After the boom years leading up to 2019, in which airlines attained and maintained record profitability, the global COVID-19 upended everything. Over the entire year 2020, flights were down by around 50 percent. Demand for maintenance services was put on hold and new production was slowed dramatically. Nonetheless, MTU Aero Engines performed better than the market in a number of segments in 2020. Why so?

Michael Schreyögg: MTU had a strong first quarter in 2020, which helped significantly. Nonetheless, our diversified portfolio of OEM, military and MRO activities also contributed to our ability to maintain stability. For instance, on the military side, some growth was even seen. The German Armed Forces committed to the Quadriga Eurofighter, powered by EJ200 engines, which has secured volume for MTU. The Future Combat Air System (FCAS) forms the basis for a thoroughly European supply chain in high-technology areas. As with many defense projects, we will see a continued transfer of technology to the commercial sector: new materials and processes will be enablers for emission-free flight and the next generation of commercial aircraft.

Martin Friis-Petersen: That’s a good point Michael, new technology. Despite the crisis, the goal is emission-free flight. MTU is investing a lot in research and development of various technologies, for example hydrogen propulsion systems. What role will these play in the coming years?

MS: We’re intensely researching such technologies, as well as fuel cell concepts and sustainable aviation fuels, as we believe these will have an important part to play in the future of our industry and we want to continually develop our portfolio. But engine development projects span decades and such technologies still have limitations, like, for instance, in the widebody sector. Right now, we’re also concentrating on increasing fuel efficiency and engine performance in existing projects and concepts, like the geared turbofan, and the durability of parts. This was a big focus for us on the OEM side in 2020 and will continue in the coming years.

What are you seeing on the maintenance, repair and overhaul (MRO) side, Martin?

MFP: We did comparatively well against the market. In 2020, we signed almost 5.5 billion dollars in contract wins and signed a PW1100G-JM network agreement with Pratt & Whitney for the next eleven years. Further, we saw a reduction in shop visits across our network of only about 20 percent in 2020, and we’re optimistic that this business segment will see double-digit growth again this year, assuming flights resume on a larger scale. Whereas in 2020, analysts expected a greater reduction, of about 40 percent, in demand for the entire MRO sector and aren’t predicting recovery until 2022/23 at the earliest.

MS: Signing contracts is one thing, how confident are you that we’ll actually see the volume?

MFP: Airlines are in survival mode and extremely cash focused. It’s hard to predict when airlines will return to positive cash flows. So the MRO market will be tough and extremely competitive.

But MTU has a broad portfolio. We’re well positioned in the narrowbody sector, which we expect to recover first. We even saw some recovery towards the end of last year, driven largely by regional operations, led in particular by China. While we might not see complete widebody recovery in the passenger segment until 2027/28, a large number of our widebody customers are in the cargo sector, and they have been flying at 100 percent or more throughout. And demand for services for newer engine types, such as retrofits for the PW1100G-JM or Leap-X workload, was also robust in 2020, mirroring the enhanced flight utilization of these newer engine types. New generation engines will remain important programs in our network in the coming years also, as so far, the majority of the aircraft that have returned to service are the newer and more popular types.

And we’re committed to our growth plans, we’re moving forward with a new repair facility, MTU Maintenance Serbia and constructing a second shop in China.

Nonetheless, the effect of the most recent wave of lockdowns and restrictions remains to be seen in 2021.

MS: And I know you consider yourself a speedboat, Martin, so I assume you and the team are working on adapting services to market needs…

MFP: Exactly, Michael. There was a trend towards more on-site events and quick fixes with newer engines anyway, and this has been expounded by the crisis. We’re increasing our services and network worldwide. We’re also extremely well known for our customized workscoping, which will become ever more important. We’re developing an unrivalled fleet management tool for engines, which can generate scenarios to maximize engine usage and avoid unnecessary spend, including green time usage and used serviceable material – all at the click of a mouse.

MS: I’ve seen the program and I’m confident it will be a huge help to airlines at the moment.

MFP: Though it’s important to note that green time usage is expected to reduce shop visits only by around 5 percent through 2024. Airlines have been much better at managing their inventory in recent years. Ultimately though, the industry is in a “wait and see” mode when it comes to MRO, and not just the airlines, also the aircraft owners, the lessors.

MS: That’s it in a nutshell really. We can’t predict the unpredictable. But around 50 percent of airlines, while in crisis mode, are still financially stable – they have high liquidity, strong cost structures and homogenous fleets. Those that aren’t as dependent on business travel will fare better, as leisure travel is expected to return faster. And flexible, point-to-point networks will help the low-cost carriers recover.

Overall, I’m confident that the airline industry will rebound in the long-term and the desire for travel will resume. I used to be a very frequent flyer, for instance, and I miss it. We did this all via Skype. But I’m not opposed to having a meeting in person and coffee with you at some point again soon.

MFP: That sounds very good to me.

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