Strong Dollar Masks Weakness At MTU Aero

MTU Aero Engines has lowered the sales forecast for its military and commercial maintenance division.

The comments from the aircraft engine maker overshadowed an increase to full year sales and profit targets for the group as a whole, helped by benign currency effects.

Engine makers are benefiting from new airline orders, helping to counter declining military spending. On the downside, supplying engines for new aircraft is less lucrative than providing spare parts and maintenance.

The maintenance business is also grappling with a shift in the airline industry to contracts based on a flat rate per flying hour, rather than on how long work takes. That means fewer workshop visits and spare parts in the short-term but will boost earnings later, MTU said.

MTU said contract volumes at its commercial maintenance, repair and overhaul (MRO) business dropped 6 percent in the first half of the year.

For 2015, it now expects commercial spare parts sales and commercial MRO sales in dollar terms to rise only by a low to mid single digit percentage, easing back on earlier forecasts.

That echoes comments from United Technologies, which highlighted over-optimistic assumptions for its Aerospace Systems business when warning on profit earlier this week.

The company said currency effects were more than making up for softness in the industry, upgrading its targets for 2015 thanks to the strong dollar.

MTU is benefiting from the weak euro because it does most of its business in the US currency but reports in euros.

MTU now expects 2015 revenues of around EUR€4.6 billion (USD$5.03 billion) and adjusted earnings before interest and tax of about EUR€430 million, up from its previous forecast of EUR€4.4 billion and EUR€420 million.