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CAPITAL GOODS: MTU Aero Engines (MTXGR Baa3[P]/NR/BBB): Moody’s Outlook Positive

CAPITAL GOODS
  • With just 07/25s and a convertible outstanding, MTU is not a name we have followed up until now, but it’s had both a move to outlook positive from Moody’s and a 7Y mandate today.
  • MTU had issues in 2023 due to component problems for the GTF consortium it’s a partner in. That has led to airline compensation charges that will be paid between 2024-26. That event did not bring any rating changes at the time.
  • With €1.2bn adj. EBITDA expected for this year, the €700mn total cash costs estimated over 3 years by Moody’s is manageable. Still, adj. FCF is seen negative at -€100-150mn for 24 and 25 and the final amount is not yet certain. Moody’s sees a return to positive FCF from 2026.
  • The outlook change comes as MTU posted strong revenue (+10%) and adj. EBIT (+16%) growth in 1H2, with FY24 margin guidance increased to 13%.
  • The FCF numbers above are an upgrade on Moody’s previous assumptions. They also welcome the prudential financial policies in place until the settlements are resolved.
  • While Moody’s 2.5x adj. gross leverage threshold should be surpassed in 2025, cash flow metrics for an upgrade are more likely to be met in 2026.
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