MTU Aero Engines Stock

Welcome to the conference call on MTU Aero Engines AG H1 2026 results.

For your information, the management presentation, including the Q&A session, will be audiotape and streamed live or made available on demand on the Internet. By attending in the conference call, you grant permission for audio recordings intended for publication on the Internet to be taken.

The speakers of today's conference are Mr. Dr. Johannes Bussmann, Chief Executive Officer; and Mrs. Katja Garcia Vila, Chief Financial Officer; Firstly, I will hand over to Mr. Thomas Franz, Vice President, Investor Relations, for some introductory words.

Thank you, Sharon. Welcome to our conference call for MTU's Q2 2026 results. We'll begin today's session with Johannes, presenting a first view on results and a look on recent developments. Following that, [ Katja ] will walk you through the financials. Johannes takes over for the guidance and some key takeaways before we open the floor for questions. With that, it's my pleasure to hand over to you, Johannes.

Yes. Thanks, Thomas, and welcome to everybody. We have delivered an excellent performance in the first half of 2026. So group revenues increased by 13% to roughly EUR 4.7 billion. Our adjusted EBIT grew 5% to EUR 692 million, resulting in a strong margin of 14.8%. So the free cash flow generation was notably strong, reaching EUR 294 million in the last 6 months. This represents an increase of 39% compared to the prior period in 2025. As a result, our cash conversion rate stood at 59%, exceeding the full year guidance we provided in February.

While the situation in the Middle East remains highly volatile, we have not seen any material impact on our business so far. We therefore remain confident in achieving our 2026 guidance on revenues and EBIT adjusted, reflecting the strong performance in the first half of the year, we are raising our free cash flow outlook today. We will provide more details in just a few minutes.

Let me first take a closer look at the current market environment and share some views on topics, particularly relevant for MTU. Looking at our industry and especially at MTU recent geopolitical tensions in the Middle East have increased near-term volatility, but they have not changed the underlying fundamentals of our business. We have seen [ no material ] impact on our first half performance, no cancellations and no evidence of structural deferrals across either OEM or MRO market. High demand continues to outpace aircraft deliveries supporting both new engine shipments and aftermarket activities. And at the same time, industry-wide MRO demand continues to exceed available capacity.

MTU has a proven record of successfully navigating disruptions. So our diversified portfolio, growing installed base and significant aftermarket exposure continues to provide resilience across geopolitical cycles. While near-term volatility may persist, our long-term growth trajectory remains firmly intact. MTU benefits from a uniquely diversified portfolio that provides strong visibility on long-term aftermarket growth and cash generation.

Starting with our future growth drivers, the GTF family continues to benefit from a rapidly expanding installed base, compelling fuel efficiency, economics and ongoing product enhancements. These factors support significant long-term aftermarket potential. In the widebody segment, both the GEnX and our latest portfolio addition to GE9X additionally strengthened our growth outlook. While the GEnx has established itself as a highly successful platform, also the GE9X is expected to become an increasingly important contributor as it enters service and ramps up over the coming years.

At the same time, MTU benefits from a growing portfolio that is well balanced across thrust classes and end markets. In the narrowbody segment, the V2500 remains a significant source of cash generation and provides substantial long-term aftermarket visibility. With the large installed base and many years of operational life ahead, it continues to play a critical role in our customers' fleet.

Also beyond commercial passenger aviation, our portfolio is diversified across a broad range of applications, including military, freighters, industrial gas turbines and business jet engines. This broad exposure has been a key contributor to the resilience that MTU has constantly demonstrated over cases and across multiple industry cycles. As a result, despite the current geopolitical uncertainties, our diversified and resilient portfolio enables us to deliver sustainable earnings growth, strong cash generation and long-term value generation.

Let's turn a moment to the GTF program. The GTF fleet management plan continues to progress as expected. AOG levels have declined by around 25% year-to-date and MRO output for the PW1100 GTF increases and it increases 40% year-over-year. Based on the progress achieved to date, we expect powder metal related AOGs to continue to decline and to be resolved by the end of 2026.

While much of the attention is naturally focused on the A320, the NEO fleet, it is equally important to look beyond that platform. On the A220 and the E-Jets engine-related roundings are expected to be fully eliminated by the end of the year, marking another important milestone in the recovery process. MTUs share of AOG related compensation amounted to USD 110 million in the first half of this year. As previously announced, we expect the first GTF advantage engine to enter later this year into service, followed by the introduction of the Hot Section+ upgrade.

These enhancements are designed to further improve durability and operational performance. By strengthening the competitiveness of the platform, they create opportunities for additional market share gains and support further improvements in program economics over time. With an installed base, approximately 2.5x larger than that of the V2500, the GTF is expected to become one of MTU's most important drivers for revenues, earnings and cash flow in the years ahead.

Turning to the Military business. it is clear that particularly against the backdrop of heightened geopolitical tension, the need for the next-generation European fighter aircraft remains a strategic priority for Europe. Following the discontinuation of the FCAS program in its previous form, political discussions regarding future European combat aviation initiatives are ongoing.

Industry participants including MTU, have shared their perspectives with key stakeholders, and we view these discussions as being very constructive and looking forward. Different program architectures are currently being evaluated. At the same time, Europe's Air Force will play a key role in defining the future road map for next-generation combat aviation capabilities.

It is important to recognize that the investments made and technologies developed to date remain strategically valuable and usable. In the light of all this, MTU remained very positive and well positioned to participate in any future European fighter aircraft program. And this is supported by our long standing military engine expertise and excellent relationships with the German Armed forces.

Today MTU is already a core European military propulsion partner with proven capabilities across the full supply chain from development and production to life cycle services from a broad range of military engine programs. For the future, we are actively pursuing a key role in the next chapter of European military aviation and to contribute to the development of Europe's future air combat capabilities. Staying with the topic of future aviation, let me now turn to the technology side of the story. Technology leadership remains a key pillar of MTU's long-term OEM strategy, particularly in the field of hydrogen-based propulsion and our flying fuel cell concept.

Together with our partner, Airbus, we have therefore decided to establish a dedicated joint venture focused on fuel cell propulsion. The rationale is straightforward. While the next generation of aircraft engines is expected to build on enhanced conventional technologies, we want a dedicated team to focus exclusively on the next step change in propulsion technologies. By separating the conventional and the step change activities from our traditional programs, we avoid competing priorities and ensure full focus on advancing hydrogen technologies.

This focus will accelerate development, enhance efficiency and support the industrialization of fuel cell propulsion. Importantly, our investment in hydrogen propulsion is already reflected in our midterm guidance and is fully aligned with our long-term technology road map. Subject to the required regulatory approvals, the joint venture is expected to commence operations at the beginning of 2027.

And with that, I do take over from Johannes. Thank you, Johannes, and also a warm welcome from my side. Let me start with the key financial highlights of the first 6 months of [indiscernible]. We delivered a strong performance with particularly strong cash generation and the cash conversion rate that exceeded our initial full year guidance. As Johannes highlighted, the conflict involving Iran has had no relevant material impact on our business or financial performance. Turning to the numbers. Group revenues increased by 13% to nearly EUR 4.7 billion. In U.S. dollar terms, revenues grew by 21%. Growth was primarily driven by our commercial MRO and military businesses while revenues in the commercial OEM segment in euro declined.

Adjusted EBIT increased by 5% to EUR 692 million, resulting in a strong adjusted EBIT margin of 14.8%. The Profitability benefited from higher spare part sales and a strong contribution from our military OEM business. In commercial MRO, earnings remained solid despite a higher share of GTF-related shop business and ongoing ramp-up costs at MTU Fort Worth. Adjusted net income increased in line with adjusted EBIT reaching EUR 502 million. Free cash flow was particularly strong at EUR 294 million, up 39% compared with the prior year period. As a result, cash conversion reached 59% ahead of our original expectations for the full year.

I will discuss the key drivers behind this performance in more detail in a few minutes. Now turning to Page 11. Let's take a look at our OEM business, which continued its strong margin performance, starting with the second quarter of 2026. Total OEM euro revenues declined 8% year-on-year. Commercial OEM revenues in Europe were down 11%, while military revenues grew by 6%, mainly driven by the TP400 program, the EJ200 and work on the engine for the next European fighter aircraft.

Within commercial OEM, organic OE revenues in U.S. dollar terms remained stable due to higher deliveries of installed engines. Organic spare part revenues in U.S. dollar increased by a high-teens percentage range, driven by strong demand for the 2500, PW1100 and Pratt & Whitney Canada engine platform.

The year-on-year decline in reported commercial OEM revenues was largely attributable to an exceptionally strong comparison base in Q2 2025. The prior year quarter benefited from a mix of positive U.S. dollar hedging effects and a very strong spare engine sales with highly favorable pricing. As a result of this high comparison, reported revenues declined despite solid underlying operational performance in the second quarter of 2026. Adjusted EBIT declined by 2% to EUR 233 million, resulting in a strong EBIT margin of 32%.

The Strong spare part sales and solid military revenues overcompensated the impact of higher installed engine volumes. As expected, spare engine mix and pricing normalized compared to the exceptionally strong prior year quarter.

Turning to the first half of 2026. Total OEM revenues in euro were down 4% with commercial OEM euro revenues declining by 9% and military revenues growing by 15%. Military growth was primarily driven by the TP400, complemented by contributions from the EJ200 and the T408 program. In commercial OEM, organic OE U.S. dollar revenues remained stable, while organic Spare parts U.S. dollar revenues grew by a decent mid-teens percentage, placing performance at the upper end of our full year guidance range.

As stated for the second quarter, the effects described before are seen as well in the half year-to-date figures. Adjusted EBIT for the first half increased slightly in absolute terms with a strong margin of 31.2%. The Profitability continued to benefit predominantly from the strong aftermarket performance.

Let's move to the commercial MRO segment on Page 12. The Commercial MRO delivered exceptionally strong growth driven by GTF MRO and supported by a healthy core MRO business, including analyst leasing and asset management. This helped to maintain an 8% EBIT margin.

Let's have a look first on the second quarter 2026. We delivered another strong quarter in Commercial MRO, with revenues increasing by 37% to EUR 1.5 billion. In U.S. dollar terms, revenues were up even 41%. GTF MRO remained the key growth driver, accounting for approximately 46% of total MRO revenues. At the same time, our core MRO business continued to perform well, growing by 18% in U.S. dollar terms, excluding the GTF. Main growth drivers in the quarter were [ M&S leasing ] and asset management business as well as the IGT and CS6 program. Adjusted EBIT rose 20% to EUR 139 million and stood at a margin of 8%. The latter was characterized by a strong core MRO business, including strong MLS earnings, partially offsetting the impact of a higher GTF MRO work and ramp-up headwinds at MTU Fort Worth and MTU [indiscernible].

Turning to the first half results. The overall picture is very similar. Revenues increased by 24% to almost EUR 3.4 billion. In U.S. dollars, revenues were up 29% and with that, above our full year expectation. Once again, GTF MRO was the primary growth driver and represented around 46% of total MRO revenues during the period. Excluding GTF, our core MRO business grew by 9% in U.S. dollar terms, supported by strong contributions from MLS as well as the IGT CF6 and PW2000 programs.

Adjusted EBIT increased by 13% to EUR 271 million, corresponding to a margin of 8%. As in the second quarter, profitability reflected the offsetting effects from higher GTF amount work and ongoing ramp-up costs for MTU Fort Worth and use [ GEN-1 ] on the one hand and improved core MRO business with solid earning contributions from MLS on the other.

Let's take a closer look at free cash flow, which continued to improve. We delivered a strong cash conversion rate of 59% in the first half of 2026, exceeding our initial full year expectations. In the second quarter of 2026, free cash flow increased by EUR 56 million or 91% to EUR 117 million. The cash conversion rate stood at 43%. In the second quarter, we saw GTF AOG compensation payments of around USD 50 million.

Free cash flow was impacted by ongoing investments in our capacity expansion in particular, at MTU Munich, Hanover and MTU Fort Worth. In addition, the acquisition of Aero Design works as a strategic asset impacted free cash flow. For the first half of free cash flow improved by EUR 82 million or 39% to EUR 294 million, a strong cash conversion of 59% was achieved.

GTF AOG compensation amounted to around USD 110 million in the first half of the year. in line with our full year expectations. This compares to USD 150 million impact in the first half of 2025. Strong business volume resulted in an increase in working capital, especially in trade receivables. Outflows for the acquisition of ADW and supportive dividends received complete the picture.

To reflect the strong free cash flow momentum achieved in the first half of the year, we are raising our full year cash conversion guidance to 50% to 60%, up from our initial range of 45% to 55%. This increase underscores our confidence in continued progress towards our medium-term cash conversion target of 75% to 99%. The sustained improvement in free cash flow and cash conversion strengthened our ability to generate long-term value for our shareholders.

While we remain focused on managing the remaining GTF-related cash outflows and investing in attractive growth opportunities, increasing shareholder returns continues to be a key priority within our capital allocation framework. As cash generation continues to improve, our capacity and flexibility to return additional capital to shareholders will increase accordingly.

Let me now give you a quick update on our hedge book. As already mentioned in our last earnings call, we are fully hedged for 2026 at an average hedge rate of 1.14. Looking further ahead, we continue to build our hedge position at higher average hedge rate reflecting the currently weaker U.S. dollar. Nonetheless, we follow our guidelines to eliminate volatility based on moving currencies.

Let me now move on to Page 16 and have a short look at our order book. At the end of the first half of 2026, we had EUR 30.4 billion in the order book, providing substantial medium and long-term visibility. In the first half of 2026, MTU secured USD 4.9 billion of MRO contract wins across multiple customers and engine platforms. These awards demonstrate strong customer confidence in MTU's MRO capabilities and further strengthens MTU's market position.

Not reflected in these numbers are orders announced at last week's [indiscernible]. These amount to roughly USD 500 million, predominantly for GTF engines on all 3 platforms. Taken together, our strong order book, strong MRO contract wins and the additional [indiscernible] commitments provides a solid foundation for sustainable growth and long-term shareholder value creation.

With that, let me hand over back to you, Johannes.

Thanks, Katja. Yes. As described, we delivered a very strong performance in the first half of 2026, reinforcing our confidence in achieving our full year guidance. Reflecting the stronger-than-expected development of the free cash flow. We are raising our cash conversion guidance to 50% to 60%, up from the previous range of 45% to 55%. All other parameters within the guidance and remain unchanged.

Before moving to the Q&A session, let me briefly summarize some of the key takeaways from our first half year of 2026 results. Geopolitical tension has resulted in a higher volatility on the globe undoubtedly, but they have had no impact on our first half 2026 performance. Free cash flow generation remained strong in the first half of the year, reinforcing our confidence in the trajectory of the business and supporting today's increase in our cash conversion outlook.

The GTF fleet management plan continues to progress according to expectations, while the AOG situation continues to improve. There is no change in our medium- and long-term outlook. We remain confident in the structural growth drivers supporting our markets and in MTU's ability to deliver sustainable growth, strong cash generation and long-term value creation.

We are convinced that MTU represents one of the most compelling investment opportunities in the aerospace sector, and we are well positioned to fully unlock value embedded in our business and deliver attractive long-term returns to our shareholders. We are confident that in the path ahead -- and invite you to come to us with us on that journey. And I will thank you for your attention so far. I'm pretty sure we have a couple of questions out there, which we are happy to take now.

[Operator Instructions]

And our first question today comes from the line of Sebastian Growe from BNP Paribas.

The first one would be on the military business and on the new fighter. You stated earlier in the quarter 1 call that the funding is in place until September. So can you please remind us of the annualized funding volume here. And based on your own discussions, how should we think of the timing of any such decision making versus the potential temporary funding gap post September?

And then on the cash conversion, if I was to adjust for the GTF AOG related cash compensation payments in '26, the ratio already stands at 70% to 80% this year. So I recall from the quarter 1 call, Katja that you expect further tailwinds to cash generation once Fort Worth is fully up and running, and that shouldn't be, I think, earlier than 2030. So I was wondering if you could help us understand how we should think about the structural cash conversion even beyond 2030.

Okay. Then maybe I'll start on the FCAS side. So as you already said, we are fully funded until the end of September. And there is also still some work to do that we are performing together with our partner [indiscernible] and the discussions with the German government are, of course, continuing on how we continue the setup. There is no doubt, I think that there is a need for a fighter. And we are, at the moment, discussing the different options, especially with the military side or the forces require as a design for the engine. And I'm pretty sure that will take some time. But all the discussions that we are having are very structured, very looking forward.

So we have no doubt that there is development going forward and in which industrial setup and the exact timing, I think that is just too early. The customer needs to make some decisions I think from the industrial side, we have everything in place in terms of what we can do in which partnerships we can do this. And we share this also with the government and the rest, I think I would leave to our customer to make the decisions going forward there.

Maybe then I pick up first on FCAS asked for the impact on our revenues in 2026 from the FCAS program. We have provided a guidance of a high double-digit euro impact on the sales line, which will fully materialize as we have the contract in place, and we have not anticipated any additional impact there for this year. So that's all set and that's all secured.

The second question you had was about our free cash flow development going further into the decade and beyond. First of all, I will not provide any guidance for the time beyond our current laid out midterm guidance. I think what we have provided you with at the Capital Markets Day in Paris was an expectation on cash conversion, which we even, let's say, more specified during the course of the first quarter call saying we don't talk about a high double-digit cash conversion rate by the end of 2030 anymore, but stating that this can be between 75% and 99%. And I think with the step forwards we make at the moment, there is a lot of reason to believe that the confidence we've put into this guidance will also materialize going forward.

With regards to Fort Worth, you're right, we said that we do expect let's say, around EUR 100 million in headwinds until 2030. Coming from the ramp-up of that, which is related to the LEAP ramp-up at Fort Worth. And following the LEAP ramp up, we will also introduce the second engine that we secured market for that is the GEnx moving forward in Fort Worth, but we will talk about those impacts in the next decade later.

Your next question today comes from the line of Robert Stallard from Vertical Research.

A couple of questions from me. First of all, on the GTF AOG, looking at the total fleet AOG, not just fleet management, it's still quite high compared to other types of engines. And I was wondering how you expect that AOG number to progress over time.

And then secondly, on cash returns, you highlighted that slide in the deck about your priorities. With the GTF compensation payment ending at the end of this year, do you expect to return to a more normalized shareholder dividend payout next year?

Yes. Thanks, Robert, for the question. We are executing on the GTF fleet management plan with an excellent cooperation with our partners. So MTU is very well performing within to the GTF [indiscernible] network. And the output on the MRO side has increased 14% year-over-year. And especially if you only look at the AOG number, we are 25% down year-to-date. And we, of course, expect that the AOG rate continues to trend downwards in the coming months as well. So this is a trend that we will keep going. And of course, the target must be 0. I mean there is no question about that, that is what our customers can expect. But we are on a really, really good trajectory, and that's what we are working on to continue that. And then also in the later half of the year, the GTFA is coming into operation and then a little bit later than that, even the Hot Section+ upgrade. So we are also improving technology-wise, on the GTF platform.

So we are confident that we are on a very good trajectory and remain that the fleet management program is done by the end of the year, maybe one or the other shop visit leave the shop early next year. But that is more operational driven than anything else. So we are very confident that we are on a very good track there in our network with all the partners performing there.

So then I will take the next question on total shareholder return or dividends. If you recall, we have provided the guidance at the Capital Markets Day 2025 in Paris, saying that we will reinstall our dividend policy within the course of the guidance range. Yes, progressing quite well on the program itself will leave us room to do that fast, and we will also do that consequently because we are absolutely persuaded that this will also boost the investors' contracts, and we also want our shareholders to participate in the good development and then the progress that we make here.

We will have no more impact on the cash flow coming from direct AOG compensation payments for the GTF. What we will still have moving forward is the impact on the prefinance shop visit on the receivables. So you will see some impact on increasing shop prefinance related receivables going forward. Nevertheless, the GTF AOG payments for powder metal are going to be over by the end of this year, and we will make sure that there is a participation of our shareholders and the good progress that we have made. We will give you more details at the Capital Markets Day in November 30.

Your next question today comes from the line of Adrien Rabier from Bernstein.

I've got 2 questions, please. First, on the OEM margins. There's a lot going on in the margins keep expanding. So I'm wondering if you could please about the outlook from the current levels to your expectations of 28% to 30% in 2030. Basically, if they do when margins start declining please? And then in the slide about free cash flow conversion, we talked about M&A market screening. So I'm just wondering which segments would you like to make acquisitions, please?

Okay. Let me start with the OEM margin. So the guidance we've [indiscernible] there on the midterm of 28% to 30% margin on the OEM business in principle, when we laid out the guidance were high record levels compared to what was ever there before. I know that based on where we have been now in the second quarter with a 32% [indiscernible] in this looks like a margin decline. But please keep in mind that we will have a strong growth also in our OEM business from more installed engines being shipped over the course of the next year. And that will continue to drive the development also on our margin profile despite the fact that we do have great spare parts business and also continued contribution from the spare and lease engine engines moving forward.

With regards to the second question was about -- the M&A topic. Yes, I would say when we said that we do have a stronger cash converting that, we do see progress on our free cash flow even beyond the original expectations. What we try to say is that this offers us room to improve the total shareholder return, and this also offers us more room for potential M&A acquisition. When we laid out the Paris guidance, we said that our first priority is to invest the cash into our business organically as we do have a lot of growth ahead of us, which is already contractually confirmed, and the market itself develops quite positively.

The second priority was to install the dividend policy. That's a top priority of us here also on the exact [indiscernible] our shareholders participate. And then we have 2 opportunistic measures the potential share buybacks or investing into M&A activity, yes. But that's not at the moment, the first priority.

So it was more agnostic statement, Adrien, and there is nothing come to acquisitions this year. And I think we're good to go for that.

We will now take the next question, and the question comes from the line of Benjamin Heelan from Bank of America.

The first 1 was on the V2500. Cycles are down in the mid- to high teens level and have been since the beginning of the conflict in the Middle East. It seems to be performing a lot weaker than the competitors. So do you have any color for that? And how should we think about by impacting shop visits in 2027 and 2028.

My second question is on associate income within the OEM division. It does look as though it increased quite a lot, almost doubled. So could you give us a little bit of color as to what is driving that? Is that the GTF [indiscernible]? And then finally, just looking within the details on cash flow. You've got receivables of about EUR 400 million, which Katja, I think, is partly on the prefinanced GTF MRO work. Could you give us some color as to how big that is within that and how we should think about the magnitude of that prefinanced receivable over the next couple of years?

And then the provisions and liabilities is completely flipped. Is now a EUR 200 million tailwind to cash. Can you just remind us what's included within that?

A lot of finance stuff, I got to be first. So the [ V25 ] remains very strong shops, and we also see that the work scopes the entrance when they come to their second and third shop visits are, of course, increasing, so getting heavier. So we are still optimistic on the continuation of the induction and also the revenues, cash flows and profits generated from the V, and we don't see any -- and it changed there are very, very little return retirements on that one. And as I mentioned, the fleet has still a lot of life ahead. Workshops -- getting work scopes getting heavier. So for the next 2 years as you requested, '27, 2028, we're very confident that, that will be a good contributor to our business for this time frame.

Okay. And now I take over. I hope I get all the individual questions that you have together. So I tried to start from the top. First, I think you asked for dividend contributions to the cash flow or if the LeaseCo has contributed to the cash flow, yes, it has. So we've received dividends from that entity on top of the dividends that we received from our equity consolidated companies. So that has impacted cash flow as also shown on the slide -- on the slide before.

Regarding the receivables. So receivables, we have 2 drivers, yes, our strong sales performance in the quarter and also in the first half of the year has definitely also increased our trade receivables. Plus, we do have an increase in the prefinance shop visit receivables that also contributed there. Those will continue to increase as we have already described that before towards until the end of 2020, beginning of 2029 before they will turn into an overproportional contributor to cash flow performance over the years to come.

And if you want to take the exact number, I think the exact number of increase on the GTF prefinance receivables is a double-digit million number, I think, EUR 64 million was the increase to the comparison. When you look at the provision side, you always need to take that at MTU together with the working capital development when we do release the provisions, for example, for the GTF, this then is reflected in the working capital side. But we all do have an increase in working capital coming from the strong business performance that we had in the first half of the year.

Actually, just one quick follow-up. It wasn't on the associated dividend. It was on the associate income within the OEM division. It's gone from [ 38 to 72 ]. I think. I was just wondering or are you saying that's linked to the increase in the JV dividend?

Yes.

your next question today comes from the line of Christophe Menard from Deutsche Bank.

The first one I would have is on the GTF advantage of Section+. You're saying it's coming soon. Can you give us an idea of the customer or the client appetite for it and whether this will be a material contributor to MRO performance in 2016? Or should we expect this to come later. I would also expect it to be a profitable activity. So any detailed granularity on this and timing? It would be interesting.

And the second question is on your joint venture with Airbus on the fuel cells. Can you give us an idea of the incremental business it could represent on the -- I mean I think clearly not immediate. But when will it start being a driver for you? Is it post 2030 and to what extent?

Okay. Thanks. Yes, Christophe, the GTFA is going out in the second half of the year, of course, customers still to be announced and the ramp-up after that first delivery is around about 2 years. So until we -- then full delivery on the GTFA. Loan on the Hot Section+ that comes a little bit data later and it is a package where customers can opt for. So I think it's a bit too early to say what the appetite from the customer side is we see from the technical data that we are looking at, that should be a strong desire, especially for operators operating in harsh environment as the old Section+, it's really a lot of contribution to the durability when operators fly in these environments.

But I think everybody wants to see it flying first and collect some data and see it in operation. And so that's, I think, a bit too early to talk about that one, and then customers can opt for it. And then there is a price tag to it and we see how that develops.

On the joint venture with Airbus, I think 2030 that is really -- that would be very early. It's a real technology development program. So we need to see how this technology further [ proves ]. We have done a lot of developments so far on our side and all the tests are running very nicely. And with that majority of the technology then we came together with Airbus and say, okay, no, we join forces here and especially also separate the development team so that there is a full dedication on the technology development for Flying Fuel Cells. But it's a technology program.

So of course, there needs to be sooner or later a demonstrator as well to prove it to the public and other industry players that this technology can operate on a commercial basis. But I think we are well beyond 2030 before this happens. And as such, it's a combination of 2 major players in the industry, joining forces on the technology road map than a development plan for a commercial aircraft in the next couple of years.

Your next question today comes from the line of Chloe Lemarie from Jefferies.

Yes. question. I have 2, if I may. The first one is actually building on Ben's question on the V25. You've been returning more GTF to service over the past couple of months. I was wondering if you saw any changes in V25 utilization, specifically for airlines which benefited from those return to service? And if you could explain the performance we've seen on cycles there.

The second one on the spare part performance in H1, if you could split the total shop visit impact compared to because you indicated that's going up. And pricing, I believe, is mid-single digits. So if you could confirm those drivers, that would be great.

So the -- we have actually no real visibility whether the output of the GTF or the increased output on the GTF has any direct impact on how the V25 operates. I think that's much more related to city pairs. We have summer times, so everything is up in the air. Anyhow, as people are going on holidays, we are possible, of course, the geopolitical topics are in place. That's for sure.

But this -- the impact for us, it's not visible, both products very well in our shops performing and contributing to our work log. So also, if I look on the outlook, which slots are being booked. We don't see any movements that I could talk about any correlation in regard to an increased output on the GTF on the V. So that's nothing that we really see in our books.

Maybe then I do take the question on spare parts. Chloe, that we don't break these effects. And what I can say is that we really had strong works in our MRO workshops during the course of the first half of the year, which -- and also the second quarter was clearly stronger than the first quarter of the year on the spare parts business, especially maybe the [indiscernible] has contributed to the strong performance here. Overall, we are -- when you look at the first half of the year at the moment at the upper end of our guidance for the spare parts growth development, and we do expect to stay within our guidance during the course of this year.

Your next question comes from the line of Rory Smith from Oxcap Analytics.

It's Rory from Oxcap. Apologies if you've answered this already, my line dropped, have to dial back in. But just looking at the OE performance there, you've called out the organic OE performance in USD stable due to higher deliveries of installed engines. Presumably, that means that spare engines are down year-over-year in Q2. I was just wondering if it's possible to add any color there or size impact or any change in your previous comment that, that would be a sort of multiyear normalization. Is that happening faster now? That's my first question.

So we always said that for this year, we do expect the number of spare engine deliveries to be pretty much stable compared to last year, but you have the effect coming from a higher share of installed engines and compared to Q2 last year, a normalization on the pricing level overall, yes. So we have seen a little bit less deliveries in the second quarter on the spares engines compared to the second quarter last year, plus the pricing topic definitely makes the comparison base in that regard, so difficult.

[indiscernible] we do not have any reason to believe that there's any change in the assumptions that we have made when we laid out our midterm guidance and also the guidance for this year with regards to the share of spare and lease engines and their effect on our sales and profits.

Okay. That's clear. And then my second one is just a clarification, Katja. I think you said in answer to the previous question that you hadn't seen any change in the sort of the phasing of your slots going into 2027 vis-a-vis V2500 versus GTF. Is that true of the whole portfolio including wide-body engines. I know last quarter, we talked about the strength of the backlog technically sold out for 3 years. So just clarifying and confirming that that's still the case and that you haven't seen any sort of churn in 2027 early bookings for shop visits.

That's correct. There are no turns, no changes. It's the normal business things discussing with airlines stacking programs when to do what material availability on the different types, but the very normal business that we are used to for years.

Your next question comes from the line of David Perry from JPMorgan.

Johannes, Katja, I hope you are both well. I hope you don't mind if I just look back to the prior questions on the associate contribution in EBIT and also the dividend contribution on the cash flow. Just in both cases, is it related to any specific one-offs. So for example, last year, I know Pratt had some gains on selling engines? Or is this more a reflection of underlying trading in the lease JV and maybe in Zhuhai. I mean, are these -- are these run rate numbers we should take from H1? Should we be extrapolating them to the full year or future years? Or is there anything exceptional both on P&L and cash flow, please?

That was the only question. Okay. David, yes, I think we are all doing well at the moment. So let me answer the question like this. We already have strong contributions from dividend payments in the first quarter of the year, and we also called that out quite clearly and said that this is not going to be a recurring effect because dividends are usually paid out at the beginning of the year in principle like from the associated companies. So you should not use that as a run rate going forward for the full year. We

also have contributions coming from a different mix in the lease business and those I would also not consider to be recurring in the next quarters on a very regular basis. Yes, overall, a lot of that was expected. Business is going well. And that also led to the dividend payout.

Okay. And sorry, just apologies. You said something right at the end to Rory on spare engines and profits, which I missed. Could you just repeat what you said -- I got what you said about revenue, but I missed what you said about the impact on profit this year.

I said that this -- no, I didn't say that the profits run stable. I said that the number of lease engines being shipped is exactly as anticipated from our side for the full year. So there we are fully in line with our original expectations. And I didn't say anything about profit contributions overall. I said that we have expected also some normalization compared to last year's Q2 pricing, which was extremely strong, but also that we anticipated when we laid out the guidance for the year.

your next question comes from the line of George Mcwhirter from Berenberg.

I have 2 pieces as well. Firstly, on the individual engine spare parts demand across the fleet. You called out the V2500 and GTF as being growing in the period. Can you just give a bit more detail about the other engines as well in Q2.

And the second question is on the spare engine ratio as well. So do you expect the spare engine ratio to continue to decline in H2. Or could it be a bit lumpy, so Q3 is actually higher than Q2?

So on the different work scopes and material consumption across all our fleets, there are no movements in terms of industry trends or something it more the individual use of our customers and target buildup scopes if they have leased engines and stuff like that. So but there is nothing where I would talk about a trend that we see there. A couple of things come with the normal age, as I mentioned, on the V2500. The second and third shop is heavier than the first one, but there is no stuff that is extraordinary or changing from what we are used to also on the other fleets on the wide bodies everything we're doing.

Maybe with regards to the second half of the year, just when you remember last year's second half, there we had a strong pickup in our OE engine series sales, yes, and that is also what we anticipate for this year. So the share of installed versus spare and lease engines should shift towards more -- towards small installed engines, which will then also looking at the margin had the respective impact. But you know how strong the demand for all our series production installed engines is. So there is an expectation that this will continue to increase.

Our next question comes from the line of Milene Kerner from Barclays.

I have 3 questions. The first one, your LeaseCo at OEM and MLS in more are currently benefiting from the market tightness on engines. As the OEM ramps, the GTF fleet management concludes the durability will improve. How do you see the businesses evolving in the next 3 to 4 years?

My second question is on MRO. Your revenue guidance of low to me teens for full year implies that H2 to grow to slow down to around low single digit. And I wanted to understand what were the main drivers of that moderation.

And then the last question, Johannes, you mentioned that the MRO output on GTF has increased by 40% and with this data for MTU or in total? Could you share some KPIs on the GTF MRO operation that you see [indiscernible] to you? Could you also give us a sense of the mix between inspection and visit with this replacement and how this mix has changed over the last 12 months?

So the 40% is year-over-year, and it's, of course, the entire network. That's how we look at the market. So that is I think all I can say about it, the other topics we don't split up public. And in regarding to the LeaseCo, of course, if you in the future and the growth on the MRO business, we run our leasing business to support our customers during the downtimes of the engines when they're in the shop. So this is something that will contribute to the -- to our business, and that's why also in our midterm guidance in Paris, we stated that, that goes up to around EUR 1 billion until 2030.

But please keep in mind, we run this not as a stand-alone business. We run this to support our MRO. So it goes along with the MRO demand and our target is not to run it like other companies that are only doing leasing for us. It's part of our MRO package to support our customers. So the development there actually goes in line with the demand that comes from the MRO shops, which we talked about already earlier in terms of the growth.

Maybe let me add to that a little bit, Milene. Everybody is always very much focused on the GTF and the PW1100 in our LeaseCo. We do not -- we do not only have the PW1100 or the GTFs, we support our entire independent MRO network that we operate in our MRO shops. So also there, we see continuous demand increases in the business. And therefore, there is no reason to believe that our growth targets for the lease for the Union Asset Management is on the danger taking into consideration the development on the PW1100.

On the MRO sales growth for the second half of the year, we have already spoken that we have seen quite a high number of heavy shop visits in the first half of the year in our figures on the MRO side. And we've also inducted lots of engines due to the strong pressure from the market to perform shop visits there. We do expect in the second half of the year to have a change or a normalization on the mix side, which should then bring us into our full year guidance on the growth expectations for the MRO business.

And then you had a third question on the mix between parent lease engines. I'm not 100% sure anymore, Milene, I'm sorry. Can you help me with the third question again?

Yes. No, I actually didn't have a third question. It was around the GTF MRO. But I mean, just on the first one. I mean, what I was mentioning around the LeaseCo and MLS was more around, obviously, I mean, pricing and as durability will improve as the GTX management will conclude I mean -- and the OEM will ramp, I mean, we can maybe see like more retirements that could be more assets. I mean that was like more like global thinking that like just specifically actually on the CTF.

Okay. Maybe then I will answer it a little bit more, Johannes. Looking further ahead, we always said that there is structurally for the newer engine platforms, so there's more demand on spare and lease engines more engines are being operated on the hot and harsh environment compared to prior years plus. We do see a significant increase in the fleet being match over the next couple of years moving on, which will then also still continue to have a higher demand for spare and lease engines going forward.

So -- and this is also what we have anticipated when we laid out our midterm guidance, Milene.

Not on the global exactly like that. And taking you a little bit broader, there's a strong man on the power generation side for the industrial gas turbines coming on top of it. So -- which might also have a positive impact on that side. And definitely, will this requirement will last for quite a while. Of course, all of these stations are still in both. So I think we have a lot of confident that this business is on a stable basis also going forward on a broader scale also beyond portfolios that we serve.

Your next question today comes from the line of Olivier Brochet from Rothschild.

I have 2, please. I want to continue on Milene's question and MLS you called it as a contributor to the MRO profits in H1. Is this something that you see recurring in H2 and 2027 as well? Second question is on the PW1500, Airbus is considering. Launching a stretch A220. If they do, does that require significant investment for you, if they need a higher thrust engine, please?

I just start with the contribution of MLS towards the margin expansion. If you recall, our guidance that we laid out on the midterm, we said that our MRO margin is going to expand to 8.5% to 9.5%. Yes, that's the margin guidance we have laid out for 2030. And MLS is one of the contributors that this margin expansion and margin development going forward. That's also one of the reasons why we grow the business continuously. So you can expect a positive margin contribution moving forward for the business to come. Elected to be stable to be the contribution from the margin to be stable moving forward.

And on the technology side, we don't expect any major investments that are required there if it comes to the -- program comes into life. So this is something which we are in the family that we are already running I think is something we can cover.

Your next question today comes on the line of Sash Tusa from Agency Partners.

I just wanted to follow up on the comments that you were making about the next European fighter aircraft and in your respect engine, where you said that you were in a dialogue with the German government and the military customer about what's required and so forth.

From where you are today, which do you think is more likely that Germany launches its own fighter program and leads it with other European countries. Or that Germany and hence, German industry applies to join the GCAP program. Thank you.

So it can become popular now. I think -- I mean, really, it's a customer decision. Just looking at the facts, if you look, the GCAP has now with the release of the next 2 tranches from the British government. I think they have an industrial setup that is performing. They have our finance setup that is performing. So this is definitely something that is now more clarified than it was maybe a couple of weeks or a month ago. And secondly, the discussion in what is the setup in Europe, how the next fighter is built. That is something the politicians need to cite.

The -- just from an engineer perspective, the German industry could do this. Yes, we can build the engine but there are also a lot of other things. But whether that is feasible in terms of having also a market out there and have other countries to buy it. I think that's a different perspective to look at it. And at the end of the day, it's always the same. The political parties need to make a decision, and then the industry follows that.

I think we contributed to from our side, everything that is required for the governments to make decisions so that they know what their industry is able to do. And it's not a question of ability. It's a question, I think, of political will and decision now, and that's what we're waiting for.

We will now take our final question for today. And the final question comes from the line of Chloe Lemarie from Jefferies.

I just wanted to check on the revenue performance in Q2, minus 8% mentioned in the slide versus the different elements. So should we assume that pricing within OE is the big driver of the differential between the different subsegments and the headline number? Or is it more FX revaluation that's driving the difference.

So the difference is definitely the comparison base of last year. So there's an element of but there was also definitely an element of pricing in a choice for last year in the Q2 figures that makes this -- this comparison so difficult.

And just to be clear, so in the stable comment on OE that does not take into account the actual pricing, realized pricing there?

On the...

On the -- because on the slide, it's mentioned that OE sales are stable. And that does not take into account realized pricing, does it?

So last year, the commercial growth was smaller than the euro growth, so that is reflected in here.

So when you look at the full half year figures, yes, so the effects last year were included in organic growth, and this year is also included in the organic growth.

This concludes the Q&A session for today. I will now hand the call back to Thomas for closing remarks.

Thank you, Sharon. Yes, this marks the end of today's call. Thank you all for joining. Have a great rest of the day. And yes, for additional questions, reach out to the Investor Relations team. Thank you.

Thank you. We want to thank Mr. Dr. Johannes Bussmann; and Mrs. Katja Garcia Vila and all participants of this conference. Goodbye.

Welcome to the conference call on MTU Aero Engines First Quarter 2026 Results. 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 the conference call, you grant permission for audio recordings intended for publication on the internet to be taken.

The speakers of today's conference call are Dr. Johannes Bussmann, Chief Executive Officer; and Mrs. Katja Garcia Vila, Chief Financial Officer. Firstly, I will hand over to Mr. Thomas Franz, Vice President, Investor Relations, for some introductory words. Please go ahead.

Thank you, Nadia, and good morning. Welcome to our conference call for MTU's Q1 2026 results. We will begin today's session with Johannes sharing some thoughts on the current environment and recent developments. Following that, Katja will walk you through the financials. Johannes will walk you through the guidance and will summarize the key takeaways before we open the floor for your questions. With that, it's my pleasure to hand over to Johannes.

Thank you, Thomas, and welcome to our earnings call for the first quarter 2026. We had a very successful start into the year. Group revenues increased by 7% to more than EUR 2.2 billion. Adjusted EBIT rose by 6% to EUR 320 million, translating into a margin of 14.2%. Free cash flow improved by 18% to EUR 177 million, resulting in a cash conversion rate of 77%. Despite the current situation in the Middle East, which I will touch a bit later, we confirm our full year guidance today strongly.

We fully support our customers and their operations and the safety of our employees in the region is, of course, our top priority. Before Katja takes you through the financials, let us first take a look at the market environment and our key highlights on the first quarter. I start with a view on the current macroeconomic and geopolitical environment and how MTU is positioned.

Geopolitical tensions have driven a sharp increase in jet fuel prices and possible physical supply chain constraints, putting pressure on airlines as we see. As a result, several airlines have announced moderate capacity reductions. Any traffic impact is expected to be absorbed mainly by the older, less fuel-efficient fleets, which demand for modern and fuel-efficient aircraft and engine remains largely unaffected.

Against that backdrop, we also maintain our MTU positions very well positioned with our resilient product portfolio, especially in fuel-efficient engine types and of course, our active and decisive management of supply chains and cost management. The ongoing capacity constraints in our end markets, in particular, in the MRO segment, provides protection from any significant impact on our business as we see today.

Our product portfolio is resilient with a strong focus on next-generation fuel-efficient engines driven by airline structural needs to reduce fuel burn and emissions. Just to name 2, the GTF and the V2500 platforms continue to see solid demand. The GTF backlog across OEM and MRO provides us with a high visibility of the market scenarios. The V2500 remains a key asset in our customers' fleet. Supply chain resilience remains our top priority.

We rely on multiple sourcing and long-term supplier contracts to manage these dependencies. Our approach results, as of now, in a stable, reliable supply chain. And for possible cost increases, we are in the comfortable situation of being able to pass price increases on rather easily. For the limited number of MTU suppliers located in the Middle East, appropriate measures have been implemented to ensure continued availability.

Staying on the cost topic, MTU continues to apply a highly disciplined cost management approach. Just 2 examples for that. We continuously validate our work distribution and are increasing workload volumes and repair activities at our best cost facilities as we speak. Other topics like energy costs are put under review very regularly. Even though energy costs have only a limited impact on our products, we manage our cost exposure here very diligently.

One of these examples is our geothermal plant here in Munich, which covers 80% of the heating demand of our Munich production site, which makes us independent from these effects. I would like to share some reasons to remain highly confident while navigating through this definitely dynamic environment. Our portfolio is resilient by design. Growth in the military business remains strong as guided for 2026. In the new engine business, demand continues to be driven by fleet renewals and the need for more efficient engine technologies is ongoing.

Airframe order books are basically sold out through the end of the decade. For the aftermarket, spare parts and MRO demand for shop visits remains strong and there are no signs of weakness. In our shops, we have not received a single cancellation or meaningful deferral as of now. From a regional perspective, our MRO exposure in the Middle East is low. While certain platforms such as the GP7000 and GEnx show higher regional concentration, this does not affect the overall robustness of our portfolio.

With the highly efficient GTF engines and the still very young V2500 fleet, we are certain to have the right products for almost any scenario. This confidence is further underpinned by our strong group order book of around EUR 32 billion, providing high medium- to long-term visibility. As you see, we are well protected by our resilient portfolio mix and our strong MRO positioning. At the same time, proactive risk analysis is firmly embedded and is part of our daily management in the business.

Looking beyond the near term, the long-term growth fundamentals of the aviation industry remain unchanged. Fleet renewal and structural growing demand for more fuel-efficient aircraft continue to support our business. Coming to a real highlight in the first quarter of 2026, we took an important strategic step to further expand our military business.

Unmanned aerial systems are becoming a key capability in modern defense, and propulsion is a critical enabler of their performance, reliability and mission effectiveness. And this is where we seized an opportunity to enter into another area of a rapidly evolving UAV market. With the acquisition of AeroDesignWorks, we gained immediate and substantial access to this fast-growing and attractive market, creating long-term value for MTU.

AeroDesignWorks already develops and produces propulsion solutions for lower thrust drones. The demand for military drones is clearly visible. The global market for military drones is expected to grow by around 12.5% per year for the next 5 years. And that has been -- what is missing so far is a European-made propulsion system that meets military requirements in terms of quality, reliability and especially industrial scalability. This is where we as MTU come into play.

Combining AeroDesignWorks' capability with our long-standing experience in the military segment, our technology, proven engine expertise, and global market access for production positions us very well to be a powerful and scalable propulsion platform for the European drones market over the coming years. In addition to that, we also stepped into the so-called conventional light market.

We see clear opportunities to further scale the business through organic growth, selective acquisitions and strategic partnerships with leading players across the defense ecosystem. With eMoSys, we are already in a position to offer electric propulsion solutions for drones, while on the upper end of the range, drones can be served with more conventional engines. This empowers us to power drones with our entire spectrum.

Given the strong market dynamics, the rapidly increasing relevance of drones, this step will support MTU's sustainable and profitable growth. Our clear ambition is to establish MTU as a core European supplier for UAV propulsion systems. Let me conclude the business review with a brief update on the geared turbofan program. The GTF fleet management plan remains on track. MRO outputs increased by 23% in the first quarter. Turnaround times continue to benefit from improved supply chain.

Airlines confirm easing aircraft on ground numbers. And based on this progress, we expect ongoing improvement on the AOG situation throughout 2026, which remaining -- with remaining compensation payments to be settled within the year. With the GTF A certification, an important milestone has been achieved this month. Entry into service is planned for the second half of this year.

So this is the most efficient narrow-body engine offering higher thrust, improved durability and full interchangeability with the base GTF engine, a great next step in the GTF evolution. GTF continues to ramp up across all 3 platforms supporting airlines around the globe. The GTF is already in service for more than 10 years, which we celebrated recently, and it has accumulated over 50 million flight hours and currently has a remaining order book of 8,000 engines. With that, let me hand on to Katja for the details on the financials.

Thank you very much, Johannes, and also a very warm welcome from my side. Let me begin with an overview of our key financial highlights. The Iran conflict had no impact on our first quarter results. Group revenues increased by 7% to EUR 2.244 billion. In U.S. dollar terms, revenues grew 18%. The main drivers were the military business and our commercial MRO activities.

Within the commercial OEM segment, the business mix remained favorable, supported by spare engine volume and strong spare parts business. Commercial MRO revenues were primarily driven by GTF MRO increases. Adjusted EBIT rose by 6% to EUR 320 million, resulting in an adjusted EBIT margin of 14.2%. Both segments, OEM and MRO contributed to the EBIT expansion. Adjusted net income increased by 3% to EUR 229 million.

Free cash flow had a very strong start into the year and grew by 18% to EUR 177 million, resulting in a cash conversion rate of 77%. This performance was fueled by dividend income and the seasonally lower cash flow from investing activities in the first quarter. GTF AOG payments of around USD 60 million are reflected in the numbers, a slightly lower impact than in the first quarter 2025.

Let's now dive more into the OEM segment. Total OEM revenues were stable at EUR 621 million. Within this, commercial OEM revenues declined 5% to EUR 479 million. On an organic U.S. dollar basis, commercial revenues increased by 5% Military revenues increased 25% year-on-year to EUR 142 million. Organic new engine sales in U.S. dollar terms remained stable, reflecting lower new engine deliveries with a higher total number of spare engines. We expect a sequential delivery ramp-up in the following quarters, in line with full year expectations of mid- to high teens percentage growth.

Organic spare parts revenues in U.S. dollar grew by 10%, driven primarily by narrow-body platforms, notably the V2500 and the GTF. Pratt & Whitney Canada engines also contributed, while mature wide-body and industrial gas turbine programs were broadly stable as expected. The military opened the year very strong with robust performance. Revenue growth was driven by higher EJ200 and TP400 volumes.

Additional support came from the new generation fighter engine, which remains fully contracted through September 2026. Results also benefited from catch-up effects following delivery delays in 2025, which pushed volumes into early 2026. Overall, the favorable business mix translated into EBIT growth of 7% to EUR 188 million resulting in a strong EBIT margin of 30.2%.

Also, the commercial MRO business entered the year with strong momentum. In Europe, commercial MRO revenues were up 8%, whereas U.S. dollar revenues increased 20% year-over-year in Q1 2026, clearly exceeding the full year guidance of low to mid-teens growth. This was mainly driven by GTF MRO revenues, which accounted for 44% of total commercial MRO revenues, up from 34% in Q1 '25. In absolute U.S. dollar terms, GTF engines delivered the strongest revenue growth.

In addition, our leasing and asset management business, MLS in Amsterdam, contributed nicely to U.S. dollar revenue growth as well as our IGT business. On profitability, adjusted EBIT increased by 5% to EUR 132 million, resulting in a margin of 8%. Headwinds from higher GTF MRO share and ramp-up costs at MTU Maintenance Fort Worth were partly offset by a strong EBIT contribution from MLS and our independent MRO business.

Let me provide you with a brief overview about the drivers in our free cash flow. Q1 2026 free cash flow was up 18% year-over-year. We benefited from lower PPE spending and received dividends. Additionally, GTF AOG compensation payments at USD 60 million were slightly lower than in Q1 2025. A headwind came from higher working capital. As Q1 2026 cash conversion rates being clearly above our full year expectations, let me bridge this to our free cash flow guidance for 2026.

Key tailwinds supporting the achievement of a cash conversion rate of 45% to 55% in 2026 are improved net income and lower GTF AOG payments compared to the previous year. The main headwind arises from the buildup of the facility in Fort Worth as well as the continued increase in receivables for prefinanced GTF MRO work. Our 2026 free cash flow target underpins our midterm financial ambition towards 2030 with a cash conversion rate targeted in the high double-digit percentage range.

Let's take a brief look at our U.S. dollar hedging position for which we have made again continuous progress. As shown on the chart, we have further worked on our hedge coverage over recent months following the release of our full year 2025 results. For 2026, benefiting also from improved natural hedging, we are now fully hedged at an average hedge rate of USD 1.13.

Looking further ahead, a comprehensive exposure review led to adjustments in our net U.S. dollar exposure, and we've continued to systematically build our hedge position. As a result of the currently weaker U.S. dollar, the average hedge rates for the subsequent years are higher than those secured for 2026. Before we switch to the guidance, let's have a look at our strong financial position.

Net debt of approximately EUR 1.1 billion and a net debt-to-EBITDA ratio clearly below 1 provides us with substantial financial headroom. In January 2026, the company proactively strengthened its capital structure through the successful issuance of a EUR 600 million convertible bond. The proceeds were used to early repurchase the EUR 500 million bond due in July 2027, effectively eliminating near-term refinancing needs.

Together with a EUR 500 million revolving credit facility maturing in 2029, this provides the company with a robust liquidity position and flexibility across market cycles. As already announced at the release of our full year results in February, we proposed a dividend of EUR 3.60 per share. This is an increase of EUR 1.40 or 64% compared to last year, corresponding to a payout ratio of 20%.

This will result in an expected cash outflow of around EUR 193 million in Q2. To wrap this up, our strong balance sheet and financial flexibility positions us well to support on our long-term growth strategy and to deliver sustainable value for our shareholders. With that, I hand back over to you, Johannes.

Thanks, Katja. Let me now turn to our outlook for 2026, which we confirm today. Based on our careful and proactive assessment, we do not expect any major adverse impact on our business at this point in time. Operations remain stable. Our supply chain is resilient and demand across OEM and MRO market continues to be robust.

On that basis, we expect group revenues to reach EUR 9.2 billion to EUR 9.7 billion, adjusted EBIT at EUR 1.35 billion to EUR 1.45 billion, net income to grow broadly in line with EBIT and a cash conversion rate of 45% to 55%. In a dynamic and uncertain environment, we very closely monitor developments, anticipate potential impacts and act. We proactively manage risks, seize opportunities and continuously strengthen the company's strategic and financial positioning, as you just heard.

Supported by a strong balance sheet, a resilient business model and a clear long-term vision, we are well equipped to navigate market cycles and to create sustainable value for our shareholders. Let me now summarize the key takeaways from our Q1 2026 results. We started the year with a very strong performance, which underpins our confidence in the 2026 guidance, which we reaffirm today.

The acquisition of AeroDesignWorks enables us to expand in the highly attractive and fast-growing drone market. The GTF management plan is well on track operationally and financially, and AOGs are trending down. We are strongly positioned with a growing order book and a very resilient business portfolio. Our management approach allows us to actively manage volatility and maintain stability in a dynamic environment.

In a nutshell, we are very well prepared for the challenges ahead and have full confidence in our structurally growing market, our product lineup and in our ability to continuously generate long-term value for our customers and our shareholders. With this, we close our presentation and are happy to take your questions.

[Operator Instructions] And now we're going to take our first question and it comes from the line of Robert Stallard from Vertical Research.

A couple of questions from me. First of all, in your commentary, you mentioned old aircraft and how they could be vulnerable given their fuel efficiency to retirement. I was wondering if you could clarify what MTU's exposure is to these older planes in the active fleet and whether you've seen any sign of this negatively impacting your numbers? And then secondly, following the acquisition of AeroDesignWorks, I was wondering if you could clarify what your estimate is for MTU's revenue exposure to drones or UAVs going forward.

Okay. First one, we have no cancellations of any slots so far from none of our customers. And we still have a backlog, of course, in front of our shops. So that means even if something comes up, we are able to compensate the work with other engines awaiting.

So in the long run, how the airlines behave if the fuel price stays high in the mid and long term, it is very likely that they, of course, want to optimize their direct operating costs, which would result in favoring lower fuel burn engines and aircraft, and that is the basis of our appointment. And we have a very, very low retirement rate that we see today. It's almost none. That's why there is no move that we see so far from the airlines reacting that is affecting us.

On AeroDesignWorks, we are in a couple of discussions with players in the market that are coming or that are waiting for the decisions of politicians, of course, because we need to see what the FCAS discussion comes out with and how the structures of the systems looks like. So that's why we are very confident that this is a growing market. Concrete numbers, we are not ready to share so far.

And you should also leave us some room, Robert, to provide you with some interesting news when we have our Capital Markets Day in November 30, this year.

Now we're going to take our next question. And the question comes from the line of Chloe Lemarie.

I have 2, if I may. The first one is actually building on the prior question on legacy engine exposure. Just could you maybe share how much of the PW2000 and CF6 spare parts revenue generation is from military versus cargo versus passenger, please? And the second one is on the Q1 cash conversion comment. So you mentioned obviously it's ahead of your expectation for the full year, but was it ahead of your expectation for Q1 as well? Or it's just part of the phasing that you expected as part of the guidance?

Okay. Yes, Chloe, I'll start with the cash conversion question first. You know that we don't guide for cash conversion rates on a quarterly basis for sure. Something like the dividend payment happens at the beginning of the year as it also did last year at the same period of time. Due to the development of the pricing, for example, on the lease business, we expected also a higher dividend in 2026 than what we had in Q1 2025.

So that was also part of the story when we provided the guidance. I think it's also clear when you look at normal cycles that on the PPE that there are stronger spendings in the second half of the year. So overall, all that brings us entirely into the guidance that we have put for this year.

So you should not take the 77% now already as the basis going forward. On the PW2000, CF6 revenues, I cannot definitely provide you with a detailed breakdown. But what I can say on the PW2000 is that the largest part of the revenues is rather for the military business. And the CF6 is rather largely for the freighters business.

If I can just follow up on the cash conversion. Can you tell us how much of the year-on-year increase in the dividend impacted Q1, please?

I cannot recall the figure entirely from my mind, but there is a significant contribution coming from the dividend payment. I think it's in the lower double-digit million number in absolute...

And now we have a question from Benjamin Heelan from Bank of America.

I had a couple on MRO, just a follow-on from some of the comments you made there about not seeing any changes with regards to shop visit volumes. Have you seen anything in terms of lower scope? Have there been any requests for lower scope? And if there's any comments you can give there? And then in the quarter, the kind of independent MRO business, you say was broadly stable.

Do you have a breakdown of the independent MRO and then the MLS business so we can understand what was going on a little bit within the 2? And then a follow-on on spare engines. Clearly a big contributor in the first quarter. Should we assume that this is the high for the year in terms of absolute spare engines and mix given you've talked about an improving kind of quarterly trajectory in terms of deliveries?

And then a quick follow-on from your comments on FCAS. You mentioned in your prepared remarks, it was funded up until 2026, September. Obviously, we see in the press the program is not exactly going too well on the airframe side. So if -- what happens to the engine program if the airframers decide not to move ahead with the airframe side of it in its current form?

Okay. That's a lot of stuff. Let me start with the MRO side. No, we don't see any work scope requests so far in having lower work scopes, lower volumes there. So we didn't lose any shop load event so far. And I would turn that around even if customers would come up, we are with our independent MRO customer base and also experienced very well positioned to find very good solutions for our customers to help them out if that would come on the table, which would bring us in a favorable position in the competitive environment between MRO providers.

So from that perspective, even if that comes, we see that as a strong side and an upside and not as a threat. On the spare engine side, that is an ongoing demand, which we think will continue also because that's mainly driven, of course, by the new fleets and the growing fleets there. And that are the aircraft and engines that are very likely to be operated even more due to the high fuel prices.

On the FCAS side, of course, we are waiting for a decision. Everything we hear is also that the politicians are knowing that the industry requires an answer. And the -- you're right, of course, on the airframe side, there are discussions or that is the main point of disagreement. Our collaboration with our French colleagues is working very well, and we continue.

We still need to provide until the end of Q3 of this year results on the development phase, which we are performing well, and we are optimistic that by then, we have a solution. And we are also confident that the European governments come to the conclusion that they need a European defense system.

So that then is the question whether we need 1 engine or maybe even 2 for 2 different aircraft types, which is the likely scenario right now as we see it. There are others as well, but that's the likely one as we see it. And then, of course, we are part of this development in the European landscape. Third one was on the -- what was that independent?

If we do share a breakdown of independent and the MLS business.

No, we don't.

Yes. And what we can say is, just for you, Ben, maybe to clarify a little bit, the MLS business has grown in line with our growth expectations for the full year on the MRO business.

And it comes from the line of George Mcwhirter.

It's on MRO margin. You cited the Fort Worth capacity expansion as a reason for a slight drop in MRO margin. Can you just talk a little bit about the size of the cost of the expansion in Q1 and what you expect for the full year?

Thank you very much for the question, George. What we said is that also on the cash flow side, we will see continuous headwinds also for the year coming from the ramp-up. You know that in July, we expect to induct the first LEAP engine into the plant, which means we are currently in full ramp-up. When you look at the cost position, so there are a couple of positions to consider. For example, we need to train people.

At the moment, we need to hire, we need to ramp up, we need to certify, et cetera, et cetera. And we also do have PPA spending. Overall, we expect to invest around EUR 120 million in CapEx into the plant, not this year, but as an investment overall during the ramp-up phase. And we do expect a headwind of around -- sorry, EUR 100 million on our free cash flow. And this headwind will also continue to stay over the next coming years.

Now we're going to take our next question and comes from the line of Adrien Rabier from Bernstein.

Could I ask a follow-up on the retirement rates, please? You mentioned that the retirement rates are still very low for V25 (sic) [ V2500 ] But could you share a ballpark number of where you expect them to go in 2027 and after that? And would it be fair to assume that they will be somewhat accelerated by the improvement on the GTF? And then second question, could you talk about the pace that you expect for the rollout of the GTF Advantage? How fast that will go, please?

Well, the retirement rate on a mid- and long-term perspective, I think that's too early to look through. That really depends on how long the conflict stays on and what the midterm effect on the fuel prices is. We analyze our portfolio, of course, that we are providing services for. And as I mentioned, it's very, very strongly dominated by the modern aircraft types, and we also consider the V2500 as being a very strong and also young fleet.

You know that more than half of the fleet has not even received more than the first shop visits. So our portfolio is on the upper side on almost every scenario that we think of in our simulations. And that's what we see right now. As I mentioned, there are no increase in retirements confirmed so far, and that's how we plan for it.

The deliveries on the Advantage, that's a very hard to judge picture because there is, of course, the Advantage going to be delivered new, but we also have the option with the Hot Section Plus where customers decide on what part of the new hardware they want to have built in, in their shop visits or not. And that is the basis of the assumptions that we still need to see what the customers decide. And so there is a rollout over the next 2 years, of course, planned, but concrete numbers is very hard to tell.

Now we're going to take our next question, and it comes from the line of Ian Douglas-Pennant from UBS.

Ian Douglas at UBS. The first question, could you help me understand what was the increase in the imbalance payments within receivables that you saw year-over-year, please? It looks -- total receivables, I see increased about EUR 650 million, but I don't know what imbalance payments was within that, please.

Second question, could you help us within spare engines, what proportion of those engines are sold at the current market value versus sold in advance? Maybe if you could give us some kind of qualitative idea there. What I'm really trying to get at is what is your sensitivity to GTF fair values if they start to decline, which some lessors and appraisers are telling me may possibly be starting to happen already?

Okay. Let me first start with the receivables. You've seen quite some increase in the receivables now in the first quarter of the year. And if you look also at the growth in our sales or our revenue side, that follows more or less the normal business course going forward. There is no significant impact from the imbalance payments now in the first quarter to be seen. I think when you look at the pricing level of spare engines going forward, so far, we have not seen any weakening in demand.

And you also have to keep in mind that there is not the one spare engine pricing that we have. There are 2 ways to have spare engines entering into the market. The one is contractually agreed with the airline customers and the other ones are then the, let's say, open available spare engines that you can sell at a more flexible market pricing. So there is no significant overweight in that area at the moment. So overall, we do not expect or we do not see any weakening in those prices at the moment in the mix.

What roughly is the split between sales that are contractually agreed versus openly available?

Sorry, that's the figure we don't disclose. I'm sorry.

Now, we're going to take our next question. And it comes from the line of David Perry from JPMorgan.

Two questions, please. One, just on your spares be up about 10%. It's quite a bit lower than we've seen from Pratt, Safran and GE. Just wonder if you want to comment on that, if you think there's anything particular in your mix that would make you have slower growth or whether it's just a temporary issue for the quarter? The second one is a bit more philosophical, but probably for Katja.

Just on your -- obviously, we're in an uncertain geopolitical situation. So we get a lot more questions from investors about cash flow. And if I take your guidance for cash conversion, I add back the GTF and I add back the number you just hopefully gave on Fort Worth. I think you get to -- if my math is correct, you've got about 70% free cash flow to net income.

It's still quite a lot lower than some of the peers. So I just -- you've been in the business for a while, Katja. If you can just maybe give 2 or 3 reasons why that is the case? What is it that has your free cash flow at the current level? And what are the specific things that will lead to an improvement going forward?

Okay. So let's first start with the spares mix. So just to frame that clearly. So there is no specific issue that we have compared to others, and it also always is a question of what's comprised in the spare parts growth in the respective references. Overall, for this year, David, we have guided a growth rate in the low to mid-teens area. And with 10% growth in the first quarter, we are fully in the ballpark of our guidance.

You know that for the second half of the year, there are price movements to be expected, which will then support a further expansion of the growth rate throughout the year. So no structural reason why that is of any greater concern for us. Regarding the cash conversion rate, I think if you look at the history of MTU, the cash conversion rate has always been a topic that people have discussed about a lot.

And I think if you look at what we are doing at the moment, so that we are continuously expanding our portfolio that we are continuously also investing into the profitable growth of our business moving forward. These are the parts that currently have an impact on our cash flow, plus we still have in the first place for this year, the GTF payments directly for the AOG compensation.

But also moving forward further until 2028, late or beginning of 2029, we still expect the buildup of the receivables for the prefinanced shop visits, which still provides a headwind to our cash conversion rate, but which will then turn into over proportional cash conversion contribution in the years to come. So from a structural perspective, David, let me reassure you that there is no reason why MTU should at any place be less able to create attractive cash conversions than anyone else in this business.

Okay. And just very quickly, and you have said it before. Can you just remind me the Fort Worth EUR 100 million a year, how many years is that for [indiscernible] weighing on free cash flow?

Until the end of the decade, yes. That was also part of our guidance that we have laid out at the Paris Air Show. So there is no structural difference to that, which means that this is also included in our high double-digit cash conversion rate guidance for 2030.

Now we're going to take our next question, and it comes from the line of Milene Kerner from Barclays.

I have 2 questions, please. The first one is a follow-up on Chloe's. We see demand accelerating for the 777-300ER freight conversion. How do you see aftermarket demand evolving for your 757 and 767 powered fleet, especially at today's fuel price? And could you also remind us what's the share of the commercial spares that today, CF6 and PW2000 represents? And then my second question on the back of what you just replied to David, could you help us frame the scale of the GTF-related receivable headwind till 2028?

Okay. Maybe let me first talk about the receivables side in the first place. I think we have not provided a specific guidance on how this continues to ramp up. But what you can say is from today's perspective that there is still some quite significant increase over the next couple of years to come.

And there is currently no specific time line that I can give you for individual impacts, but we will always include that into the guidance that we provide for the next year. And as I said, it's also part of the guidance that we have provided for the midterm. And I have to say, I didn't get exactly the first part of your question. Was it about the freighters conversion?

Yes. So we see now a lot of 777-300ER being converted. I just wanted to see what could be the impact on the 757s and 767 powered fleet on which you actually power these 2 planes, especially given the fuel price today? And if you can also share how much the CF6 and the PW2000 commercial fleet represents today as a share of your commercial spare parts revenue?

Okay. So thank you very much. I'm sorry, I didn't get it in the first place. So in principle to say freight conversions do take time. So that's nothing that is going to happen overnight. I think that's the first important message I would like to send with regards to this portfolio. The second one is that the demand for freight is continuously growing, which also means that the freight -- that the flights are continuously growing, which will then again fuel demand going forward, yes.

So our expectation at the moment is that there is very limited impact for the coming years to be expected. And we don't disclose specific shares of individual spare parts on the overall portfolio. What we said is overall, the expectation for this year is that we will have a strong growth in the commercial spare parts business between 10% and 15%. And when you look at the outlook for 2026, also there, we do guide with a continued strong increase in our portfolio.

If I may add, we don't see any structural moves in these kinds of business, whether freighter conversion or fleet compositions due to the conflict so far. And that's the picture that we can see right now. And as Katja mentioned, conversion time, the contracts behind it are long-term contracts and also long-term work. So that does not react on this more short-term events that we see right now.

And just maybe following up just on your guidance for spare parts for this year. Can you just remind us what's the outlook for the CF6 and PW2000 in terms of growth?

It's more or less flat. Sorry, I just want to add the big drivers for this year commercial spare parts are definitely V2500 and the A320. Also the GTF spare part is going to be increasing for the mature engine programs, we expect that to remain broadly stable.

[Operator Instructions] And now we're going to take our next question. And the question comes from the line of Rory Smith from Oxcap.

It's Rory from Oxcap. I just wanted to talk a little bit more about this idea of a very strong order book, EUR 32 billion. You say technically sold out for 3 years. I guess technically is doing a lot of heavy lifting here. Maybe if you could just help us understand how that backlog falls between the 4 business areas.

And then really just how -- what kind of visibility do you actually have, particularly within commercial spare parts and within commercial MRO. Any kind of differentiating dynamics you can call out there? Anything qualitative that can help us think about as we travel from this year into next year, modeling this out would be really helpful.

So I think I'll take the order book and then you add up, Katja. So of course, on the OEM side, just traditional production setup where you have capacity and a fairly linear production rate. On the MRO side, of course, we have everything from single events to 10 and even more years contracts, and that's why I mentioned technically. And this is something, of course, that is a wide composition of MRO contracts. If you add it up, it comes to the number we shared. And that's why the term technically was used from my side.

And I think if you look at the order book development overall, you see that we have -- what I can state to more details is that we've seen growth in both segments. So we don't break it down into multiple segments. So we do see growth in both segments. You see the order intake in the first quarter for the MRO business, but we also do see continued strong increase in the order, for example, for the GE9X or for the PW1100 business. So overall, that is a strong order book, and it's also quite some strong visibility with regards to our shop loads, for example, on the MRO side.

Okay. Great. If I could just follow up there. Let's assume that the current trend of RPK growth sort of turning negative continues for another quarter or 2 quarters or whatever the outcome is. Would you expect to see that first in commercial spare parts or commercial MRO or roughly analogous?

Well, I mean, we have -- we still have a backlog of work. The situation of capacity available on the MRO side capacity available for shop load events is still below the market demand. So even if these developments come, we have -- then we swap one engine type with the other one, which we are able to do with the shop setup that we are running. So that's why we -- our target is not to lose any slot. That has then also a very positive impact of -- on the second part, on the spare parts of your question.

And this is something where the visibility that we are having in the system and the close customer contact, which allow us to say, juggling around is maybe a little bit too dynamic, but we are able to mitigate these topics in order not to lose any slot. We were very successful with that for the last 6 months, and we are also very optimistic that, that is going to continue for the rest of the year.

Maybe let me clarify or let me add maybe to it a little bit. We would not expect to see any material impact on us during the course of this year. So there is no -- and this is also why we are so confident to be able to achieve our guidance for the full year on the MRO side. And if you look at timing, if you look at where we are at the moment, so people are still very actively searching for slots, and we don't have a lot of open slots to offer at all to the industry. So there is no reason to believe that this should have any material impact on us in the upcoming quarters.

Now we're going to take our next question. And it comes from the line of Sash Tusa from Agency Partners.

Two questions. First of all, on AeroDesignWorks, the numbers that you give there are terribly big. I recognize you'd like to talk about this more at the Capital Markets Day, but November feels a terribly long way away at the moment. Of that market size and growth, how much of that is in Europe as opposed to the rest of the world is the first question.

And then you talk about the business being optimized for military performance, but an awful lot of drones, clearly drone covers a huge number of things, are one shot throwaway systems effectively now. So does the market actually really need military specifications as opposed to turbojets that are cheap enough for a single mission? That's my first question. And then a different one on MRO. When do you think that customers have to specify or have to finalize the scope of a shop visit with you? How early is it in the process?

Okay. The market size, that's a very good question, of course, because that depends on the government. And you pointed out that, yes, of course, it's 1 cycle or 2 cycles once you test it, once you use it. And that's exactly the market where we want to enter and why we made the deal with AeroDesignWorks. And that is something where we are 100% sure that there will be growth.

The concrete numbers, of course, depend on the orders of governments in Europe, and that's hard to judge, but that it is a good potential and good business for us. We are very confident. On the work scope design for the engine shop visits, that's a normal routine process that runs with every customer and the shop that is performing then the engines couple of weeks, maybe 2 months, depends a little bit on what the engine type is that is decided then between the customer and us.

And of course, the requirements from the airworthiness perspective. And so that's a routine process. There is so far nobody that is doing this earlier or later. That's a very normal process. And there are also, of course, strong guidelines from the aviation authorities, what is possible and whatnot. But within these frames, we are discussing with our customers what is suiting best in their fleet as most of them operate a couple of engines and aircraft, we have all the flexibility to have good solutions for them together.

Dear speakers, there are no further questions for today. I would now like to hand the conference over to Thomas Franz for any closing remarks.

Yes. Thank you, Nadia, and thank you to all participants and to MTU's management. This marks the end of today's Q1 call. Thank you for joining. And yes, have a great rest of the day. Bye-bye.

We want to thank you, Dr. Johannes Bussmann and Ms. Katja Garcia Vila and all the participants of this conference. Goodbye.

Welcome to the conference call on MTU Aero Engines Preliminary Full Year 2026 Results. 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 the conference call, you grant permission for audio recordings intended for publication on the Internet to be taken.

The speakers of today's conference call are. Dr. Johannes Bussmann, Chief Executive Officer; and Mrs. Katja Vila, Chief Financial Officer. Firstly, I will hand over to Mr. Thomas Franz, Vice President, Investor Relations, for some introductory words.

Thank you, Heidi. Good morning, and welcome to our conference call for MTU's Preliminary Full Year Results 2025. We'll begin today's session with Johannes sharing some thoughts on strategic priorities and the business review. Following that, Katja will walk you through the financials of the year 2025 as well as the guidance for 2026. To close the presentation, Johannes will summarize the key takeaways before we open the floor for your questions in the Q&A session.

With that, it's my pleasure to hand over to Johannes.

Thank you, Thomas, and a warm welcome to everybody. As already announced during the course of the Q3 call, I would like to share some key priorities of MTU's way forward with you. First of all, MTU has a communicative growth agenda, and I am completely committed to execute on that one. This means we will expand our footprint internationally and invest in even more technological capabilities. Through our expansion in Hannover, Berlin, China and especially our new LEAP facility in Fort Worth, Texas, we are leveraging our global presence.

With this, we support the growth of our MRO business and increase efficiency to serve our customers even better. With the latest development of the GTF, we have the most efficient engine in the narrow-body market. We developed this technology together with our partners and we will continue to enhance this technology even further to be perfectly prepared for the NGFE. My ambition is to provide an even larger share in the upcoming program. As in addition to the conventional engine, we have entered into an agreement with Airbus to develop the Flying Fuel Cell.

Due to this, we will be enabler for our client to emission-free flying in the future. Given the significant improved free cash flow generation in 2025 and our planning for the next years, we are committed to focus on shareholder value by increasing the dividend by 64% from EUR 2.20 to EUR 3.60 in 2025, representing a payout ratio of 20%. We are on our way to reach our 40% payout ratio target.

Let's have a look on the next slide. Let me walk you through our major achievements in 2025, starting with an overview of our key financial results. In 2025, we delivered on our financial guidance and are pleased to report that the strongest performance in MTU's history has been reached. Revenue reached EUR 8.7 billion. EBIT increased to EUR 1.35 billion, resulting in a very strong margin of 15.5%. Free cash flow rose to EUR 378 million, also a new all-time high despite the financial impact of the GTF fleet management plan. Based on this performance, we will propose a dividend of EUR 3.60 per share to the AGM, representing an increase of 64% year-on-year. In addition, we will present our 2026 guidance today and an important next step on our way to achieve our 2030 ambition.

Let's take a look at the market environment in general. In 2025, our industry continued to gain momentum. Demand again exceeded available capacity. And despite persistent supply chain challenges and a more uncertain macro environment, airlines were highly resilient. Passenger traffic grew by 5.2% and cargo volumes by 3.1%, reaffirming the sector's strong fundamentals. This performance came despite headwinds from U.S. tariffs and a weaker U.S. dollar factor we managed very successfully. The outlook remains positive.

For 2026, IATA expects RPK growth of 4.9% and the cargo traffic to rise by 2.6%, both consistent with long-term structural trends. Robust passenger demand, high-value cargo flows and expanding global e-commerce continue to support the industry, while limited aircraft availability keeps utilization and load factors at an elevated level. This environment plays directly to MTU's strength. Our supply chain is built to support customers on both OEM deliveries and the aftermarket, positioning us well to capture ongoing demand. Overall, the market indicators are fully in line with our plan 2030. Our current order book stands at USD 29.5 billion (sic) [ EUR 29.5 billion ] which technically means we are sold out for the next 3 years. To sum this up, MTU is exceptionally well positioned to benefit from market dynamics in 2026 and beyond.

Let's have a look at the commercial OEM side of our business. In 2025, demand from new commercial engine remained exceptionally strong. We recorded more than USD 2 billion in new orders, driven by the GTF, GENX and GE9X program. For the GTF alone, customers placed orders and committed for more than 1,500 engines. And 2026 also started on a solid note for the GTF. Vietjet selected the PW1100 to power 44 A320neo family aircraft. Customer confidence in the GTF remains high. With commitments for more than 13,000 GTF engines, the order book is now roughly twice the size of the active V2500 fleet. The strong position of the GTF is visible for the program after just 10 years in service. Since 2016, the GTF family has accumulated over 50 million flight hours on more than 2,600 aircraft, safely carrying more than 1.7 billion passengers. Its fuel efficiency has enabled airlines to save more than 2.8 billion gallon of fuel.

And the journey continues with the next major milestone, the entry into service of the GTF Advantage later this year, an engine that provides even better performance metrics and will carry the success even further. On the customer side of the GTF program, the fleet management plan continues to make solid progress in line with our expectations. Turnaround times are improving. Material availability is stabilizing. With RTX reporting significantly higher MRO output and airlines confirming an easing of the AOG cases, we expect the situation to continue to improve throughout 2026. Compensation payments remain on track. We contributed by roughly USD 360 million in 2025 and expect the remainder of the payments to be settled in the current year.

Looking ahead, we continue to invest in the future of propulsion. In November, we reaffirmed our commitment with our partners, Pratt & Whitney and JAEC to evolve the technologies for engines for the next generation of commercial aircraft. This partnership, which is now in place for more than 4 decades, will allow us to deliver even higher efficiency, lower emissions and long-term competitiveness in the future. In short, MTU is taking advantage of the strong demand and is ready to deliver on our customer needs and is set for a strong and successful future.

Let's have a look at the MRO of -- sorry, at the military OEM business. Over the past 2 years, we have seen strong order momentum for the Eurofighter engine program. The core nations, Spain, Italy and Germany, together with export customer, Turkey, placed engine orders for more than 80 Eurofighter aircraft. This clearly demonstrates the continued relevance of the program for Europe's defense capabilities. In the United States, demand for the heavy-lift helicopter remains high. The U.S. Marine Corps has ordered an additional 99 units. MTU holds an 18% share of the T408 engine program powering this platform, and we continue to benefit from the program's production ramp-up. At the same time, our OEM business for the TP400 is secured until 2029, with additional export opportunities offering meaningful upside as the A400M continues to attract international interest.

Looking ahead at the future of military propulsion in Europe, we have joined forces with Safran and Avio Aero to develop a potential next-generation helicopter engine. This partnership positions us well to support future European defense platforms with advanced propulsion technologies. And while recent headlines around the FCAS program have been mixed, we remain confident that the partner nations will find a constructive way forward. It is essential for Europe's long-term defense sovereignty to develop their own military products, and MTU is fully committed to do this. In short, through our programs, partnerships and long-standing expertise, MTU contributes meaningfully to Europe's long-term defense readiness.

Now we come to the commercial MRO side on the next page. And here, we are continuing to invest in both capacity and the scope of our product portfolio, strengthening our global footprint and supporting the ramp-up across all major engine programs. In Poland, EME Aero has added a second test cell, enabling the site to execute 500 GTF shop visits per year from 2028 onwards, an important expansion of our European GTF capabilities.

In China, we opened our second MRO shop, initially focused purely on GTF engines, and we delivered the first overhaul engines just a month after the inauguration. Together with this, our first shop in MTU maintenance Zhuhai, the site has now capacity for more than 700 shop visits annually, creating a major capacity hub in one of the world's fastest-growing aviation markets. In North America, we enlarged our Fort Worth portfolio to include the LEAP and the GEnx later on and we will invest further to transform the site from an on-site service center into a full disassembly, assembly and testing facility, significantly strengthening our market position in North America.

At MTU Maintenance in Berlin, we introduced full MRO capability for the PW800 and are about to increase our industrial gas turbine capacity by around 30%, supported by targeted investments, including the new IGT hall already under construction. In the broader IGT segment, we have deepened our collaboration with GE Aerospace to expand activities in the marine sector, opening even additional market opportunities. Taken together, these initiatives significantly enhance MTU's global MRO network and technical capabilities. As we execute this expansion, our focus remains clear, supporting the ramp-up and enabling sustainable profitable growth.

On the technology side, we reached important milestones in developing further propulsion concepts. First of all, we are proud that the GTF Advantage has received both FAA and EASA certification, positioning it for the market entry in 2026. Aircraft certification is expected soon. With higher thrust, improved fuel efficiency and enhanced durability, the engine is particularly well suited for the larger aircraft of the A320neo family. In addition, RTX announced the introduction of a Hot Section plus retrofit package, enabling to benefit from 90% to 95% of the durability improvements on the GTF advantage.

As announced earlier, our IAE consortium publicly reaffirmed its commitment to advancing the GTF architecture as a foundation for the next-generation engines. We are incorporating all learnings from the first generation of GTF engines design execution as well as fleet experience. From today's point of view, the design of future engines will definitely be geared. Building on these advancements in our current product portfolio, we are simultaneously accelerating in the development of next-generation propulsion technologies.

In June, we signed a memorandum of understanding with Airbus to jointly advance hydrogen fuel cell propulsion. Within our own technology program, the Flying Fuel Cell, we have made significant progress. The design has been finalized, early tests have been successfully passed, and we have commissioned a dedicated Flying Fuel Cell test bed in our Munich site. This marks a major step towards an extensive test campaign for this technology. All of this demonstrates one thing very clearly, we are not only advancing propulsion technology, we are actively shaping what comes next. MTU is preparing the future of aviation step-by-step and with a very clear long-term vision.

Over the past year, we have made strong progress in reducing CO2 emissions across our production sites. Here in Munich, for example, our new geothermal plant has been operating since December 2025 and will cover around 80% of our heating needs, entirely CO2-free. The 71-degree Celsius thermal water is sourced from a depth of more than 2,100 meters and will provide clean, reliable heat well into the future. Looking ahead, our ambition is clear: reduce CO2 emissions across all MTU sites by 63% by 2035 compared with 2024. Each location contributes through its own targeted measures. We are driving this ambition through 3 main levers: improving energy efficiency, expanding on-site renewable energy generation and, of course, purchasing renewable energy such as green gas and green electricity.

Together, these actions ensure that we are progressing credibly towards sustainable decarbonization. In addition to our operational success and progress, our sustainability performance is also externally recognized. MTU has once again received the silver medal in the EcoVadis sustainability rating. Taken together, these developments demonstrate that we are on a strong and credible path towards significantly decarbonization.

With that one, I will hand over to Katja, and she will walk you through the numbers.

Thank you, Johannes, and welcome from my side as well. Let me begin my part by briefly putting our results into perspective. For 2025, we achieved our several times upgraded guidance in all financial KPIs. These results are new record highs for MTU and marks the next milestone on our ongoing growth path. Revenues of EUR 8.7 billion were in line with our updated guidance, clearly exceeding our initial guidance despite a weaker U.S. dollar, a headwind we were able to offset through strong operational performance.

Adjusted EBIT increased 29% to EUR 1.35 billion, showing a strong margin of 15.5%. This represents a significant step-up compared to our expectations. Adjusted net income roughly followed the EBIT growth as expected and grew 27% to EUR 968 million. Free cash flow of EUR 378 million came in significantly better than originally anticipated and in line with the guidance from October 2025. This marks another record level in recent years, even while carrying the burden of the GTF fleet management program and it proves our progress in improving our cash conversion.

Let's now take a closer look at some details behind this outstanding performance. Group revenues increased by 16% to EUR 8.7 billion. In U.S. dollar terms, revenues were up 21%. This strong performance was driven by our commercial OEM business, which benefited from a favorable mix in engine deliveries, including a higher share of spare and lease engines as well as the expected growth in spare parts revenues. We also achieved strong sales growth in the MRO segment, supported by continued momentum across our activities there.

Adjusted EBIT rose over proportionally by 29% and to EUR 1.3 billion, resulting in a margin of 15.5%. The excellent result was driven by the above mentioned business mix effect. Adjusted net income grew by 27% to EUR 968 million. Growth was influenced by higher interest expenses associated with new financial instruments. The higher earnings translated into a strong free cash flow of EUR 378 million, an all-time high for MTU. This level exceeds the previous peaks of 2019 and 2023, even though the expected impact from the GTF fleet management plan were fully reflected. Airline compensation payments amounted to roughly USD 360 million.

Let's now move on to the business segment. Let me begin with the OEM segment. In Q4 2025, total OEM revenues increased by 11% to EUR 817 million. Therein, commercial OEM revenues were up 13%, reaching EUR 621 million. In Q4, organic growth in commercial OE and U.S. dollar sales increased by a low to mid-teens percentage. As anticipated, Q4 OE sales included a higher share of installed engines. Organic spare part sales in Q4 in U.S. dollars grew in the low to mid-teens range. Drivers were both narrow-body and wide-body engine platforms. Military revenues increased by 6% in Q4, marking the strongest quarter of the year. However, delays in the supply of parts and modules required for the plant delivery, limited the level of growth we anticipated, resulting in a stable revenue versus 2025.

Adjusted EBIT for the quarter improved by 39% to EUR 234 million, resulting in a margin of 28.6%. The margin development was as expected, reflecting the higher share of installed engines as well as lower-than-expected military revenues. For the full year, total OEM revenues increased by 14% to EUR 2.9 billion. Commercial OEM revenues grew by 18%, reaching EUR 2.3 billion. Organic commercial OE sales in U.S. dollars were up around 10% for the full year 2025, a bit below our mid-teens guidance as the delivery plans within our various partnerships does not materialize as expected.

Organic spare parts U.S. dollar sales for full year 2025 increased in the low teens range, drivers for both narrow-body and mature wide-body platforms. Overall, this performance drove adjusted EBIT up by 43% for the full year to EUR 873 million, delivering an excellent margin of 30.4%, clearly exceeding our expectations for the year.

Let us now move on to the commercial MRO business. Commercial MRO revenues in the fourth quarter of 2025 increased by 11% to EUR 1.7 billion, making it the strongest quarter of the year. In U.S. dollars, Q4 revenues were up 22%. Key revenue drivers in the fourth quarter were the GTF, the CF6 and the MLS leasing and asset management business. Revenues from CFM56, CF34 and CF6 platforms also increased compared to Q3 2025. The GTF MRO revenue share in the quarter was around 41%.

In Q4, adjusted EBIT decreased by 11% to EUR 123 million, resulting in a margin of 7.4%. The margin reflected the higher share of GTF MRO revenues as well as ramp-up costs at MTU Fort Worth. For the full year 2025, commercial revenues rose by 18% to EUR 5.96 billion. In U.S. dollar terms, revenues increased 23%, significantly exceeding our full year guidance of mid- to high-teens growth.

Revenue growth in 2025 was broadly spread. The GTF delivered strong performance, while the CF6-80, GE90, V2500 and our IGT business also recorded solid growth. In addition, MLS leasing and asset management delivered the expected operational performance, further supporting overall results. GTF MRO accounted for 40% of total MRO revenues in line with our full year expectations. Revenue recognition accelerated in the second half of the year, driven by broader work scopes, improved material availability and shorter turnaround time. Adjusted MRO EBIT increased by 9% to EUR 478 million, resulting in a margin of 8%. Margin development was mainly influenced by the GTF MRO mix, ramp-up costs for the LEAP MRO at MTU Fort Worth, partly compensated from an equity contribution, particularly from MTU Zhuhai. Overall, the MRO business delivered a strong performance in 2025.

Let me now give you an update on our hedge book. As you can see, we have further increased our hedge coverage over the past months since the release of our 9-month results. For 2026, we have now hedged around 80% of our net U.S. dollar exposure at an average hedge rate of 1.13. Looking further ahead, we continue to build our hedge position at higher average hedge rates, reflecting the currently weaker U.S. dollar.

Please keep in mind that the purpose of our hedging strategy is to reduce the impact of U.S. dollar exchange rate fluctuations on our EBIT. EUR 0.05 movement in the U.S. dollar exchange rate would translate into an EBIT effect of roughly EUR 20 million. Overall, our hedge book secures a high degree of visibility and stability for 2026, giving us a solid foundation for the year ahead.

Before moving to the guidance, let us have a look on our progress on the finance side. Our net debt currently stands at around EUR 1.1 billion, resulting in a net debt-to-EBITDA ratio of below 1. That is a very solid level, fully in line with our midterm guidance of a leverage ratio of 0.5 to 1.5, and gives us the financial headroom we need to execute on our priorities. Our strong balance sheet is also reflected in the credit ratings from Moody's and Fitch, both of which assigned an investment-grade rating to MTU. Moody's upgraded its rating from Baa3 to Baa2 with a stable outlook in August 2025, while Fitch confirmed its BBB rating with a stable outlook in September last year.

At the beginning of January, we issued a new convertible bond with a volume of EUR 600 million. We used the proceeds to repurchase our outstanding EUR 500 million convertible bond that would have been due in July 2027. This transaction allowed us to reduce the potential dilution for our shareholders by around 300,000 shares, a clear and tangible benefit. As already stated by Johannes earlier, we intend to propose a dividend of EUR 3.60 per share at our Annual General Meeting in May 2026. This represents an increase of EUR 1.40 or by 64% compared with last year and corresponds to a dividend payout ratio of 20%. This is a clear signal of our gradual return to our targeted long-term dividend payout ratio of 40%, a ratio we temporarily suspended due to the GTF fleet management plan. All in all, these measures strengthen the financial flexibility and solid balance sheet that underpin MTU's long-term growth strategy.

So let's now come to the key drivers for our guidance 2026. As Johannes already mentioned, the market environment remains highly favorable for the aviation industry, and MTU is well positioned to benefit from this momentum. Overall, we expect engine deliveries to increase in 2026 with a higher share of installed engines. For the GTF, we will support these deliveries in line with our market share, contributing to the production ramp-up while ensuring sufficient spare engine availability for our airline customers.

Following RTX announcement, demand for spare and lease engines remains strong. And on the GTF, we expect this to stay broadly flat in absolute terms compared with 2025. For the GEnx, we expect higher volumes driven by Boeing's plans to increase 787 production from currently 8 aircrafts per month to around 10 in 2026. Deliveries of the first GE9X are targeted for this year, although the official entry into service of the first B777X has been delayed to 2027. Putting this together, we expect organic U.S. dollar OE revenues to grow in the mid- to high teens range in 2026. This reflects the current expectations with respect to mix and pricing.

Commercial spare parts are expected to remain a strong revenue contributor. The V2500 should be up, supported by higher utilization of the A320ceo fleet and increased material demand in work scopes and shop visits. We expect continued growth in GTF spare parts, driven by the GTF fleet management plan as well as ongoing durability improvements. Mature engine programs are expected to remain broadly stable or show a slight decline. Overall, this points to low to mid-teens organic spare parts revenues growth in 2026.

The military business will benefit from the strong order momentum for the EJ200, leading to higher deliveries. In addition, we expect a continued ramp-up in T408 production, which powers the CH-53K heavy-lift helicopter used by the U.S. Marines. The development contract for the next-generation fighter engine runs until September this year, and we remain optimistic that the government will find a solution for the FCAS program. The phaseout of the German Tornado fleet will result in a gradual decline in RB199 revenue over the coming years. Due to some supply chain disruptions in 2025, we expect certain spillover effects into 2026. Altogether, this should result in an accelerated revenue growth in the mid-teens range.

Commercial MRO will continue to benefit from strong air traffic, which drives high demand for mature engine programs in our independent MRO business. We also expect rising GE90 MRO volumes from our freighter customers. Our MLS leasing and asset management business will continue its growth trajectory. In 2026 -- 2025, we generated roughly EUR 600 million in revenues, marking steady progress towards our EUR 1 billion revenue target for 2030.

For GTF MRO, we expect a revenue share of 40% to 45% in 2026. Key drivers will be the growing fleet and service, ongoing execution of the GTF fleet management plan and further durability improvements. Together, these factors should translate into low to mid-teens U.S. dollar revenue growth in MRO. Across all business segments, we expect continued growth in 2026, another important step towards achieving our midterm revenue target of EUR 13 million to EUR 14 billion.

The business drivers I've just outlined with growth across all our segments translate into expected total group revenues in the range of EUR 9.2 billion to EUR 9.7 billion based on a U.S. dollar exchange rate of 1.20. Adjusted EBIT is expected to come in between EUR 1.35 billion and EUR 1.45 billion above the 2025 level. Positive contributions will come from continued strong spare engine sales, partially offset by a higher share of installed engines. The spare parts business and the military segment will also contribute and support absolute EBIT expansion.

The 40% to 45% GTF MRO share will have some impact as will our investments in Fort Worth and the ramp-up of MTU maintenance Zhuhai. At the same time, the ongoing strength of our independent MRO business and further growth in our MLS leasing and asset management activities will drive the margin. Overall, the group margin guidance for 2026 remains well within the corridor of our midterm guidance.

For net income adjusted, we expect growth broadly in line with adjusted EBIT. With regards to our cash conversion rate, we expect further improvement to 45% to 55%, mainly driven by lower GTF AOG compensation payments and stronger earnings. As you can see, we are well on track to deliver our 2030 ambition across all key performance indicators. Our 2026 revenue outlook of EUR 9.2 billion to EUR 9.7 billion is broadly in line with the revenue CAGR implied by our 2030 ambition.

Our 2026 adjusted EBIT target of EUR 1.35 billion to EUR 1.45 billion also implies the margin within our guided 2030 corridor of 14.5% to 15.5%. Our cash conversion rate is set to improve significantly from 39% in 2025 to 45% to 55% in 2026, representing another step towards our 2030 ambition of reaching a high double-digit level.

As you know, our midterm 2030 ambition remains unchanged. Since the future development of the U.S. dollar exchange rate cannot be predicted, we have included our well-known U.S. dollar sensitivity, noting that our 2030 ambition is based on an exchange rate assumption of 1.10.

This concludes my presentation. And I would now like to hand over to Johannes for the closing remarks.

Thank you, Katja. Let me close our presentation with some key takeaways for you. MTU has delivered an excellent performance in 2025, despite all the headwinds that we were facing and have been reaching new record highs. The GTF fleet management plan is on track financially and technically, and the financial burden will start to ease. We continue to execute on our technology road map to support our customers worldwide on their ambitions. The market environment remains positive for the entire industry, and MTU is extremely well positioned to benefit from this growth all around the world.

We have provided a strong guidance for 2026, fully aligned with our growth plan towards our midterm target for 2030. This will translate also into improved free cash flow, allowing us to even further strengthen shareholder value. MTU continues to represent a highly attractive investment with exposure to long-term profitable growth.

So thank you for your attention so far. And now we are happy to take your questions.

[Operator Instructions]

Mr. David Perry from JPMorgan, may we have your question.

Johannes and Katja, can I ask one question on each of you, please? Johannes, I think you've been in the role now maybe 6 to 8 months, I think. So I'm just curious whether you see any real scope for operational improvement? I know MTU is a well-run company already. But in particular, I'm thinking about the FX headwind that the company could face and whether there's anything operationally you could do to offset that?

And then Katja, for you, thanks for the comments on the free cash flow bridge to '26, and you talked about lower GTF compensation payments. Just -- can you talk about some of the other moving parts, please? I think some of the feedback I've hoped from investors was they thought it could be a little bit better than your guidance in 2026. So maybe just some of the puts and takes on the cash flow would be helpful.

Yes, improvements of operations are, of course, a topic that we are dealing with every time. And I think the expansions that we talked about, especially in 2025 also showed already that we have a really steep learning curve on the existing facilities and building up new facilities with even better processes, combining what we have learned in other parts. And that our operational performance is in, at least some areas, second to none proves with the GTF, the moment we are best-in-class in the network with short turnaround times. And that's, of course, what we also want to provide as a service level for our customers in the other side.

And that is what we are working on. It's a lot of work, of course that is done in the different facilities. But I see progress there and strong willingness of our colleagues to improve that even further. And with the inductions coming in, of course, that also helps because if you have volume, the repetitiveness is increasing. And by that, the learning curve is even posted further.

Okay, David. And then I would take over here to talk about the cash flow topic. So overall, despite the fact that we do see less impact from the GTF fleet management plan on the AOG side with approximately expected [ USD 250 billion ] still impacting our free cash flow for 2026, we're also facing still an increase in the GTF receivables for the prefinance shop visits. As you remember, we also elaborated on that path during our 9-month call stating that we will see further increase in those prefinance shop visit receivables over the next couple of years before we start to see that turning rather later in the end of this decade.

Another topic that is a headwind, so to say, for our free cash flow is the ramp-up of our facility in Fort Worth in Texas, where we expect to see a high double digit impact on our free cash flow building up the inventory to operate the facility.

We will take our next question. Mr. Christophe Menard from Deutsche Bank.

Yes. I had actually two. The first one is on the OE commercial guidance in 2026. Your guidance, could you detail the -- in terms of volumes, what you intend to -- the growth in GEnx and in GTF because it seems to be a higher number than what Airbus has been guiding us to. And I would have been keen to -- I mean, you mentioned several times, IGT on this call. Could you tell us what is the conclusion both to OE and MRO at this point in time and where you see this going forward in terms of contributing to earnings and sales?

Yes, Christophe. So first of all, with regards to the OE commercial guidance, there are a couple of moving parts, so to say, in this OE commercial guidance, and it's not just the GTF. So we have the GTF. We have the GEnx that is growing. We do see first deliveries in the GE9X that is moving. So these are figures, but also some other smaller Pratt & Whitney Canada engines will contribute to the growth. And that's why our figure is more a blend and the mix of the different programs that we are in compared to what Pratt has communicated.

The IGT part is part of our MRO segment. So this is where you can find that. The expectation is that this is a very profitable business that is continuing to grow. We are investing in the Berlin plant to be able to support the growth and also the customer demand that is out there, which is partially driven by a law in Germany, for example. There, we do see more business coming around the corner, but also internationally due to the peaks in power supply, the increase in the -- how is that called, in the artificial intelligence area, there's more need for short-term peak power supply, and therefore, this is a business expansion that we do expect.

We will take our next question. Mr. Robert Stallard from Vertical Research, may we have your question.

I just wanted to follow up on the last question on your guidance versus Airbus. And in particular, those comments that Airbus made on the GTF. I was wondering if you could elaborate on this situation? And what is causing this disagreement between you and your customer here or at least Pratt & Whitney's customer?

And then secondly, on the V2500, I was wondering if you could give us your latest thoughts on the trajectory for shop visits on this engine and also work scope as you work through 2026.

Okay, thanks. Yes. I mean the discussions on the deliveries between Pratt & Whitney and Airbus are still ongoing. And all of you read that Guillaume commented on it. So obviously, we have not come to a conclusion so far, but the 2 partners are negotiating. And so that's what I think we will have to wait for, and I'm pretty sure that they will find a solution. So the orders, of course, have been placed. And we, in the consortium, have discussed what we can deliver as a total, and now Pratt is discussing with Airbus, how we deal with this in the relationship with Airbus and our other customers. That's from our side, all we can comment on that one.

On the V2500, I think the numbers speak for itself. We have around 15%, roughly 15% that have not even seen the first shop visit. We have another 35% in operation that has not seen the second shop visit. So that means half of the installed fleet is well into the lifespan of the engine itself. So from that perspective, we still planned with the induction of the MRO sites for the V2500 to be ongoing for quite a while. And this is something with the growth of the overall aviation market that we discussed earlier on. I think something that is shared by a lot of our colleagues and market participants. And that's why we are also in the MRO shops still preparing for further inductions of the V2500 for the coming years.

Did that answer the question?

Yes. Just on the work scope, sorry.

The work scope, of course, is -- that's with the -- the further you go down the road, the work scopes get heavier, of course. So that means the second work scope is normally heavier than the first one and so on. And that's, of course, something that is helpful for the MRO business, and that will drive our numbers and also the work scopes inside the shops. And that is, I think, the normal behavior that we have seen on engines also for many years.

We will take our next question. Mr. Ian Douglas-Pennant from UBS, may we have your question.

Ian Douglas-Pennant at UBS. So the first is on cash flow, please. So you mentioned prefinance shop visits, which I think is the balance payments line item on your balance sheet. Could you just help us size how you see that effect? I mean, first, just remind us for 2025 impact on cash flow from that? And then also, if you could you just help us think about sizing that in 2026, 2027 as well, please, either qualitatively or quantitatively is useful.

My second question is on the aero derivative or the IGT business. Are you worried or thinking about here the possibility of increased competition from aircraft engines being converted to be used as aero derivatives as we've seen one of your peers talking about. And have you looked at doing that yourself, given that you have, I mean, almost unrivaled expertise here?

One thing that -- I'll take the first part, Ian. So we don't specifically provide numbers on the growth of our aftermarket compensation payments. What I can say is that we expect that to continue to grow year-over-year and therefore, still have an impact on our cash flow development over the next couple of years. We expect that to turn rather later in the -- not in the century, farther late in the decade. And you can see the position itself under other financial assets in our balance sheet. And these are receivables and no compensation payments. So currently, we are still building up those receivables for the prefinance shop visits. But sorry, I cannot share any details on the coming year. Maybe, you take...

Yes, I'll take the second part. I'm pretty sure you relate to the FTAI Power announcement some time back. And of course, the conversion of aviation engines into power generation units could be an attractive adjacent business for MTU. So it's -- for the LM2500, the CF6 and the 6000 and the 6-80. That's a business we are in for already a long time and have deepened our collaboration with GE Aerospace. So that's something that we are, of course, seeing good market opportunities into.

That said, the attractiveness of the conversion into power generation ultimately also depends on the scale of the addressable market and availability of feedstock for these engines, of course. And we certainly have the potential that we are observing. And we have -- as we are active on both sides, I think we have also a good visibility of what is more attractive for us. And that part, we will then follow with the customer demand being on the side.

We will take our next question. Ms. Chloe Lemarie from Jefferies, may we have your question.

Yes. Johannes and Katja, if I could start with -- actually a follow-up on your comments on inventories. First, could you comment on the driver for the growth in 2025 and in particular, in Q4, where typically you actually unload a little bit of those inventories? And where should we assume this stabilizes going forward in terms of days of sales, please?

The second question is on OE sales. Could you share maybe what was the impact of mix on top of the 10% organic growth that you report?

And on your 2026 guide, did I understand well that your current guide for mid to high teen actually also includes the impact of a mix? Or does that come on top?

Okay. So let me start with the inventory question first. You remember that I said, for example, in the military business, we were not able fulfill all the deliveries that we originally anticipated for the quarter despite the fact that it was the strongest quarter in deliveries. So that also had a stay with more inventories than originally anticipated, let me say it like this. And I'm sorry, I didn't get the second question entirely about the mix in the guidance, Chloe. I'm sorry.

Yes. So in 2025, you talked about 10% organic growth in OE. But obviously, the spares and the -- yes, the spares mix and the overall pricing mix, I guess, is additive to that. So if you could maybe share just what kind of roughly -- if you could scale this and how it impacts 2026 as well?

So as you know, our organic growth rates does not account for any changes on pricing or on share between spare and installed engines overall. So what we've done now for 2026 is that 2026 reflects the current expectation with regards to mix and pricing, and this is what we've laid out.

Okay. If you can just follow up on the inventory question. So you said that in 2026, you expect a high double-digit headwind from working capital from the Fort Worth rent, I guess. But overall, for inventory, is that the total amount that we should assume? Or is it going to be like a higher headwind year-on-year?

That was a specific headwind that I would like to point out because we never quantified the amount that specifically before. So that was why I mentioned the MTU Fort Worth inventory step-up. Overall, as you know that with the growth of the business, we will also face some increase on the inventory side despite the fact that we do our very best to manage our inventories as efficiently as we can.

We will take our next question. Mr. Rory Smith from Oxcap Analytics, may we have your question?

It's Rory from Oxcap. I just wanted to come back to that point on spares. I was hoping you'd be able to give a number for spare engines actually shipped in Q4 and what that was in the first 9 months of 2025.

And then the second question in terms of the MRO segment and the guide for the GTF share there, 40% to 45% in 2026. Is it possible to get any sort of sensitivity on margins, whether it comes in at 40% versus 45%, what we can kind of get some guide rails around that?

And then my third and final question is just on the GE9X, you've obviously called that out, its delayed entry into service is 2027 now. How does that actually impact your financial statements? If you could just frame that for us financially, that would be really helpful.

Okay. So with regard to the split between spare and installed engines, you know that as those information are also not disclosed by our partners in the network, there is also no way that we will disclose those details. I think what is clear when you look at the fourth quarter of last year, we said that there was a higher share of installed engines and that, that has, for sure, an impact on the margin of the OEM segment.

The MRO guide for 2026, so there is no way we break down the 40% to 45%. But what you need to see is that the GTF, just from a pure construction of the contract is rather dilutive to the margin, the higher the share rate. So if we have a higher share on the GTF in our revenues, there is an impact on the margin side.

And for the GE9X, I think there are 2 important topics to keep in mind. The GE9X delivery was already postponed a couple of times and we had built up inventory in our facilities to support the original ramp-up, and that still is with us to the largest extent, yes.

We will take our next question. Mr. Samuel Burgess from Goldman Sachs, please, may we have your question?

Just a couple of questions for me, please. Just a follow-up on the Fort Worth point. I mean you talked about the impact of working capital from the inventory ramp up. I think the first induction of LEAP at Fort Worth is expected at the end of this year. As we go beyond that to '27, should we expect that to unwind to become a bit of a tailwind to cash rather than a headwind? So just thinking through how Fort Worth starts to contribute would be really helpful.

And then just secondly, on R&D, how do you see that evolving next year and beyond, that would be really helpful?

Okay. So with regards to Fort Worth, first of all, let me correct one assumption for the first induction of an engine is foreseen already for July of this year. And the induction -- like to ramp up the facility itself for the first induction already comes with the headwind, so with the buildup in inventory. As we will continue to ramp up that facility over the next couple of years until 2030, you can expect further impact coming from this ramp-up on the inventory side. So we expect a similar impact year-over-year, more or less. So that's a big topic.

And on the R&D side for 2026, that is a bit of a 2-answer question. So there is the R&D -- the capitalized R&D, we rather expect to decrease during the course of the next year compared to the 2025 level. And the self-financed R&D, we expect to maybe increase a little bit compared to prior year's level. But that is more or less what we do see. And I think it's clear as we continue to follow our technology agenda, there are small development works to be done in that area. Overall, I would say -- and if you look at the midterm ambition that we have, it's rather a decrease in R&D expected until 2030 overall.

We will take our next question Mr. Sash Tusa from Agency Partners, may we have your question?

Yes. You stated in the section on military OEM that a constructive way forward on the FCAS project is expected. I wonder if you could just elaborate a bit on that. What do you see as being a constructive way forward? And presumably, you are thinking about contingencies for -- if the program currently configured does not continue past the end of Q3. What would you do with all these engineers?

Okay. I'll take that one. As you mentioned, the Phase Ib is ongoing until end of September this year. And we are delivering together with our partners, Safran and ITP, there are according to the time plan and according to what the deliverables are. So that means in our Pillar, Pillar 2 in the entire FCAS program, we have a very stable and good working relationship that we are also willing to continue whatever the solution the politicians in Europe might take. So that's something where we have aligned.

And the question is now, what do the politicians decide? And that's not in our hands. I think we need guidance from politics, which direction they want to go, how the system should look like. And then we, as an industry, and then in our share with the engine, of course, can join forces. And depending on these decisions, the consortium stays as it is for Pillar 2 or it might need to be adjusted, but that's something for us only now to guess. So that's nothing that we can elaborate on in detail as we don't know these facts. And we are waiting for a decision.

What I'm really confident on that the -- at least the German politicians where I'm in contact with, they have understood that the decision has to be taken soon. And there is a strong will to do so. But of course, it's a European program, and that's why several governments need to come together and make a decision, and that's what we are waiting for.

We will take our next question. Benjamin Heelan from Bank of America, please, may we have your question?

Yes. So first question for me. So you've guided for EUR 1.35 billion to EUR 1.45 billion from an EBIT perspective. My interpretation of your comments is that the spare engine ratio, which is somewhat of the swing factor as to why you would be towards the bottom end or the upper end. Is that a fair assessment? Or is there something else going on that could move through the year, if there's any color of kind of what drives you to the top or the bottom of that range?

Secondly, obviously, spare engine ratio, I appreciate you're not going to give any numbers, but qualitatively, how should we be thinking about that into 2027 and potentially beyond? Is there any color that you can provide around that because I think in my view, in particular, it is clearly elevated right now. So understanding how long it's going to remain at an elevated level.

And then third question, obviously, Airbus are very unhappy based on the comments that they made on their conference call. Is there any -- can you talk a little bit through like what are the bottlenecks, like what has driven this shift over the past couple of months. Are there new bottlenecks in production that we need to be thinking of? Is it a stickier AOG situation? Just can you help frame a little bit what has driven the need to shift the deliveries from Airbus over the last couple of months?

Maybe I'll start with the financial questions, and then I hand over to Johannes for the Airbus comment. So overall, what we have pointed out on Page 20 of our presentation is that there are a couple of drivers that will influence our margin also on the commercial OE side. So the -- and we will an increase in new engine deliveries overall and the growing spares and installed engines. Just to really remind you once again, it's not only all about the GTF. So there are also a lot of other engines that we supply. And also in there, we do have spare and installed engines that we do supply.

The GTF definitely is a driver, but also the B787. So the GEnx engine or also the B777 that will start will happen in 2027. So it's not only the topic of the GTF spare engine ratio or total number that lifts that.

When you look at the overall development, I think it's clear that we are currently operating at an elevated level with regards to the spare and lease engines in the GTF program. But also there, I would like to make one comment. In the newer engine programs, we will -- we do expect to see an elevated level for a much longer time moving forward because of the fact that those engines overall are being operated under much harsher conditions than engines have been operated in the past.

And that's not only true for the PW11 or for the GTF, but it's also true for other engine programs. So overall, we do not expect to move back to a historic level of maybe 10% of spare and lease engines in the market. We rather expect that to remain elevated. Nevertheless, the current levels will not be sustainable for the longer future.

For this year, and this is also a comment that we have made in absolute terms, we expect the delivery of spare and lease engines to be pretty much in line with what we've seen in 2025. But due to the increase in installed, there will be a reduction in the overall ratio.

Maybe, Johannes, with that, I hand over to the Airbus part of the question.

Yes. Okay, of course. Yes. Of course, Guillaume, obviously, is not happy with the actual status of the negotiations. As a matter of fact, there is no new [indiscernible], nothing at all. We have, I think, proven that in the -- especially Q4 last year that we have made progress in the -- on the MRO side and the throughput turnaround times. So in order to decrease the situation for the airlines, and then all things come together, there is a mixture of requests from Airbus, what they want to get delivered.

As you know, the GTF is for A220, the sole engine. And for the A320, it's a mixture between LEAP and the GTF. And in that overall setup, of course, there needs to be a solution that Pratt is negotiating with Airbus. But we can't further comment on that one. We're also not familiar with all the details that are on the table there, but I'm very confident that they will find a solution, and think that Guillaume is not happy was clear message that he sent and we're aware of that one.

We will take our next question. Mr. Aymeric Poulain from Kepler Cheuvreux, please, may we have your question?

My questions must have been answered, but maybe a few more color, please, on the turnaround, the time you said there was some improvement in 2025 and you're now best in class. So what was what is the turnaround time now? And how much more room for improvement do you see in the years to come?

And then your competitor mentioned that given the low retirement rate, the number of shop visits should stay pretty flat up to 2028 before starting the descent. Do you see the same phenomenon for the V2500? Or do you see a higher retirement rate coming now?

So, okay. On the turnaround times, that's always a mixture of different numbers, of course. The work scopes are different depending on how long the engines have been run, in which environment they have been operated. So the average turn time has come down. Material availability, supply chain issues have been reduced or at least came down. And that's, of course, helpful for the turnaround time in the shops. And within the network, so the partners that are performing MRO, we are sharing this information. So that's nothing that we keep for us. Of course, we want to support our customers to the best possible. And MTU Hannover especially has contributed last year, a lot there because turnaround times and developments have developed in a very nice way to reduce that.

On the V2500, we still see quite a big portion of engines coming in, 15% are still waiting first shop visit, 35% second, and then, of course, the remaining 50% third or even further. And that's something, of course, that will go on for quite a while. So we have quite heavy workload in our shops with that. And with the increased work scopes/limited parts coming out of the engine, of course, due to the later shop visits, that's something that is positive for the development of our business, an engine that we know very well and where we have great capabilities also on the repair side. And that's why this will remain for the foreseeable time quite good and stable business for us.

We will take our final question. Mr. George Mcwhirter from Berenberg, please, may we have your questions?

In the military business, can you just provide a bit more detail around the supply chain issues that you are experiencing? And are you confident that this will be less of an issue this year?

And the second question is on your expectations for when the first in-service GTF engines will receive the GTF Hot Section Plus retrofit package? And when do you think you will be able to complete the retrofit of the whole fleet?

Okay. As you know, all military programs run into consortiums. And of course, that also has seen the difficulties that we are facing on the commercial side. Volumes are much smaller. So that means the impact of single disturbances is a bit bigger. And so that's something that is calming down as the overall supply chain is coming down, and we have seen a slight drag that led to the slightly reduced numbers, but we are also confident that we can compensate on that one this year and the years after. So we don't see any real problems that are remaining and are hindering us from increasing the military side now for the time to come.

The Hot Section Plus from Pratt & Whitney, of course, interesting for the installment in the already delivered engines on the GTF side. And it covers for around 90%, 95% of the durability issues for the existing fleet. And that is, of course, something that we will install during the course of the normal shop visits. So an assumption on how long that takes, it's a bit difficult, but all customers that opt for this Hot Section Plus thing, we can install it in the normal shop event. And then this comes in.

It's not mandatory, so the customer has a choice. And that's why any guess on any time line is difficult, but we are confident that customers will make use of it, to what extent remains to be seen. And maybe when we have a little more time down the road, then we can elaborate on these numbers.

This concludes today's question-and-answer session. I'll now hand the call back to Mr. Thomas Franz for closing remarks.

Yes. Thank you. This indeed marks the end of today's call. Thank you, Johannes, and thank you, Katja, for your presentation, and thank you all participants for the interest in the questions. As usual, for further information and details, reach out to the IR team. Beyond that, have a great day. And yes, see you soon.

We want to thank Dr. Johannes Bussmann and Mrs. Katja Garcia Vila, and all the participants of this conference. Goodbye.

Welcome to the conference call on MTU Aero Engines AG Q3 2025 Results. 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 grant permission for audio recordings intended for publication on the Internet to be taken. The speakers of today's conference call are Mr. Johannes Bussmann, Chief Executive Officer; and Mrs. Katja Garcia Vila, Chief Financial Officer. Firstly, I will hand over to Mr. Thomas Franz, Vice President, Investor Relations, for some introductory words.

Thank you, Sarah. Good morning, and welcome to MTU's 9 Months 2025 Results Call. We'll begin today's session with our new CEO, Dr. Johannes Bussmann, who would like to introduce himself and share his first impressions. Following that, Katja will highlight the most important developments of the quarter and walk you through the financials, providing a detailed overview of our segment performance and underlying drivers. To close the presentation, Katja will summarize the key takeaways before we open the floor for your questions in the Q&A session. With that, it's my pleasure to hand over to Johannes.

Thank you, Thomas. Good morning to everyone, and welcome to our earnings call. I have been on the Board now since mid of July, so quite over 2 months already, and it was a great pleasure to meet already some of you in person. For those who don't know me yet, let me introduce myself briefly. I've spent nearly my entire career in aviation and hold a degree in aerospace engineering. And furthermore, I was part of Lufthansa Technik for over 20 years. During my first weeks at MTU, I was working closely and intensively with my predecessor, Lars Wagner, to ensure a smooth and collaborative handover and transition. Having been in my role as the new CEO of MTU, it has been really great to dive deeper into the company, our programs and find an inspiring set of people that is well positioned to capitalize on market opportunities.

It actually feels like much more than 2 months. I guess the reason is that I worked with MTU for many years as a business partner already and was previously a Supervisory Board member of MTU. My priority is now to get to know MTU really in depth. That is my current visits and journey from the production sites and of course, the shops and different products and people. And I'm truly inspired by the passion the entire MTU team shows on these visits. And you can feel that everyone is really innovative driving and has a great passion for shaping the future of this company.

I will be happy to share my insights and key priorities moving forward with you at the full year's release. But today, I also have the pleasure to welcome Dr. Ottmar Pfänder in the team, who will replace Michael Schreyögg as 1st of January 2026. And I would like to thank Michael for his great contribution for over 35 years with MTU, and he did a great piece of work here. Ottmar will take over his responsibilities as Chief Program Officer and has also more than 25 years of experience in the industry and with MTU. As the new Executive Board team, we will continue MTU's growth and transformation course, and I look forward to shaping MTU's future with my team from Katja, Silke and Ottmar and how we are progressing for the first month -- 9 month of this year, Katja will explain to you now. Thanks.

Thank you very much, Johannes, and a warm welcome also from my side. Let's briefly review our key financials before I move on to the business highlights of the quarter. Group revenues increased strongly by 19%, reaching nearly EUR 6.3 billion, in line with our full year 2025 target. Adjusted EBIT rose over proportionately by 34% to EUR 995 million, resulting in a strong EBIT margin of 15.9%. This performance was driven by a continued favorable mix in the commercial OEM segment and robust profitability in MRO.

Free cash flow came in at EUR 279 million, representing a better-than-expected cash conversion rate of 39%, a strong development despite ongoing headwinds from the GTF fleet management program. Additionally, we saw strong cash contribution in the MRO segment and effects from conscious cash flow management. Based on the strong 9-month performance, we expect to achieve 2025 sales guidance in all subsegments and raise our EBIT and free cash flow guidance. I'll walk you through the details in a few minutes.

Let us now move on to Page 5. The positive market trends remain intact. We see significant opportunities outweighing existing challenges. Passenger traffic rose by 5% year-to-date in August, reflecting sustained demand across global markets. Cargo traffic also showed a robust performance with a growth of 3.3% year-to-date. For the full year, YATA projects a 5.8% increase in passenger volume, a return to more normalized growth levels following the post-pandemic recovery surge.

Over the mid-to-long term, global passenger traffic is expected to grow steadily by 3% to 4%, driving sustained demand for new aircraft and aftermarket services. While the supply chain continues to recover, it still remains below pre-COVID stability. That is why the production ramp-up is slower than needed to meet rising market demand. Consequently, airlines are extending the service life of mature aircraft and engines, which in turn drives strong MRO demand and results in more extensive shop visits. This also keeps demand for spare and lease engines at elevated levels with prices remaining very attractive.

Global defense budgets are rising. For MTU, momentum in the Eurofighter program remains strong with new orders from core nations and international customers. Germany confirmed the procurement of 20 Eurofighter, 52 engines for deliveries between 2031 and 2034. In the U.S., demand for the CH-53K helicopter is rising. The Marines have ordered 99 units for delivery between 2029 and 2034. MTU contributes the power turbine to the T408 engine and holds an 18% program share. Recent news flows around aircraft has been somewhat sovereign.

Nevertheless, we remain optimistic that governments will find a solution to ensure the program continues, given its strategic importance for future European sovereignty. Additionally, the weaker U.S. dollar-euro exchange rate poses a challenge, particularly for European aerospace and defense companies. We are mitigating this effect through our active hedging activities. In this dynamic environment, MTU remains well positioned to capture growth opportunities across both commercial and military segments. Our diversified portfolio, strong customer relationships and continued investments in technology and capacity enable us to navigate current challenges while driving long-term value creation.

Let's now move on to another topic, an update on the current tariff situation. Since our last update on the topic, there has been progress between affected countries and an agreement has been reached. This agreement follows the spirit of previous arrangements in our industry and reinstates a general exception from tariffs for aviation products. This exception does not include other products such as industrial gas turbines. Furthermore, detailed rules for the application of the agreements are still in alignment between the EU and the United States. Beyond that, we are still waiting for tariff clarification for machineries, engine stands and other items.

To sum that up, significant progress has been made on the topic. To mitigate these challenges, we are continuously adapting our internal processes to meet all requirements. We analyze on an ongoing basis on how to optimize our part streams to reduce any impact. In addition to that, we are also working on contractual agreements to further reduce our exposure. With that, I will now move on to our key milestones of the third quarter.

Moving on to Page 7. Let me now share the key milestones of the quarter. To start with, as mentioned earlier, Germany has now confirmed the procurement of 20 additional Eurofighter aircraft. Including existing orders from the core partner nation, this brings the total firm order book to 160 new Eurofighter engines, which are scheduled for delivery over the coming years. Let's continue with the GTF fleet management plan. We made great progress in the ongoing execution of this program. Essential aspects include the improvement of parts availability, expanded MRO capacity and better turnaround times, all of which are progressing.

Additionally, we support customers and airlines by providing spare and lease engines. To summarize, we are on track. Further good news for the GTF program came just last week. In October 2025, the GTF Advantage received the EASA certification. This success is the next step in the process to allow deliveries to airline customers and an entry into service next year. Recent customer orders reflect continued strength in our commercial OEM business. LATAM Airlines and [ Avelo Airlines ] have placed orders for a total of 174 Embraer E195-E2 jets, including options. These aircraft are exclusively powered by the GTF engine, underscoring continued market confidence in our advanced propulsion technology.

And our partnership with GE, we also see new opportunities. Together, we are strengthening our industrial gas turbine portfolio with focus on naval propulsion, especially the LM2500 and LM6000. The LM2500 is set to play a central role in powering German Navy's next-generation F127 frigates with growing interest also from other European nations. Maintenance will be carried out at our MTU facility in Berlin, where we're currently investing in a new production center. Over the coming years, we aim to grow our MRO services for industrial gas turbines by around 30%.

A key milestone for MTU Maintenance Berlin-Brandenburg was receiving the EASA certification for full MRO services on PW800 engines, which power premium business jets such as the Gulfstream G500, G600 and Dassault Falcon 6X. This makes the site in Berlin the second certified MRO provider for PW800 engines worldwide. As part of Pratt & Whitney Canada's global service network, we are strengthening our position in the fast-growing business jet segment. MTU Maintenance Lease Services has opened a new parts supply warehouse in Zhuhai, China, complementing existing facilities in the Netherlands and the U.S. This expansion strengthens our global logistics footprint and ensures rapid access to serviceable material for CF6-80, CFM56, G90 and V2500 engines across the Asia Pacific region.

Now let's move on to the financial overview. Let's take a closer look at our financial performance for the first 9 months of the year. As expected, Q3 could not fully keep up with the extraordinary strong performance from the first half of the year. However, MTU reported record results for the first 9 months ahead of the expectations. Group revenues rose by 19% to EUR 6.3 billion, driven by strong growth in both commercial OEM and commercial MRO segments. In U.S. dollar, total group revenues were up 22%. Commercial OEM was supported by strong spare lease engine sales.

Adjusted group EBIT rose over proportionately by 34% to EUR 995 million, delivering a strong 15.9% margin above guidance and above our own expectations. Growth was driven by a higher share of spare and lease engines in commercial OEM and solid spare part sales. Commercial MRO also contributed significantly despite higher GTF MRO share and ramp-up costs at MTU Fort Worth. Net income adjusted grew in line with adjusted EBIT and reached EUR 720 million. Free cash flow came in at EUR 279 million, an improvement of 31% compared to 2024. This figure was impacted by compensation payments related to the GTF fleet management plan. These were partially offset by higher cash contribution from our MRO business and effects from conscious cash flow management. All in all, a great set of results.

Let's now take a closer look at our business segments, starting with the OEM business on Page 9. Total OEM revenues rose by 15% to EUR 2 billion, impacted by a weaker U.S. dollar. While commercial OEM revenues grew 20% to EUR 1.6 billion, military revenues declined by 2%, mainly due to delayed deliveries in new engines as well as back-end loaded repair activities. However, Q3 2025 saw a 3% increase. We expect a strong fourth quarter in revenues to achieve our full year guidance on growth in our military business. Adjusted EBIT increased over proportionally by 44% to EUR 640 million with a strong margin of 31.1%. This is higher than initially anticipated, driven by a favorable product mix in new engines and robust spare parts growth.

Let me now share with you the organic commercial growth rates. Organic commercial OE revenues in U.S. dollars increased by a high single-digit percentage, driven by GTF and GEnx engines with a strong share of spare and lease engines. Q3 2025 showed similar growth compared to the first quarter of the year, but with a higher share of installed engines. In Q4 2025, we expect a higher output of new engines supporting our full year guidance. Organic spare parts revenues rose by low teens, supported by narrow-body engines and mature platforms. In Q3 2025, growth was up mid-to-high teens, in line with expectations and our full year guidance.

Let's move on to the commercial MRO segment. Reported MRO revenues increased by 20% year-over-year to EUR 4.3 billion, while U.S. dollar revenues were up 24%. Major revenue drivers were narrowbody engine programs, mature widebody platforms and our MLS leasing and asset management business. The GTF MRO share reached 40%, in line with our full year expectations. In Q3 2025, we observed an increase in shop visits and higher material content, resulting in a GTF MRO share of 48% for the quarter. Adjusted EBIT increased by 18% to EUR 355 million with a stable margin of 8.3%. The margin was supported by a favorable independent business mix and strong contribution from equity accounted joint ventures and impacted by the higher GTF MRO share and ramp-up costs by MTU Maintenance Fort Worth.

So before heading to the guidance, let me share an update on our current hedge book. As you can see, we were quite active in the past quarter, further expanding our currency protection for the coming years. For 2025, we are now basically fully hedged, protecting our results from currency impacts. Also, looking at the following years, we have made progress in managing our exposure in line with our hedging policy. Looking ahead, we are following the targeted hedge coverage rates as set in our hedge policy. In addition to that, we are currently updating our exposure assumptions to have the latest developments incorporated into our hedging strategy.

After that, we are now coming to the outlook for the year 2025. We are upgrading our outlook based on the strong performance of the first 9 months. The Q3 results and the strong outlook for the current quarter allow us to lift our EBIT adjusted guidance. Coming from an estimate for EBIT adjusted growth in the low to mid-20 percentage range, we are now able to lift that to a mid-20s percentage number. Adjusted net income is expected to grow in line with EBIT. This substantial upgrade in EBIT also translates into a stronger cash flow. We now expect the free cash flow to reach a range between EUR 350 million and EUR 400 million, up from the previous range of EUR 300 million to EUR 350 million. We can reaffirm our revenue outlook with expected group sales between EUR 8.6 billion and EUR 8.8 billion based on an average U.S. dollar exchange rate of USD 1.13 per [ Euro ]. Within this, we anticipate growth in our military business in the mid- to high single-digit percentage range.

Commercial OE is projected to grow in the mid-teens. Within that, the share of spare and lease engines is higher than initially anticipated. Aftermarket demand remains in line with our latest expectations, resulting in a revenue growth outlook of up low to mid-teens. Lately, we also reaffirm commercial MRO revenue growth outlook to mid- to high teens, supported by heavier shop visits and rising demand for GE90 engines. The GTF MRO share should remain at around 40% of the segment revenues. This upgrade again highlights the strong underlying business and our ability to generate highly attractive margins as well as our progress in generating free cash flow.

Let me summarize our achievements in the third quarter 2025. The excellent first 9 months performance leads us to upgrade our guidance again. Revenues are expected to reach the previously communicated levels even in a weaker U.S. dollar environment. At the same time, we see profits and free cash flow generation well ahead of our previous expectations. The market environment for our industry and MTU remains very supportive and underpins our positive outlook. The impact of the tariff environment has been limited as described earlier, and we continue to adapt to the remaining challenges. Great business in a great industry.

And finally, already as a heads-up for next year. We are planning to release our first guidance for 2026 with our preliminary full year results in February 2026. With a couple of market decisions happening towards the end of the year, like the political discussions on FCAS as one example, it will take slightly longer than in previous years before sharing our view on the year in line with most of our competitors. Now this concludes our presentation. We are now happy to take your questions.

[Operator Instructions] Will go ahead with our first question. This is from Chloe Lemarie from Jefferies.

The first one would be on the OEM performance in Q3. So Katja, you mentioned that the OE mix has started to normalize in the quarter. But could you add further color on this? Like how much of the way are we towards a normalized OE mix in Q3? Second part of that question is we've obviously seen record margin in the division this quarter. So could you help us understand the key moving parts driving that? And in particular, because it looks like spare parts accelerated, but probably not enough to explain the 450 bps of sequential increase in margin. Second -- sorry, last question for me would be on the GTF compensation payment. Could you quantify how much was paid in the quarter?

Thank you, Chloe, for your questions. I will try to answer them exactly as you've posted them. First of all, as elaborated in the Q3, we saw an elevated level of installed engines coming in. We don't quantify exactly the numbers, how much spare and how much installed. Anyway, what I can also state is that we have still seen a reasonable share of spare and lease engines also in the quarter, and we expect that also to move on further. What we have, in addition, seen definitely during the course of this quarter is a strong increase in our spare parts business, and this has also helped and supported the guidance expansion, not the guidance, the revenue expansion and the returns expansion.

On the GTF, I can share the figure that we have paid this quarter. It was around USD 100 million for MTU, which has post, so to say, the headwind to our free cash flow generation, but which is in line with expectations. If you remember, we expect for this year in total, a compensation payment quite similar to what we have paid in 2024. That was around USD 390 million. In the first 2 quarters of the year, in total, we had paid EUR 150 million. So overall, we stand at USD 250 million right now, expecting further payments to take place in the first -- in the fourth quarter.

Can I actually follow up on this because on the payment last year, it was all in Q4. So you have a very easy comparison based on Q4 free cash flow. So how should we think of the conservatism based in the upgraded free cash flow guidance? Because on my math, you should be having a pretty significant year-on-year tailwind in that free cash flow performance?

So we also had some payments during the course of the third quarter last year. I would not consider that to be now a conservative approach. As I said, we will still need -- or we still expect around USD 140 million more or less to be paid in the fourth quarter. And this is what we have also baked in when we provided the upgrade of the guidance.

We will now take the next question. This is from David Perry from JPMorgan.

Yes. I guess my question was the same as Chloe, so I haven't thought of another one. But I think it is worth just repeating it. As Chloe said, the margin is just exceptional in OEM in Q3. And you seem to have said unlike in Q2, it's not because of the spare engines, but it's because of the spare parts, which is great. But just maybe if you have a bit of color about why the margin on the spares, the spare parts is just so strong in Q3? Or is there anything else at all that would explain the really good performance?

Thank you very much, David. And as you have stated correctly, the big driver of the margin in the third quarter are not over proportional spare and lease engines, but rather the strong performance on the spare parts. And driving the spare parts compared also to the first half of the year. In the first half of the year, we were at a high single-digit rate, growth rate, now that rate has definitely significantly expanded to a mid- to high double-digit range, which also means then strong impact on the margins. And in addition to that, we also saw pricing effects kicking into place now also in the third quarter.

I guess if I can just have one follow-up. The obvious question is, do we or don't we extrapolate this forward? I mean, is there some kind of -- is it about maturity of the mix? Is it you're taking more margin on GTF or something? Because clearly, we've never had a margin this high. I don't think you've ever had one that high in a quarter.

So if you're referring to the overall margin of the OEM segment, I would still not say that this is exactly the new normal that you should anticipate. You remember what we gave as guidance at the Paris Air Show, which is a little below what you've experienced now in the third quarter of this year. So the maturity definitely plays a role with regards to the mix on the spare parts. And what we will also see in the fourth quarter then on the OEM margin overall is that we will continue to see strong new deliveries.

Next question is from Ian Douglas-Pennant with UBS.

I've got a few, but let me prioritize. So about your OEM EBIT guidance, by my math, it implies something like a mid-single-digit growth rate implied for Q4. Can you help us understand any kind of seasonality patterns that we should be looking for in Q4 to explain why the growth rate is going to slow down?

Secondly, Pratt & Whitney on Tuesday gave a comments on the call that they revised down their expectation for how many GTF deliveries they're going to make this year. Can you help us understand why then your series growth guidance for this year is unchanged. I've got a few more, but I'll respect the 2-question rule.

Yes. So far, looking at the sales guidance that we have out, I cannot 100% record how you come to a limited growth guidance now on the OEM program. I think our expectation is that we will have on the OEM segment also a strong sales performance in the fourth quarter, supporting us in our full year's guidance expectations. Looking at the GTF, I think for the GTF itself, we do see better supply chain helping us also to ramp up further new output on new engines. And I think there, we are also making progress supporting also the ramp down of the situation in the market with regards to the GTFs. And also keep in mind, we do provide more than just the GTF engines in the OEM segment. We also have widebody engines where we do see good business moving forward.

I'll jump back in the queue and follow up with IR on the first question. Maybe I made a mistake somehow.

We'll take the next question. Next question is from Robert Stallard, Vertical Research.

I've got a couple for you. First of all, on engine leasing. This has clearly been doing very well at the moment, but these are particularly unusual circumstances. The market is very tight, very strong. How are you looking to manage this risk going forward when we do see a conditions returning to normal, particularly with regard to residual values? And then secondly, on the defense side of the business, you mentioned the strength in Eurofighter orders and backlog. How do you expect Eurofighter sales to progress and ramp from here?

Rob, it's Thomas. I'm taking these 2. So engine leasing on the one hand side, yes, the market is very strong at the moment. But as you know, we have not a remarketing risk like other companies in the place that we are having a direct correlation between our leasing business and our MRO business, where we can always move things back and forth supporting the one to the other. So we feel pretty good with the outlook we gave at the Paris Air Show as well as the current situation we're in. On the Eurofighter, that's a little bit of difficult question. Yes, the order momentum is accelerating. We see a high level of interest, and we also hear and discuss with our partners and also with the OEMs, the ramp-up of manufacturing. But at the end of the day, there are some lead times in the programs, and we need to see how we can -- we can develop there further. So this is nothing that accelerates significantly in the next 1, 2 years on a revenue perspective. So we need to see how that plays out in the years thereafter.

We'll take the next question. This is from Ross Law, Morgan Stanley.

So first, just coming back on the OEM margin. The implied Q4 step down is quite material. On my math, it's something around the high teens, which would probably be the lowest Q4 margin in OEM for about 5 years. So assuming spare parts don't fall off a cliff in the fourth quarter, is this implied sequential change all driven by this variance in mix? That's the first question. And then secondly, just on FCAS, if this does get canceled, what would be the potential impact to your 2030 guidance?

Okay. Let me first take the margin question on Q4. As we had said already during our H1 call, we do expect not an as strong spare in these engines business moving forward in the second half of the year. And if you do the pure math there, we do expect some impact also due to the fact that the installed engines are increasing. Now, so that is the reason for the lower expectation on the margin for the Q4. With regards to FCAS, I think we are very confident that there will be a solution found to move on with the program. The politicians at the moment are in talks. So maybe, Johannes, you've been to Berlin a couple of times. Maybe you want to say something about FCAS?

Yes. I think we are in phase IB, which is still lasting until September, so third quarter next year. And that's what we still need to work on and deliver. And that's what we also will do together with our partners in the Engine segment. And the decision time line that we hear from the political side in Berlin right now is still the end of the year. And that's, of course, something we are looking forward. And we as MTU and also with our partners, Safran and ITP are fully committed to extend and continue the program. And if the time line by the end of the year is met, we are in fine shape, and we are concentrating at the moment on delivering on the first parts that we are still working on.

Okay. Just a very quick follow-up. Can I just check in your 2030 guidance, is there a contribution from FCAS included in that?

Yes, there is a contribution of FCAS included in our 2030 guidance.

We'll now take the next question. This is from Sam Burgess, Goldman Sachs.

Firstly, just on the stable margin in commercial MRO. There's clearly been a shift to more GTF MRO. But can you just help us disaggregate the drivers there of that stable margin? What was work scope versus pricing versus the MLS contribution? Any color there would be really helpful. And the second one, just on the OEM side, you mentioned the pricing effects impacting in Q3, Katja. Can you just remind us in terms of in 2024, whether those pricing effects impacted at the same point?

Okay. Let's start with your question on the MRO business and the MRO margin. So as we have elaborated already, in the third quarter, we had really a significantly higher share of GTF MRO works compared to the first half of the year. We were short, so to say, with regards to MRO throughput in the first half of the year also due to missing parts. The supply chain has now stabilized on the GTF materials, and this is why we were able to ramp up the share of work in our shop, which then also will help to drive down the AOG situation during the course of the next coming months. With regards to pricing effect, pricing effect kicked in a little later last year in 2024. So some of the pricing was a little pre-pulled this year into the third quarter.

My question actually on commercial MRO was more about how you've maintained a stable margin given GTF is a significantly bigger share. Can you just help us think through what's been really strong there? Is it just more material intensity on widebody? Any color there would be very helpful.

Okay. Yes. Sorry, I didn't get that point with my first answer. Yes. So overall, what we do see is that the work scopes on the mature engines are increasing. That is one definite driver for margin expansion in our MRO shops. You know that the airplanes are flown longer. So we have more shop visits and with higher contents in the time. And on the MLS side, you know that we've provided a guidance moving forward to achieve EUR 1 billion in sales until 2030. And this business is continuously expanding also supporting our margin expansion on the MRO segment.

Next question is from Christophe Menard from Deutsche Bank.

I had two as well. Trying to understand the very strong OE margin in Q3 as well. The question is, is IGT also part of the strong performance? I mean you highlighted this in your presentation. So I was wondering whether that was a contributor to this. And the second question is on GTF Advantage. I mean, you will start delivering by the end of this year, if my memory is right. Has it any impact on the OE margin business first? And the side question is, there is also an upgrade program around GTF Advantage. Are you seeing some customer acceptance of this or interest? And when could it have an impact on your MRO revenues and profitability?

Okay. Let me take the first part. Let me take the IGT topic. IGT is part of the spare parts revenues. So there, we also do see a good business moving forward. And as I said, we will expand the business going forward in our facility, the MRO work going forward in our facility in Berlin-Brandenburg. With regards to the GTF Advantage, you want to take it Johannes?

Sure Katja. No problem. Entry into services next year, so 2026. We're, of course, happy that we have all the approvals now under our belt and the production is now expanded and entry into service, I mentioned next year and then ramping up over time to the full load that we think is required. And of course, there is interest from a customer side for a better performance and longer on wing time for the engines. So we are quite confident that we achieve the targets and the entry to service level then is increasing, of course, over the time.

Next question is from George Mcwhirter from Berenberg.

I've got two, please. The first one is just following up from Sam's question on pricing. How do you expect pricing of spare and lease engines to trend in 2026? And the second question is on the industrial gas turbines business. You mentioned that you plan to grow this business in the coming years. Can you just remind us of how big this business is in revenue terms, please?

Thank you, George, for your question. So the first question on the pricing, I'm sorry to say that we don't give guidance on these detailed levels and also not for 2026 now. So far, we've seen supportive pricing in the market, which has also helped us this year on the margin expansion. Depending on how the market overall will develop, pricing will be determined. With regards to the IGT, I don't -- I'm not fully aware of a share that was ever to communicated. So this is a business that we find very attractive, and this is also the reason why we are investing in our Berlin-Brandenburg facility to expand our IGT business now going forward.

We'll now take the next question. This is from Rory Smith from Oxcap Analytics.

It's Rory from Oxcap. I wanted to follow up on Sam's question on MRO profitability as well, please, but maybe asking it in a slightly different way, given that you've talked about USD 10 billion to USD 11 billion in MRO revenues to 2030 and then that doubling of the MLS to about EUR 1 billion to 2030. Maybe if you could help point us in the direction of the split in commercial MRO profits in 2030 or thereabouts between those buckets that you've called out today, the narrowbodies, the mature widebodies and the MLS, just to give a sense of direction of travel stepping back from the sort of the particulars of the quarterly movements, that would be really helpful.

Yes, Rory, thank you very much for the question. So I'm sorry to say that we don't break down individual profitabilities of subsegments like this. What I can say is that we do expect a positive development in all areas of our business. So with the GE90 and also the contracts that we have moving forward, also the GEnx, I think on the widebody side that we do see continuous demand for MRO services. The same accounts for the narrowbody fleet, which still continues to grow and will continue to grow during the course of the next couple of years. And we have provided you at least with an outlook on the revenue side for the MLS business saying that it doubles its contribution to our 2030 sales figures.

And just a follow-up on near term, the ramp-up impact of MTU Fort Worth. Apologies if you've given this already, but have you given a sort of guidance on the dollar impact of that and when that rolls off?

What we have provided you with was an outlook on the expected investments in PPE that we do see connected to this ramp-up, which was USD 120 million over the course of the next coming years. MTU Fort Worth will have a first induction of an engine by the end of next year. And this will be the LEAP engine where we've invested into the license. There will be another program starting by the end of the decade. But you need to take into consideration that this will not be a material impact, for example, in the near term for 2026 with regards to sales.

Next question is a follow-up from Ian Douglas-Pennant from UBS.

I have a couple of follow-ons, please. So we saw some headlines in the press, I think, from a call that you may have done earlier in the day saying that tariff costs are ahead of your initial expectations. Could you update us on what you think the number is that tariffs will cost you and whether that number has changed since earlier in the year?

And my second question is, so this year so far, we've seen 13 A320neos, at least with GTF engines and at least one A220 being retired. And obviously, they're being retired very young. How do we explain that it's A320s with GTF engines and not with LEAPs that are being retired? And secondly, how do we expect -- how do we explain that those aircraft are being retired quite so young at this point. Does this put a ceiling on your ability to increase price at some point?

Okay. Let me start with the tariff question first. I think this must be a misunderstanding. When we started to talk about tariffs, our original assessment was that we expected the gross impact of tariffs in the high double-digit million range. That was prior to any mitigation measures, which we said we would elaborate on. When we had our H1 call, we spoke about high single to low double-digits impact that we do expect on our EBIT after mitigations. And this is also the figure that we still confirm. So the low double-digit million impact on tariffs this year is what we have currently foreseen. So there is no change in our assumptions with regards to tariff implications.

With regards to the retirement rates in general, I would say that we still see very low retirement rates overall in the market. And what we also have is that we do have a very strong order book on the GTF still moving forward, which was also pointed out with the order wins that we had at the Paris Air Show. So I cannot give you a detailed explanation on specific aircraft, I have to admit. But overall, our order book on the GTF remains very healthy, also due to the fact that this engine really performs well with regards to, for example, fuel consumption, which is a significant improvement compared to prior generations.

We will now take the next question. This is from Olivier Brochet from Rothschild.

I have a couple of questions, please, for you. RTX indicates that on the GTF the shop visits are heavier in -- as we get closer to the year-end. Am I right in thinking that with the 18% share that you have on the A320 engine, it helps sales, but also profit rate in OE? The second question is on FCAS. Do you have any assets that are at risk if the program is dropped? And then the follow-up on the comment you made, Katja, on the new program in Texas by the end of the decade. Do you expect a material fee to be paid at some point between now and then on that, please?

Okay. Let me start with the RTX shop visits or heavier shop visits. You're totally right. Our share in the program is 18%. So there might be some impact coming from more heavy shop visits, but that is also what was expected in general during the course of the program that after a certain time, shop visits will become more heavy as we've also moved away now with better material availability from quick turns, which we had to do for a certain period of time now moving to more heavy shop visits with respective impact.

Assets with regards to the FCAS program. So what we have done so far in the FCAS program as we're -- and we are still doing as we deliver on the phase IB, which was ordered by the government. And this is what we're currently following on until late Q3 next year, waiting for clarification on the program to move on in the next -- in the next phase by the end of this year. And with regards to fee, Ian, what we have paid was, so to say, the entry fee into the program that was around USD 100 million that was late last year. So that has already been paid. What we have also done is we have put additional payments when the program runs that we have to do into our net debt figure in the second quarter of this year. This was EUR 100 million, but these payments are not due in the near term. They will come when the program will ramp up to certain levels. There will be some more payments.

If I may follow-up on the FCAS topic. You don't have any assets that are on the balance sheet and that would be at risk if the program is [ drop? ]

No, there is no relevant asset on the balance sheet.

We have no further questions at this time. So I will now hand back to the speakers for any closing remarks.

Yes. Thank you, Johannes. Thank you, Katja. Thank you all for the participation in this call. As usual, the IR team is online for further clarifications or questions for the coming days and weeks. Thank you. Have a great day, and see you next time.

Thank you. We want to thank Mr. Johannes Bussmann and Mrs. Katja Garcia Vila and all the participants of this conference. Goodbye.