MTU Aero Engines AG

XETRA:MTX

Earnings Call Transcript 2018-Q3

[Operator]

Welcome to the conference call on MTU Aero Engines AG Third Quarter Results 2018. This call is being recorded and also broadcast live. The speakers of today's call are Mr. Reiner Winkler, Chief Executive Officer; and Mr. Peter Kameritsch, Chief Financial Officer. Firstly, I will hand the call over to Mr. Michael Röger, Vice President, Investor Relations, for some introductory remarks. Please go ahead, sir.

[Michael Röger, Vice President of Investor Relations]

Good morning, ladies and gentlemen. Welcome to our results call for Q3 2018. As always, we will start with business highlights presented by Reiner Winkler, our CEO. After the financial key figures, Peter Kameritsch, CFO, will give some more color on our OEM and MRO business segments. Reiner will present our updated guidance. Afterwards, we will have time for answering your questions. Reiner, now please?

[Reiner Winkler, CEO & Member of the Executive Board]

Good morning, everyone, and welcome to our conference call. Let me first start with some business highlights before I will hand over to Peter for the financials. The key market indicators of the aviation industry remain to be in a good shape. Passenger traffic was up by 7%, passenger load sectors remained at record levels above 80% despite the recent increase in oil price. These overall favorable market conditions are reflected in a better-than-expected aftermarket business at MTU. Our GTF production volume increased as planned in Q3 and will further increase in Q4. So we are confident to reach our target and double production in 2018. At the same time, the GTF family continues to collect new orders. Just yesterday, Aegean announced to order up to 62 A320neo family aircraft equipped with the GTF. End of September, also Gulfstream delivered its new business jet powered by the PW800 engine. A few weeks ago, we laid the foundation stone for our new GTF MRO shop with Lufthansa Technik in Poland. This facility will be the world's most efficient maintenance shop for narrowbody engines and will be operational by 2020. It will have a capacity of more than 400 shop visits per year. We signed a new MRO contract with Asiana Airlines to maintain their V2500 engines totaling EUR 245 million. We take this agreement as a clear sign that our strategy of expanding our MRO services and presence worldwide is paying off. We have won MRO contracts with a total value of USD 2.1 billion for our independent MRO business so far in 2018. At the beginning of October, the first production KC-390 aircraft successfully completed its maiden flight. The KC-390 has attracted interest from many countries worldwide. Last but not least, we are happy to operate our guidance for 2018 again based on a strong aftermarket business, and I will give more details in a few minutes. Let's have a look on the key financials. The group revenues increased by 14% to EUR 3.3 billion, supported by a strong OE but also aftermarket business. The group EBIT adjusted was up by 16% to EUR 509 million, resulting in a margin of 15.3%. And the net income adjusted increased also by 16%, resulting in earnings per share of EUR 7. Free cash flow grew by EUR 44 million to EUR 163 million and the total group order book increased by 2% to EUR 15.3 billion. Let me now hand over to Peter for more details on the business segments.

[Peter Kameritsch]

Yes, thanks, Reiner and hello to everybody also from my side. So first, let's have a look on our OEM division. Total OEM revenues grew 21% to EUR 1.5 billion. Commercial revenues increased by 21% to EUR 1.2 billion while organic growth there was 37%. Within that, organic OE sales in the 9 months were up 20%, mainly driven by higher GTF deliveries. In Q3, we saw an organic growth of 30%. This performance makes us confident to achieve even higher growth rates in the fourth quarter based on the back-end-loaded ramp-up of the GTF. Organic spare part sales were up in the low teens in the first 9 months. In Q3, we saw an exceptional high-growth of mid-teens. Key driver here in that segment were the V2500 and the CF680. This performance encourages us to upgrade our full year expectation. Military revenues were almost stable at EUR 300 million. EBIT adjusted increased by 16% to EUR 341 million, resulting in an EBIT margin of around 23% due to the before mentioned business mix. Some words on our MRO segment. Total MRO revenues were up 17% to EUR 2 billion. Organic growth on constant U.S. dollars were up 26%, partially driven by higher material consumption. GTF retrofit shop visits continued to drive part of this growth as planned. V2500 and CF680 also in the MRO segment as already in the spare parts business, showed a strong growth in that segment. Our MLS engine lease business supported that performance too. EBIT adjusted increased 14% to EUR 168 million, resulting in a more or less unchanged EBIT margin of 8.3%. Q3 marks another record quarter in our MRO business, therefore also here, we increase our full year expectation. Let me now hand back to Reiner for a summary of our updated 2018 guidance.

[Reiner Winkler, CEO & Member of the Executive Board]

Yes, thank you, Peter. Based on these excellent results, we upgrade our guidance for 2018 as follows: spare parts are now expected to grow in the low teens; commercial MRO will be up in mid-20s; and military and commercial OE remain unchanged. We now expect our group revenues in euro to be around EUR 4.4 billion based on a slightly updated U.S. dollar yearly average exchange rate of around 1.18. The stronger aftermarket business improves our EBIT adjusted guidance to around EUR 660 million, resulting in a slightly better margin of 15% compared to 2017. Net income is now expected at EUR 470 million. And for free cash flow, we continue to expect a cash conversion rate in the range of 40% to 50%. So thank you very much for your attention, and we are now ready to answer your questions.

[Operator]

[Operator Instructions] We will now take our first question from Christian Laughlin from Bernstein.

[Christian A. Laughlin, Analyst]

Just one question from me on the commercial aftermarket. Reiner or Peter, I was wondering if you could just add a little bit more detail on describing the dynamics you've seen in the quarter so far around what's driving the growth with respect to unit growth through the shops or scope of work or any kind of late-year impacts coming in through pricing or anything like that. And then if you can also just kind of add on how you see this playing out in Q4 so far. And then finally around that, if you can discuss in that context just the different dynamics between, say, growth of newer engine programs or current engine programs like V2500 versus, say, PW2000 and CF6.

[Reiner Winkler, CEO & Member of the Executive Board]

To your last question, I mean the main drivers in the aftermarket -- the sale in the spare parts business is, of course, I mean also in Q3 the V2500. I mean that's -- in Q3, we saw a growth and -- yes, low 20s, I would say, yes. A very strong growth, growth here in the V2500 is, I mean -- it's mainly supported by the fleet structure, so you know we have 6,000 engines in the air, average age 8 to 9 years. So we come in the phase where we get more second shoppers with more material content. So that is, I mean, the -- these are the basic dynamics here in the V2500. CF680 we saw an exceptional high-growth year, low to mid-teens in the third quarter. I mean the CF680, as you know, it's a quite mature engine program. We have -- what we see is a huge demand, especially out of the freight operators. So we look on the 767s, and the CF680 on it, also a huge demand for used aircraft in that space and that supports, obviously, the dynamics here in the CF680. So the PW2000, that was up mid-single digit in Q3. So now overall, if you look on the whole portfolio, we had something like mid-teens growth in the spare parts business. And I mean for Q4, I think we expect -- I mean you can see it in our guidance, we expect something like 10% or the low teens, something that -- in that space, yes. MRO, a little -- a bit of a different story. So, part of the growth, obviously, comes out of the -- comes out of the warranty shop visits, our MRO division, that's for the PW1100 growth. But besides that, I mean we have also a growing number of V2500 shoppers, it's slightly more growth comes from the content per shop visits mainly driven by a higher material content, which we see also in our spare parts side of the business. Also the CF680 is growing in the MRO division, so these are the main driver, I would say, yes.

[Operator]

We will now take our next question from Chloe Lemarie from Exane.

[Chloe Lemarie, Research Analyst]

I have 2 questions, please. The first one would actually be on the increase in EBIT in the guidance. It seems to be purely the translation of higher spares and MRO guidance. So if you could just confirm that? And also whether -- if you had any discrepancy between your cost target on the DTF for the year or is it also contributed to the guidance increase? And the second question is on the receivables. I note that on Q3 you actually had quite an increase there, so I wanted to check if it's the impact of timing of revenue recognition on engines when they're shipped to the consignment stockyard or if it's something else entirely.

[Peter Kameritsch]

Yes, maybe I start with the first question. The EBIT increase or guidance increase is based on the better aftermarket performance, especially better spare parts and also a little bit better performance or expectation in the MRO business. There's no impact from any whatever cost of GTF engine, there we are on track with our manufacturing target costs, so the -- it's purely coming from the aftermarket -- from the better performance in the aftermarket.

[Reiner Winkler, CEO & Member of the Executive Board]

Regarding receivables, I mean we had a very strong September. So we delivered a lot of PW1100 engines, so on the OE side, and we also billed a lot of the PW1100 shop visits out of our Hannover facility, so -- and that is reflected in the higher receivables.

[Operator]

We will now take our next question from Zafar Khan from Société Générale.

[Zafar Ayub Khan, Equity Analyst]

Reiner, just to congratulate you on securing another 5-year term. Wish you the best of luck for that. I had 2 questions, please. First one just on the geared turbofan. Can you just update us on how good that is now in terms of are there any still -- still any issues outstanding on that? Or since the delivery of this sort of golden engine, it's been incident-free. So that's the first question. Second one is just with reference to your comment on the engine leasing business, engine leasing and asset management gaining importance. Many of us old guys get scared when we read about leasing businesses, and so I just wanted to understand your business model. Is this something you're doing through IAE or is it yourself specifically, who are you leasing to, how good is the credit quality within this business, what are the risks? If you could just outline the business. How important is it? How -- what is the lease book looking like at the moment? How much has it grown in the last couple of years?

[Peter Kameritsch]

Maybe I start with the first question. I mean you know when you introduce a new engine, there are always some technical issues in the beginning. I mean most of them or all of these, we had in the GTF were public, and also the fixes for these issues have been discussed several times and there's no other or no new issue. So the engines we are now delivering are -- we include all these improvements. There will be ongoing improvements also in the next couple of quarters and years, for example, on the combustor, so on the public side that there is no issue which we see actually.

[Reiner Winkler, CEO & Member of the Executive Board]

I mean, regarding the business model of MLS, and -- that would be a story. We could talk about that for hours. I mean, in a nutshell, I mean our MLS in Amsterdam, they buy used engines. So V2500, CSMs, so mainly the engines we also do in our MRO division for regular MRO. They buy used engines, use them to support our customers in the MRO division, at the end of the lifetime, the engines are torn down and we extract used material and the used material supports also our MRO business, let's say. So that is -- that's in a nutshell. I mean the leasing business is very -- is developing extremely well. I think over the last years, we doubled revenues in that business year-over-year for 3 years now. Now I mean we don't give exact numbers for the locations in the MRO business but the magnitude is EUR 150 million per year currently in 2018, is coming out of that business with an above-average margin.

[Zafar Ayub Khan, Equity Analyst]

And sorry, you're not leasing new engines, this is all...

[Reiner Winkler, CEO & Member of the Executive Board]

No, no, we don't lease out new engines. No, no. There's asset management, that's all used engines.

[Operator]

We will now take our next question from Christophe Menard from Kepler Cheuvreux.

[Christophe Menard, Head of Aerospace and Defense Sector]

First question was actually on your deliveries of geared turbofan to Airbus. We're nearing the end of October and start of November, so you must have a pretty good idea what are you going to make your target for the full year? I mean, you said you would make it on the call, but I think you may have some sort of an internal target by -- I mean in the coming weeks. My question related to this is what is the risk of the penalty that you could pay to Airbus or customers or are they no risk because you're not late? I mean that's basically the first question. Second question is about the spare parts. On the H1 conference call, you mentioned that you were expecting a strong Q3 and Q4, because if my memory is right, you were saying 9% more or less organic growth in spares in H1. And you were already guiding to a better level in H2. So what has changed in Q3. Basically, is it CF680? I mean, you may have answered that question already but I just wanted to be sure. And the last question is about the consolidation line in the sales. I mean this one has really risen a lot in Q3. I think it's totally related to the shop visit -- visits but how could you -- how should we think about that line going forward fiscal year '18 and even beyond? Should it peak at a given point in time and go down? That's more a modeling aspect here.

[Reiner Winkler, CEO & Member of the Executive Board]

Maybe I start with the first question on the GTF ramp-up. Yes, we are on track with all our commitments towards Airbus. There was a little bit of an interruption in the second quarter due to some technical issues but the third quarter then again was very strong. We have met all the milestones, which have been agreed with Airbus so far, and so we are absolutely optimistic to also meet our full year target, and we do not expect any payment -- penalties to Airbus this year.

[Peter Kameritsch]

To your spare parts' question, Christoph, I mean everything is a bit better-than-expected in H2, so V2500 a bit better, PW2000 a bit better but the main driver is definitely, as you mentioned, the CF680. So that is, I mean, in H1, we rather thought mid-single digit, high single-digit and now we want to see it a little bit above that. So the consolidation line, I mean that's really an effect coming off -- out of the PW1100 contract structure. So I mean the contract holder for the PW1100 aftermarket contract, there's a program office in Munich which is located in the OEM division but the work is done in our Hannover facility, so in our MRO division. So when our shop visit on the PW1100 is done, it's built from Hannover to the program office in the OEM division. But it's the internal revenue recognition, so to say, and the program office in Munich bills it to IAE, LLC, so the OEM, so to say. And so in order -- you don't have it twice in the corporate lines, so you have to do one consolidation between the segments. So we had a strong increase there in Q3 because, as I mentioned before, we billed a lot of these shop visits in Q3. And for modeling purposes, that will grow -- I mean that is -- I can't tell you exactly because that depends on the exact billing, but it definitely will grow in 2018 and it will grow further in 2019.

[Christophe Menard, Head of Aerospace and Defense Sector]

And just one thing on spare parts, you never mentioned PW4000 and I think Pratt & Whitney mentioned it on its call again in Q3.

[Peter Kameritsch]

Yes -- Hannover, I mean the -- I know where you -- we are only an RSP partner in a PW4000 growth, which is installed on the 777, on the old 777. But when Pratt & Whitney speaks about the PW4000, they speak about the PW4000 growth, but that is the bigger part of their business, the PW4000s, which is also on the 747 and the 767. So there we are not an RSP partner.

[Operator]

[Operator Instructions] We will now take our next question from Celine Fornaro from UBS.

[Celine Fornaro, Head of EMEA Industrials Research]

I've got 2 questions, if I may. The first one would be if you could comment on the underlying activity in Zhuhai. So if you were to put FX considerations on the side, then how it's performing Q3 and how we should see that for Q4 and over the next year? And my second question would be on the spare engine ratios for 2018, if it's still expected to be, as a percentage, the same as 2017? And how are you thinking for that pan out for next year?

[Peter Kameritsch]

So, in Zhuhai -- Zhuhai is developing very well. I mean given their portfolio, I mean they have the V2500 and the CFM56 in their portfolio that is growing very strongly also in that market. I mean they are -- I think 1/3 is coming from China Southern and the rest comes really from third-party operators in China, but also rest of Asia even from the rest of the world, that's performing very well. I think we -- we're going to reach the capacity limits more or less in the next year, so we plan to extend the plant in Zhuhai in the next year or so, even further, but it is developing quite well.

[Celine Fornaro, Head of EMEA Industrials Research]

And the rate of growth compared to your MRO growth reported, is it above that? Below that? I mean could you...

[Peter Kameritsch]

The growth is more or less similar, yes. But we don't have the revenues of Zhuhai in our consolidated revenues. We accounted for that at equity, you know. I mean, Celine, maybe just to add, we had seen this strong -- a strong profitability performance in Q3, which was a little bit down in the first half and as expected and as we said, in the H1 call, there's a -- there was a recovery taking place in Q3. If you can repeat the second question again, Celine?

[Celine Fornaro, Head of EMEA Industrials Research]

Yes, it's about the spare engine ratio, so the one -- the new engine, I would say, that you give for spares. So the ratio was expected to be similar for 2018 compared to what you had in '17. I just want to make sure that this is confirmed. And how you're thinking about that for 2019.

[Peter Kameritsch]

Yes, the ratio will rather go down because the OE deliveries just go up. We don't add much more to that.

[Celine Fornaro, Head of EMEA Industrials Research]

And for this year, it's still flat year-on-year?

[Peter Kameritsch]

Slightly down.

[Operator]

We will now take our next question from Robert Stallard from Vertical Research.

[Robert Alan Stallard, Partner]

A quick question on the aftermarket. It's clearly been a very strong result year-to-date and you mentioned that there has been no impact of the higher oil price. Are you seeing any initial signs from your airline or freighter customers that they are easing back on perhaps their utilization or restoration of older aircraft, particularly headed into 2019?

[Reiner Winkler, CEO & Member of the Executive Board]

No. Can't say that. So there's still a very, very strong demand for also used 757s, used 767s. So we don't see any sign of slowing demand in that space.

[Robert Alan Stallard, Partner]

Okay. And then secondly, on the supply chain, we've seen various stories about aerospace suppliers having problems with their subsuppliers. How would you categorize your supply chain at the moment? How are they coping, particularly with the GTF ramp-up?

[Reiner Winkler, CEO & Member of the Executive Board]

Actually, we do not have significant issues with them, but they are all under pressure. That's clear. But we are actually not struggling with any of -- of the suppliers. But you know still for the next couple of years, there's a steep ramp-up, so we have to watch it very carefully. But as of today, as I said, we have no significant issues with the suppliers.

[Operator]

We will now take our next question from Milene Kerner from Deutsche Bank.

[Milene Kerner, Research Analyst]

Reiner, Peter and Michael, one question for me. How much of this better momentum in aftermarket do you think you can carry into next year? I mean you used to expect high single-digit in this consolidation phase. Have you changed your view?

[Peter Kameritsch]

With the high single digit, it was always meant as a CAGR over that period. It's a bit difficult -- I mean we've got to give more color on...

[Milene Kerner, Research Analyst]

Yes, sorry, I meant anticipated on the Capital Markets Day, sorry about that.

[Peter Kameritsch]

Yes, exactly. So we've got to give an outlook for the drivers especially for 2019 on our Capital Markets Day, no?

[Operator]

We shall now take our next question from Harry Breach from Raymond James.

[Harry William Freeman Breach, Aerospace Analyst]

I just had a couple of questions, if I can. And firstly, when we look back over the last couple of years and the early in-service challenges on the geared turbofan, I recall you were clear with us that the customer settlement that was being negotiated by Pratt or by IAE, were coming in in line with what you had assumed in your provision. Is that still the case? And can you give us a feeling of how far through customer settlements we are? Are we sort of half done or 100%? And then slightly different question on geared turbofan. Just in terms of sort of your cost and quality performance there, are you guys happy you're sort of on the curves you expected to be or maybe a little bit better? It seem to me -- I've been positively surprised by how good margins have been over the last several quarters. Is it going better than you'd planned on that?

[Reiner Winkler, CEO & Member of the Executive Board]

Okay, maybe I start with the second question. On the cost curve, yes, we are on track. We can't say it's better or worse. It's more or less on what we have planned for. So going to the first question, I mean definitely you always have some technical issues in the beginning, and you typically also take that into account by higher volatility provisions in the beginning. But in fact, the cost we -- or the issues we had were higher than what we expected to be. I mean, it's also clear and -- but in our guidance now, everything is included, and we are confident that we are -- is it 70%, 80%? I don't know exactly where we are, but I would say, majority of the issues is done.

[Operator]

We will now take our next question from Charles Armitage from Citi.

[Charles J Armitage]

Just some questions on the growth in MRO. It seems there are 3 components that drive sales growth: first of all, units, and your running at capacity; secondly, the material per unit; and thirdly, in pricing. So if we look at the mid-20s that you're guiding to, it's -- the capacity chart you gave last year, which would seem to indicate 8% to 10% capacity, and I'm guessing probably 10% growth from material -- of the increased material and 5% in pricing. A, is that right? And second question is, are you adding more capacity than that nice chart you gave at the Capital Markets Day last year, which I think went out sort of 2026 or 7 or so. And then the third point is, at what point do you see the material content beginning to plateau?

[Reiner Winkler, CEO & Member of the Executive Board]

What? To plateau, on that note...

[Peter Kameritsch]

I mean your guess is roughly right, I would say. I mean, that is -- as I mentioned before, I mean what we definitely had in mind is to extend our Zhuhai facility over the next 1, 2 years, to add more and more capacity there. And then we, obviously, have also more flexibility because we introduced also the V25 in our Canadian facility so we can move some shoppers or SLUs from our Hannover facility to our Vancouver facility where more capacity is left, so we can make -- I mean we do more PW1100 in Hannover and do more V2500s in Vancouver. So that gives us at least more flexibility here. And in fact, we also will add capacity, we'll also give some more color on that on the Capital Markets Day, but just to highlight some issues, we will expand our Zhuhai facility in the next 2 years by 50%. Also adding capacity in the range of 50%. We have done something in the German locations, like in Berlin, but also will expand capacity in Hannover and, last but not least, we will -- we just started the joint venture with Lufthansa, which will be in operation also end of next year, beginning of 2020. So yes, in fact, we have to add capacity to manage all this demand we're seeing now.

[Charles J Armitage]

But that's -- I think that's all capacity that you are adding on -- previously on December 12, last year, you gave a chart of the growth, the expansion strategy. Is there any new capacity coming on?

[Peter Kameritsch]

What has changed since that is I think Vancouver, I think, was not on the chart, and we will do the V2500 also in Vancouver and the Hannover expansion was also not on that chart, if I'm right.

[Charles J Armitage]

Okay. And as regards to at what stage do you feel that the material content will begin to plateau?

[Peter Kameritsch]

I mean on the V25, it's going to -- the material intensity will grow further definitely because a greater part of the fleet goes into the phase where we have LLP exchanges and so on. So on the V25, will grow, regarding material content also in '19 and '20 for sure. On the CF680, it will rather develop more flattish, I would say definitely, also on the PW2000, so.

[Operator]

[Operator Instructions] We will now take our next question from Christian Cohrs from Warburg Research.

[Christian Cohrs, Analyst]

Maybe first just on working capital, I think incrementally, in Q3, you had a further build up. You explained that already due to the very strong September, can we expect that from a sequential point of view that we will see a relief, a cash inflow from working capital in the fourth quarter? Secondly, you just highlighted the expansion plans for your MRO activities. Can you give us an idea about your CapEx protections in 2019, '20? And lastly, there was a recent news flow regarding Saudi Arabia and also that Germany might take a more cautious approach with regards to export approval. I think you're delivering parts -- engine parts for the Eurofighter that is bought by Saudi Arabia. So should we pencil in or should we be aware of any unfavorable effects for your military business in the months to come?

[Peter Kameritsch]

I mean working capital in Q4 -- I mean, it's always difficult to predict what exactly that will be. But because part of the truth is, obviously, that also -- FX plays a role here in buildup of working capital. I mean the -- and the spot rate moved from 120 to 150 more or less in 2018. And so when you have EUR 1.2 billion of working capital, also the FX rate, mainly every position in working capital is denominated in U.S. dollars. So I guess, you have also something like EUR 70 million, EUR 80 million that is FX rate. So -- but if you look on the balance sheet, I would say, it will be -- will go maybe slightly down in Q4, but not too much. We have full MRO shops. We have still a ramp-up here in GTF, so it won't go down very far in Q4. Regarding CapEx, CapEx, we don't give a guidance today for '19 or '20. We can talk about that on Capital Markets Day a little bit. We can show there a picture of what we think, where it moves, but not today.

[Reiner Winkler, CEO & Member of the Executive Board]

On Saudi Arabia, I mean, first of all, sure, we strictly follow the regulations and also the political guidelines for the military business and all the other exports. On the other side of the business we do today, it's mainly service business or spare parts and service business with them. Therefore, we have export licenses and they are still, I think, valid until end of '19 or beginning of '20, so they are in place. But it's too early to discuss any potential consequences on that. So we do not see these contracts at risk, but as I said, we have to watch them very carefully.

[Operator]

We will now take our next question from Joseph from Morgan Stanley.

[Andrew Edward Humphrey, Vice President]

It's actually Andrew Humphrey here at MS. Just one question from me. We've been talking a lot about potential further rate increases on narrowbody, clearly for yourselves and for others, the engine issues we've seen over the last 1.5 years or so are getting a bit better. It might be a little bit early just now to be talking about further rate increases but could you maybe talk about the long lead time items that you think about and the kind of key bottlenecks for your supply chain for the point where perhaps you do start to think about further rate increases?

[Reiner Winkler, CEO & Member of the Executive Board]

I mean, I think it's with all the engine manufacturers it's the same issues. There are some suppliers or some areas of suppliers that has bottlenecks, which is mainly the [ forgings ] and casings. And, I would say, typically you have lead times in that area of 12 to 18 months, so any rate increase has to be discussed quite early and to agree on it. So we do not expect that increase for the next, I would say, 1 or 2 years. But later on, yes, it may happen but it's not our decision, as you know. It has to be discussed between all the parties being involved. Actually, we really focus on the ramp-up of the GTF with the existing rate, which is then 60 or 63 aircrafts a month. And as I said, every potential further increase has to be discussed.

[Operator]

We will now take our next question from Romain Gourvil from Bank of America.

[Romain Gourvil, Associate]

On the 220 CSeries, how negotiations are going with Airbus? I think they flagged again this week they are looking at cutting costs from supplier. So how should we think about that?

[Peter Kameritsch]

We cannot add much to -- you would have to -- you have to ask UTC and Pratt & Whitney there. They are in the lead of discussing that with Airbus. So that is a question you would have to direct to them.

[Operator]

[Operator Instructions] As there are no further questions in the queue at this time, I would like to hand the call back to your speakers today for any additional or closing remarks.

[Reiner Winkler, CEO & Member of the Executive Board]

I would say thank you very much for your attention. If you have any further questions, do not hesitate to call our IR teams. They are available, as you know. And again, have a nice day. Thank you very much. Bye-bye.

[Operator]

Thank you. That will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.