MTU Aero Engines projected better revenues from its investments in geared turbofan engine programs, like Pratt & Whitney’s Pratt & Whitney PW1000G, which will be installed in new aircraft series like the Airbus SAS A320neo and Bombardier Inc. CSeries.

Turbo Engine Builder Outlines Cost-Saving Efforts

Nov. 27, 2013
Sees growth in new engine business, Moderate increase in spare parts sales Control ramp-up costs

MTU Aero Engines AG, the Munich-based manufacturer of turbofan engines for commercial and military aircraft and industrial gas turbines, forecast strong growth in its new engine business during the coming year, based on higher delivery volumes it has scheduled. The company offered the outlook to analysts at a London conference, though its comprehensive full-year guidance report will not be released until February.

MTU said revenues from its turbofan engines segment are expected to rise about 15% in the coming year. Its spare parts business, which it described as “much more profitable than the new engine business,” will grow in the range of 5% next year.

“Traditionally, earnings in the aircraft engine business are higher in later program life-cycle phases when the demand for maintenance, repair and overhaul services, as well as for spare parts goes up,” the company stated. “In the commercial engine maintenance business, MTU predicts an increase in revenues in the upper single-digit percentage range, while the company’s military business will probably decline slightly.”

Also, the manufacturer warned that its introduction of new Geared Turbofan engines for the Airbus A320neo and other jets, as well as the ramp-up of further programs, require “substantial upfront investments into development and production.” MTU explained it would take steps in the years to come to minimize associated cost increase. Included in this effort will be reducing its administrative staff by around 100 employees through retirements or attrition over the next four years. There are no plans for any involuntary layoffs, it said.

MTU also pledged to cut its costs for business travel, consultants’ fees, marketing, and other expenses. And, the company said it intends to accelerate productivity improvement efforts.

Over the next few years, MTW said it would continue to invest “heavily” to expand manufacturing and logistics capabilities at its Munich headquarters. A Polish subsidiary, MTU Aero Engines Polska, is due for expansion too. By 2018, some 300 additional jobs will have been created at MTU’s Polish subsidiary, it stated

MTU said it aims to “sustainably reduce the cost increase by several ten million euros every year,” to improve its cash reserves and earnings.

“The aim is to continue to ensure a sufficient cash flow, against the backdrop of the upfront costs we incur for the successful new engine programs,” CFO Reiner Winkler explained. “Today, we are investing heavily in tomorrow’s growth, and hence in MTU’s future. And we want to retain some flexibility that allows us to take stakes also in emerging engine programs.”

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