MTU Aero Engines AG
XETRA:MTX
| US |
|
Fubotv Inc
NYSE:FUBO
|
Media
|
| US |
|
Bank of America Corp
NYSE:BAC
|
Banking
|
| US |
|
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
| US |
C
|
C3.ai Inc
NYSE:AI
|
Technology
|
| US |
|
Uber Technologies Inc
NYSE:UBER
|
Road & Rail
|
| CN |
|
NIO Inc
NYSE:NIO
|
Automobiles
|
| US |
|
Fluor Corp
NYSE:FLR
|
Construction
|
| US |
|
Jacobs Engineering Group Inc
NYSE:J
|
Professional Services
|
| US |
|
TopBuild Corp
NYSE:BLD
|
Consumer products
|
| US |
|
Abbott Laboratories
NYSE:ABT
|
Health Care
|
| US |
|
Chevron Corp
NYSE:CVX
|
Energy
|
| US |
|
Occidental Petroleum Corp
NYSE:OXY
|
Energy
|
| US |
|
Matrix Service Co
NASDAQ:MTRX
|
Construction
|
| US |
|
Automatic Data Processing Inc
NASDAQ:ADP
|
Technology
|
| US |
|
Qualcomm Inc
NASDAQ:QCOM
|
Semiconductors
|
| US |
|
Ambarella Inc
NASDAQ:AMBA
|
Semiconductors
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
184.2
318.4
|
| Price Target |
|
We'll email you a reminder when the closing price reaches EUR.
Choose the stock you wish to monitor with a price alert.
|
|
Fubotv Inc
NYSE:FUBO
|
US |
|
|
Bank of America Corp
NYSE:BAC
|
US |
|
|
Palantir Technologies Inc
NYSE:PLTR
|
US |
|
C
|
C3.ai Inc
NYSE:AI
|
US |
|
|
Uber Technologies Inc
NYSE:UBER
|
US |
|
|
NIO Inc
NYSE:NIO
|
CN |
|
|
Fluor Corp
NYSE:FLR
|
US |
|
|
Jacobs Engineering Group Inc
NYSE:J
|
US |
|
|
TopBuild Corp
NYSE:BLD
|
US |
|
|
Abbott Laboratories
NYSE:ABT
|
US |
|
|
Chevron Corp
NYSE:CVX
|
US |
|
|
Occidental Petroleum Corp
NYSE:OXY
|
US |
|
|
Matrix Service Co
NASDAQ:MTRX
|
US |
|
|
Automatic Data Processing Inc
NASDAQ:ADP
|
US |
|
|
Qualcomm Inc
NASDAQ:QCOM
|
US |
|
|
Ambarella Inc
NASDAQ:AMBA
|
US |
This alert will be permanently deleted.
MTU Aero Engines AG
You don't have any saved screeners yet
Welcome to the Conference Call on MTU Aero Engines First Quarterly Results 2021. For your information, the management presentation, including the Q&A session, will be audio taped and streamed live or made available on demand on the Internet. By attending in the conference call, you [ have ] permission for audio recordings and tenet for publication on the Internet to be taken. The speakers of today's conference call are Mr. Reiner Winkler, Chief Executive Officer; and Mr. Peter Kameritsch, Chief Financial Officer. Firstly, I will hand over to Mr. Thomas Franz, Vice President, Investor Relations, for some introductory words.
Thank you, 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 Reiner. Peter will start with the financial overview and a more detailed look into our OEM and MRO segment. After that, Reiner 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 Reiner for the review.
Thank you, Thomas, and welcome also from my side. Let me start with a brief review of the first quarter of 2021. Globally, high COVID-19 infection rates and ongoing travel restrictions resulted in a weak start into the year. Passenger traffic was 70% below precrisis levels, whereas cargo traffic accelerated 11% in the first 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 IATA's outlook for '21 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 first Embraer E2-Jet equipped with GTF engines. This happening in the current situation 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 450 engines per year. The next step -- 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 has signed a 5-year MRO contract to maintain the V2500 and CFM56 engine fleet. This is once more an 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 corporation to jointly develop, produce and support the next-generation fighter engine. Each partner will have a workshare of 1/3. Sikorsky announced its first export customer for CH-53K heavy transporter helicopter. So Israel ordered the helicopter to bolster its fleet. On the 21st of 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 first 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, Reiner, and also a warm welcome from my side. Let's have a brief look at the financial highlights of the first quarter. Please let me remind you that the first quarter in 2020 was a normal quarter with no impact from COVID-19. Therefore, the comparison base is rather skewed and quite tough. Revenues decreased by 22% to almost EUR 1 billion. In U.S. dollar terms, revenues were down 15%. We had a significant headwind here from the weaker U.S. dollar in Q1 '21, where the average rate was 120 versus 110 in the quarter last year. Group EBIT adjusted was down roughly 50% to EUR 86 million, resulting in an EBIT margin of almost 9%. Respectively, net income decreased to EUR 58 million. On the positive side, free cash flow came out at EUR 106 million, which is a strong start into the year. This mainly results from a strong cash collection in the MRO following a higher 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% to EUR 337 million. Military revenues were down 11% to EUR 87 million, showing you a 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 EUR 250 million. And within that, organic OE sales in dollars were down in the high 30s range, reflecting production rate cuts at Airbus for the A320neo platform and Boeing for the Dreamliner. Q1 '21 key revenue drivers were the GTF engine programs. Organic spare parts in U.S. dollars were down in the high 30s. V2500 and CF6 and PW2000 engines started a bit weaker into the year as expected. This business mix resulted in a decrease of EBIT adjusted to EUR 47 million with a margin of 14%. So turning to the commercial MRO segment. Reported MRO revenues here decreased by 15% to EUR 678 million, 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 EUR 40 million, 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 Reiner 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, looked more optimistic into the second half and are planning for a strong summer season. Vaccination progress and the 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 EUR 4.2 billion to EUR 4.6 billion 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% and 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 will certainly monitor the developments closely and we'll 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.
[Operator Instructions] Mr. Robert Stallard from Vertical Research.
Yes. 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, for Peter. On the cash flow, a strong performance in the first quarter. And you mentioned, I think it was from collections. I was wondering if there was any cash there that was pulled forward from what you may have anticipated later in the year.
I mean commenting first on Zhuhai. So the equity results for Zhuhai was rather flattish. I mean we saw the corona impact in Zhuhai already in the first quarter 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 within the induction pipeline, so we expect also here in Zhuhai regarding revenues and equity results, obviously, for the consolidated P&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 4x Q1 cash flow. It would be nice, obviously, but we'll work on that.
And your next question comes from the line of Mr. George Zhao from Bernstein.
First, could you just share the organic spares performance for each of your 3 main engine programs? And secondly, there's been some discussion from some of your peers about customers bringing some repair and MRO work forward to prepare for the 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 in the 50s. So it was organically, in U.S. dollars, down in the 50s. CF6 and PW2000 was down slightly, so together. So CF6 is a little bit weaker. Start into the year, it was down in the 10% range, I would say. On the other side, PW2000 was even slightly up so we had -- especially, I mean you might know that PW2000, the major part of the [ fees ] installed on the military C-17 transporter and that is even growing that business. So that is supportive here, obviously. So -- but both together were 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 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.
Chloe Lemarie from Exane BNP Paribas.
I have 2, if I may. The first one is actually, if you could comment on the March performance in commercial spares and in aero versus the rest of Q1. I mean are you already seeing some slight improvements versus the beginning of the year? And how should we think about it going into Q2? What trends are you expecting? I noted that you mentioned gradual improvement throughout each quarter, but maybe quantifying just 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 impacts were in Q1 and what we should expect for the rest of the year?
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 part side, are 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 typically, in a non-COVID year, the military business. Cost cutting, yes?
Yes.
Yes. I mean we reduced -- I mean, 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 head counts in the year. So you can translate that into something like EUR 80 million of staff costs. And I mean that is 1 quarter happened obviously then in Q1.
So hence, we used EUR 80 million lower...
It's for the full year, exactly, so.
For the full year. Okay.
Yes.
Mr. Ben Heelan from Bank of America.
Can I ask -- on the OEM margins were pretty weak, how should we 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 scope, 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.
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 the weak military business in Q1. And that, together with a decent level of OE deliveries, obviously led to that 14% OEM margin. I mean throughout the year, as I commented, I mean, we had -- we were 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 we'll be, I mean, with IFRS 15 honestly, so the revenue line is not so easy to forecast, but I mean we're going to -- 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 quarters, very lower scope of shop visits. So the airlines, they maintain only -- or they ask us only for a minimum of what has to be done. But we also think that, that will change over the year, especially then in 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. No, I don't have a percentage on that. And then it's also very customer specific. Because 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 his flight-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...
Time and material.
Time and material market, yes.
[Operator Instructions] Mr. Christophe Menard from Deutsche Bank.
I have 3 questions. One follow-up on the comments 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 and 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 future? And last question is on the GTF campaign, OE campaigns. There 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 news. Can you comment on that renewed -- I mean, I would say momentum, but it seems that it's gaining some market share versus LEAP at the moment.
So I will start with your question regarding time material and flight-hour customers. I mean from the point of revenue recognition, it's completely identical. So we -- also with flight-hour customers, we book revenues when the shop visit 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. So from the point of revenue recognition, it's identical. But I mean it's -- I mean, on the one hand side, obviously, a flight-hour customer is not, as explained before, not very sensitive to the scope because the payment is stretched over this flight-hour payments. The time and material customer obviously has to pay the shop visits when he already orders or when he sense 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 we will -- this customer will do everything that he has the capacity in the air when the respective customer thinks the demand will come back. 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 Reiner pointed out before, we see a strong demand coming from, especially North American operators, as a vaccination campaign is there for more advanced compared to the European market. So European market will lack probably maybe 2 months or a quarter behind the U.S. market. On the cash?
On cash flow, in the OEM business, there's no change in the behavior of [indiscernible]. It's a normal process in the OEM business. So as you mentioned, the strong cash flow in the first quarter mainly came from the cash collection in the MRO business.
With GTF market share, I mean, we had some -- we've some successful campaign wins in the last month, all the Indigo Partner airlines chose the GTF for the A320neo fleet, and you know that it was something like 400 aircraft order from the Indigo Partners airline. And also on the A220, I think Breeze Airline takes another 20 A220 [ jets ] that was exclusive with the PW1500. So I think -- but it's always -- I mean, the last months were 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 50% 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 50-50, what we are targeting for.
Mr. Harry Breach from Stifel.
Can I maybe I ask you 3, if I may, all slightly different. Maybe just, firstly, completely different topic, but ITP and the sale process there, I think when we spoke in February on the call then, I think, Reiner, you said, look, if they open the door to you guys, you might be interested. Has anything changed there? Have you had the opportunity to participate maybe more in the process to sell process with ITP? Secondly, and this one is probably just down from my ignorance again. The new European fighter engine program for FCAS and the work-share arrangement of 1/3, 1/3, 1/3, I guess that was maybe a little bit of a surprise to me given that, I guess, with historically maybe 1 wouldn't always sort of evaluate the sort of modules typically supplied by the partners and the scope of work sort of in those proportions and maybe the -- 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 at you guys, maybe could we answer -- just address maybe those 2 first?
Yes, we'll 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 joined the program, they will finance 1/3 of the program, of the R&D spendings. And as a consequence, the Spanish industry has also, let's say, 1/3 of the work share. And ITP, as a smaller engine company, received also 1/3 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 it's -- maybe it's not the best way. We would prefer another solution. But I think as a consequence of paying 1/3 of the program, they have also the right of 1/3 of the work share to get.
And guys, maybe the final question. Again, when we spoke in February, Reiner, 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 end of June and in 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, you are seeing sort of an increased demand from U.S. and Asia customers on it?
Yes.
Mr. Alexander Hauenstein from DZ Bank.
Alex Hauenstein, DZ Bank. I have 2 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 GTF? But on top of that, you have more, let's say, in the first and second and maybe even in the third quarter to be pushed out?
Yes. I mean regarding delivery sequence, I mean, in our -- I mean we have -- we do the GTF in Hannover. 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 the year. I mean on the one hand side, I mean, Hannover is more or less stable. EME Aero 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&L despite the fact that these are 50-50 joint ventures. So that's the revenue-wise answer.
And the retrofits will be finished more or less in the second quarter.
Okay. And coming back to the sequence of your earnings stream over the course of the year. Just as a clarification, you commented about the fourth quarter being the strongest. Was that only related to MRO or in total for the group in terms of [indiscernible]?
Obviously, from today's point of view, I would say the strongest quality in the military business will be Q4. We expect an 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, yes.
For the group?
For the group, yes.
Mr. [ Adi ] Aney from Algebris.
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 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 the results?
Yes. I mean it's always the process in any year that we typically -- I mean Q1 obviously is very close to the guidance we released in typically in February with the full year results. So -- and in summer time, 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, in our financials. And then based on that, we are going to update the guidance with some form, so.
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 with certainty improvements?
If we answer that question, no, I think it's a -- we have to make a talk announcement.
Ms. Chloe Lemarie from Exane PNB Paribas.
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 rentals towards the later end of the year, that explains why you should have a weaker cash generation over the next 3 quarters? Or are you actually expecting to be closer to a 60% cash conversion in this 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's 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. The 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. That is to be -- to forecast that exactly is not impossible. But if 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 Reiner mentioned, I mean, we're going to start construction of MTU Serbia. So currently, we do our groundwork. So that is below CapEx. But any time in summer, we're going to start construction and that is the higher CapEx consumption, so to say. So there's also a headwind, 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.
Mr. Miro Zuzak from JMS Invest.
Miro speaking from JMS. 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 is also depending on the recovery path of the capacity basically coming back into the market. This 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 costs. You have made some restructuring in Germany. We'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 margin, I mean, which has now heavily down, right? What's 18%, 20% before the crisis, now, 12.5% in last year. Now that 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 2021. But I mean, the answer is, obviously, once capacity demand is back from the customer side. So upon lifted travel restrictions and so on, so we're going to see an increase in traffic triggering than the aftermarket demand or 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 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 MRO work for the GTF that is, we continue to be a lower-margin business compared to the independent business now.
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 a pre-COVID level on 2019 level, maybe 2024, 2025. But within that earlier for the narrow-body market, where we have a high exposure, so maybe in the year 2023 to 2024. And that's, as Peter said, so in the next 2 to 3 years, we will reach the levels as we have seen before the crisis.
Mr. Richard Schramm from HSBC.
Two questions, 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 when the whole process is mixed up, you just have settled with this FCAS project because for the vector, MTU 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 of Safran?
No. No, no, no. Definitely not.
Okay. And second question concerning this 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, where 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 included. So the general answer is you can pass the price increases to your -- pass on to your customer.
Mrs. Milene Kerner from Barclays.
I have 2 questions. So the first one is on the OEM margin. Could you comment on the OE revenue decline impact on your profit that you saw in Q1? Was it a headwind? Was it a tailwind in your year-on-year breach? 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 CF6 engine in Q1 aside from the tough comps?
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 we expect a rather flat delivery line for the GEnx, which is the 1 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 rate 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 part 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 the military business, especially in the second half of the year will contribute much more EBIT compared to Q1, obviously, and also Q2 will not be something like EUR 180 million like the Q4 2020 year. So the other -- I missed the second question.
Yes. So -- and sorry, Peter, just to follow up on this one. But in terms of your profits, I mean, given that your -- I mean, OEs loss-making, so you had lower volume on 1 side. But on the other hand, you have low cost versus the volume in terms of the impact on just the topic on the adjusted EBIT in Q1, was it a headwind or a tailwind in your bridge this 30 -- high 30s percent decline?
Yes, 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...
A small one, yes, a small one.
Okay. And then my second question was on CF6. 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 typically, 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 MRO shops for the CF680 orders a slightly higher level of spare parts because they get the old prices, and 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.
There are no further questions over the phone at this time. Therefore, I would like to hand back to Mr. Thomas Franz.
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. Reiner Winkler and Mr. Peter Kameritsch and all the participants of this conference. Goodbye.