Lilium NV (LILM) 2022 Q2 法說會逐字稿

Good afternoon, and good morning, everyone. Welcome to Lilium’s Q2 2022 Business Conference Call. My name is Geoff Richardson, Chief Financial Officer of Lilium. Before we start, let me go through a couple of housekeeping items. This is a virtual conference call. And for the moment, all participants are in listen-only mode. We'll first give an update on progress since our last call in June. There will be time for questions after the formal presentation. We've scheduled the call for 45 minutes, including Q&A time. Please note that this conference call is being recorded. A recording will be posted on Lilium's Investor Relations page soon after the event.

As a reminder, after yesterday's market closed, we posted our shareholder letter on our website. We invite you to look at it. Before handing over to our Chief Executive Officer, Klaus Roewe, let me just give a reminder that our presentation will include forward-looking statements within the meaning of the United States Federal Securities Laws that are subject to risks, uncertainties and other factors that could cause Lilium's actual results to differ materially from such statements. Please refer to the cautionary statements in our shareholder letter and the risk factors discussed in our filings with the U.S. Securities and Exchange Commission for more information on these risks. With us on this call today are Chief Executive Officer, Klaus Roewe; our Senior Vice President Commercial, Sebastien Borel.

Let me hand it over to Klaus for some words.

Yes. Thank you, Geoff, and I'm really happy to join you today on this call. It is an important phase that has begun at Lilium with the industrialization phase of our debt starting. And I think I couldn't have joined Lilium at a better point in time than just now as a CEO. So who am I? I'm coming as an executive who is about 30 years of experience in aerospace. And you may know that most recently, I was working at Airbus, and I was heading up the A320 family program, and I was also leading services at Airbus. In these roles, what did I do? What did I learn? What do I bring to Lilium, I let development, certification, production ramp-up and also the operational deployment of, I have to say, the most successful large commercial aircraft program in the history.

Along the way, I got to know firsthand by real practical experience, the importance of safety, of customer focus, but also of unit economics. I've also experienced and forgive me for the world, the manufacturing hell of ramping up production of a large complex aircraft, and this is for sure, what we intend to do as Lilium as well. So why am I so excited to be here to have joint Lilium and what will be my contribution to Lilium? It all starts, for sure, with the product, with the aircraft itself, and ours has a unique architecture and the electric Jet VTOL technology that is behind it. Quite simply, I'm convinced that this aircraft will be the best in its class. I also believe that it's unique architecture in the eVTOL arena has been rigorously conceived and validated. Its technology makes it suitable for multiple use cases, including for premium customers, but also as a shuttle people move or type of aircraft, potentially cargo aircraft or even other applications that we are looking into and that you would have yet to develop.

In any way, it's very versatile and scalable. It can be scaled up to larger form factors, and I strongly believe it will not stand on its own. It will form the basis of a complete product family. It also features a lot of groundbreaking technologies that may spin off beyond aerospace into other sectors and that we could own. Furthermore, and that drives me a lot decarbonization is one of the great challenges of our time. The aerospace industry needs to face that fact, and I'm convinced that Lilium and the Lilium Jet is one critical step in aviation shift to a sustainable and exciting future that is also accepted by society.

The experience we are building today in electric propulsion, flight mechanics, and aerospace-grade batteries will also contribute to transforming the world of aviation and potentially beyond. I'm very much looking forward to steering the company through this next decisive phase. And I also have to say, I really wish to thank our Co-Founder and our former CEO, Daniel Wiegand, for being such a great partner to me over the last couple of months and also what he's done way before. I'm excited that he's back to what he loves best, leading Lilium's future technology as Chief Engineer for innovation and for future programs. While working with Daniel to chart this future, let me assure you that I will remain laser-focused on operational excellence, on engineering, execution and on cost discipline as we move ahead milestone by milestone towards our commercial launch.

Let me now summarize some of the highlights we want to share with you in this call, and it's 5 of them. First of all, we achieved the high-speed full transition flight on our technology demonstrator at a speed of about 100 knots. Secondly, on our battery aging performance, we have conducted internal cycle tests, and they have indicated that we can achieve the targeted 800 or more cycles for launch. Additional testing is underway with independent laboratories. Third, our aircraft industrialization is on track to start the assembly of the type conforming aircraft next year. We have signed up additional partnerships with Tier 1 aerospace suppliers. Fourth, we have expanded our sales portfolio that is shy of 500 aircraft now and we are moving towards detailed terms and firm contract with predelivery payments next year. And last and fifth, we saw significant inbound interest in the premium private sales and took the decision to launch our limited addition, including receipt of deposits.

To start now with a flight test campaign, our technology demonstrator that we call Phoenix 2, recently achieved another important milestone because it performed the full transition from hovering one flight on both the main wing and the canard at about 100 knots. And what is more illustrative than looking at the video, and I'd like to invite you to watch the following video, please.

(presentation)

Yes. That's a great picture, isn't it? The fact that the canard and the wing transitioned smoothly is really historic technical achievement, but it's more than that. It's also impressive that the transition on the canard and for sure, also on the main wing precisely happened where the computer model predicted it would be. And this is essentially because our computer models predicted what the real world would be doing. And now this is validated by testing and validated models are a cornerstone to any development and efficient development but also to an efficient certification program. More than that, in July this year, we had visitors from media. We had from CNBC. We also had from [Dwell] and others, and they were able to witness firsthand the Phoenix flight test in Spain. The feedback we received all over the place that they were all impressed by the stable flight and the very low noise signature of this demonstrator aircraft.

And I think you could hear this. The camera was just 30 meters away from the aircraft, and this aircraft does not even feature the noise reduction measures that we will have on the [CV] aircraft. So the flight test campaign will now be complemented soon by an additional flight demonstrated aircraft, which is called Phoenix 3. And this will allow us to increase the pace and the intensity of the testing and of the learning.

Next point with regards to the batteries, the test results on our prototype battery sales give us confidence that the batteries we plan to use inside our production aircraft at launch will deliver not only the required energy density, which is important for the range, but also the power density and also will have the required aging performance. As mentioned in previous updates from Q1 this year, our internal testing indicates that our chosen battery technology will meet the performance requirements of our launch aircraft. Internal testing on cell aging has indicated as well that the anticipated cycle life of more than 800 cycles with 80% capacity retention will be achieved. And we will be moving forward with validation of these internal results with independent laboratories in the near future. Our business projections for entry into service are based on the battery cell lifetime of about 800 cycles. Moreover, we continue to work with our technology providers to further improve sales performance and aging prior to the launch.

Regarding the certification, our primary authorities, EASA continues to actively support innovative electric air mobility services. In June of this year, the EASA published a series of proposed rules for the operation of eVTOL aircraft in cities. And Lilium has been actively supporting the EASA as part of relevant working groups since already 2019. So now we are currently working towards the next major certification milestone, which is the agreement of the certification program, including the means of compliance, which is equivalent to what you may know from the FAA.

Moving forward, we plan to provide this detailed overview of our progress towards certification with both the EASA and the FAA. In parallel with the type certification program, Lilium is working towards the design organization approval of [DOA] with the EASA. This DOA is a necessary prerequisite for any aerospace company to obtain a type certification of its aircraft. Lilium is now advancing towards its third DOA audit, which is scheduled for the end of this year and the fourth and final audit is targeted for the first half of next year. The EASA's granting of a DOA is a significant milestone for any aerospace company. It will demonstrate that Lilium has a capability to develop and certify commercial aircraft. Regarding the industrialization, which is fully underway, our goal is to start the assembly of our first type conforming aircraft in '23 and achieved the first man flight, so with a pilot on board right from the beginning of a conforming aircraft on ‘24.

On our path to these milestones, we have begun placing orders for subsystems and parts from leading aerospace suppliers. In recent months, additional key suppliers have joined our aircraft program, which includes Diehl for the interior, Expliseat for seats, Astronics for the energy management system, the MA Group for the landing gear and L3Harris for the voice recorder, just to name a few. These supplier partnerships are fundamental to establishing a dependable path towards certification and industrialization. Lilium also, for sure, continues to protect its product development. As of the end of September this month, Lilium has filed a total of 69 patent applications with European patent office. And a key focus of Lilium's innovation has been propulsion and energy systems, which are core to our competitive advantage. In addition, Lilium continues its patent expansion policy filing patent applications in other states outside the EPO such as the U.S. and for sure, also China.

I will now hand over to Jeff for the financials. Geoff, please?

Thank you, Klaus. As our aircraft development program ramps up, we are maintaining our strict budgetary control. The total cash spend of EUR 63 million in Q2 2022 was in line with the previous quarter with a spend of EUR 60 million. Looking ahead, we are closely monitoring the effects of the conflict in Europe, inflation, financial markets and general economic factors on our business and planning. The advance of our development program through the detailed design and industrialization phase is expected to lead to increased supplier contracting activity from the second half of 2022. We are working to offset the slight rise in related cash spending through active budgetary controls, including headcount control.

We expect full-year 2022 total cash spend to be no more than EUR 250 million. Our liquidity as of June 30th, 2022, stood at EUR 229 million. Additionally, the $75 million equity line of credit facility established with human stone capital became effective on June 24th 2022. Going forward, we've chosen to use euros as the reporting currency for our quarterly shareholding letters and business updates. Our IFRS financial statements are reported in euros, and the vast majority of our liabilities and costs are euro-denominated.

Let me now hand it over to Sebastien Borel, Senior Vice President, Commercial, for an update on our aircraft sales program. Over to you, Seb.

(technical difficulty)

Sorry for the delay. I think I have had some issues on the Internet, hopefully, you can hear me.

Yes, we can hear you.

Thank you very much. Sorry for a validation. Thank you, Geoff, and good afternoon and good morning, everyone. Hopefully you can hear me well. So since our last call, Lilium has made significant progress in delivering its commercial plan. First of all, we have signed Memorandum of Understanding agreements in the premium segment for a total of 113 aircraft in key locations with high demand, including GloberAir, all latest announcement. This brings the overall number of Lilium Jet under MoU to 483. We're also launching a sales company for private individuals, taking preorders as early as 2022. As for commercial operators, Lilium plans to begin signing firm orders in '23 with a target of locking in meaningful deposits. As outlined before, as a first phase and for our first aircraft deliveries, we're addressing the premium general and business addition market. This includes charter operators, fraction of owners and private individuals.

In the second phase, we plan to roll out our 6 passenger shuttle configuration to address demand for regional scheduled services. We continue to be excited by Florida as well as several European regions for both the premium segment and the regional scheduled service. We actually strongly believe that both of them will complement each other. Going into more details on the premium sector. Lilium will address 3 segments: premium shuttle usually replacing helicopters, charter services in partial ownership and private sales and to respond to the high demand for the Lilium Jet among high net worth individuals, Lilium has decided to create a limited edition of the Lilium Jet. Lilium tends to offer a tailored cabin and dedicated premium service on attractive financial terms. The limited edition will be unveiled later this year when we'll be taking orders and deposits. The Lilium Jet is going to be highly attractive in this market, thanks to its [ducted] architecture, its patients cabin and the ASL safety standards requiring 10 to the minus 9 safety level, the same as a large commercial aircraft, like the A320.

So with Brazil, Florida, Southern France, Southern Spain, along with Norway, Benelux, Germany and Northern Italy, Lilium is clearly targeting prime location with high and proven demand for premium air mobility where we have identified strong commercial partners who wish to innovate and for home sustainability is a stated priority. Looking into more details on a recently signed MoU, the Bristow Group, the leader in global Vital solution with a fleet over 220 head counters, selected the Lilium Jet to develop its vital business line. Bristow also intends to cooperate in the maintenance of the net employee network. In addition, we signed agreements with Helity Copter Airlines in Southern Spain, the ASL Group in Benelux and AAP in Scandinavia. Also [Azul], GlobeAir, an innovative buses operator base in Austria signed an MoU with Lilium with the intention to purchase 12 aircraft to operate in Northern Italy and French of Europe. So again, France, Northern Italy, Southern Spain, Scandinavia, Benelux, those are key markets with high demand for sustainable premium on-demand mobility. The innovative nature of our partners, along with selected locations with the key to lenient commercial success.

Back to you, Klaus.

Thank you, Seb. So to sum up, at this important phase in our company development, we continue to focus our energies on industrializing and certifying a robust aircraft at the highest safety standards. We believe that we have a world-class product that will truly excite and delight our customers. Furthermore, the successful high-speed transition flights have demonstrated once more the Lilium Jet sound flight mechanics and its ability to fascinate. In the months ahead, we will keep you posted on the next achievements as our organization gathers momentum, in particular, regarding receiving our design organizational approval agreement on our certification program and the means of compliance binding commercial agreements with deposits in '23 and received in the first half of next year of the first component and the start of the assembly of our type conforming aircraft.

And now let me hand you over again to Geoff, who will open the floor for your questions. Geoff, please.

Thank you, Klaus. So now we have some time to take your questions. (Operator Instructions). We will now begin the Q&A session.

Thank you very much. We will now take your first question. And your first question comes from the line of Alexander Potter from Piper Sandler.

Excellent. So maybe I'll start with the boring question on the balance sheet for you, Geoff. So I guess, knowing everything that you know now about your cash balance, cash spending, CapEx, PDP, I guess, this equity line of credit. How long do you think it will be before you need to start thinking seriously about other ways to bolster the balance sheet? And what type of capital infusions do you think might be available to you? I'm thinking specifically about debt, is it possible to use visibility on your existing orders to support debt financing of some kind… I guess any commentary on the balance sheet would be helpful.

Yes. Great question, Alex. I think the first thing in terms of securing financing is to make sure that you're executing. So I think that's closing the preliminary design process, demonstrating the battery, demonstrating the high-speed transition and class joining was really critical to the success and the confidence of our existing and future financing partners. I think the shift to premium and focusing on sales also leads to deposits. And I think with deposits and cash flows, it does open up specialized lending opportunities. So we do anticipate that to be part of the mix going forward, Alex. Obviously, the markets are quite volatile today, but we've been fortunate to have built the book with longs, strategics, and we're very confident between the PDPs between future potential of debt and with equity opportunities, including the e-lock that we'll be able to extend the cash runway.

Okay. Great. That's super helpful. I guess maybe on PDPs, I am interested in hearing -- it sounds like in the shareholder letter, it seems like you had a relatively high degree of confidence there will be at least some PDPs sitting on the balance sheet in 2023. I guess any commentary you can disclose there about how those discussions are progressing? And I guess, do you have to have multiple different PDP-related discussions and negotiations with all of your different customers? Or do you end up getting to one framework agreement that applies to everyone? Anything on PDPs would also be helpful.

Seb, do you want to take that one?

Absolutely. Thank you for the question. We are progressing the customer in each of our MoU customers into the details of the next step, contractual next, which will tribute deposits. And what's important for us is to be able to deliver to when we commit and that's what we're working on with them. We're working tremendous progress right now to further understand their requirements, their concept of operation and what it will take to get there. So yes, we are absolutely confident we can get deposits, and we are in the process with production.

Okay. Perfect. Then maybe one last one I'll sneak in here for cloud side. I mean you've been now on board for a couple of months learning about the environment, the technology, the team. I suppose out of all of that, maybe what are your first impressions or the things that surprised you, maybe some of the unexpected challenges? What has been your take after joining Lilium here for the last several weeks or a couple of months?

Yes. Thanks, Alex, and good to talk to you again. It's a tricky question. So I have to say before I launched, I had the insight into Lilium into the product, its progress everybody else from outside because Lilium was very rigorous in respecting rules and that was basically working for competitors. So I knew a bit about the plain. And now that I'm here since 8 weeks, I wouldn't pretend I know everything, but I think I learned a lot. And my, I would say, positive take on the architecture on the versatility, the flexibility, the performance has really been confirmed. So in fact now I'm an insider, and I have to say I did not make any detection that I didn't want to make. Before joining the company, again, I knew what everybody knew. I found it fascinating. I found it meaningful. I was also strongly attracted by the quality of the board members because I knew some of them, I learned to know some of them. And I thought if these persons put their names, their work, their time, their reputation on the table for this product, it cannot be wrong.

So now knowing it much better, not knowing everything, I would say, no bad surprise at all, only good surprises. And I know from my past when you have what we say a well-born product, you have a bright future. You will have stumbling stones to overcome. But when the product is laid out well, then it will just work out and I'm pretty sure, and I'm convinced that the product is rightly positioned. The architecture is superior. And now it's up to us to make it successful. It's not an easy going. That's clear because we need to go over the hurdle of certification, industrialization and the likes. But I'm convinced this is really the right one and I'm convinced it's the best one in its class.

We will now go to our next question. And your next question comes from the line of Colin Rusch from Oppenheimer.

Could you talk about any surprises that are coming up in the certification process. It looks like you've made some great progress here in terms of moving things down the road, but are things creeping up that are surprising you or to create some delays, anything that we should be tracking and around that process?

Klaus, do you want to take that one?

Yes. Thanks, Colin. It's a fair question. And I tend to say, you never know before you're done. What do we do to derisk the whole thing? The first thing, I think, which is unique to Lilium is that we have right from the beginning, designed against the highest possible certification standards and the ASA, who is really seeing this as a strategic product has rightly imposed same safety levels like you have for any other big commercial airline aircraft like an A320, for example. So we have designed against it. So we have been prepared for the highest hurdle to jump over. So this is good from the beginning. So we will not have bad surprises that the ambition is further elevated and then we have to run a design after we have to make late changes. Second point of derisking is that since quite a while, we have stability on our certification baseline because the requirement or a set of requirements has been spelled out by the ASAP.

FAA are still making up their mind, but they started from lower and it looks like they are converging to a higher level, close to what the EASA wants, which doesn't give us any extra challenge because we have already started this way. That is also good news to us. We are now 75% done, and you will see it in our shareholder letter on agreement, on the means of compliance means how do we demonstrate that we can be compliant with those requirements. And we will be done with it in the first quarter of next year, which takes away another chunk of risk. And for sure, we have been doing a lot. So when you look at this fabulous flight test on the video, which, first of all, demonstrate the aircraft is doing what it is supposed to do and obviously, even doing a little bit better. And the predictability we have on the behavior of the aircraft is so high that we know what we are designing now into the conforming aircraft.

The Pegasus is really predictable and is not supposed to give us a headache or bad surprise later on. And also when you can predict analytically a lot on what the aircraft is doing, it will help easing the certification program. So if we were not able to do it, we would have to physically demonstrate many more things by real flight test. And this for sure would drive cost, would drive lead time, would drive any sort of efforts that we don't like. Last bit, yes, it's all novel. It's new technology. It's highly innovative. And it's the name of the game that this can come with surprises. And here, I would say the last line of defense is to anticipate as much as can be and to be very reactive in terms of -- when you have to be reactive to have the right skills, the right team to be able to react to it. And this is what we are also working on, and we are not using our Phoenix flight test program today for technical learnings, for improving our models. We are also starting to use the Phoenix flight test program to train our organization for the flight test that comes at a much larger scale with the Pegasus aircraft.

Excellent. And then on the battery technology, can you speak to not only just qualification and testing of the cells, but also the manufacturing process? Certainly, looking at how that process goes and looking at yields and consistency of products coming off the line, I'd like to understand how mature that process is around that qualification of manufacturing facilities.

Yes. It's new technology. In terms of chemistry, It's, I would say, to a certain extent, also new technology in terms of the manufacturing process of the batteries. And we are working with custom sales and the good thing is custom sales fully engaged. Custom sales also, as you may know, at the forefront of automotive batteries because we will have to produce it at scale, and they are exactly in this arena. And automotive is high yields. It's high volumes, but it's also low cost. So we have fixed and firm agreements with them through the complete next year. So we know exactly what amount of battery volume we are going to need. And we have worked out a plan with them, which is, for sure, how do they assemble. And we still have opportunities, different opportunities to optimize also to have enough raw material available, which we have also protected. So throughout the complete next year '23, I would say we are in a good shape.

So we need to get the cells. We have a lot of cells. We need to test them. We need to put them on the plane. We need to see how they behave. We need to continue our laboratory testing. And in parallel already next year, we have to start working really at the high ramp-up that we need to achieve, but also managing the cost position and having a supplier that, at the same time, is engaged in the automotive arena with support from the automotive arena is really essential. Last bit, we also want to make sure that we have several sources available for sure our, I would say, biggest part of effort and energy today goes into working with Zenlabs for the technology and custom sales and also with other companies like Advanced Materials or [Levent], where we have secured capacities, but potentially also with other battery suppliers to further derisk our technology.

And let just sneak one last one in. Just given the strategic significance of the technology in some and where you guys sit in the supply chain in terms of funding, are there opportunities for you guys, either in the U.S. or Europe, specifically in Germany around substantial grants that could help move the project along that would supplement the balance sheet?

Yes. Great question, Colin. We actually have employed a few people from the aerospace industry who have significant experience in both grants and loans and recently applied for a fairly significant government loan. So that's something that's been on our radar for a while. It's difficult to predict timing and probability of those, which is why we've discussed those less. But we have multiple very experienced people working on that, and we see that as a very promising nondilutive piece of the mix going forward. Hopefully, there's more to discuss in the future of those, but those go at their own pace.

We will now go to our next question. And your next question comes from the line of Bill Peterson from JPMorgan.

I wanted to talk about certification and take sure the visual you provided here, you mentioned 28% still yet to be agreed for maintenance compliance, 60% on the certification plans. Can you give us a feel for what is agreed and what is, I guess, remains to be agreed for EASA? And then I guess, more important, are you still confident in the 2025 certification timeline? And then how much delay would we expect with maybe FAA given this graphic, it looks like there's still many things yet to be still agreed with the FAA.

Klaus, do you want to take that one?

Yes, sure. Thanks, Bill. So difficult for me to say what is in this last quarter of means of compliance, what we have been doing, and we did the same, by the way, for the certification requirements. We worked basically by priorities. So we have categorized the ones which are most important. I would say we are done with those. And I don't want to play it down because say, the last 25% or 28%. That's the easier bit of it. I cannot tell you precisely item by item. And here, we talk hundreds, by the way, what they are. But I would say it's a matter of keeping the momentum and rigor that we have with the EASA to just get them done as we want to get them done. And I need to say I'm really happy with the collaboration because EASA also sees this as a strategic target and they want to develop the industry because they are also after ESG and decarbonization.

So with the engagement, they are showing whilst they put the hurdle extremely high with 10 to the minus 9. On the other side, they are as supportive as they put the hurdle high. Regarding the FAA, we have a lot of trilateral meetings so that we are conducting with both authorities at the same time. And you may know from the legacy industry, it's normal that you have a lead authority running the first certification and that the authorities coming after will close quite soon after. Regarding question number 3, confidence with ‘25. Yes, we are confident with ‘25, but we only know what we know today. So when you see what we have put in our plan, which is basically so we have done the PDR, we are striving for PDR by mid of next year. We see supplies coming in. So it's some very visible milestones on the start of production of the plane. We have given ourselves about 1 year to assemble the plane, which is a rather small plane. So you may say, why does it take so long?

It takes so long because we want to do it thoroughly and with rigor, we need to put all the flight test instrumentation. We need to conduct a lot of ground test before we go into flight. But when you are familiar with aerospace development cycle, you would say this is nothing which is outrageous. And then we have 1.5 years to go to certification. And again, here, the more we can derisk before the better our models are to predict the closer we are collaborating with EASA the more. We also anticipate potential issues, the more we will be in the position to deliver to the schedule. It is possible. Will we know what it is? We will know, as I said, you know what you have done when it's done. But as we speak, this is a plan we have put forward because this is the best one we believe, and it has challenges, but it also has margins in sight because if you set up a schedule that doesn't have any margin, it's condemned to fail already from the beginning, and we have put also margins into the schedule.

Yes. Maybe this one might be for you, too. To try to put a finer point on the battery question, is the additional testing by independent labs? Is this part of the certification requirements? Or is this really more on your side to gain additional confidence I believe the aging test the 800 cycles is consistent with prior goals. But I guess, what other performance or reliability testing cell to cell or pack to pack, what other tests would you say is required at this point to gain additional confidence?

Yes. So first question, is it part of certification? No. The authorities care for one thing, which is safety. And if the battery for sure in order to fly safe, you must have enough margin when the state of chart, which is normally by the end of the flight, is reduced that you can still safely land. So there is performance parameters that we need to demonstrate to the authorities, which are paying into the safety of the aircraft. When you look at -- and for sure, the capacity of the battery is largely paying into the economies of the aircraft because it determines the range. Do we need to demonstrate the range to the authorities? For sure, yes, because the results we have to foresee are taken off the range. So yes, it pays into safety.

So the authorities take interest in performance and in capacity, and we have to demonstrate it by appropriate means. So we can do it with internal tests, and we will have to do it anyway with internal tests. It will also become part of the performance management of the aircraft because we will certify it based on the actual battery performance. And the last point on Cycle life, I would say the authorities wound care a lot, they will get at least much less. It's much more a question of economies of the aircraft. And for sure, we pay a lot of attention to it.

The fact that we are using external laboratories has different reasons. It's not that we think nobody is going to trust us because I believe this is a very trustworthy company, and we do it, but also to say, let's be fair, let’s put the cards on the table. Let's put independent specialists and let them witness what we are doing, but it's also a matter of capacity because battery testing capacity is rare. And we are in the process of extending our battery test laboratory that we have ourselves. So it's also a bit of a capacity question that we have to tackle with external resources.

Just thinking one more in. And Geoff, I realize you're not probably likely to give precise guidance for next year. But how should we at least think about the trajectory of spend as we contemplate our models into next year? Anything notable related to personnel is it increasing? Anything related to tooling or materials, just CapEx? Maybe just broad color if you could provide, please?

Yes. Great question, Bill. We're about halfway through the budgeting process right now. And I think the overall headcount of the company has leveled off and actually we're holding it here. So there won't be headcount growth and we're looking at offsets there. I think it's fair to say that we're looking for next year to have a very consistent overall number as this year, the mix will change, but we need to finish the process and can give you guidance in our next call. But I think if you would just plug in something that looks very consistent with the aggregate number from this year, that's a good starting point. It won't be less, could be a little bit more, but not meaningful.

We will now go to our next question. And your next question comes from the line of Adam Forsyth from Longspur.

Two questions, if I may. Firstly, you mention of the new EASA rules for city operation. My understanding was that actually existing rules for conventional aircraft actually gave you quite a lot of flexibility and might be applicable for you. So I'm wondering if the new rules actually give you any degree of additional opportunity in terms of the type of service you might offer? And then my second question, just on the battery life. I just wonder, are there any conditions where the 800 cycle life might be challenged, any unusual operating conditions, particularly it's extreme of temperature. I'm almost thinking there might be a battery equipment of an [ANNA1-type] differentiation and better specification of the electric aircraft market evolves. Be interested in your thoughts on that.

Yes. So 2 questions. First one regarding rulemaking for operations in cities. I cannot tell you, I have to say, and please forgive me after 8 weeks in the role. I'm not familiar with the detailed differences we have between existing rule making and rule making that we have an agreement with the EASA. So I need to take this forward and come back to you on it. I'm not qualified to give you the answer. Regarding the other question, what we are looking for and when we say certain capacity performance and Cycle life, this is a nominal design target. And for sure, you always want to have more. When it comes, for example, to the temperature of the batteries, I would not dare to say it should be independent of the ambient temperature.

However, battery will be… Sorry, there was a noise on the line. The battery will anyway be conditioned. So when you charge as a battery, you are bringing the battery to an optimum operating temperature and then you execute the flight. So the impact of the ambient conditions may be much less than you think it would be because at the start of the flight, it will always be the same independent from where you are starting. And for sure, then you will have in the duration of the time, but you will have a minor effect of ambient conditions on the battery temperature, for example.

And I think Seb can comment on the first question.

Well, just on the IAM regulations. EASA, we are part of the working group. We are closing monitoring what it means, but the beauty of going with the premium general and business addition market at first is that we can reduce a lot of their facilities and we can get as close as possible to the cities, which make a lot of sense in regards to the service we're trying to provide. So that space approach is not only a commercial approach, which is useful, but also in regards to operation in [excel life all this] year.

We will now go to our next question. Your next question comes from the line of David Zazula from Barclays.

Of course, maybe hopefully relatively quick one. Can you share with us the range you've achieved during the testing so far and how the range testing is influencing your confidence in the ability to achieve four passenger levels?

Yes. Thanks, David. So as you know, we have not flown Pegasus yet because it's in the make and the Phoenix configuration is battery-wise is not comparable to it. But what we have demonstrated is the energy density, which is exactly the 330 watt hours per kilogram of battery weight. And we have, I would say, a very good accuracy in energy consumption because here, for sure, we have some learnings from Phoenix that we can translate into the Pegasus arena. So if you were to ask what is our level of confidence on the range, deducting the aerodynamic performance of the aircraft, the propulsion efficiency that we still have to demonstrate because we have only a couple of engines on the test stand.

Also, we will go into full-scale wind tunnel testing very soon. And in our industry, those are the key ingredients that you need if you really want to nail down on the performance. What we know, which today is a combination of analytics and test, but more on the analytical side. We can confirm that the operational range will be about 175 kilometers with a physical range being 250 and the delta in the reserves that we have to hold.

Great. And then for Sebastian, can you just give us a little bit of your philosophy on how you're shifting or why you're shifting towards a more sales-oriented model and how your PDP plan is going to dictate your geographic rollout?

Okay. Great question. So the -- so first of all, going back to the geographical. Obviously, we are looking at the EASA territories along with FAA know even though we may have a little bit of delay between both, but those are the prime regions we're looking at. In regards to the sales strategy, we have seen real demand from the premium segment to really look at a new product. We are a new product in the market, given that we have 30 engine wing suddenly we provide a service that a lot of high-net-worth individuals are looking for. And therefore, going into that sales of the premium segment paves away from really for the future, which is really to democratize the mobility service to everyone. And therefore, the first phase is natural. We sell to people that actually care and want to go fast. And as I said earlier, in regards to the city regulations and the type of operational regulation, it also helps from a public acceptance and from airport authorities to start with lower volume. And once that is ready, you move to higher volume, higher frequencies, and you can go much bigger in terms of production volumes. And this is where the network kick-in networks are extremely interesting business models that can come into play once you have all of the ingredients ready to move forward with something much more massive.

We will now take our next question. And your next question comes from the line of Savanthi Syth from Raymond James.

Just 2 questions for me. Just first one is a follow-up on the PDP. I was curious if you can provide a range or a realistic target of what we might be able to see in 2022 and 2023.

Savi, I think that we're in discussions. I'm hopeful that, that's a range is something that we'd be able to provide you either later this year or early next year. But I think we want to funnel some of the fleet discussions a bit more. And then obviously, we have a bit of visibility and are optimistic on the individual one, but I think we'd like to firm it up a bit more and they can come back to you the next quarter or 2 with guidance, if that works.

Understood. And then just a second question. On the Certification side, it seems like the type certification everything is pretty clear. Are you waiting anything more from the alpha in terms of what you operate is and from an aircraft to operations, what is necessary to set this all up? Or has everything been clarified?

No, I think this goes hand-in-hand because the airlines will have to amend their AOC for the operation of the Lilium jet. So it will not only be the certification of the aircraft itself. It's about also the maintenance program and also the way it's been operated. So it all goes hand-in-hand.

Has that been clarified by you also? Or are you still waiting for more from also on what's required on that entrance and operations side of things?

No, that it's part of the set of requirements. So I cannot tell you if let's say, the maintenance side is a bit in advance, a bit in delay. But the whole thing is if you obtain type certificate, you will do it for your manuals, for your maintenance program and the likes and the same is for the operation of the aircraft because you need to lay that all out. So all the documentation, the aircraft flight menu, flight crew manuals, maintenance manuals, minimum equipment list and troubleshooting manuals, and I think it's 23 or so of them. You all have to certify them at the same time. Otherwise, nobody could make use of this aircraft. Training, by the way, as well as the training organization also has to be the training organization. So how do you train? What is the training program? What is the syllables on the training, all of that is part of the certification?

There are currently no further phone questions. I'll hand the call back to Geoff

Thanks. Before we go, we'd like to do one question from our retail platform. We think it's really important that we leave time for these. And we've had a number of questions. So given time constraints, I'll pick one. Klaus, this one is for you. We wanted to -- the shareholders asking where do you see this company going within the next 10 years.

That's a bold one, and thanks for the question and also thanks to our retail investors community that we sometimes forget a little bit. Yes. So innovations we are working on right now, for sure, not only for this aircraft. It's also a fundament for any electric heat platform. And we said before, it could be also spin-offs into other sectors, other industries, and we want to leverage this unique position to target scaling our technologies over multiple platforms with larger form factors to serve the entire segment of redial electric aviation. Lilium will continue to push boundaries with new programs and innovations that will reduce cost for customers and passengers.

And our ambition is, for sure, is to cut trip times to a function of what they are today when they travel on the ground, opening up a new level of connectivity for societies around the planet. So a lot to come. But bear with me, our focus is today clearly on executing on the Pegasus program, which is starting production, starting flight test, certifying and making lots of customers happy with the product, and we also look for sure into how we expand on this merits afterwards.

Thanks, Klaus, and thanks for everyone's participation today. With that, we'll conclude our business update call. Thank you.