Lilium NV (LILM) 2023 Q4 法說會逐字稿

Good day and thank you for standing by. Welcome to the Lilium's full-year 2023 business update conference call. (Operator Instructions) Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Rama Bondada, Global Head of Investor Relations at Lilium. Please go ahead.

Good afternoon and good morning, everyone. My name is Rama Bondada. I'm Lilium's Global Head of Investor Relations. For our last webcast, we chose to give you a deep dive on Lilium's battery technology. It [gave] (corrected by company after the call) us an opportunity to give this key technology the attention it deserves and enabled us to answer many of your questions. For today, we're happy to return to a more traditional format and give you a broader update on our overall progress and positioning. (Event Instructions) As a reminder this morning, we posted our FY Q4 2023 shareholder letter on our website. We invite you to take a look.

Before handing over to our first speaker, let me just point out 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 statement in our shareholder letter and the risk factors discussed in our filings with the US Securities and Exchange Commission for more information on these risks. With us on the call today, we have our Chief Executive Officer, Klaus Roewe; our Chief Financial Officer, Oliver Vogelgesang; and our Chief Commercial Officer, Sebastien Borel.

So without further ado, let me hand you over now to Klaus.

Thank you, Rama. Great to join you all on this call. It's been a while and we've achieved a lot since we last spoke. Ladies and gentlemen, Lilium has again taken significant strides towards certification, production, and entry into service of the revolutionary Lilium jet. We are proud of what we accomplished in 2023 and the strategic partnerships that we signed, both on the operational side with suppliers and with customers for our commercial market entry.

Let me start by reminding you [of] (added by company after the call) one of our most outstanding recent achievements. First of all, we received design organization approval (DOA) (added by company after the call). Lilium has applied for the EASA design organization approval in 2017 and underwent an extensive investigation and review for each core process of the design organization.

During this multi-year period, we underwent four separate audits that ultimately validated that Lilium has the appropriate organization resources, documentation, and safety procedures to design aircraft according to the highest safety standards.

On the Lilium's design organization approval, Lilium is qualified to design and be a type-certificate holder for aircraft developed according to the EASA's rules for eVTOL aircraft. Lilium thus becomes the first company to be qualified to be a full-type certificate holder for aircraft certified under these rules, which represents the highest safety level globally for eVTOL aircraft.

So what practical advantages does design organization approval bring for Lilium?

Holders enjoy special privileges when working with the EASA. This includes having compliance documents accepted by the EASA without further verification and being authorized to perform activities independently from EASA as a part of an agreed certification program.

Put simply it means that we can do a lot of the testing on our own because the EASA knows we have the procedures in place to provide evidence with the required detail and transparency. As such, Lilium's design organization approval is expected to streamline the process towards obtaining type certification of the Lilium jet.

So where do we currently stand with regard to the type certification process?

Right now, our focus is on delivering first manned flight of the Lilium jet, which is targeted to occur later this year. For that, we first need to permit to fly as it allows for the heightened safety requirements of piloted flight and to obtain the permit to fly, we have to demonstrate to the EASA, through extensive testing, that the aircraft is safe to fly through what is called the safety of flight campaign.

As part of this campaign, we will be testing multiple aircraft systems, including aerostructures, propulsion systems, flight controls, avionics, battery packs and integration on an individual subcomponent level. We will be performing these activities over much of this year as we prepare for first manned flights. We are able to do this because we have a full range of advanced test capabilities on site, including the recently opened propulsion unit testbed.

The testing will be shared with the EASA helping us not only to demonstrate the aircraft's safety, but also to provide EASA with evidence of how the Lilium Jet will conform with the EASA's SC-VTOL rules. We will commence testing for safety of flight substantiation in the coming weeks under our DOA and expect to be amongst the leading group of eVTOL companies pursuing type certification.

This is probably a good time to also remind you that unlike most of the eVTOL industry, we are certified to the highest level of safety in the commercial aerospace industry as per EASA's rules. This is known as a 10 to the minus 9 level of safety, which means only one aircraft loss for 1 billion flight hours. In addition, the Lilium Jet design does not allow for any single point of failure. The built-in redundancy of all critical systems makes the Lilium Jet the safest aircraft by design. This is complemented by stringent operating rules and best in class pilot interface and training. This is the same level of safety used for large commercial aircraft such as the Airbus A320. And to put this level of safety into context, the total A320 family, which is the best-selling large commercial aircraft in the world since its introduction in 1987 has about 310 million flight hours as of September 2023. Helicopters are certified at 10 to the minus eight or 10 to the minus seven level of safety or one aircraft lost every 10 or 100 million flight hours, which is what the current FAA eVTOL rules are guiding towards. This means that our aircraft will be certified to a 10 or 100 times higher level of safety than an FAA only certified eVTOL. Safety is paramount to us and we will remain in line and at the best pace dictated by our regulators. In this industry we unfortunately have seen what happens when safety was sacrificed for speed to market. As a team of company leaders that have designed, tested, certified and delivered safe aircraft over the last several decades, safety will remain the utmost priority at Lilium. Secondly, moving onto another proud achievement. At the end of last year, we signed an MOU with Lufthansa to collaborate on eVTOL opportunities. With a current fleet of over 700 commercial aircraft, Lufthansa is Europe's largest airline by revenue and is in the top four worldwide. Our collaboration with Lufthansa, therefore, represents an exciting opportunity to Lilium Jet flights to Lufthansa Group customers. Based on this breakthrough agreement with one of Europe's foremost commercial airlines, Lilium and Lufthansa will explore innovation opportunities in aviation, discussing areas such as ground and flight operations, future aircraft maintenance and crewing and flight training. Both of our companies also want to analyze the opportunities for collaboration with third parties like the airport and regional partners on an advancement of infrastructure such as vertiports, airspace integration and the definition of required operation processes. According to our projections, the European market is expected to account for the demand of around 9,200 eVTOL aircraft through 2035. Lufthansa has been at the forefront of some of Europe's most important aviation initiatives, especially in the area of environmental sustainability. And we are honored to be working with them. Third, our next major achievement. We started the assembly of the first Lilium Jet. In December 2023, the first complete fuselage, built and assembled by supplier Aciturri, arrived at Lilium's production facilities. Since then, the fuselage has been matched up with the first set of canards and wings delivered by Aernnova. Our first Lilium Jet is due to move into our final assembly line shortly. Aircraft number two is already advancing with the fuselage now in assembly with Aciturri, and assembly of the wings and canards underway at Aernnova facilities. In parallel, Lilium teams are also diligently focused on preparing an efficient Lilium Jet production ramp-up at our main campus. Let me just add a few words about this Lilium campus. We have 175,000 square feet manufacturing and testing facilities co-located together with our company headquarters on the Wessling airport grounds. Close proximity support efficiency and connectivity between our engineering, operations, supply chain and production teams. As well as production halls for our aerostructures, propulsion units and batteries, the campus includes our Lilium Jet assembly line and a host of testing facilities such as the propulsion testing hangars just mentioned, battery testing equipment, electromagnetic chamber, acoustic test chamber, flight simulators and cabin design center. We recently started installing the state of the art assembly equipment for the serial production of the Lilium Jet's propulsion units. For design and construction of this assembly line, we've partnered with a German automation and robotics company, Schnaithmann Maschinenbau. They are also supporting us with workflow design as well as jigs and tools for our aerostructures facilities and final assembly line. Schnaithmann, based near Germany's automotive hub Stuttgart, is a global leader in designing and supplying automated scalable industrial solutions with long-standing partnership in high-volume industries, especially automotive. Propulsion and aerostructures assembly lines are in the same building next to the Lilium Jet final assembly line. While gearing up towards delivering the first set of aircraft and serial production, we are also preparing the ground for production at scale, which takes me to our battery strategy and another milestone. In 2023, we announced that we will implement a multi-sourcing strategy for battery cells. Extending our partnership with InoBat will represent a pillar of our multi-sourcing strategy for cell production. It will contribute towards securing a healthy supply of Lilium's battery cells for entry into service of the Lilium Jet and the years thereafter. InoBat will build Lilium's high-performance sales at its facilities in Slovakia with support from its investor Gotion High-Tech. Gotion is one of the world's largest battery manufacturer whose battery cells are due to be installed in up to 80% of the Volkswagen Group's future electrical vehicles. Gotion's largest shareholder outside China is Volkswagen. As part of the agreement, InoBat will build Lilium Jet battery cells at its existing Volta I and future Volta II plants in Voderady, Slovakia. The Volta II plant will be InoBat's first giga factory with up to 4 gigawatt hours of production capacity. Gotion High-Tech, which holds a 25% stake in InoBat, will contribute resources and manufacturing know-how to ramp up the capacity at InoBat's Volta II plant. Lilium will retain its valuable intellectual property rights in the Lilium Jet battery technology. While it's important that we secure supply of battery cells through our innovative partnership, it's also worth noting that many battery cell suppliers are actually very keen to work with Lilium. Business cycles in aircraft manufacturing tend to be a lot less volatile than automotive, so we provide an opportunity for some stability in capacity utilization for diversified high-end battery producers. Turning now to our current supply chain. Today, CustomCells continues to deliver Lilium Jet battery cells in increasing quantities. These cells are being used for performance testing and integration into our initial battery packs that will be used in our test aircraft. We are making good progress towards initial series production of our battery packs and energy system.

We recently selected suppliers for the advanced materials used in the battery packs designed to meet EASA's stringent safety rules. The first high-voltage electrical harnesses for the Lilium Jet were completed in October '23. In the coming weeks, the remaining harnesses are scheduled for delivery to the Lilium final assembly line for installation of the first Lilium Jet aircraft.

And just a reminder, we are not a full vertically integrated aerospace OEM. Our supplier are some of the largest and most advanced aerospace suppliers. And we believe this gives us success to some of the best aerospace engineering and manufacturing minds in the eVTOL industry.

I'd like to finish our discussions on progress with the Lilium Jet battery and energy system by drawing your attention to the webinar we hosted last November. In it, our Co-Founder and Chief Engineer for Innovation and Future Programs, Daniel Wiegand, explained the energy demands of the Lilium Jet, the existing technology that will meet those demands and how Lilium and our partners are preparing to scale up production.

He also dispelled some myths about flight physics and battery technology. I recommend watching the webinar if you want a fuller understanding of the energy concept of our aircraft.

Let me now hand over to our CFO, Oliver Vogelgesang. Over to you, Oliver.

Thanks, Klaus, and good morning and afternoon to everyone joining us today. Great to have this opportunity to exchange with you.

Let me start by highlighting our major achievement on the funding side in 2023. We successfully raised $292 million in additional capital. The funding was supported by numerous new and existing sophisticated investors, including leading Germany technology investors, EarlyBird, BIT Capital, UVC Partners, and Frank Thelen. This is a big deal. These investors are very smart and performed significant due diligence, which included extensive site visits with us, our supply chain and technology partners.

In our view, this level of interest and inspection is the ultimate testament to the strong progress we are making. And as Klaus has discussed, we have made significant progress since these funding rounds to bring us much closer to first manned flight.

We have met our milestones and achieved the goals we have promised to our investors who have been with us for a long time. They know the value of the technology we possess, the return potential of our business model, and they invested again with us last year. And now, we are even further along and closer to the end goal. We continue to have constructive discussions to ensure we have strong liquidity as we execute on our key milestones to certifications and full commercialization.

We also received our first customer pre-delivery payments for the Lilium Jet ahead of expectations. The capital raised enabled us to continue our program development at pace. Our cash investments have been very much focused on key activities essential for the Lilium Jet development. Klaus just talked about several of these activities certification testing, preparation towards first manned flight, securing the production ramp-up and managing entry into service.

As a result of our prudent approach to cash management at the end of 2023, Lilium's unaudited liquidity amounted to EUR198 million. Our liquidity was therefore higher than expectations with adjusted cash spend lower than the guidance we had provided back in July. Three main items drove our lower cash usage resulting in a higher cash balance at the end of the year.

First, cost controls that we launched in the first half of the year, began to come through in the second half and it's worth pointing out again. This area of savings did not affect the pace of our program plan.

Second, we began to receive pre-delivery payments ahead of schedule. There's usually a few weeks or months of delay between the announcement of the deal and the collection of PDPs.

The third area that drove lower cash usage is simply timing. Some supplier payments shifted into 2024. Looking ahead now into the year 2024, we expect a cash usage of between EUR170 million to EUR180 million in the first half of the year.

On the funding front going forward, a few things to keep in mind. First, we are at advanced levels of discussion on funding with government agencies in our home countries, including other regions of Europe and in the US. In addition, we continue to collect PDPs. We remain in advanced discussions with large aircraft fleet operators and airline for very sizable, fixed orders.

Third and most important is the support we continue to receive from our largest shareholders who remain committed to our business over the long term. And finally, we are continuing to have advanced discussions with potential strategic partners.

With that, let me hand over to Sebastien Borel, our Chief Commercial Officer, for a more detailed update on our commercial achievements. Over to you, Seb.

Thank you, Oliver, and thank you all for joining us here today. Let me start by talking about a key announcement we made at the Singapore Air Show last week. Lilium proudly unveiled the eVTOL industry's first dedicated aftermarket service organization named Lilium POWER-ON. Alongside supporting our sales effort, we expect the aftermarket to be a key source of recurring revenues and profitability for Lilium after entry into service. According to our estimates, the Lilium Jet services market will reach at least $5 billion by 2035.

The newly established Lilium POWER-ON business will offer the full aircraft manufacturer services portfolio, including training services, maintenance operations, material and battery management, and global distribution, flight operations support, ground service equipment, and digital solutions. For efficient spare parts logistics, Lilium signed a strategic collaboration agreement with the AJW Group. AJW Group is a world-leading provider of aircraft components parts, repair, and supply chain solution with offices located globally.

As a further pillar in our services strategy, Lilium also signed last week an agreement with StarCharge, an innovative smart energy solution provider with an initial order of 120 chargers for certification testing and MRO services. This will also be delivered to our customers. StarCharge will therefore develop, customize, and provide the chargers for Lilium's use in ground and flight testing as well as for its aircraft maintenance and delivery centers activities.

The charging system provided by StarCharge deliver outstanding fast charge performance and will be fully compatible with the Combined Charging System standard, CCS, used for the Lilium Jet, which supports compliance with established standards. The chargers will feature a liquid cooled charging cable for high-performance charging suitable for all types of landing infrastructure and which will lead to a reduction in charging times of up to 20%.

Lilium has previously signed agreements for flight training with Lufthansa Aviation Training and FlightSafety International and digital aircraft health management solutions with Palantir. We are therefore well positioned to provide multiple services as part of the Lilium POWER-ON business.

Turning now to our network development, we made several important announcements in key markets. Earlier this month, Lilium designated the Future Orlando International airport vertiport brought as a network hub for Lilium Jet operators in central Florida. Located in the center of the state, the network is strategically placed to cater to the nearly 80 million annual visitors that the region attracts. Coupled with a world-class airport and the rapidly expanding community of Lake Nona, the airport city is expected to become a true multimodal hub for many forms of transportation. Lilium also announced its support for proposals to designate Greater Orlando Aviation Authority as the Advanced Air Mobility test site for the state of Florida.

And back in January, we announced a strategic collaboration with airport operator, Fraport, to explore planning and approval steps for the implementation of commercial eVTOL operations at key airports in Germany. Fraport is active at 30 international airports across four continents, including Frankfurt, Germany's busiest airports. The Fraport partnership will complement Lilium's partnership already agreed with airports across Germany, including the airports of Stuttgart, Munich, Nuremberg, Cologne-Bonn, and Düsseldorf.

On the sales side, last year, on top of Lufthansa, Lilium also signed an MOU with the CITIC Offshore Helicopter company, a major helicopter operator in China. The agreement provides a basis for our two companies to strategically collaborate in the establishment of an eVTOL operation network in China.

As part of the agreement, Lilium and CITIC will develop services in the region based on market demand and eventually offer regular eVTOL services. This will commence in the Greater Bay Area with additional services planned across the Guangdong-Hong Kong-Macao Greater Bay area, Hainan Island, and Tianjin in the future.

We also opened private sales in the US market through a partnership with EMCJET. EMCJET, an industry-leading aircraft brokerage and management company, is set to be the exclusive Lilium dealer in Texas for private sales. This announcement is the first step in unlocking the US. Private aviation market, the largest general and business aviation market in the world.

We also launched private sales in Middle East with ArcosJet announcing a binding purchase agreement for 10 Lilium Jets, expected to be delivered through 2026 and 2027. The agreement followed the appointment of ArcosJet as an exclusive authorized dealer for private sales of the Lilium Jet in the Middle East.

Lilium's approach for regional air mobility is also a perfect fit for island nations across the globe, such as the Philippines, a country with more than 7,000 islands. At the Singapore Air Show last week, Lilium announced the signing of a memorandum of understanding with PhilJets, a leading aviation provider of global services in the Asia-Pacific region. The agreement includes the intent to purchase 10 Lilium Jets as well as future strategic collaboration on an eVTOL network across the Philippines and other Southeast Asia countries such as Cambodia.

So to summarize our commercial success, we're excited about what we've accomplished in the past month in terms of new sales opportunities and the launch of our services business, Lilium POWER-ON. We are also very excited about our ongoing discussions with large airline customers to provide a cost-effective solution, both for point-to-point connections and first- and last-mile experience. We look forward to sharing our success on this front with you in the coming months.

And now let me hand you back to Klaus for closing comments. Thank you.

Thank you, Seb. As you can see, we continue to deliver our key milestones as we progress to our first manned flight targeted to occur in late '24 with the Lilium Jet targeted to enter into service in '26 after the type certification is obtained. We have made strong progress in our certification process with Design Organization Approval. We are well into assembly of our first Lilium Jet and we'll be keeping the market abreast on the progress of the program over the course of the year.

On the commercial front, the uniqueness and compelling use cases for the Lilium Jet has resulted in around 45 firm orders and we continue to convert MOUs into firm orders with pre-delivery payments. Our partnership with Lufthansa paves the way for early adaptation of our eVTOL technology into the mass commercial market.

Also on the adoption front, our newly formed aftermarket service business, sets us with a safe and reliable network to maintain our customers' Lilium Jet fleets while being additive to our profit streams in the future. We continue to have discussions with airlines on large fleet orders and hope to show the progress on this in the coming months. We remain of the view that safety is paramount as this new emerging aviation technology. We have a team that has extensive experience of certifying commercial aircraft to the highest safety standards.

On the financing front, we have already begun collection of pre-delivery payments. We are continuing our discussions with the German Government and other regions and countries on funding options. And most important to us on the financing front is the continued long-term support of our largest shareholders as we progress to entry into service.

Finally, I'd like to say a word about what we are doing to protect our valuable intellectual property. As of February 2024, Lilium had filed a total of 103 patent applications before the European Patent Office and German Patent Office. To help secure and protect our core technologies and intellectual property globally, we filed many of these patent applications in other jurisdictions such as the US and China. Around 75% of all of our patent applications related to propulsion, energy, and battery technology with the remainder protecting our technological breakthroughs in aerostructures, flight controls, and avionics.

This valuable know-how together with the approved competency to design aircraft according to the higher safety standards and the progress we have made towards bringing to market a significantly superior product give Lilium a sound foundation for the future.

With that, I will conclude our prepared comments. Operator, can you please open the call to questions?

(Operator instructions) Bill Peterson, JPMorgan.

I was hoping maybe just starting off at a high level to bridge the timeframe of what you're doing now in terms of assembling the first aircraft, the second one on the queue, all the way through type certification. To try to get a sense for just the timing and the milestones along the way. So I guess, first, how many aircraft do you need to build?

And I guess when you think about you're getting ready for flight testing at the end of the year, what are the key step by steps that you can take internally given you have the DOA in place that allows you some delegated authority versus what other tests are certified by EASA. And I guess just holistically, what do you think the most challenging or most challenging parts of the certification will be. I assume that's in propulsion. But if you could just level set us since we haven't had a conversation in a public forum in quite some time.

Thanks, Bill. Klaus, over to you.

Yeah. Okay. Thanks, Rama and hi, Bill. Good to have you here. Great question. So we have started the assembly of the first aircraft and the aircraft is going to serve as an integration test bench. Aircraft two is just following. And before the end of the year, we will have three aircraft assembled or in assembly. And another three are going to follow next year.

The first flight, as you may know and we said, is planned to occur before the end of the year. If we cut it short, let's say the first flying aircraft by summer will leave the assembly line. It will do its power on. So that means being put under its own electrical power.

We'll then have to go through quite an extensive ground testing. In parallel to testing on aircraft, we are also doing a lot of component testing on propulsion, on energy, on avionics. Also on our SiLab [Lilium's ground-based aircraft systems integration laboratory], which is basically a integrated simulator. We are going to pull all those data together.

We have EASA witnessing a part of the test, as you say, with the DOA. We have a lot of delegation to do our testing and basically put results to EASA but for sure we also want them to witness some of the critical tests.

We are going through this. Then wrapping everything up and before the end of the year, we should then go into flight. You rightly mentioned, I would say the more sophisticated part of the test and assembly activities for sure, all around our very innovative propulsion systems. But we are well into test. We already had the so-called FETT [first engine to test](added by company after the call) running by the end of last year. And we have since added quite a few to it.

We are also going through some very extensive wind tunnel testing. We did the first big campaign last year. We just do another one right now, which is all helping us for the final calibration of our flight control laws and for sure, we are doing still a lot of battery testing. The testing, by the way in the meantime, is moving not only to pure functional testing. It's also going a lot into maturity testing. But before we go into flight, we have to get the so-called permit to flight granted by the EASA and we have agreed a very comprehensive test program with them, which in the end all has to be put in front of them and then they will give us the right to take off.

We cannot do it on our own, but even guys like Airbus still get the permit to flight from EASA. So lots of testing going into it. We are looking forward. We are really delighted because every time I'm going down into our production or test hanger, I'm seeing something different. I see people super engaged and there's always something to learn even for an old guy like me when we do our testing and that's a fascinating time.

Yes, thanks for that. And I appreciate the cost savings measures you took with the cash control and the guidance you posted for the first half of the year. But I guess can you -- maybe for Oliver, can you share some more information on, I guess, what will be in OpEx? What will be in CapEx in terms of new construction or buildings you may need for equipment?

And how to think about the trajectory in the second half of the year and into next year, especially considering it sounds like you're going to unlock or potentially unlock more PDPs after flight testing? Should we assume that the use of cash actually goes down in '25? Any color on the cash trajectory, use of cash, sources of cash would be very helpful.

Thanks, Bill. Just real quick, on the 2025, we have -- we're not guiding quite forward yet, but Oliver -- I'll hand over the rest of the question over to Oliver.

Thank you, Bill. Yeah, I expected this question. Bill, as we said in the call, our budget for the first half, and that is the guidance we gave is around EUR170 million to EUR180 million. I would -- you could expect the second half to be in a similar ballpark. So I don't want to be over precise on that one.

But having said this, you know, we closed the year with nearly EUR200 million and it would bring us quite far throughout this year. However, of course, we are preparing to cash in additional money. And here in the first instance, I would like to mention -- I cannot be too detailed, sorry for that - but as discussed before, we expect to sign some binding orders. So we will see the PDP ramping up and we are in dialogue with existing shareholders and we get an amazing support, with our largest and oldest investors here just incredible. I cannot disclose too much.

We are in discussions with new investors, and we have the government discussions in Germany, but also in different countries. So overall, I think we are well underway. For the first half of this year, we are covered and then we, of course, are working on getting additional money into the company. And my target is not to close this year with a liquidity, which is significantly less than what we had last year.

But again, I cannot go into more details. I hope this gives you a little bit of framing in order to update your model.

Yeah. No, thanks for the second half color. And there is a lot, lot going on here. So I really appreciate the update this morning. Thank you.

(Operator instructions) Alex Potter, Piper Sandler.

Maybe Oliver, just very quickly just a housekeeping question or a definitional question. When you talk about the cash guidance, the cash spend guidance in the first half, is that net of PDP expectation or is that just your own operational cash spend plan.

Sorry, I take it directly, Rama, so (laughter) --

Yeah, yeah, fine.

That's our spend, that is what we use -- intend to use for the first half. It's not a net cash flow. It is our cash spend. It is basically our SG&A, our head count-related cost. It covers the CapEx and it covers the supplier NRCs [non-recurring costs]. And you can imagine, the more we move towards building our first aircraft and we also need to think on our serial production because you have heard that in 2026, we'll start to deliver our aircraft to our customer. So I think the growth of our cash spend compared to what we had last year is mainly related to the production ramp-up and to supplier NRCs.

Okay. Okay. Very good. So maybe another question. Just -- obviously, you're getting -- having some success moving MOUs into firm orders with PDPs. I'm interested in knowing how you think that will inform your mix of deliveries.

Once we are actually in service, we're starting to build these -- build the units maybe in 2026, 2027, 2028 in those first couple of years, how do you think the mix of deliveries will look, maybe just in broad terms? What percentage is going to be go into private aviation, what percentage is going to be larger airline orders? Obviously, the pricing implications could be different, but the volume implications will also be different. Has that mix consideration changed at all over the last several months or quarters?

Thanks also for the question. I think this is a good one for Sebastien.

Yes. Hello, everyone. Good question, indeed.

As you know, the premium market is a healthy market in which we will stay steady over the years. We will always continue to sell to the premium market. And so since we are starting with this and since we introduced them in our shuttle edition, which now serve six passenger, scheduled operation, you will see the growth and therefore, more and more shuttle coming in and the premium deliveries steady, you're looking at 50 to 100 premium a year, 150 if it continues to grow and have the discussion, the current discussion going very well. So steady premium and high net worth individuals purchases and the shuttle edition growing tremendously in the next few years.

Okay. Very good. That's super helpful. Then maybe one last one if I can sneak it in.

Is there any additional regulatory clarity on certification in the United States? I know that you're obviously making great progress with regard to EASA, the two organizations have slightly different certification protocols. Just any additional clarity you can provide on certification in the United States or progress towards certification in the United States would be helpful. Thanks.

Yeah, hi, Alex. Klaus speaking. So as you know, we have since quite a while our SC-VTOL requirements in place. And we also have since I think June last year, our G-1 paper, which basically sets the scene for us in terms of what we have to do regarding EASA certification, but also FAA certification. On top of that, Part-IAM [Innovative Air Mobility] has been also released. So we also know the operational rules.

In the US, we are a little bit behind, but that's not only for us. It's true for everybody because the so-called SFAR rules for the operations have not been finally finished. And to my knowledge also our friends/competitors from the US, the G-1 papers, the updates have not been published on the Federal Register. So I would dare to say, formally, we are even the most advanced company, not only having it from both jurisdictions from the EASA, FAA. But I think we are also at least as advanced as everybody else, if not more advanced in the United States.

Perfect. Thanks, guys. Appreciate the update.

Austin Moeller, Canaccord Genuity.

So just my first question or the announcement about the aftermarket business. I know we're not there yet, but how are you thinking about the aftermarket business as a percentage of total revenues within your mix once we get to production? And what the margin profile would look like for the aftermarket versus the OEM sales?

Seb, you want to take this question?

Yeah, I mean, obviously, the recurring revenue will grow as we introduce the aircraft sometime in 2026. And we have given estimates of what the revenue could look like by 2035 provided that we've looked into the number of flight hours that we expect out of our customers and number of aircraft flying. I think, Oliver, you may have a better picture in terms of how much that represents from a revenue perspective compared to the OEM sales.

I just wanted to give you a little bit the trajectory on this business, so you can imagine it is service business. So it starts to kick in after the first deliveries. We see it ramping up then. And this is interesting. It is ramping up over-proportionately. You can imagine the main driver for this business is the exchange of the batteries and the more aircraft you have in the universe, of course, the more often you need to exchange the battery.

So this is -- the portion I would say, with the strongest growth potential. It starts a bit later. To give you an exact percentage, I cannot do it right now to disclose all the business plan details. But having said what I wanted to mention before, it starts, I would say, to be visible in '27 with the first battery exchanges. But then in the year [2035] (corrected by company after the call), we gave you an idea, it's beyond the $5 billion revenue line and it will grow over-proportionately after that.

I don't know if it helps you for your modeling, but on the margin, I would like to say it is a high-margin business. So we expect to get even higher margins compared to the OEM business. It's low-risk business, so therefore, it is one of our key priorities to really get grip on this business, and yeah, that's what I can say for the time being, Austin.

Also just to clarify, that's over $5 billion in revenue in 2035. And on the margin front, I think for a good example, you could think of, if you look at the other aerospace aftermarket companies that do proprietary sole-source products, that's what we're looking at for margin profile.

Okay. That's helpful. And then just a follow-up. I know you've already started collecting PDPs, you're aiming to collect additional PDPs once you get some manned test flights under the (inaudible) the aircraft. But are you confident that with 730 aircrafts in the backlog that potentially those PDPs, if you collect them 30% to 50% of the price of an aircraft that that might be able to replace like a supplemental equity raise, for example?

Oliver, do you want to take that one?

I'm good. Austin, on the PDPs, it's important to understand what are the triggering points. In a classical aerospace business, you have two years in advance of delivery, typically one year in advance of delivery. What we try here, but not every contract is the same. But what we try and the trend we see is that important program milestones, especially on the premium sales, are the elements, which triggers the PDP payment can be achieved 30% or more.

So far what we saw in the 45 firm orders, yes, we can. Will it be the same with the big airlines? We will explore and we will come back to you later. But I think what is important to collect the PDPs is to achieve the first flight as a key milestone.

The type certification as a key milestone, and this will trigger a significant PDP payment. And therefore, it is one more argument why we have the entry into market strategy as we selected and focus in the first two or three years, basically in the premium segment because it is a higher aircraft price. You get higher PDPs and we can link them primarily to those milestones.

And maybe I can add -- Sebastien again. In the commercial discussion, we have given the maturity we have, especially on the aftermarket, actually, we will provide a lot of data on how we're going to be supporting them. And a lot of, I would say, level of comfort or understanding how we can provide those details solution.

The percentage of PDP being provided prior to delivery is not a hot question in the discussion we have commercially, it's much more about the demand and the network and working together. And you mentioned [around] (added by company after the call) 700 aircrafts under MOU. We also have cooperation agreement where we haven't stated number of aircraft. And so you can imagine that there is a lot of silent activities going on, which is not only converting what we have, but we also have those discussions. So obviously, the world is pretty big and we're talking to a lot of people.

Excellent. Thanks for all the details.

Savi Syth, Raymond James.

Just on the as a follow-up to Bill's line of questioning here, what's your approach to building these aircrafts? Are they going to be a fully compliant one through six or certain aspects of it? And just I know crew flight is -- manned flight is the target for year end, but do you expect to start flying these and how many flight hours do you think you might get this year on these certification conforming aircraft?

Yes, maybe I take it, hi Savi, nice to have the question. So we are going to start with a manned flight. So we are not even provisioning an aircraft to be remote controlled. As I said before, we foresee in total a fleet of six aircraft, three to be completed by this year. It will be -- the first flight will be in the last part of the year. So we won't count hundreds of flight hours this year.

The overall flight test program, as we speak, is foreseen to be something between 800 to 1,000 flight hours. And this is what you need to learn to understand your aircraft and also runs towards the certification test. And the aircraft will not be identical for a simple reason. You allocate a certain test to certain aircraft because you have to instrument them accordingly, so I think there will be no two aircraft the same. The aircraft itself yes, but as we are targeting certain tests on certain aircraft, the instrumentation will be different.

There will be some overlap because we need to have redundancy and fallback in case an aircraft is under maintenance so that we can continue the flight test, but this is well laid out. And I would say that is similar to what I did when we certified the A320neo. We had a similar size of aircraft -- flight test aircraft and also the same philosophy, some being very heavily instrumented and then specialization on certain instrumentation depending on the flight test purposes.

Does it answer your questions?

That's super helpful. And yes, it did. Just on a follow-up, if I might, just you have a lot of Tier 1 suppliers contributing here? What's their role in the certification process? I know you talked about doing a lot of components testing this year. Are these already certified components so that you can move faster or just what taken the benefit of using these Tier 1 suppliers?

Yeah, so suppliers, it's either we certify or supplier is doing a lot of certification work. And then the aircraft part comes with a so-called DDP, which is a Declaration of Design and Performance, which offsets a lot of work that we have to do. So basically, what we are doing, we do vast test on our deliverables, which is the propulsion system, the battery system, and also the total aircraft.

But for sure, we are also making vast use of tests which are performed by our suppliers. And as we have the who is who of experienced suppliers assembled around us, we can really make a lot of use of what they are doing because they for sure have the components first, and they have done similar qualifications and certifications before. Means, they have all the test means. They have the people who know how to run those tests. They have the people who know how to compile the necessary reports. So that is really of great help for us.

So like we are discharging a large part of the development work, we can also discharge a large part of the certification work to our suppliers. Ultimately, for sure, it all flows into the Type Certificate of the Lilium Jet. So we have to sum it up, but the physical doing is to a large extent also offset by our supplier.

(Operator instructions) Griffin Boss, B. Riley Securities.

First, can you just give some more color on what level of performance you're expecting to achieve with your prototype propulsion systems? And then what gains you're expecting with the next iteration and when that next generation might occur?

Yeah, hi, Griffin. So on the propulsion system, we expect right from the beginning that performance that we need because otherwise, we wouldn't be able to lift off the aircraft and to go to transition flight and to go to high-speed flights.

And the same is true for the battery system. And for sure, as we have said several times in the past, we foresee over the years a lot of improvement coming in with the battery system. And as we speak, we are already discussing with some suppliers about next-generation batteries, which we are going to bring in a couple of years after into service.

Whilst I would say as we speak we don't see necessarily a need to upgrade the propulsion system as such. And you may know also when you look into conventional aircraft, you are largely not changing. So what conventional aircraft are doing? They optimize the gas generator, they try to squeeze some 1% or 2% points out of the efficiency of the compressor of the turbine.

As we have an electrical motor that runs at an efficiency well above 90%. Honestly, there is not so much of a gain to be expected on the propulsion system side. On the battery side, that's by definition a completely different story because we believe by the end of the decade or perhaps even before our operating range, which at the starting point is 175 kilometers would be well above 200 kilometers with the next battery generation that we already have line of sight of.

Got it. Okay. Thanks for that, Klaus. And then just on the battery front, just clarification here. Do you expect any differences in performance from primary and secondary battery suppliers?

No, the batteries we are working on and, you know, the first one we get and we get more than 1,000 a month as we speak, is from CustomCells in Germany. But we have engaged into a partnership with InoBat and Gotion in Slovakia, and they will also start delivering batteries by mid of the year.

We always look into refining the battery recipe a little bit, but we are basically looking into, if I cut it a bit short, into the same type of battery. However, we are also looking with Gotion and others on what next-generation batteries are. And we see still a good trajectory with high silicon content batteries, but we are also looking into lithium metal batteries already.

So the whole battery industry is going to move forward. And I think we are really clearly at the forefront with our high silicon content prelithiated batteries, and we will be so for quite a while. But it doesn't mean we are satisfied, so we are going on.

But initially, our intention is dual sourcing also to derisk our supply chain. And then when working with new suppliers like with InoBat and Gotion for sure, we also see what they have in their labs and what they can provide and then to say, okay, the next generation for sure, we are going to make use of what our suppliers are going to deliver us.

Excellent. Okay. Thanks for taking my questions.

(Operator instructions)

Nadia, as we wait for additional questions, I think this is a good opportunity for us to take some questions from Lilium shareholders on the SAY Technology platform. This question comes from Trevor P.: Is there any concern that competitors make and get to market faster will harm your progress or future profitability?

I think the Lilium Jet is a better design, but I wonder if timing and flight heritage will be important? Klaus?

Yeah. Thanks for the question. And anyway, great to have our valued retail shareholders with us and asking questions. Honestly, I'm not really concerned about it because the Lilium Jet features a couple of USPs. We are the only aircraft flying regional. We are the only jet aircraft. We are one of the very few aircraft that are being certified to the highest safety levels. So we will be eligible to basically deliver in every country of the world. And we have some areas like EASA country where others not certifying to the SC-VTOL standards will not be eligible to deliver.

And I would also say, especially in the premium segment, I wouldn't dare to say, we are without competition, but maybe we are without competition because our value proposition, I would say, the uniqueness and the attractiveness, the performance, and lastly, the safety of the product really stands out so that we don't perceive necessarily a lot of competition.

On the other side when we are going to enter into service in '26, maybe some of our competitors are going to do. I believe there will be such a storm in the market, there will be such a demand that it's more a supply-driven market than a demand-driven market and everybody will have to ramp up their production and by my past experience, I can tell you I know what it means. So we are not going to expel hundreds and thousands of aircraft immediately.

So I'd rather believe it would be more for distribution market for a couple of years and Lilium being in a very comfortable position because we are not another me-too product like many others are. We are a USP. And we also have a good trajectory in terms of developing our product further where others will just have limits in terms of range extension that we don't have.

So I'm not concerned. I'm wishing everybody well. So yes, we are in a competition but I would not say Lilium is not in the first place in this competition. So I'm really not worried about it. And again, it will be a more sales -- supply-driven market than the demand-driven market.

Great. Thanks, Klaus. Nadia, do we have any other questions.

Rama, at this moment, we do not have any further questions on the phone.

All right. Great. Well, so then I guess we can end. This concludes our 2023 business update. We look forward to speaking with you before our next quarterly update in May. Please check our website for industry and industry events we'll be attending. And in the meanwhile, if you have any questions, please reach out to the Lilium Investor Relations team. And once again, thank you so much for your participation today, and have a great day.

That does conclude our conference for today. Thank you for participating. You may now all disconnect. Have a nice day.