Lilium N.V. (NASDAQ:LILM) Q2 2022 Earnings Conference Call September 28, 2022 8:00 AM ET
Company Representatives
Klaus Roewe – Chief Executive Officer
Geoff Richardson – Chief Financial Officer
Sebastien Borel – Senior Vice President, Commercial
Conference Call Participants
Alexander Potter – Piper Sandler
Colin Rusch – Oppenheimer
Bill Peterson – JP Morgan
Adam Forsyth – Longspur
David Zazula – Barclays
Savanthi Syth – Raymond James
Geoff Richardson
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 get 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 close 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 statement 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 our Chief Executive Officer, Klaus Roewe; our Senior Vice President, Commercial Sebastien Borel. Let me hand it over to Klaus for some words.
Klaus Roewe
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 jet 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 with 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 led development certification, production ramp-up and also the operational deployment of, I have to say is 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 have also experienced and forgive me for the world, as a manufacturing hell of ramping up production of a large complex aircraft and this is especially what we intend to do at Lilium as well. So why am I so excited to be here, to have joined 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 propulsion technology that is behind it. Quite simply, I’m convinced that this aircraft will be the best in its class. I also believe that its unique architecture in the eVTOL arena has been rigorously conceived and validate. Its technology makes it suitable for multiple used cases, including for premium customers, but also as a commercial shuttle that people move a type of aircraft, potentially cargo aircraft or even other applications that we are looking into and that we would have yet to develop. In anyway, 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 ground breaking technologies that may spin off beyond aerospace into other sectors and that we could own. Furthermore, and that drives me a lot, decarburization is one of the great challenges of our time. See aerospace industry needs to face that fact and I’m convinced that Lilium and that the Lilium Jet is the one critical step in aviation’s 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 has 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 five of them. First of all, we achieved the high-speed full transition flight on our technology demonstrator at a speed of about ~100 kt. 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 assembly of the Type-conforming aircraft next year. We have signed up additional partnerships with Tier 1 aerospace suppliers. First, we have expanded our sales portfolio that is shy of 500 aircraft now and we are moving towards detailed terms and firm contracts with pre-delivery 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 edition, including receipt of deposits.
To start now with the flight test campaign, our technology demonstrator that we call Phoenix, Phoenix 2, recently achieved another important milestone because it performed the full transition from hover to wing-borne flight on both, the main canard – the main wing and the canard at about ~100 kt and what is more illustrative is I’m looking at the video, and I’d like to invite you to watch the following video please.
[Video Playing]
Yeah, that’s great pictures isn’t it? The fact that the canard’s wing transitioned smoothly is really a historic technical achievement, but it’s more than that. It’s also impressive that’s a 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 Die Welt and others, and they were able to witness firsthand the Phoenix flight test in Spain. The feedback we received all over the place, but they were all impressed by the stable flights and the very noise signature – 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 serial aircraft.
So the flight test campaign would now be complimented soon by an addition of the fight test demonstrate 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’s.
Next point, with regards to the batteries, the test results on our prototype battery sales gives us confidence that the batteries we plan to use inside of 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 provides to further improve cell 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 EASA also 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 G-2.
Moving forward, we plan to provide this detailed overview of our progress towards certification with both EASA and the FAA. In parallel was a type certification program. Lilium is working towards the Design Organization Approval, 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 granting of a DOA is a significant milestone for any aerospace company. It would demonstrate that Lilium has the 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 achieve the first manned flight, so with a pilot onboard right from the beginning of a conforming aircraft in ‘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 patents, 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 extension 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 Geoff for the financials. Geoff, please.
Geoff Richardson
Thank you, Klaus. As our aircraft development program ramps up, we are maintaining our strict budgetary control. The total cash spend of €63 million in Q2, 2022 was in line with the previous quarter with the spend of €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 detail 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 €250 million. Our liquidity as of June, 30, 2022 stood at €229 million. Additionally the €75 million equity line of credit facility established with Tumin Stone Capital became effective on June 24, 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 updated on our aircraft sales program. Over to you, Seb.
Sebastien Borel
Thank you, Geoff, and good afternoon, 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 aircrafts in key location with high demand, including GlobeAir, our latest announced. This brings the overall number of Lilium Jet under MoU to 483.
We are also launching a sales company for private individuals, taking pre-orders as early as 2022. As for commercial operators, Lilium plans to begin signing firm owners in 23 with a target of locking in meaningful deposits.
As outlined before, as a first phase and for our first aircraft deliveries, we are addressing the Premium, General and Business addition market. This includes charter operators, fractional ownership and private individuals. In the second phase we plan to roll out our six-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 three segments: Premium shuttle, usually replacing helicopters; charter services and fractional 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 intends to offer a tailored cabin and dedicated premium service on attractive financial terms. The limited edition will be unveiled later this year and we’ll be taking orders and deposits.
Lilium Jet is proving to be highly attractive in this market, thanks to its ducted-jet architecture, its spacious cabin, and the EASA safety standards requiring ten to the minus nine safety level, the same as for 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 locations with high and proven demand for premium air mobility, where we’ve identified strong commercial partners who wish to innovate and for whom sustainability is a stated priority.
Moving into more details of our recently MoU, the Bristow Group Inc., the leader in global VTOL solutions with a fleet of over 220 helicopters, selected the Lilium Jet to develop its eVTOL business line. Bristow also intends to cooperate on maintenance for the Lilium Florida network.
In addition, Lilium signed agreements with Helity Copter Airlines in Southern Spain, the ASL Group in the Benelux and AAP in Scandinavia. Also this month, GlobeAir, an innovative business jet operator based in Austria, signed an MoU with Lilium with the intention to purchase 12 aircraft to operate in Northern Italy and the French Riviera. 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 the selected locations will be key to Lilium’s commercial success. Back to you, Klaus.
Klaus Roewe
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’s 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 Organization Approval, Agreement on our Certification Program and the Means of Compliance, binding commercial agreements with deposits in ’23, and Receipt in the first half of next year of the first components and the star 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.
Geoff Richardson
Thank you, Klaus. So now we have some time to take your questions. [Operator Instructions]. We will now begin the Q&A session.
Question-and-Answer Session
Operator
Thank you very much. We will now take your fast question, please stand by. And your first question comes from the line of Alexander Potter from Piper Sandler. Please go ahead, your line is open.
Alexander Potter
Excellent! Thanks very much. So maybe I’ll start with the boring questions on the balance sheet for you Geoff. So, I guess knowing everything that you know now about your cash balance, cash spending, CapEx, PDPs, I guess this equity line of credit, how long do you think it will be before you need to start to 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 orders to support debt financing of some kind. I guess any commentary on the balance sheet would be helpful.
Geoff Richardson
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 some of the preliminary design process, demonstrating the battery, demonstrating the high speed transactions and Klaus 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 the kind of long strategics and we’re very confident between the PDP’s, between you know future potential adapt and with equity opportunities, including the ELOC that we’ve be able to extend the cash runway.
Alexander Potter
Okay great. That’s super helpful. I guess maybe on PDP’s, I am interested in hearing – it sounds like in the shareholder letter, it seems like you had a relatively high degree of confidence or it will be at least some PDP’s hitting the balance sheet in 2023. I guess any commentary you can disclose there about how those discussions are progressing and I guess did 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 sort of framework agreement that applies to everyone. Anything on PDP is relatively helpful.
Klaus Roewe
Seb, do you want to take that one.
Sebastien Borel
Absolutely! Thank you for the question. We are progressing with the customer and these all are MOU customers into the details of you know the next step, contractual next step, which will trigger to deposits. And what’s important for us is to be able to deliver to what we commit and that’s what we’re working on with them. We are working tremendous progress right now to further understand their requirements, the concept of operations, and what it will take to get there. So yes, we are absolutely confident we can get deposits, and we’re in the process with pretty much everyone.
Alexander Potter
Okay, perfect! Then maybe one last one I’ll sneak in here for Klaus. I mean you’ve been now onboard for a couple months, you know learning about the environment, the technology, the team. I’d 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 couple of months?
Klaus Roewe
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 and to the product, it’s progress, like everybody else from outside, because Lilium was very rigorous in respecting rules and I was basically working for competitors. So I knew a bit about the plane and now that I’m here since eight 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.
Alexander Potter
Great! Alright, thanks very much guys.
Operator
Thank you. We will now go to our next question, please stand by. And your next question comes from the line all of Colin Rusch from Oppenheimer. Please go ahead, your line is open.
Colin Rusch
Thanks so much guys. You know could you talk about any surprises that are coming out in the certification process. It looks like you made some great progress here in terms of moving thing down the road. You know that are things, kind of creeping up, that are surprising you or going to create some delays. Anything that we should be tracking in and around that process?
Geoff Richardson
Klaus, could you take that one?
Klaus Roewe
Yeah, thanks Colin. It’s a fair question, and I tend to say you never know before you’re done. What do we do to de-risk the whole thing? The first thing I think which is unique to Lilium is that we have right from the beginning a design against the highest possible certification standards and the EASA who is really seeing this as a strategic product has rightly imposed same safety levels like you have for any other big commercial airline or 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 up, that 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, there’s a set of requirements has been be spelled out by the EASA. 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 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 complied 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 being a lot. So when you look at this fabulous flight test on the video, which first of all it demonstrates the aircraft is doing what it is supposed to do and honestly it’s even doing a little bit better.
And as a predictability we have on the behavior of the aircraft is so high, that we know what we are designing now into the conforming aircraft to 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, it would drive any sorts of efforts that we don’t like.
Last bit, yes, it’s all in mobile. 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 learning’s, 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.
Colin Rusch
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 yield and consistency of products coming off the line, I’d like to understand kind of how mature that process is around that qualification of manufacturing facilities?
Klaus Roewe
Yeah. It’s a 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 cells and the good thing is custom cells fully engaged, custom cells also as you may know it’s a forefront of automotive batteries, because we will have to produce this at scale and they are exactly in this arena and automotive you know 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 it, 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 sales, we have a lot of sales. We need to test and we need to put them on the plane. We need to see how they behave. We need to continue all our volatility testing and then already next year we have to start working really at the height 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, where support from the automotive arena is really essential.
The 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 Livent where we have secured capacities, but potentially also was as our battery suppliers to further de-risk our technology.
Colin Rusch
Thanks so much, and I’d love to sneak one last one in. Just given the strategic significance of the technology in some and where you guys sit in the supply chain, you know in terms of funding, you know are there opportunities for you guys either in the U.S. or Europe, you know specifically in Germany around you know substantial grants that could help move the project along that would supplement analogy?
A – Geoff Richardson
Yeah, 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 last, but we have multiple, very experienced people working on that and we see that as a very promising, non-dilutive piece of the mix going forward. So hopefully there’s more to discuss in the future of those, but those go kind of at their own pace.
Colin Rusch
Perfect! Thanks so much.
Operator
Thank you. We will now go to our next question. Please stand by. And your next question comes from the line all Bill Peterson from JP Morgan. Please go ahead, your line is open.
Bill Peterson
Yeah, hi! Good afternoon or good morning if you’re in the U.S. Geoff. I wanted to talk about certification and thanks for the visual you provided here. You mentioned 28% still yet to be agreed for means of 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 you know more important, are you still confident in the 2025 certification timeline and then how much delay will we expect with maybe FAA, you know given this graphic. It looks like there are still many things yet to be still agreed with the FAA?
A – Geoff Richardson
Klaus, you want to take that one?
Klaus Roewe
Yeah, 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 there’s a 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 regard that we have for 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, it was 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 trust certification and that the authorities coming after will close quite soon after.
Regarding question numbers three, confidence was 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 tons of PDR. We are striving for CDR by mid of next year. We see supplies coming in, so it’s some very visible milestones on start of production of the plane. We have given ourselves about one 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 slowly 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 cycles, you will 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. And as a closer we are collaborating with EASA more. We also anticipate potential issues, the more we will be in the position to deliver to the schedule.
It is possible we will 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 inside, because if you set up a schedule that doesn’t have any margins, it’s condemned to fail already from the beginning and we have put all the margins into this schedule.
Bill Peterson
Yeah, thanks for that color Klaus. 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 with 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?
Klaus Roewe
Yeah, so first question is it part of certification? No. The authorities care for one thing which is safety, and if the battery for short in order to fly safe, you must have enough margin when it’s a state of chart [ph], which is normally by the end of the flight, is a good use that you can still safely land. So there’s 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 then 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 is the authorities won’t care a lot. They will care 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’re saying 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 put, 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 expanding our battery test level I told you that we have ourselves. So it’s also a bit of a capacity questions that we have to tackle with external resources.
Bill Peterson
Thanks, thank you for that color. Just sneaking 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, you know just CapEx? Any just sort of broad color if you can provide please?
Geoff Richardson
Yeah, 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 a 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. I 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. It could be a little bit more, but not meaningful.
Bill Peterson
Thanks Geoff. Thanks a lot guys.
Operator
Thank you. We will now go to our next question, please stand by. And your next question comes from the line of Adam Forsyth from Longspur. Please go ahead, your line is open.
Adam Forsyth
Thank you. Hello everybody! Two questions if I may. Firstly, just on your 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 it 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 sort of unusual operating additions, particularly its extremes of the temperature. I’m almost thinking you know there might be a battery equipment in [inaudible], which I’d say one type differentiation and battery specification as the electric aircraft marketed goals. We’d be interested in your thoughts on that. Thanks.
A – Klaus Roewe
Yes, so two questions. First one, regarding rulemaking for operations in cities. I cannot tell you I have to say, and please forgive me. After eight weeks in the role, I’m not familiar with the detailed difference we have between existing rule making and rule making as it – we are in 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, because the temperature of the batteries, I would not dare to say, it should be independent of the ambient temperature. However, as [Cross Talk] correctly would be – sorry, there was a noise on the line. The battery would anyway be conditioned. So when your 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.
Geoff Richardson
And I think Sab can comment on the first question.
Sebastien Borel
Well, just on the IAM regulations, EASA, we are part of the working group. We are closing relatively what it means, but the beauty of going with the premium general and business addition in the market at first is that we can reuse a lot of their facilities and we can get as close as possible to the city is which are making a lot of sense in regards to the service we are trying to provide. So that phased approach is not only a commercial approach which is useful, but also in regards to operation, it makes our life a lot easier.
Adam Forsyth
Yes, that’s great, that’s really helpful. Thanks.
A – Klaus Roewe
Thank you.
Operator
Thank you. We will now go to our next question. Please stand by. And your next question comes the line all of David Zazula from Barclays. Please go ahead, your line is open.
David Zazula
Hey, good afternoon, and thanks for taking my question. Of course maybe a 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 and the ability to achieve forecast in your levels?
A – Klaus Roewe
Yeah, thanks David. So as you know we have not flown Pegasus yet, because it’s in the make and Phoenix configuration battery wise is not comparable to it. But what we have demonstrated is the energy density, which is exactly the 3300 watt hours per kilogram of battery weight, and we have I would say a very good accuracy and energy consumption, because here for sure we have some learning’s 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 as a propulsion efficiency, that we still have to demonstrate, because we have only a couple of engines on the test end.
Also we will go into full scale wind tunnel testing very soon and in our industry results as a key ingredient is that you need if you really want to kind of nail it down on the performance, what we know, which today is a combination of analytics and tests, but more on the analytical side. We can confirm that the operational range would be about 175 kilometers. There was a physical range being 250 and the delta being results that we have to hold.
David Zazula
And then, for Sebastian, can you just give us 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. Thanks.
Sebastien Borel
Really great question. So the – so first we’re going back I mean to the geographical. Obviously we are looking at the AESA territories along with FAA, knowing that 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 really high demand from the premium segment to really look at a new product, right. 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 individuals are looking for and therefore growing into that sales of the premium segment paves a way for the – you know really for the future, which is really to democratize the air 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, any type of operational regulation, it also helps you know from the public acceptance and from the airport authorities’ to start with lower volume. When one side is ready to move to higher volume, higher frequencies and you can go much bigger and in terms of production volumes, and this is where the network kick-in. The 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.
David Zazula
Awesome! Thanks for the questions.
Klaus Roewe
Thank you.
Operator
Thank you. Oh sorry! Thank you. We will now take our next question. Please stand by. And your next question comes from the line of the Savanthi Syth from Raymond James. Please go ahead, your line is open.
Savanthi Syth
Hey everyone! Just two questions from me. This first one is a follow-up on the PDP. I was curious if you can provide a range or kind of a realistic target of what we might be able to see in 2022 and 2023?
Geoff Richardson
Hi Savy! Good afternoon! I think we are in discussions. I’m hopeful if that’s a range or something that we’ll 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 better visibility and are optimistic on the individual one, but I think we’d like to firm it up a bit more and that can come back to the next quarter or two with guidance if that works.
Savanthi Syth
Understood! And then just a second question, on the certification side, it seems like the type certification, everything’s pretty clear. Are you waiting anything more from the EASA in terms of what your operators and from a kind of aircraft to operations, what is necessary to set this all up or has everything been clarified?
Klaus Roewe
No, I think this goes hand-in-hand because 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.
Savanthi Syth
Has that been clarified by EASA or are you still waiting for more from EASA on what’s required on that from an operation side of things?
Klaus Roewe
No, 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 or a bit in delay, but the whole thing is, if you obtain type certificates 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 manual, flight crew manuals, maintenance manuals, minimum equipment list, and troubleshooting manuals and I think its 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. The training organizing also has to be – the training organization, so how do you train, what is a training program, what is the syllabus on the training, all of that is part of the certification.
Savanthi Syth
Got it, understood. Thank you.
Operator
Thank you. There are currently no further phone questions. I’ll hand the call back to Geoff.
Geoff Richardson
Thanks. But 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’s for you. We wanted to – the shareholder is asking, where do you see this company going within the next 10 years.
Klaus Roewe
Oh! It’s a bold one and thanks for the question and also thanks to our retail investors community that we’d sometimes forget a little bit. Yeah, so innovations, we are working on right now for sure, not only for this aircraft, it’s also fundament for any electric jet 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. It was larger form factors to serve the entitle segment of electric aviation.
Lilium will continue to push boundaries with new programs and innovations that will reduce costs to our customers and passengers, and our ambition is for sure is to cut trip times to a fraction of what they are today when you 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.
Geoff Richardson
Thanks Klaus, and thanks for everyone’s participation today. With that, we’ll conclude our business update call. Thank you.
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