MTU Aero Engines Sees MRO Recovery In 2021

MTU Aero Engine performing maintenance on GE90 engine. Image

A little over a year into the COVID-19 pandemic, the aviation industry remains under pressure – a status that is likely to linger for some time to come.  Air traffic, which is the foundation of MTU Aero Engines business, is anemic and will likely continue to be so through at least 2023.

The hardest hit has been the company’s OEM businesses.  MTU reported a substantial drop in revenue in the first nine months of 2020, especially in the commercial engine business, where revenue fell from EUR1.14 billion in the 2019 period to EUR850.2 million.  The company said the highest revenue generators were the PW1100G-JM for the A320neo and the V2500 for the classic A320 aircraft family. For the year, MTU expects the sales decline to be in “mid-to-high twenties in the commercial series production business and the high twenties in the spare parts business.”

In military engines, revenue declined from EUR323.6 million to EUR296.3 million for the first nine months.  Here, the company forecasts higher volumes in the fourth quarter, especially in the EJ200 and RB199 engine aftermarkets, which should result in the sector holding the line with last year’s results.

Maintenance, repair, and overhaul (MRO) services saw revenues drop to EUR1.87 billion, down from EUR2.0 billion for the comparable nine-month periods.  According to the company, the drop was partly offset by the Geared Turbofan retrofit program, which provides warranty work for the PW1100G-JM engine. For the full year, the company said it expects a decline “in the mid-single-digit percentage range.”

Once past a difficult winter, the aviation recovery from the coronavirus crisis should continue its slow rise. Cargo has proven robust during the pandemic. By spring, passenger air travel should improve, with domestic flights recovering faster than international routes.

“Use of modern aircraft like the A320neo is strong, so we will see a significant rise in maintenance of PW1100G-JM engines in the future,” said Chief Program Officer Michael Schreyögg. “In view of the good outlook for commercial maintenance, MTU is sticking to its expansion plans, including establishing a component repair site in Serbia and expanding MTU Maintenance Zhuhai.”

MTU’s past collaborations put the company in a strong position to provide these MRO services.  Over the past several years, the company has expanded its reach, with teamings in China, Europe, and Saudi Arabia announced.  The effort in China looks to build upon the company’s success there as an MRO provider by transitioning into engine manufacturing.  The move into Saudi Arabia is aimed at strengthening the firm’s MRO operations in the Middle East.  More recently, the company has joined forces again with Lufthansa Technik to form a new joint venture, EME Aero, based in Poland.  EME Aero will provide MRO of geared turbofan engines.  The two companies have previously partnered on a joint venture repair shop for compressor airfoils – Airfoil Services Sdn Bhd – in Malaysia.

Through these global MRO facilities, MTU can provide commercial operators with support on engines such as the V2500, CF6, and CFM56.  With thousands of these engines in service, MRO is expected to remain a lucrative focus for the firm in the years ahead – so much so that the firm anticipated a pre-pandemic doubling of its MRO revenue by 2030.  This forecast has been stretched, and the company may not hit this goal now until around 2035.

While its commercial operations were hit hardest, defense operations are holding steady and are expected to remain stable.  For the most part, military engine production at the firm focuses on the Eurojet EJ200 for the Eurofighter Typhoon.  Production of the EJ200 had been slowing as government spending on Eurofighters declines. However, solid production of TP400-D6 engine for the A400M, a potential order of additional Eurofighters to replace Germany’s fleet of Tranche 1 aircraft, and the division’s involvement in the Next European Fighter Engine program bode well for the sector’s future outlook.

MTU’s defense sector will also see some MRO gains through its support of the Panavia Tornado’s RB199 engines.  In addition, MTU is a partner with GE on the T408 engine used on the U.S. Marines Corps’ CH-53K heavy-lift helicopters.  These new programs will help maintain sector stability throughout the pandemic recovery.

Finally, MTU Aero Engines has implemented a restructuring program to right-size the firm for the current environment.  Under this effort, the company expects to reduce its workforce by 10 to 15 percent by the end of 2021.

Despite the current crisis, aviation will remain a growth business in the long term, and MTU is taking the necessary steps to maintain its position. According to CEO Reiner Winkler, “We see the coming years as a restart phase in which we will use our technological leadership, innovative strength, and flexibility to extend our good starting position so that we can derive above-average benefit from the growth of the sector from 2024.”

About Richard Pettibone

A military history enthusiast, Richard began at Forecast International as editor of the World Weapons Weekly newsletter. As the Internet grew in importance as a research tool, he helped design the company's Forecast Intelligence Center and currently coordinates the EMarket Alert newsletters for clients. Richard also manages social media efforts, including two new blogs: Defense & Security Monitor, covering defense systems and international issues, and Flight Plan, which focuses on commercial aviation and space systems. For over 30 years, Richard has authored the Defense & Aerospace Companies, Volume I (North America) and Volume II (International) services. The two books provide detailed data on major aerospace and defense contractors. He also edits the International Contractors service, a database that tracks all the contractors involved in the programs covered in the FI library. More recently he was appointed Manager, Information Services Group (ISG), a new unit that encompasses developing outbound content for both Forecast International and Military Periscope.

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