German engine specialist MTU Aero Engines has increased its 2019 earnings forecast, following improved profitability in its manufacturing and maintenance segments.

MTU says it expects an adjusted EBIT margin “in the region of 16%”, having previously targeted 15.5%.

The Munich-based company has not changed its forecast for 2019 revenue of around €4.7 billion ($5.2 billion).

Chief executive Reiner Winkler states that the increased earnings outlook is a result of MTU’s Chinese overhaul shop in Zhuhai having developed “more positively than anticipated” and of “changes in the [manufacturing segment’s] product mix”.

MTU has been delivering proportionally more spare and lease engines than in the past, it says.

Adjusted EBIT increased 11%, to €178 million, during the second quarter, while revenue fell 2% to €1.11 billion.

MRO turnover declined 6%, to €632 million, which the company attributes to one-time effects from “internal changes in contracting and invoicing processes” at the Zhuhai overhaul shop.

However, the MRO segment’s adjusted EBIT grew 21%, to €66 million.

MTU engine part repair

MTU Aero Engines

MTU says the Zhuhai facility’s increased profitability was a result of both higher shop volumes and improved efficiency.

Adjusted EBIT in the OEM segment grew 6% to €112 million. Revenue was up 5% for the commercial OEM business, at 5% €387 million, and 3% in the military manufacturing segment.

On a half-yearly basis, overall adjusted EBIT increased 9% to €356 million, while revenue rose 4% to €2.24 billion, MTU says.

Free cash flow of €235 million increased 77% compared with same period in 2018.

As a result, MTU has raised to 65-70% its 2019 outlook for the free cash flow ratio relative to adjusted net income, from a previous target of 55-60%.

In 2018, MTU generated a cash conversion rate of 42%, delivering an adjusted operating profit of €671 million on revenue of €4.57 billion.