MTU Aero Engines AG Feels the Effects of the Coronavirus Pandemic In the First Six Months

In the first six months of 2020, MTU Aero Engines AG generated revenue of €2,048.8 million; in the first half of 2019 revenue was €2,243.0 million. Operating profit was €224.2 million, compared with €365.2 million in the prior-year period. The EBIT margin was 10.9% in the first six months of 2020 (1-6/2019: 16.3%). Net income declined from €261.0 million to €161.3 million. “The figures reflect the first effects of the coronavirus pandemic,” said Reiner Winkler, CEO of MTU Aero Engines AG. “A better estimate of the quantitative impact of the coronavirus crisis is now also possible. On Friday, we therefore issued new guidance for 2020.” MTU now expects to generate revenue of around €4 to €4.4 billion in 2020. In percentage terms, the company anticipates an organic decline in the mid to high twenties in the commercial series production business and in the high twenties in the spare parts business. In the commercial maintenance business, an organic revenue reduction in the low to mid single-digit percentage range is expected. Revenue in the military engine business should grow slightly. MTU is forecasting an adjusted EBIT margin of between 9% and 10% for 2020. Adjusted net income should develop in line with EBIT. Furthermore, MTU has set itself the goal of closing the year with a positive free cash flow.

Revenue from the commercial maintenance business was stable at €1,272.3 million in the first six months (1-6/2019: €1,287.3 million). The main revenue driver was the V2500 for the classic A320 family, followed by the PW1000G-JM for the Airbus A320neo, where MTU registered an increase in shop visits in connection with the retrofit program. “This work could offset the decline in revenue in the core business,” explained Winkler.

In the commercial engine business, revenue fell from €773.0 million to €630.6 million. “The figures reflect the reduction in aircraft production rates and the decline in aircraft deliveries,” said Winkler. The main revenue drivers were the V2500, the PW1100G-JM and the GEnx, which is used in the Boeing 787 and 747-8 models.

In the military engine business, the three-week suspension of operations in April was the main reason for the drop in revenue to €183.2 million (1-6/2019: €216.0 million). The main source of revenue was the EJ200 Eurofighter engine.

The order backlog at the end of the first six months remained high at €18.4 billion (December 31, 2019: €19.8 billion). The majority of these orders relate to the V2500 and the Geared Turbofan engines of the PW1000G family, in particular the PW1100G-JM for the A320neo.

MTU’s earnings declined considerably in the first half of 2020, especially in the OEM business, where adjusted EBIT fell from €242.5 million to €128.1 million. Winkler: “The decline affected all are-as. Commercial series production business registered an organic decline in the high single-digit percentage range, the percentage drop in revenue from spare parts was in the mid-twenties, and there was also a drop in military business. That naturally had a negative effect on our earnings.” The EBIT margin in the OEM business was 15.7 percent, compared with 24.5 percent in the same period of the previous year. Commercial maintenance reported half-year earnings of €96.3 million (1-6/2019: €122.3 million) and an EBIT margin of 7.6%, down from 9.5% in the first half of 2019. Winkler: “The figures reflect the increase in MRO work for Geared Turbofan engines.”

MTU spent €98.1 million on research and development in the first half of 2020 (1-6/2019: €112.0 million). “We are actively preparing for the future through our research and development and our activities are focused on emission-free aviation,” reported Winkler. In line with this, MTU has concentrated its R&D activities on the ongoing development of the Geared Turbofan™ pro-grams and future enhancements, technology studies for next-generation engine design, and digi-talization of engine manufacturing processes.

The free cash flow was €125.2 million as of June 2020 (1-6/2019: €235.4 million). CFO Peter

Kameritsch: “Safeguarding our liquidity position still has top priority for us. We were able to in-crease our financial headroom considerably in the first half of the year: We increased our liquidity reserves to around €1.5 billion.” To this end, MTU increased the existing revolving credit facility by €100 million to €700 million and successfully placed a €100 million promissory note and a Eurobond with an aggregate principal amount of €500 million.

The net cash outflow for property, plant and equipment was €63.0 million in the first half of the year, compared with €99.0 million in the prior-year period.

MTU had 10,661 employees at the end of June 2020, unchanged from year-end 2019 (December 31, 2019: 10,660 employees). “Regrettably, the present business situation forces us to reduce our per-sonnel capacity by 10-15 percent by the end of 2021,” said Winkler. “We will be doing that as cir-cumspectly as possible to ensure that after the crisis we still have as many of our highly qualified staff on board as possible.”