Bloomberg News

MTU Aero Engines Accelerated Dollar Hedging to Secure Lower Rate

April 25, 2013

MTU Aero Engines Holding AG (MTX) Chief Financial Officer Reiner Winkler said Germany’s largest engine maker has intensified currency hedging to lock in advantageous dollar rates.

Effort to secure long-term dollar contracts were increased in recent months, with about 80 percent of sales this year covered, Winkler said on a call. Hedges were bought at around $1.30 per euro, and the cover rate compares with 70 percent at the same time last year, he said.

European aerospace companies such as MTU have large exposure to swings in the dollar exchange rate with sales denominated in the U.S. currency while much of their cost base is in euros. The currency contracts are intended to reduce earnings volatility.

MTU’s average currency hedge rate for 2013 has declined to $1.31, according to a presentation to analysts from the Munich- based company. The hedge rate for this year was $1.33 a year ago when about half the contracts were covered.

The hedge rate for 2014, where MTU has 56 percent of sales covered, is $1.30, with a further improvement to $1.27 in 2015, the company said as it reported first quarter results that saw sales increase 35 percent.

The revenue boost reflects strong growth in commercial engine activities, departing Chief Executive Officer Egon Behle said on the call. Increasing production of International Aero Engine V2500 powerplants for the Airbus SAS A320 airliners helped lift commercial powerplant sales by almost 65 percent.

New Engines

MTU is in talks with other engine companies to secure work on several new aircraft programs. Boeing Co. (BA:US) last month named General Electric Co. (GE:US) the exclusive engine provider for its future 777X long-haul plane. MTU is seeking a role on that powerplant, said Behle, who will leave the company at year-end.

Boeing Chief Executive Officer Jim McNerney said yesterday the engines and a new composite wing should deliver 90 percent of the improved value the 777X is supposed to deliver. A decision to offer the aircraft to customers could come this year, with first deliveries around the end of the decade, he said.

MTU also is in talks with United Technologies Corp. (UTX:US)’s Pratt & Whitney unit about a role on the geared turbofan engine Embraer SA (EMBR3) will use on its modernized regional jets, Behle said. MTU is already a partner on the engine to be used by aircraft such as the Airbus A320neo and Bombardier Inc. (BBD/B) CSeries.

Behle said orders and options, including some not yet announced, take the backlog for the geared turbofan beyond 3,500 engines.

To contact the reporter on this story: Robert Wall in London at rwall6@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net


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