MTU Aero Raises Forecasts as First-Half Sales Beat Estimates

MTU Aero Engines Holding AG (MTX), the German company helping develop engines for China’s planned C919 airliner, raised full-year earnings and sales forecasts after beating analysts’ first-half revenue estimates.

MTU now expects adjusted operating profit this year of 370 million euros ($446 million) and sales at 3.3 billion euros, the Munich-based company said today. That would amount to a 13 percent increase, compared with MTU’s earlier forecast of 8 percent to 10 percent growth, and a 12 percent gain for sales, versus a “mid single-digit” percentage prediction.

Engine makers are seeing an increase in business as Airbus and Boeing boost production of commercial airliners. MTU also is seeing output increase on engines transitioning from a development phase to production. MTU is also benefiting from a higher pace of military flying, particularly related to the German air force’s transport fleet, CEO Egon Behle said today. The next two years could see military maintenance revenue higher than initial forecasts, he said.

“MTU has delivered a solid set of numbers,” Oliver Sleath, an analyst at Credit Suisse said in a note to investors. The company maintains an “outperform” rating on the engine maker.

Commercial-plane engines and maintenance revenue “can be expected to increase as predicted,” while military-business sales will rise “slightly” instead of remaining unchanged, Chief Financial Officer Reiner Winkler said in the statement.

IAE Stake

MTU’s higher sales forecast also reflects 100 million euros generated from its increased share in the International Aero Engines joint venture building V2500 engines, one of two power plants offered for the Airbus A320 airliner.

The sales boost will increase to 250 million euros next year, Behle said, and will then bolster adjusted operating profit at mid- to high-single digits.

MTU raised its stake last month in the partnership, which is led by United Technologies Corp. (UTX)’s Pratt & Whitney engine unit, to 16 percent from 11 percent. The company is paying about 550 million euros for the larger share.

The company has a sales target of 6 billion euros in 2020, which Behle said can be achieved without acquisitions. The company is looking at various purchases and partnership agreements, he said, without specifying potential deals.

MTU is a partner on Pratt & Whitney’s geared turbofan engine, to be used on the Bombardier Inc. (BBD/B)’s CSeries narrow body, Mitsubishi Regional Jet and other airliners. “Development is progressing well,” Behle said.

A400M Engine

Another large development program MTU is involved in is the Europrop International TP400-D6 turbo-propeller for the Airbus Military A400M military transport aircraft. The engine, under development by a joint venture that includes Rolls-Royce Holdings Plc (RR/), Safran SA (SAF)’s Snecma unit, and Spain’s ITP, has encountered repeated technical problems.

Airbus this month stopped a 300-hour test phase needed for aircraft certification because metal shavings were found in oil during inspection. Behle said the assessment of what caused the problem is still under review. There are no reasons at this point to expect financial damages from the situation, he said.

Behle also confirms the company is exploring how to gain a supplier role on the engine for the Boeing 777X, a new version of the long-range airliner the U.S. aircraft maker is considering. Boeing has asked General Electric Co. (GE), Pratt & Whitney, and Rolls-Royce for engine proposals. Behle would not say what strategy MTU will pursue to secure a position on the future aircraft.

MTU rose as much as 3.2 percent to 60.23 euros and was trading up 2.2 percent at 12:06 a.m. in Frankfurt. The stock has gained 21 percent this year, valuing the manufacturer at 3.12 billion euros.

Spare Parts

In the second quarter, MTU reported a slow down in sales of spare parts to airlines, mirroring a trend among peers. For the full year, Winkler says these sales will be flat. The company previously forecast 5 percent to 10 percent growth. An increase in spare-parts sales will come, but a few months later than foreseen, Behle said.

Adjusted net income this year will probably total 225 million euros, MTU said, a gain of 14 percent from 2011’s figure, and exceeding an earlier projection of 10 percent to 12 percent.

Adjusted earnings before interest and taxes increased 6.9 percent to 175.8 million euros. Sales rose 16 percent to 1.56 billion euros, beating the 1.48 billion-euro average of six analyst estimates compiled by Bloomberg.

To contact the reporter on this story: Robert Wall in London at rwall6@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net

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