Despite delivering record revenues and profits in 2013, MTU Aero Engines faces a challenging near-term stretch in part due to slow aftermarket growth and aircraft program delays that will hold up the flow of its engines into service.
MTU expects spare parts sales – part of an aftermarket segment that generated 37% of its 2013 revenues – to grow at about 5% in 2014. While ties to strong platforms like theand Engine Alliance GP7200 will help drive growth, anticipated declines in other programs the company has prominent roles in, including the as well as Pratt & Whitney’s (PW) and , could keep it in check.
“Over the next few years, we see attractive underlying fundamentals in the commercial aerospace sector, but we think MTU will underperform peers due to weak performance from MTU’s spare parts aftermarket exposure,” Bernstein Research says in an investor update. “We do not think positive growth from V2500,and, later in the decade, will be enough to adequately compensate for the potential of accelerating declines in CF6, PW2000, and PW4000.”
Compounding the problem is theprogram’s delay, with entry into service now pegged for the second half of 2015 instead of sometime this year (DAILY, Jan. 17). The slide will hit MTU’s new engine sales figures and, further downstream, delay the aftermarket revenue ramp-up.
MTU boosted year-over-year revenues 11% in 2013 to €3.7 billion ($5.1 billion), with an operating profit of €377 million, up 0.6%. New commercial engine revenue grew 18% to €1.9 billion, while commercial maintenance, repair, and overhaul was up 6% to €1.4 billion.
“Our new engine business will probably grow at a faster rate than the much more profitable spare parts business in 2014,” says CEO Reiner Winkler. “We are thus paying particular attention to our revenue and cost structures and took measures in 2013 to further improve them.”
MTU’s new engine backlog was down 4.2% year-over-year to €5.4 billion as of Dec. 31. MTU expects new engine revenue to rise 10% this year.
The company’s commercial maintenance backlog dropped 8.5% and stood at €5.4 billion. Maintenance services are expected to top spares growth this year, with MTU projecting mid- to high-single-digit improvement.and V2500 work is driving overhaul demand, the company says.
While MTU is being cautious with its outlook, news out of PW last month offers some encouragement. The engine maker reported strong year-over-year spares sales growth for both the PW2000 and PW4000, suggesting that the retirement pace of those models may not be accelerating just yet.