But Reiner Winkler, CEO of MTU Aero Engines, remains calm. “I don’t think that’s dramatic now,” he said on Wednesday morning at the presentation of the first key data for the past 2021 financial year. At the moment there is a lot of movement in the entire market.
“The entire industry is realigning, there are currently many discussions between manufacturers and suppliers,” said Winkler, with a view to the major issue of sustainability. However, it will still be a long time before aircraft with completely new propulsion technologies are on the market on a significant scale.
Winkler finds it difficult to speculate about possible changes in the cooperation between suppliers and manufacturers. “I can’t answer today whether Airbus or Boeing will be involved themselves,” says Winkler. It is not yet foreseeable whether and what consequences the new propulsion technologies will have for MTU’s share in engine construction in the future.
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MTU currently produces low-pressure turbines and compressors, both of which are key components in jet engines. For example, the company is involved in Pratt & Whitney’s PW1100G-JM engine. The engine is considered to be very efficient and is used, among other things, in the short- and medium-haul jet A320neo, a bestseller from Airbus. The second major division is the maintenance of these engines. There is also a military shop. For example, MTU is involved in the planned European air combat system FCAS.
The construction of civil engine components and the civil maintenance business are by far the most important business areas of the Dax company. Last year, these two divisions accounted for around 90 percent of sales of almost 4.2 billion euros. A shift in value creation in engine construction, for example in the direction of Airbus or Boeing, would therefore have significant consequences – for MTU, its approximately 10,000 employees, but also for the investors and shareholders.
For the time being, experts see no danger to MTU’s business model
But experts give the all-clear: “In the medium term, MTU doesn’t have to worry at all about its own business as far as the idea of Airbus is concerned,” said Michael Santo from the H&Z consulting firm in Munich, which specializes in aviation. In the past, the large manufacturers have repeatedly stated that they would start building system components such as an auxiliary turbine. “As a rule, this is an attempt to crack oligopolistic or monopolistic structures in this supplier segment.”
“It’s not just about building engines,” Santo continues: “The great advantage of companies like MTU is the worldwide service network for maintenance.”
The bulging order book seems to confirm this assessment. The airlines are counting on the traditional division of labor remaining in place for the time being. At the end of 2021, the Munich-based company had orders with a total volume of 22.2 billion euros on its books, a new record. In commercial maintenance alone, orders worth more than $4.6 billion were received, said Winkler: “Especially given the difficult market situation, this is proof of MTU’s strong market position.”
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At the same time, Winkler pointed out that MTU is also working on new aircraft engines. As an example, the aviation manager named the further development of the geared turbofan (GTF) family brought onto the market by Pratt & Whitney. The GTF Advantage, developed together with the partner, is an important milestone “on our way to developing sustainable and emission-free engines and thus helping to shape the sustainability of aviation,” said Winkler.
In this area, as well as for the important topic of digitization, the company has now been hired again, said the MTU boss. The company currently has 200 jobs advertised. During the pandemic, MTU cut around 1,100 full-time positions through various measures. Even short-time work is no longer an issue. The workshops are well filled again, according to Winkler: “The airlines are expecting a strong summer, we’re noticing that.”
Investors seem to like these messages. The MTU share was one of the winners in the German share index later on Wednesday morning with a price increase of around 2.5 percent. The fundamentally good figures for 2021 are likely to have played a part in this.
MTU may have missed its sales target. Revenue rose by five percent to almost 4.2 billion euros. Most recently, management had forecast a value between 4.3 and 4.4 billion euros. But according to CFO Peter Kameritsch, orders for the FCAS air combat system have been postponed to this year. This was also the case with some maintenance contracts.
On the profit side, however, MTU benefited from its austerity measures. The operating result increased by 13 percent to 468 million euros, the profit margin rose to 11.2 percent after 10.5 percent in 2020. At the same time, the company had to make impairments of 80 million euros on the program of the planned Embraer E175-E2 . Embraer decided to push the E175-E2 three years into the future. “In our opinion, the market prospects for the aircraft have deteriorated significantly. That’s not nice, but it’s necessary,” said Kameritsch, referring to the value adjustments.
For the current year, the management expects sales of 5.2 to 5.4 billion euros. Adjusted earnings before interest and taxes (EBIT) are expected to increase by a “mid-twenties percentage”.
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