlighted.
Great. Thank you very much.
Thank you.
Yeah. I think what's important, just to sort of add a little bit of context on that capital expenditure is, Stephen's talked about the quantum there on R&D and CapEx. One of the things we are doing is thinking about the shape of that CapEx over the next several years. If I look at the shape by business, we are emerging from a period where we've spent a huge amount of investment on our Civil Aerospace business, creating a portfolio of relatively new and new engines. Now is the time to capitalize on those new engines, and over the next several years, you will see us going a bit less capital intensive in civil.
Now is the time, we can free up then some of that investment to target these zero carbon areas, which are showing up in our Power Systems business initially, in some of the electrical activity that we're doing for future in aerospace, and for some of the new exciting opportunities that we've got ahead of us in Defence. As well as the quantum, it's important to think about the shape of the R&D and CapEx.
Yeah. Thank you.
With that, I think that was actually, I'm being told, the last question. We'll thank you all for your questions. Before we disappear, I just wanted to take this opportunity to quickly summarize. I'll start by talking about our other announcement this morning. Stephen will be leaving us. I want to say thank you very much to Stephen for being a great colleague and a great influence on our business over the last several years. He's overseen great change to our finance team and built a very strong finance team over the last few years and injected some rigor there. The executive team will miss him and wish him well. He has overseen or helped us drive very significant changes in our business.
That has actually manifested itself in, if you look over the last several years, a big improvement in free cash flow generation, coming from negative through to getting on for GBP 1 billion of free cash flow, last year. Thank you very much, Stephen.
Thank you.
Actually, I'll start my summary then with that point. That was a great position to come into 2020 with some good momentum. Unfortunately, the COVID crisis has struck fairly fast in the first quarter. We have acted quickly to secure liquidity. We've acted quickly with our very significant spend mitigations for 2020. We've recognized the market outlook and undertaken the largest restructuring of our Civil Aerospace business to date. We do think that that is going to deliver a step change in performance for our Civil Aerospace business so that we can really capitalize with great operational gearing on that installed base that I talked about just a moment ago.
Looking a bit further forward, we have the self-help actions underway to repair our balance sheet after this crisis as we look beyond the crisis, so that we can really maximize value from those existing positions and secure our long-term ambitions. I think that's the summary, and thank you all very much for your interest.
That does conclude our conference for today. Thank you for participating. You may all disconnect.