MTU Aero Engines has decided to halt the increase in its payout ratio to shareholders through 2026 due to challenges related to Pratt & Whitney engines and ongoing investments in infrastructure and technology that are expected to impact cash flow.
Challenges and Impact
Last year, MTU faced a setback when Pratt & Whitney's parent company, RTX, initiated a recall of hundreds of jet engines for inspection, leading to an estimated hit of around EUR1 billion. This recall was necessary due to a metal fault that could result in cracking, affecting the performance of engines that power popular aircraft like Airbus's A320neo, for which MTU supplies crucial components.
While the repercussions of this recall are anticipated to affect revenue and earnings before interest and taxes in 2023, the major liquidity impact is foreseen between 2024 and 2026. Despite these challenges, MTU remains dedicated to investing in its facilities and advancing its technological capabilities.
Strategic Shift
In a statement released on Wednesday, the company expressed that these factors are projected to impose significant cash flow strains, leading to a limitation on dividend payouts at the current level from 2024 to 2026. Consequently, the objective of progressively raising the payout ratios to achieve 40% of adjusted net income will be put on hold during this period.
MTU has announced a proposed dividend of 2 euros ($2.16) per share for 2023, a notable decrease from the EUR3.20 per share distributed in 2022.
Positive Outlook
Despite the challenges faced, MTU is optimistic about growth prospects across all market segments in the current year. The company anticipates revenue ranging between EUR7.3 billion and EUR7.5 billion, an adjusted EBIT margin exceeding 12%, and free cash flow in the low three-digit million euro range.
MTU is scheduled to release its 2023 earnings report on Feb. 29.
For more information, please contact Mauro Orru.
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