MTU to cut costs by 'tens of millions of euros' next year

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German engine specialist MTU is expecting significant growth for its civilian production and maintenance activities in 2014, but aims to improve profitability through cost cuts in the tens of millions of euros.

The commercial engine subassembly manufacturing business is set to show the highest growth rate: revenues are expected to increase 15%. Last year, the division generated a turnover of around €1.6 billion ($2.2 billion), nearly half the group’s total €3.3 billion revenues.

The spare-parts business should increase more moderately, at a medium single-digit rate, says the Munich-based group. Supplying spares is traditionally more profitable than the manufacture of subassemblies, because component production lines are in place for the new engines and less labour is involved. However, airlines are increasingly using components from teardown engines for the maintenance of their existing fleets to save costs.

There could be a slight decline in military engine production and maintenance in 2014, says MTU. In 2012, the division delivered a 13% revenue increase to €503 million – driven mainly through deliveries of the Eurojet EJ200 engine for the Eurofighter Typhoon – but turnover fell 3.2% to €223 million during the first half of the current year.

MTU’s civilian maintenance business is expected to expand at a high single-digit growth rate, after the unit’s revenues increased nearly 17% to €1.3 billion in 2012.

Despite the growing activities, MTU aims to slash costs by "several tens of millions of euros" to improve profitability faster than previously planned, it says. Around 100 administrative jobs will be cut, although this is to be achieved through natural staff attrition and retirements.

Greater focus is being placed on low-cost manufacturing, and the group is planning to concentrate all low-pressure turbine assembly work at its Polish production plant. The site in Rzeszów is thus being expanded by 50%.

Expenses related to marketing, external consultants and staff travel are also to be cut.

The cost-cutting programme, dubbed “Cash for Future”, is to secure sufficient cash-flow despite investments for new engine programmes, says finance chief Reiner Winkler, who will succeed chief executive Egon Behle on 1 January 2014. The aim is to provide flexibility for potential investments in additional engine programmes, he adds.

In July, MTU downgraded its earnings forecast for 2013, after cash-flow halved during the first six months.