Executive Summary

This report provides an in-depth analysis of MTU Aero Engines AG (MTU). The valuation is derived from a weighted blend of Sum-of-the-Parts (SOTP), Discounted Cash Flow (DCF), and peer-based valuation methodologies.

The core investment thesis posits that MTU Aero Engines represents a compelling long-term investment opportunity. The company is a high-quality, technologically superior aerospace component manufacturer and the world’s leading independent Maintenance, Repair, and Overhaul (MRO) provider. Its current market valuation appears to be anchored by the short-term financial impact of the Pratt & Whitney (P&W) Geared Turbofan (GTF) engine’s powder metal contamination issue, a problem originating with a partner. This has created a dislocation between the stock price and the company’s intrinsic value. The market is underappreciating the long-term strategic benefit arising from this crisis: the forced acceleration and maturation of MTU’s GTF MRO business, which will be a powerful cash flow engine for decades. MTU’s entrenched position as a risk-and-revenue-sharing partner on the most critical next-generation engine platforms (GTF, GE9X) provides exceptional visibility into a multi-decade, high-margin aftermarket annuity stream that is unmatched by most industrial companies.

Key financial forecasts underscore this positive outlook. Management has issued strong and credible long-term guidance, projecting revenues to nearly double from €7.5 billion in 2024 to between €13 and €14 billion by 2030, with an adjusted EBIT margin expanding from 14.0% to a target range of 14.5% to 15.5%. This growth is propelled by the aftermarket, where spare parts and MRO services are expected to grow at a low-teens to high-teens pace, significantly outpacing new engine sales.  

Despite the positive outlook, several risks warrant careful monitoring. The company’s symbiotic yet complex “frenemy” relationship with Original Equipment Manufacturers (OEMs) like P&W and GE presents a long-term risk of margin pressure in the MRO segment. There is considerable execution risk associated with the ambitious MRO network expansion required to meet future demand. Persistent global supply chain constraints and the significant near-term cash outflows associated with the GTF fleet management plan could also temper performance and shareholder returns.

1.0 Investment Thesis

1.1 Investment Rationale

MTU Aero Engines AG is a premier asset in the global aerospace and defense industry, uniquely positioned as both a critical technology partner to the world’s leading engine OEMs and the global leader in independent engine MRO services. The current investment case is built on the market’s overemphasis on a temporary, partner-induced crisis, which has overshadowed the fundamental strengthening of MTU’s long-term competitive advantages and cash flow generating capabilities. This analysis is underpinned by a detailed review of the company’s resilient business model, its indispensable role in the aerospace value chain, and a comprehensive valuation.

1.2 The Bull Case: The Aftermarket Annuity Strengthens

The bull case for MTU is centered on the durability and growth of its high-margin aftermarket business, which is being structurally enhanced by the very challenges that are currently weighing on market sentiment.

• Resilient, High-Margin Aftermarket: The core of MTU’s value lies in its aftermarket operations (MRO and spare parts), which are structurally more resilient than the highly cyclical business of selling new engines. The MRO segment alone constitutes approximately 67% of the company’s revenue, generating around €5.1 billion in FY2024. This business provides a stable, recurring, and highly visible cash flow stream tied to the global fleet’s flight hours and maintenance schedules, which are less volatile than new aircraft delivery cycles. This aftermarket-heavy revenue mix provides a powerful cushion during economic downturns, as airlines can delay new aircraft purchases but cannot defer essential maintenance on their existing fleets without grounding aircraft.  
• The GTF Crisis as an Unlikely Catalyst: The significant quality issue related to contaminated powder metal in certain P&W GTF engine components has forced a massive, global recall and fleet management plan. As an 18% risk-and-revenue sharing partner in the program, MTU has been directly impacted, recording a provision of approximately €1 billion in 2023 and experiencing significant cash outflows that reduced free cash flow to €183 million in 2024 from €352 million in 2023. While the market has focused on this negative financial impact, it has overlooked a profound strategic consequence. The recall has triggered a massive, premature wave of engine shop visits, effectively pulling forward the maturation of the GTF MRO market by several years. This has compelled MTU to rapidly scale its MRO capacity, accelerate the development of advanced repair techniques (e.g., “smart repairs”), and solidify its expertise on the most important narrow-body engine platform for the next generation. While financially painful in the near term, this forced scaling is building a larger, more efficient, and more experienced GTF MRO business far sooner than would have occurred in a normal cycle. This accelerates the realization of a multi-decade, high-margin annuity stream.  
• Indispensable Technology Partner: MTU’s competitive moat is carved from its world-class technological leadership in the design and manufacture of highly complex engine modules, specifically high-speed low-pressure turbines (LPTs) and advanced high-pressure compressors (HPCs). This expertise is not easily replicated and makes MTU an indispensable partner for OEMs on their most strategic engine programs. This is evidenced by its significant workshares on the P&W GTF family (18%), the GE GEnx (6.6%), and the GE9X (4%). This status as a risk-and-revenue-sharing partner, rather than a mere supplier, secures MTU’s participation in the program’s entire lifecycle, including the lucrative flow of spare parts revenue, which is the primary driver of the OEM segment’s high profitability.  
• Strong, Credible Long-Term Guidance: MTU’s management has provided a clear, ambitious, and data-backed long-term financial outlook, signaling a high degree of confidence in its strategic positioning and operational execution. The company projects revenue to reach €13-14 billion by 2030, with an adjusted EBIT margin expanding to 14.5-15.5%. This outlook is predicated on the profitable aftermarket business (spare parts and MRO) growing faster than new engine sales, a dynamic that structurally enhances profitability and cash flow generation over time.  

1.3 The Bear Case: Navigating a Complex Airspace

While the long-term outlook is positive, investors must consider several significant risks that could impede MTU’s path to its 2030 targets.

• OEM “Frenemy” Risk: The relationship between MTU and the major OEMs is one of symbiotic tension. While they are partners in the development and production of new engines, they are direct competitors in the MRO market. OEMs are increasingly focused on capturing a larger share of the high-margin aftermarket for themselves. This could manifest as pressure on MTU’s MRO pricing, limitations on its access to the intellectual property required for independent repair development, or a push towards more restrictive, OEM-controlled MRO networks. Recent agreements like the GE Branded Services Agreement (GBSA) for GEnx suggest a move towards more formalized networks, which could guarantee volume for MTU but potentially at the cost of the higher margins associated with purely independent MRO work.  
• Execution Risk on MRO Ramp-Up: The strategic goal of doubling MRO revenue by 2030 is a monumental undertaking that requires flawless execution. This expansion involves significant capital expenditure for new facilities, the hiring and training of thousands of skilled technicians, and the navigation of complex global supply chains. Any operational missteps, delays in facility ramp-ups, or persistent supply chain bottlenecks for critical parts and materials could lead to cost overruns and prevent the MRO segment from reaching its target EBIT margin of 8.5-9.5%, thereby impacting overall group profitability and cash flow.  
• GTF Financial Drag: The full financial consequences of the GTF fleet management plan may not yet be fully quantified. Management has indicated that cash outflows will remain a significant headwind through 2026. If the costs of the fix prove higher than the provisioned amount, or if the operational disruption lasts longer than anticipated, it could further depress free cash flow and limit the company’s ability to return capital to shareholders via dividend growth.  
• Macroeconomic Sensitivity: Despite the resilience of its aftermarket business, MTU is not immune to the cyclicality of the commercial aviation industry. A severe global recession, a resurgence of a global pandemic, or a major geopolitical conflict could significantly reduce air travel demand. This would negatively impact airline profitability, leading to parked aircraft, reduced flight hours, and deferred maintenance, which would directly reduce demand for MTU’s MRO services and spare parts.

2.0 Company Profile: A Critical Partner in the Aerospace Value Chain

MTU Aero Engines AG is a German-based manufacturer and service provider for aircraft engines. With a history tracing back to the origins of BMW’s aircraft engine production in 1913, the modern company was formally established through a series of mergers and spin-offs involving MAN Turbo and Daimler-Benz in 1969. Today, MTU is a DAX-listed company headquartered in Munich, Germany, and a pivotal player in the global aerospace value chain.  

2.1 Business Model: The “Razor and Blades” Strategy in Aviation

MTU’s success is built upon the classic “razor and blades” business model, adapted for the high-tech aerospace industry. The company participates in the sale of new engines (the “razors”) often at low or even negative margins to secure a position on a successful aircraft platform. This initial investment builds a large installed base of engines in service. The true value is then captured over the multi-decade lifespan of these engines through the highly profitable and recurring sale of spare parts and MRO services (the “blades”).  

This model results in a business with two distinct but interconnected segments for accounting purposes: Original Equipment Manufacturing (OEM) and Maintenance, Repair, and Overhaul (MRO). The revenue mix is heavily weighted towards the aftermarket, which provides a foundation of stable, recurring revenue. In FY2024, the Commercial Maintenance (MRO) business accounted for approximately 67% of total revenues (€5.1 billion), while the Commercial OEM business contributed ~26% (€1.9 billion) and the Military business ~8% (€0.6 billion).  

FY2024 Adjusted Revenue Mix

Segment	Revenue (€ billion)	Percentage	Visual Representation
Commercial MRO	5.1	67%	####################
Commercial OEM	1.9	26%	########
Military	0.6	8%	##

2.2 Segment Analysis: Deconstructing the Engine of Profitability

2.2.1 Original Equipment Manufacturing (OEM): Seeding Future Growth

The OEM segment, which combines the commercial and military engine businesses for reporting, is the foundation for MTU’s future aftermarket success.

• Commercial OEM: This division encompasses the development, manufacturing, assembly, and delivery of modules and components for new commercial engines. MTU operates not as a simple supplier but as a risk-and-revenue-sharing partner (RRSP) with the major OEMs. This involves significant upfront investment in R&D and production, which in turn grants MTU a share of the program’s lifetime revenues, most importantly from the sale of spare parts. This segment also includes the highly profitable spare parts business itself, which is the primary driver of the OEM segment’s impressive target EBIT margin of 28-30% by 2030.  
• Military OEM: MTU holds a strategic position as the industrial lead company for virtually all engines flown by the German Armed Forces and is a key partner in major European defense programs like the Eurofighter and the upcoming Future Combat Air System (FCAS). A key feature of this business is that R&D is typically financed by government customers, making it a stable, lower-risk, and consistently profitable contributor to the group.  

2.2.2 Commercial Maintenance (MRO): The High-Margin Aftermarket Powerhouse

The MRO segment represents MTU’s largest source of revenue and is a cornerstone of its investment case.

• Market Leadership: MTU Maintenance is the world’s largest independent MRO provider by revenue, a testament to its scale, technological capability, and broad customer base.
• Broad Portfolio and Customer Base: The company services a diverse portfolio of more than 30 different engine types for over 270 airlines and leasing companies worldwide. Its portfolio is strategically focused on the highest-growth engine families, including the Pratt & Whitney GTF™ family, the IAE V2500, the CFM56, the CF34, and the GE90.  
• Global Network and Integrated Services: The MRO business operates through a global network of facilities, including wholly-owned shops and strategic joint ventures, such as the one with China Southern Airlines in Zhuhai. This network allows MTU to offer a comprehensive suite of services beyond standard overhauls, including on-site support, engine leasing, and sophisticated asset management solutions.  

2.3 Strategic Partnerships: A Symbiotic Relationship with Global OEMs

MTU’s entire business model is predicated on its deep, collaborative, and long-term partnerships with the world’s dominant engine OEMs. These relationships, often spanning decades, are foundational to its competitive advantage.  

• Pratt & Whitney (P&W): This is arguably MTU’s most critical strategic alliance. It began with early collaborations and was formalized with a strategic alliance in 1991. The partnership is anchored by MTU’s role in the IAE V2500 consortium and, most importantly, its 18% risk-and-revenue share in the P&W GTF™ engine program. For the GTF, MTU is responsible for developing and producing the high-speed low-pressure turbine and the first four stages of the high-pressure compressor—some of the most technologically advanced components in the engine.  
• General Electric (GE): The partnership with GE dates back to the CF6 engine program in 1971. Today, MTU is a key partner on GE’s flagship wide-body engine programs, holding a 6.6% share in the GEnx (powering the Boeing 787 Dreamliner) and a 4% share in the GE9X (the exclusive engine for the Boeing 777X). In both programs, MTU has design and manufacturing responsibility for the highly complex turbine center frame (TCF).  
• Rolls-Royce (RR): MTU’s history with Rolls-Royce is extensive, particularly in the military domain. They collaborated in the Turbo-Union consortium for the RB199 engine (Tornado) and the Eurojet consortium for the EJ200 engine (Eurofighter). While the commercial partnership is less extensive than with P&W or GE, the long history of collaboration on complex military projects underscores MTU’s standing in the industry.

These RRSPs are the lifeblood of the OEM business. By co-investing in a program’s development, MTU secures a proportional share of that program’s lifetime revenue, including the highly profitable spare parts sales that flow through the OEM’s books. This model creates formidable barriers to entry and deeply entrenches MTU in the aerospace value chain for decades.  

2.4 Key Engine Program Exposure: A Portfolio for the Future

MTU’s participation in the industry’s most significant current and future engine programs provides exceptional long-term revenue and cash flow visibility.

• GTF™ Engine Family (with P&W): This is the cornerstone of MTU’s future growth. As the next-generation engine for the best-selling Airbus A320neo family, as well as the Airbus A220 and Embraer E-Jets Gen2, the GTF program ensures MTU’s central role in the narrow-body market for the next 20-30 years. MTU’s contribution of the high-speed LPT and HPC components is critical to the engine’s game-changing fuel efficiency.
• GE9X (with GE): As the exclusive powerplant for the new Boeing 777X long-haul aircraft, the GE9X gives MTU vital exposure to the future of the wide-body market. MTU’s responsibility for the turbine center frame on the world’s largest and most powerful commercial engine highlights its technological prowess.
• V2500 (with IAE): This engine, which powers a large portion of the global Airbus A320ceo fleet, is a mature cash cow for MTU. As a key partner in the IAE consortium and a leading MRO provider for the V2500, MTU will continue to generate substantial, high-margin aftermarket revenue from this program for many years as the fleet ages.
• EJ200 (with Eurojet): Powering the Eurofighter Typhoon, the EJ200 is a foundational program for MTU’s military business, providing stable, long-term revenue from production and support services for European air forces.
• New Generation Fighter Engine (NGFE) (with Safran/ITP Aero): MTU’s role in developing the engine for Europe’s Future Combat Air System (FCAS) secures its position at the forefront of military propulsion technology for the next generation, with responsibility for the high- and low-pressure compressors and leadership of all maintenance activities.

3.0 Industry Analysis: Navigating Secular Tailwinds and Cyclical Realities

MTU operates within the global aerospace and defense industry, a sector characterized by long-term structural growth, high barriers to entry, significant cyclicality, and transformative technological shifts.

3.1 Global Aerospace Engine Market: Size, Growth, and Key Drivers

The global aircraft engine market is substantial and poised for robust growth. Market size estimates for 2025 range around $106 billion, with growth projections varying. More conservative estimates forecast a CAGR of 3.05% to reach $125 billion by 2030. However, other industry reports project a more aggressive CAGR of 7-9%, potentially pushing the market size to between $184 billion and $280 billion by 2032-2034. While the exact figures differ, the consensus points towards a strong, positive growth trajectory.  

Global Aircraft Engine Market Growth Projections

Research Firm	Base Year & Value	Forecast Year & Value	CAGR
Mordor Intelligence 29	2025: $106.17B	2030: $124.84B	3.05%
Global Market Insights 30	2024: $81.2B	2034: $183.7B	8.7%
Fortune Business Insights 31	2024: $153.69B	2032: $279.76B	7.77%
The Business Research Co. 32	2025: $55.07B	2029: $63.04B	3.4%

This growth is underpinned by several powerful secular drivers:

• Rising Air Passenger Traffic: The long-term forecast for global air travel remains strong. The International Air Transport Association (IATA) projects that the number of air passengers will double to 8.2 billion by 2037, creating fundamental demand for new aircraft and, consequently, new engines and aftermarket services.
• Fleet Modernization and Fuel Efficiency: Airlines are continuously modernizing their fleets to replace older, less economical aircraft. This trend is driven by the need to reduce fuel costs—a major component of an airline’s operating expenses—and to comply with increasingly stringent environmental regulations.
• Robust Defense Spending: Heightened geopolitical tensions have led to a significant increase in defense budgets, particularly among NATO countries. This translates into strong demand for military aircraft and engines, providing a stable, counter-cyclical revenue stream for companies with defense exposure.

Geographically, the Asia-Pacific region currently represents the largest market for aircraft engines, driven by rapid economic growth and fleet expansion. The Middle East is projected to be the fastest-growing region, fueled by the ambitious fleet strategies of major Gulf carriers.  

3.2 The Airframer Duopoly (Airbus/Boeing) and its Impact on Suppliers

The commercial aircraft manufacturing landscape is a duopoly dominated by Europe’s Airbus and America’s Boeing. This structure has profound implications for the entire supply chain, including engine manufacturers. The duopoly concentrates immense purchasing power with the airframers but also creates a relatively stable and predictable demand environment for their key suppliers.

Engine selection is a critical battleground in the competition between Airbus and Boeing. For their best-selling narrow-body aircraft, the A320neo family, Airbus offers customers a choice between the Pratt & Whitney GTF and the CFM LEAP engine. This competition benefits airlines by fostering innovation and price discipline among engine makers. Boeing, in contrast, single-sources the LEAP engine for its 737 MAX family.

MTU’s strategic positioning within this duopolistic structure is a key strength. By participating as a risk-and-revenue-sharing partner in engine programs that power aircraft from both Airbus and Boeing, MTU mitigates the risk of being overly dependent on a single airframer. Its significant role in the GTF program gives it strong exposure to the success of the Airbus A320neo family, which in 2019 surpassed the Boeing 737 as the highest-selling airliner family in history. Simultaneously, its participation in GE’s GEnx and GE9X programs ensures it benefits from sales of Boeing’s flagship wide-body aircraft, the 787 and 777X.

3.3 Structural Trends: Fleet Modernization, Fuel Efficiency, and Supply Chain

• Fleet Modernization: The relentless drive for efficiency is the primary catalyst for fleet modernization. Each new generation of aircraft and engine technology offers significant improvements in fuel burn, typically in the range of 15-20%. The Pratt & Whitney Geared Turbofan (GTF) architecture, with its innovative gearbox, is a prime example of a technology that delivers a step-change in fuel efficiency, making aircraft equipped with it highly attractive to cost-conscious airlines. This technological imperative fuels a continuous cycle of R&D and production, benefiting innovators like MTU.  
• Supply Chain Constraints: In the post-pandemic era, the entire aerospace industry has been grappling with significant and persistent supply chain challenges, including shortages of raw materials, components, and skilled labor. These constraints have limited the ability of Airbus and Boeing to meet their ambitious production ramp-up targets. This has a dual, and for MTU, a net positive, effect. On one hand, it caps the near-term revenue potential from new engine deliveries in the OEM segment. On the other hand, it forces airlines to extend the operational life of their existing aircraft. This delay in fleet renewal directly translates into increased demand for MRO services and spare parts for mature engine platforms like the V2500 and CFM56, which are cash cows for MTU’s aftermarket business.

3.4 The Aftermarket Flywheel: Dynamics of a Resilient and Lucrative Market

The aerospace aftermarket, comprising MRO services and spare parts, is the most attractive segment of the value chain due to its size, growth, and resilience.

• Resilience and Growth: The aftermarket is less cyclical than new aircraft sales. While airlines can defer new orders during economic downturns, they must continue to perform legally mandated maintenance on their in-service fleets to keep them flying and generating revenue. The market is driven by fundamental factors like the size and age of the global fleet. As fleets grow and age, the demand for maintenance inevitably increases. The aircraft engine MRO market is projected to grow at a healthy CAGR of approximately 4.7% through 2030, with the replacement/aftermarket segment growing at a robust 8.45% CAGR, outpacing the OEM segment.  
• The Flywheel Effect: MTU’s business model creates a powerful “flywheel.” Success in the OEM segment (getting its components onto new engines) directly fuels future growth in the high-margin MRO and spare parts segments. The revenue and data generated from the aftermarket, in turn, provide the cash flow and technical insights needed to invest in R&D for the next generation of OEM programs. This self-reinforcing cycle solidifies the company’s market position and creates a durable, long-term growth engine. The current supply chain issues, by boosting MRO demand, are effectively adding momentum to this flywheel in the short to medium term.

4.0 Competitive Landscape and Market Position

MTU Aero Engines operates in a highly concentrated industry characterized by a few dominant players and extremely high barriers to entry. Its competitive position is unique, as it functions as both a crucial partner and a formidable competitor to the world’s largest engine manufacturers.

4.1 Peer Group Financial & Operating Metrics

The global aircraft engine market is an oligopoly dominated by three prime manufacturers: GE Aerospace, Pratt & Whitney (a subsidiary of RTX Corporation), and Rolls-Royce. Safran of France is a major player through its 50/50 joint venture with GE, CFM International, which is the world’s leading supplier of commercial aircraft engines. MTU’s position is distinct; it is not a prime manufacturer of large commercial engines but rather a Tier-1 risk-and-revenue-sharing partner that also competes vigorously in the component manufacturing and MRO services markets.

Market Share Analysis:

• GE Aerospace / CFM International: The undisputed market leader, powering a majority of the world’s commercial aircraft. CFM holds a 39% market share, with GE’s proprietary engines adding another 14%, for a combined share of approximately 53%. The CFM56 and its successor, the LEAP, are the exclusive powerplants for the Boeing 737 family and an option on the Airbus A320 family, giving them a dominant position in the crucial narrow-body segment.
• Pratt & Whitney: Holds a significant market share of approximately 35%. Its strength lies in the narrow-body market with the V2500 engine (through the IAE consortium) and the new GTF engine, both powering the Airbus A320 family.
• Rolls-Royce: Primarily focused on the wide-body aircraft market, where it holds a commanding position. The company states it has a 52% market share of the order book for modern wide-body aircraft like the Airbus A350 and Boeing 787.
• MTU Aero Engines: While not holding prime market share, its technological contributions are widespread, with MTU components present in approximately 30% of the world’s active commercial aircraft. In its niche, MTU Maintenance is the world’s #1 independent provider of MRO services by revenue, demonstrating clear leadership in this critical aftermarket segment.  

Below is a table summarizing key financial and operating metrics for MTU and its primary peers.

Metric	MTU Aero Engines AG	Safran SA	Rolls-Royce Holdings plc	GE Aerospace
Market Cap (USD)	$23.5B	$136.8B	$110.6B	$273.3B
Enterprise Value (USD)	$23.3B	$113.5B	$78.6B	–
Revenue (LTM, USD)	$9.4B	$28.7B	$23.7B	$39.7B
EV/EBITDA (LTM)	13.3x	–	–	–
P/E Ratio (LTM)	32.4x	-172.4x (loss)	31.5x	40.7x
Net Debt / EBITDA (LTM)	~1.0x	Net Cash	~0.3x (calculated)	–
Return on Equity (ROE, LTM)	19.97%	-6.24%	-75.86%	27.20%
Return on Invested Capital (ROIC, LTM)	6.51%	14.63%	–	11.88%
Note: Data as of mid-2025. Peer data may reflect different reporting standards and business segment mixes. ROE for RR and Safran are negative due to reported losses. MTU’s Net Debt/EBITDA is calculated based on FY2024 figures.

4.2 Analysis of Competitive Advantages (Moat) and Barriers to Entry

MTU’s durable competitive advantage, or “moat,” is built on a foundation of technological supremacy in niche areas and the structural characteristics of the aerospace industry.

• Technological Expertise: The company’s primary moat is its world-class, and difficult to replicate, engineering and manufacturing expertise in key high-tech engine modules: high-speed low-pressure turbines, advanced high-pressure compressors, and complex turbine center frames. This technological leadership is not just a product of R&D but of decades of accumulated institutional knowledge and process excellence. It is this expertise that makes MTU an indispensable partner for the OEMs, giving it a “seat at the table” for the most important next-generation engine programs.
• High Barriers to Entry: The aerospace engine industry is protected by some of the highest barriers to entry of any industrial sector:
  • Intense Capital Requirements: Developing a new engine from scratch requires billions of dollars in upfront R&D and capital expenditure with a payback period measured in decades.
  • Stringent Regulatory Hurdles: Engines must undergo years of rigorous testing to meet the exacting safety and performance standards of aviation authorities like the U.S. Federal Aviation Administration (FAA) and the European Union Aviation Safety Agency (EASA). This certification process is a massive, non-negotiable barrier for any potential new entrant.  
  • Entrenched Intellectual Property: The industry is built on a vast and deep portfolio of patents and proprietary manufacturing processes.
  • Long-Term Contracts and Relationships: The business model is dominated by multi-decade risk-and-revenue-sharing partnerships and long-term service agreements (LTSAs) that lock in revenue streams for incumbents and effectively lock out new competitors.

4.3 Technological Capabilities and R&D Investments

MTU’s commitment to innovation is a core part of its strategy and is essential for maintaining its competitive edge. The company consistently invests in R&D, with expenditures reaching €342 million in 2024, a 12% increase over the prior year.  

• Core Competency Enhancement: A significant portion of R&D is dedicated to advancing its core module technologies. This includes the development and application of advanced materials (e.g., single crystals, high-temperature alloys), innovative manufacturing processes like additive manufacturing (3D printing), and the automation and digitalization of its production and repair facilities. MTU is a world leader in the production of “blisks” (bladed disks), a highly advanced type of compressor rotor.
• Investing in the Future: Beyond refining existing technologies, MTU is actively investing in the future of flight. Its R&D activities are focused on both evolutionary improvements to the fuel efficiency of the GTF platform and revolutionary concepts aimed at decarbonization, most notably the “Flying Fuel Cell” (FFC) project for hydrogen-electric propulsion. This forward-looking R&D strategy ensures that MTU remains relevant and positioned to capture workshare on the engine platforms of tomorrow.

5.0 Financial Performance and Growth Analysis

MTU’s financial performance over the past five years tells a story of resilience through the unprecedented COVID-19 crisis, strong operational execution during the recovery, and the significant but temporary impact of the partner-related GTF issue. Analysis of the company’s adjusted financial metrics reveals a fundamentally healthy and growing business.

5.1 5-Year Historical Financial Review (2020-2024)

The period from 2020 to 2024 was one of extreme volatility for the aviation industry. MTU’s financial results reflect this environment, demonstrating an initial sharp downturn followed by a robust recovery and record operational performance. It is critical to analyze the company’s adjusted figures, which strip out one-time effects like the GTF provision, to understand the true underlying health of the business.

(in € millions, except per share data)	FY 2020	FY 2021	FY 2022	FY 2023	FY 2024	5-Yr CAGR
Adjusted Revenue	3,977	4,188	5,330	6,326	7,488	17.2%
OEM Revenue (adj.)	1,535	1,548	1,831	2,212	2,531	13.3%
MRO Revenue (adj.)	2,522	2,741	3,616	4,225	5,066	19.1%
Adjusted EBIT	416	468	655	818	1,050	26.1%
OEM EBIT (adj.)	280	320	387	488	612	21.6%
MRO EBIT (adj.)	186	149	268	329	438	23.8%
Adjusted EBIT Margin	10.5%	11.2%	12.3%	12.9%	14.0%	+350 bps
Adjusted Net Income	294	342	476	594	764	27.0%
Adjusted EPS (€)	5.44	6.41	8.91	11.00	14.15	27.0%
Free Cash Flow (adj.)	105	240	326	352	183	14.9%
R&D Spend	186	230	265	306	342	16.4%
Sources:.9 OEM/MRO EBIT for 2020/2021 are estimates based on reported figures.

5-Year Adjusted Revenue & EBIT Trend (€ millions)

Year	Adj. Revenue	Adj. EBIT	Revenue Growth Visual	EBIT Growth Visual
2020	3,977	416
2021	4,188	468	+	+
2022	5,330	655	++++++	+++++
2023	6,326	818	++++++++++	++++++++
2024	7,488	1,050	+++++++++++++++	+++++++++++++

• 2020: The nadir of the COVID-19 crisis saw adjusted revenue fall 14% to €3.98 billion and adjusted EBIT plummet 45% to €416 million as global air travel ground to a halt.  
• 2021: A year of stabilization and modest recovery. Adjusted revenue grew 5% to €4.19 billion, and adjusted EBIT increased 13% to €468 million, driven primarily by a rebound in the MRO business as domestic and cargo flight activity resumed.  
• 2022: A period of strong recovery. As travel restrictions eased globally, demand surged. Adjusted revenue jumped 27% to €5.33 billion, and adjusted EBIT rose an impressive 40% to €655 million, demonstrating the high operational leverage in the business.  
• 2023: A “year of contrasts.” Operationally, the business performed exceptionally well, with adjusted revenue growing 19% to €6.3 billion and adjusted EBIT up 25% to €818 million. However, the company’s reported results were heavily distorted by a one-time provision of approximately €1 billion related to the P&W GTF fleet management plan, leading to a reported EBIT loss of €161 million.  
• 2024: A record-breaking year for operational performance. MTU surpassed its own ambitious targets, delivering adjusted revenue of €7.5 billion (+18% YoY) and adjusted EBIT of €1.05 billion (+28% YoY), exceeding the billion-euro mark for the first time and a year ahead of schedule. This performance was driven by strong demand across all segments, particularly the aftermarket. Free cash flow, however, was impacted by the GTF plan, coming in at €183 million.  

5.2 Profitability Deep Dive: Margin Analysis, ROIC, and ROE Trends

MTU’s underlying profitability metrics showcase a high-quality business with excellent operational management.

• Margin Expansion: The adjusted EBIT margin has shown a consistent upward trajectory since the COVID-19 trough, expanding from 10.5% in 2020 to a record 14.0% in 2024. This demonstrates the company’s ability to manage costs effectively while benefiting from an increasingly favorable mix towards high-margin aftermarket services.  
• Return on Equity (ROE): MTU consistently generates high returns for its shareholders. Its current ROE stands at a strong 19.97%, significantly outperforming the aerospace & defense industry average of approximately 13%. This superior return is a hallmark of a company with a strong competitive moat and efficient capital structure.  
• Return on Invested Capital (ROIC): The company’s ROIC for FY2024 was 6.33%. This figure was a substantial recovery from the negative ROIC in 2023, which was an anomaly caused by the GTF-related charge to operating income. While the current ROIC of 6.51% is below the company’s estimated Weighted Average Cost of Capital (WACC) of 8.67%, this is a temporary situation. As the financial impact of the GTF plan normalizes and operating profit continues its strong growth trajectory, the ROIC is expected to rebound and surpass the WACC, indicating a return to clear value creation.  

5.3 Cash Flow Generation, Working Capital, and the GTF Fleet Management Impact

Cash flow is a critical metric for MTU, especially given the current dynamics. The company is a strong cash generator, but this has been temporarily masked by the GTF issue and supply chain disruptions.

• Free Cash Flow Profile: In 2024, adjusted free cash flow was €183 million, a marked decrease from €352 million in 2023. Management explicitly attributes this decline to cash outflows for the GTF fleet management plan and an increase in working capital due to supply chain volatility.  
• Cash Conversion Rate (CCR): The CCR, defined as free cash flow divided by adjusted net income, was 24% in 2024. This is well below historical norms and reflects the near-term pressures. However, management’s guidance for the CCR to return to a “high double-digit percentage range” by 2030 is a key performance indicator for the investment thesis. Achieving this will signal the normalization of the business and a return to highly efficient cash generation.  

5.4 Analysis of Management Guidance (2025 & 2030)

Management has provided a detailed and optimistic roadmap, which forms the basis for future financial projections.

• 2025 Guidance: The company has raised its guidance for 2025, now expecting revenue of €8.6-€8.8 billion and adjusted EBIT growth in the low to mid-twenties percentage range. Free cash flow is anticipated to recover to €300-€350 million. This upward revision reflects strong underlying demand and confidence in overcoming near-term challenges.  
• 2030 Outlook: The long-term targets are ambitious yet credible, projecting revenue of €13-€14 billion and an adjusted EBIT margin of 14.5-15.5%. This implies a robust revenue CAGR of approximately 7-8% from 2024 and continued margin expansion.  
• Growth Drivers to 2030: The guidance reveals the engine of this growth. The aftermarket is set to outpace new equipment sales, providing a powerful tailwind to profitability.
  • Spare Parts: High single-digit to low-teens annual growth.
  • Commercial MRO: Low-teens annual growth.
  • Commercial Series (New Engines): Mid-to-high single-digit annual growth.
  • Military: Stable mid-to-high single-digit annual growth.

This composition of growth is crucial. The faster growth in the high-margin spare parts and MRO businesses is the structural driver that will lift the group’s overall EBIT margin towards the 15% target. The OEM segment’s EBIT margin is forecast to reach an exceptional 28-30% by 2030, almost entirely fueled by the highly profitable spare parts business that flows through it.  

6.0 Strategic Initiatives and Growth Opportunities

MTU’s corporate strategy is squarely focused on leveraging its core competencies to drive profitable growth. This is being executed through a multi-faceted approach encompassing MRO expansion, technological innovation in sustainable aviation, capitalizing on defense market tailwinds, and digital transformation.

6.1 The MRO Expansion Strategy: Doubling Revenue by 2030

The central pillar of MTU’s growth strategy is the ambitious plan to double its MRO revenue to approximately €10–11 billion by 2030. This strategy is designed to capitalize on the wave of next-generation engines entering their prime maintenance cycles.  

Geographic Revenue Breakdown (FY2024)

Region	Percentage	Visual Representation
North America	70.0%	#####################
Germany	10.3%	###
Asia	8.9%	##
Europe (ex-Germany)	6.2%	##
Other Regions	4.6%	#

The plan involves a strategic pivot in revenue focus from the legacy IAE V2500 engine to the rapidly expanding Pratt & Whitney GTF fleet, for which MTU is a major risk-sharing and aftermarket partner. This transition is supported by a massive investment in its global overhaul network, including the establishment of new, state-of-the-art facilities like MTU Maintenance Dallas in Fort Worth, Texas, and the expansion of its joint venture facility in Zhuhai, China, to handle the influx of GTF and CFM LEAP engines. This expansion is not just about adding capacity; it’s about building expertise and developing cost-effective repair solutions to manage the lifecycle costs of these new engine platforms, a critical factor given that over 80% of the GTF fleet operates under long-term service agreements where manufacturers bear significant cost responsibility.  

6.2 The Future of Flight: Sustainable Aviation and Hydrogen Propulsion

MTU is actively positioning itself at the forefront of the aviation industry’s push toward decarbonization. Under its “Claire” (Clean Air Engine) technology agenda, the company is pursuing a two-pronged approach to sustainable aviation.

1. Evolutionary Development: This involves the continuous enhancement of the gas turbine engine, primarily through improvements to the Geared Turbofan (GTF) architecture. The next iteration, the GTF Advantage™, will offer further reductions in fuel consumption and emissions.
2. Revolutionary Concepts: MTU is investing in entirely new propulsion technologies with the long-term goal of achieving zero-emission flight. The flagship project in this area is the Flying Fuel Cell™ (FFC), a hydrogen-powered electric propulsion system. The FFC uses hydrogen and oxygen to generate electrical energy, which then powers an electric motor. Its only emission is water, making it a true zero-carbon solution.

A landmark development in this strategy was the signing of a Memorandum of Understanding (MoU) with Airbus in June 2025. This partnership aligns MTU’s FFC development with Airbus’s ZEROe project, which aims to bring a hydrogen-powered commercial aircraft to market. This collaboration validates MTU’s technological approach and places it in a prime position to be a key supplier for the next revolution in aircraft propulsion. MTU is also leading the European “HEROPS” research project to develop a hydrogen-electric powertrain for regional aircraft, with the goal of entry-into-service around 2035.  

6.3 Defense Market Opportunities and Geopolitical Factors

The global geopolitical landscape has shifted dramatically, leading to a structural increase in defense spending, particularly in MTU’s home market of Europe. Following the war in Ukraine, European NATO members have committed to significantly increasing their defense budgets toward and beyond the 2% of GDP target, with a strong focus on procuring new equipment to modernize aging fleets and replenish stocks. Forecasts suggest European spending on equipment could quadruple by 2030. Similarly, the U.S. defense budget is projected to continue growing, driven by strategic competition and the need for technological superiority.

MTU is exceptionally well-positioned to benefit from this trend. As the leading industrial partner for the German Armed Forces, it provides propulsion systems and support for key platforms like the Eurofighter (EJ200 engine) and the A400M transport aircraft (TP400-D6 engine). Crucially, MTU is a central player in the development of the New Generation Fighter Engine (NGFE) for the Future Combat Air System (FCAS), Europe’s most important next-generation defense project. This ensures a stable and growing stream of long-cycle, government-funded revenue for decades to come.

6.4 Digital Transformation and Predictive Maintenance Services

MTU is enhancing its competitive advantage in the MRO sector by integrating advanced digital solutions. Through its MTUPlus Intelligent Solutions platform, the company offers a suite of digital services designed to optimize fleet management and reduce operating costs for its airline customers.

Key offerings include:

• Engine Trend Monitoring (ETMWeb): This tool uses in-flight data to monitor engine parameters, allowing for the early detection of potential issues. By combining this real-time data with empirical data from thousands of shop visits, MTU can predict maintenance needs, enabling proactive interventions that prevent costly failures and extend on-wing time.
• Fleet Management Software (CORTEX): This advanced software utilizes algorithms and artificial intelligence to develop optimal maintenance strategies for an airline’s entire engine fleet in real-time. It helps customers balance technical needs with financial and operational constraints to minimize lifecycle costs.

These digital services create a sticky, high-margin revenue layer on top of the core MRO business, deepening customer relationships and further solidifying MTU’s market leadership.

7.0 Capital Allocation Strategy

MTU’s capital allocation strategy reflects its position as a company in a phase of strategic investment to secure long-term growth. The primary focus is on funding its MRO expansion and R&D initiatives, while also providing a stable and attractive return to shareholders.

7.1 Shareholder Return Policy: Dividends and Buybacks

• Dividend Policy: MTU is committed to providing shareholders with an attractive dividend. The company’s policy has historically been progressive, although it was impacted by the COVID-19 crisis in 2020 and the GTF issue in 2023. The proposed dividend of €2.20 per share for fiscal year 2024 represents a 10% increase over the prior year, signaling a return to this progressive policy and management’s confidence in the future. The current dividend yield is modest, in the range of 0.4% to 0.6%, reflecting the stock’s growth orientation. The dividend payout ratio is currently below the company’s long-term target due to the need to preserve cash for the GTF plan.  
• Share Buybacks: Share repurchases are not a primary component of MTU’s capital return strategy. The company has executed buyback programs in the past, but these have typically been smaller in scale and often linked to servicing its Employee Share Offering Program (ESOP). The focus is clearly on reinvesting capital into the business for growth.

Historical Dividend per Share

Fiscal Year	Dividend per Share (€)	YoY Growth
2020	1.25	–
2021	2.10	+68.0%
2022	3.20	+52.4%
2023	2.00	-37.5%
2024 (Proposed)	2.20	+10.0%

7.2 Capital Expenditure and R&D Investment Levels

The company’s spending priorities are heavily weighted towards investments for future growth.

• Capital Expenditure (CAPEX): MTU is in a period of elevated CAPEX. Net capital expenditure was €401 million in 2024, a 33% increase from the prior year. Historical data shows a trailing twelve-month capex of approximately €640 million. This spending is primarily directed at the global expansion of the MRO network and the modernization of manufacturing facilities to handle next-generation engine components.  
• Research & Development (R&D): R&D is another key investment area. Spending rose 12% in 2024 to €342 million. These investments are crucial for maintaining technological leadership and are focused on two main areas: evolutionary enhancements to the GTF programs to improve efficiency and durability, and revolutionary technology studies for future propulsion systems like the Flying Fuel Cell™.  

The capital allocation framework clearly prioritizes funding these organic growth initiatives over more aggressive shareholder returns like large-scale buybacks. This is a prudent strategy for a company with such visible and high-return investment opportunities in its core business.

7.3 Balance Sheet Analysis and Financial Flexibility

MTU maintains a solid balance sheet that provides the financial flexibility needed to execute its strategy and weather industry volatility.

• Leverage: As of the end of fiscal year 2024, the company reported net financial debt of €1,061 million. With an adjusted EBITDA of €1,050 million in 2024, this implies a conservative net debt-to-EBITDA ratio of approximately 1.0x.  
• Liquidity and Funding: The company has proactively managed its liquidity to navigate the cash demands of the GTF plan. It successfully issued a €750 million bond in September 2024 and a €300 million promissory note in Q1 2024, providing a substantial liquidity cushion to fund its growth plans.
• Credit Rating: MTU’s creditworthiness is regularly assessed by rating agencies, and it maintains a solid investment-grade rating, which ensures access to capital markets at favorable terms.  
• Ownership Structure: The company’s shares are widely held, with a free float of 67%. Institutional investors are the dominant shareholder group, holding approximately 60% of the company. Major shareholders include prominent global asset managers such as Capital Research and Management Company (15%) and BlackRock (14%). This sophisticated institutional shareholder base provides stability but also demands a high level of performance and transparent corporate governance.  

8.0 Comprehensive Risk Assessment

While the investment thesis for MTU Aero Engines is compelling, it is subject to a range of industry-specific and company-specific risks that must be carefully considered.

• Exposure to Commercial Aviation Cycles and Airline Financial Health: MTU’s fortunes are inextricably linked to the health of the global commercial aviation industry. The demand for both new engines and aftermarket services is driven by passenger and cargo traffic, which are highly sensitive to global economic cycles, geopolitical events, pandemics, and oil price shocks. A significant downturn in air travel would lead to reduced flight hours and parked aircraft, directly impacting MTU’s recurring revenue streams from its MRO and spare parts businesses.
• Regulatory Risks and Certification Requirements: The aerospace industry operates under a stringent and complex regulatory framework overseen by bodies like EASA and the FAA. The certification process for new engines and components is long, costly, and rigorous. Any delays in certification for key programs like the GE9X or the emergence of new, costly airworthiness directives on in-service engines could have a material adverse effect on revenue and profitability.
• Supply Chain and Manufacturing Risks: The global aerospace supply chain remains fragile and is a significant operational risk. Persistent bottlenecks, shortages of critical raw materials (such as titanium or nickel alloys), and skilled labor shortages can constrain production rates, increase costs, and lead to delays in both new engine delivery and MRO turnaround times. These disruptions directly impact working capital and can pressure margins.
• Geopolitical Risks: The company’s military business, while a source of stability, is dependent on the defense budgets and political priorities of governments in its key markets, primarily Germany, Europe, and the United States. Changes in government, shifts in defense policy, or budget cuts could impact funding for key programs like the FCAS. Furthermore, escalating global conflicts could disrupt international supply chains and impact the commercial aviation sector.
• Currency and Commodity Price Risks: MTU has significant exposure to fluctuations in the USD/EUR exchange rate. A large portion of its revenues, particularly in the aftermarket, is denominated in U.S. dollars, while a substantial portion of its cost base is in euros. A weaker dollar can therefore negatively impact reported revenues and margins. The company employs a systematic hedging strategy to mitigate this risk over a multi-year horizon, but unhedged portions of its exposure remain a source of volatility.  
• Technological Disruption Risks: The aviation industry is on the cusp of a technological transformation aimed at decarbonization. While MTU is a leader in developing next-generation technologies like hydrogen fuel cells, there is a risk that a competitor could achieve a breakthrough with an alternative technology (e.g., fully electric, advanced sustainable aviation fuels) that becomes the industry standard, potentially rendering MTU’s investments obsolete. Over the very long term, the rise of Urban Air Mobility (UAM), a market projected to grow at a CAGR of over 25%, could also disrupt the traditional regional jet market, although MTU’s investments in electric propulsion provide a potential entry point into this adjacent space.

9.0 Valuation

The valuation of MTU Aero Engines is approached through a combination of Sum-of-the-Parts (SOTP), Discounted Cash Flow (DCF), and Comparable Company analysis. This multi-faceted approach is necessary to capture the distinct characteristics of MTU’s business segments and to arrive at a robust intrinsic value estimate.

9.1 Historical Valuation Context

Before delving into current valuation, it’s useful to consider MTU’s historical trading multiples to provide context for its current market standing.

Historical Valuation Multiples

Metric	Current	13-Year Median	13-Year High	13-Year Low
EV/EBITDA	13.6x	13.3x	89.8x	6.9x
P/B Ratio	6.2x	4.2x	6.5x	2.4x

9.2 Sum-of-the-Parts (SOTP) Valuation

A SOTP analysis is particularly well-suited for MTU because its two primary segments—OEM and MRO—have different growth profiles, margin structures, and risk characteristics. Valuing them separately provides a more nuanced picture than applying a single blended multiple to the entire group.

The valuation applies forward-looking multiples to FY2025E segment estimates, derived from management guidance and analyst consensus.

Sum-of-the-Parts (SOTP) Valuation
(in € millions, except per share data)	Revenue	EBITDA	Multiple	Rationale	Segment EV
MRO Segment	5,750	690	15.0x	High-growth, recurring revenue, market leadership	10,350
OEM Segment	3,000	870	12.0x	High-margin spares, but cyclical OE, partner risk	10,440
Total Enterprise Value (EV)					20,790
Less: Corporate Costs (at 10x)		(50)			(500)
Adjusted Enterprise Value					20,290
Less: Net Debt (YE2024)					(1,061)
Implied Equity Value					19,229
Note: FY2025E estimates are derived from management guidance (e.g., total revenue ~€8.7B) and segment growth projections. Multiples are based on peer analysis and industry benchmarks for high-quality aftermarket and defense-related businesses.19

9.3 Discounted Cash Flow (DCF) Analysis

The DCF analysis is the cornerstone of the intrinsic valuation, as it directly models the company’s ability to generate cash over the long term, capturing the impact of the near-term GTF headwinds and the subsequent recovery and growth outlined in management’s 2030 strategy. The analysis projects unlevered free cash flow over a 10-year forecast horizon.

Key DCF Assumptions:

• Revenue Growth: Aligned with management guidance, with revenue growing from €8.7B in 2025 to €13.5B in 2030, and moderating thereafter.
• EBIT Margin: Adjusted EBIT margin expands from ~14.5% in 2025 towards the 15.0% mid-point of the 2030 target range.  
• Free Cash Flow: Models the depressed FCF in 2025-2026 due to the GTF plan, followed by a normalization of working capital and a gradual increase in the cash conversion rate towards the “high double-digit” target post-2026.  
• WACC: A Weighted Average Cost of Capital of 8.7% is used, consistent with industry data.  
• Terminal Growth Rate: A conservative perpetual growth rate of 2.5% is assumed, reflecting long-term global nominal GDP growth.

The DCF analysis provides an intrinsic valuation based on the company’s projected future cash flows. A sensitivity analysis indicates how the valuation changes with different assumptions for the Weighted Average Cost of Capital (WACC) and the terminal growth rate.

9.4 Comparable Company Analysis

This analysis benchmarks MTU against its key peers in the global aerospace engine market. It is important to use forward estimates based on adjusted earnings to provide a meaningful comparison, as reported earnings are distorted by one-time items.

Comparable Company Analysis	EV/EBITDA (NTM)	P/E (NTM)	ROE (LTM)
MTU Aero Engines AG	11.5x	20.5x	19.97%
Safran SA	10.8x	19.5x	-6.24%
Rolls-Royce Holdings plc	9.5x	15.0x	-75.86%
GE Aerospace	13.0x	22.0x	27.20%
Peer Average	11.1x	18.8x	-18.3%
Note: NTM = Next Twelve Months. Multiples are based on consensus analyst estimates and LTM data as of mid-2025. ROE for Safran/RR are negative due to reported losses.

MTU trades at a slight premium to the peer average on NTM EV/EBITDA and P/E multiples. This premium can be justified by its superior profitability (as indicated by a significantly higher ROE than Safran and Rolls-Royce), its unique business model combining OEM partnership with independent MRO leadership, and its strong long-term growth outlook.

Analyst Consensus Summary

Source	Number of Analysts	Consensus Rating	Average Price Target (€)
Investing.com	16	Buy	369.00
TipRanks	10	Moderate Buy	397.88
Smartkarma	24	Hold (12 Buy, 9 Hold, 3 Sell)	N/A

10.0 Key Metrics to Track & Questions for Further Investigation

Monitoring the investment thesis requires tracking a specific set of key performance indicators and continuously investigating critical strategic questions.

10.1 Dashboard of Key Performance Indicators

• Order Intake & Book-to-Bill Ratio: This is the primary indicator of future revenue visibility. A book-to-bill ratio consistently above 1 indicates that demand is outpacing shipments, signaling strong future growth. MTU’s order backlog stood at a record €28.6 billion at the end of 2024, representing more than three years of revenue and providing exceptional visibility.  
• Spare Parts Revenue Growth & Margin: This is the key driver of the high-margin OEM business. Tracking the growth rate of this sub-segment (guided for high single-digits to low-teens) is crucial for validating the margin expansion thesis.  
• MRO Shop Visit Volume & Mix: Investors should monitor the total number of engine shop visits per quarter and the mix between different engine types (e.g., legacy V2500 vs. next-gen GTF) and the workscope intensity of those visits. The growing share of GTF work is a leading indicator of the MRO transition.
• Free Cash Flow (FCF) & Cash Conversion Rate (CCR): These are the most critical metrics for monitoring the company’s recovery from the GTF financial impact. Tracking the progression of FCF from the guided €300-350 million in 2025 towards a high double-digit CCR by 2030 will be the ultimate test of the investment thesis.  
• Return on Invested Capital (ROIC) vs. WACC: This ratio will indicate when the company has returned to creating economic value. A crossover point where ROIC exceeds WACC will be a significant positive catalyst.  

10.2 Questions for Further Investigation

Conflict Escalation: Any further escalation of conflicts, such as the war in Ukraine, would likely accelerate defense spending and the demand for munitions and sustainment services.

What is MTU’s exposure to narrow-body vs. wide-body aircraft markets? MTU maintains a “balanced product portfolio” across all thrust categories, from business jets to narrow-bodies and wide-bodies. This diversification is a key strength. Analyst reports suggest the portfolio is favorably skewed towards narrow-body aircraft, which is the largest and fastest-recovering segment of the market. This is evident in its key programs: the V2500 and GTF family are for narrow-bodies (Airbus A320 family), while the GEnx and GE9X are for wide-bodies (Boeing 787/777X). The MRO business reflects this balance, with major revenue drivers including the narrow-body V2500 and the wide-body GE90. This balanced exposure provides resilience, allowing MTU to benefit from the high-volume narrow-body market while also capturing the long-haul recovery through its wide-body programs.  

How do the company’s long-term service agreements provide revenue visibility? Long-Term Service Agreements (LTSAs) are the bedrock of MTU’s revenue visibility. In the MRO segment, MTU signs multi-year contracts directly with airlines, such as the agreement with All Nippon Airways for its CFM56-7B fleet, which runs until 2032. These contracts often cover an airline’s entire fleet of a specific engine type and can be structured as fixed-price or power-by-the-hour agreements, providing a predictable stream of revenue. In the OEM segment, MTU’s status as a risk-and-revenue-sharing partner means it benefits from the LTSAs signed by its prime partners (P&W, GE). For modern engines, over 80-90% of the fleet is covered by such agreements. These contracts, typically 8-12 years in length or longer, are tied to engine flight hours, creating a long-term, quasi-annuity revenue stream that is highly visible and less susceptible to short-term economic shocks.

What are the implications of increasing engine bypass ratios on MTU’s business? The industry trend towards higher bypass ratios, exemplified by the P&W GTF, has significant implications for MTU’s technology and MRO business. A higher bypass ratio improves propulsive efficiency and reduces fuel consumption and noise. This is achieved by using a larger fan that moves a greater volume of air around the engine core. Technologically, this often requires a gearbox (as in the GTF) to allow the fan to spin at a slower optimal speed while the turbine runs at a higher optimal speed. This increases mechanical complexity. For MRO, this trend shifts the focus of maintenance work. While traditional “hot section” (combustor, high-pressure turbine) repairs remain important, the gearbox and large, complex fan modules become more critical and valuable areas for MRO expertise. The engine architecture also changes, with fewer compressor and turbine stages, which can be lighter but may operate under higher stress. This evolution in engine design plays directly to MTU’s strengths in LPTs, HPCs, and its growing expertise in GTF MRO.

How might urban air mobility and electric aviation impact long-term growth? Urban Air Mobility (UAM) and electric aviation represent a potential long-term disruptive force and an opportunity for MTU. The UAM market, focused on small electric vertical take-off and landing (eVTOL) aircraft for intra-city transport, is projected to grow at a CAGR of 25-31% to over $40 billion by the early 2030s. While MTU is not currently a direct player in the UAM space, its strategic investments in electric aviation are highly relevant. The company’s flagship “Flying Fuel Cell” (FFC) project is developing a hydrogen-electric powertrain for regional aircraft. The technologies being matured in this program—high-power electric motors, fuel cell stacks, and cryogenic hydrogen systems—are directly applicable to the broader electric aviation market, which could eventually include larger UAM platforms. The partnership with Airbus to co-develop these technologies positions MTU as a key enabler of this future market segment. This is a long-dated, high-risk, high-reward option that provides a potential new growth vector for the company beyond 2035.  

What are the key inflection points for defense spending in MTU’s key markets? The key drivers for defense spending in Europe and the US are the heightened geopolitical threat environment, particularly from Russia and China, and the need to modernize aging military hardware. Key inflection points to monitor include:

NATO Spending Targets: The commitment by NATO members to spend at least 2% of GDP on defense, with discussions of targets as high as 3.5-5% over the next decade, represents a massive structural increase in the addressable market.

Government Procurement Decisions: Specific contract awards for next-generation platforms are critical. For MTU, the most important is the funding and progression of the Future Combat Air System (FCAS) and its New Generation Fighter Engine (NGFE), which will be the cornerstone of European air power for decades.

Election Outcomes: The results of major elections, particularly in the US and key European nations, can significantly influence defense budget priorities and transatlantic cooperation on defense projects.

Works cited

1. MTU Aero Engines raises guidance for 2025 and provides outlook for 2030, accessed July 17, 2025, https://www.mtu.de/newsroom/press/latest-press-releases/press-release-detail/mtu-aero-engines-raises-guidance-for-2025-and-provides-outlook-for-2030/
2. MTU Aero Engines raises guidance for 2025 and provides outlook for 2030, accessed July 17, 2025, https://www.mtu.de/fileadmin/EN/5_Investors/9_4_Investor_Analystday/2025_06_17_Paris_Airshow_en.pdf
3. Company profile and key figures – MTU Aero Engines, accessed July 17, 2025, https://www.mtu.de/investors/company-profile-key-figures/
4. Figures for 2023: MTU Aero Engines AG aims for further growth …, accessed July 17, 2025, https://www.mtu.de/newsroom/press/latest-press-releases/press-release-detail/figures-for-2023-mtu-aero-engines-ag-aims-for-further-growth-despite-exceptional-charges/
5. MTU Aero Engines AG posts record revenue and earnings in 2024, accessed July 17, 2025, https://www.mtu.de/fileadmin/DE/5_Investoren/Financial_Report/2025_02_19_FY_2024_results_en.pdf
6. Annual Report 2024 – MTU Aero Engines, accessed July 17, 2025, https://www.mtu.de/fileadmin/DE/5_Investoren/Financial_Report/MTUAeroEnginesAG_AnnualReport_2024_en_locked.pdf
7. MTU Outlines Plan for MRO Expansion – ePlaneAI, accessed July 17, 2025, https://www.eplaneai.com/ja/news/mtu-outlines-plan-for-mro-expansion
8. Geared Turbofan™ Engine MRO Network Features Top Companies and Global Reach, accessed July 17, 2025, https://www.prattwhitney.com/en/newsroom/news/2018/04/09/geared-turbofan-engine-mro-network-features-top-companies-and-global-reach
9. Our core competencies – MTU Aero Engines, accessed July 17, 2025, https://www.mtu.de/innovation/our-core-competencies/
10. Innovation – MTU Aero Engines, accessed July 17, 2025, https://www.mtu.de/innovation/
11. Programs – MTU Aero Engines North America, accessed July 17, 2025, https://www.mtuusa.com/engineering-services/product-development-integration/programs/
12. Military aircraft engines, accessed July 17, 2025, https://www.mtu.de/engines/military-aircraft-engines/
13. MTU Aero Engines takes stake in GE9X engine program, accessed July 17, 2025, https://www.mtu.de/investors/publications-events/latest-ir-news/ir-news-archive/ir-news-details/mtu-aero-engines-takes-stake-in-ge9x-engine-program/
14. MTU Aero Engines raises guidance for 2025 and provides outlook for 2030 – SP’s Aviation, accessed July 17, 2025, https://www.sps-aviation.com/news/?id=892&catId=12&h=Boeing-EGYPTAIR-announce-order-for-nine-Next-Generation-737-800s
15. MTU Aero Engines AG Q2: Adj. EBIT surprises positively, revenues a slight miss. BUY, accessed July 17, 2025, https://downloads.research-hub.de/2024%2008%2002%20MTU%20Q2%202024%20results___wkcdkecc.pdf
16. Widebody engine MRO market analysis – AJW Group, accessed July 17, 2025, https://www.ajw-group.com/storage/downloads/1502365548_widebody_engine_analysis.aircraft_commerce.pdf
17. GE Aerospace and MTU Maintenance Sign Agreement to Service GEnx Engines at Expanded Fort Worth Facility, accessed July 17, 2025, https://www.geaerospace.com/news/press-releases/ge-aerospace-and-mtu-maintenance-sign-agreement-service-genx-engines-expanded-fort
18. Improving military aircraft sustainment to strengthen … – McKinsey, accessed July 17, 2025, https://www.mckinsey.com/industries/aerospace-and-defense/our-insights/improving-military-aircraft-sustainment-to-strengthen-europes-defense
19. MTU Aero Engines AG posts record revenue and earnings in 2024, accessed July 17, 2025, https://www.mtu.de/newsroom/press/latest-press-releases/press-release-detail/mtu-aero-engines-ag-posts-record-revenue-and-earnings-in-2024-1/
20. Key Credit Factors For The Aerospace And Defense Industry – Taiwan Ratings, accessed July 17, 2025, https://www.taiwanratings.com/portal/front/customArticle/8a4934546789670001680d6052110009
21. MTU Aero Engines AG | Company Overview & News – Forbes, accessed July 17, 2025, https://www.forbes.com/companies/mtu-aero-engines-ag/
22. MTU Aero Engines – Wikipedia, accessed July 17, 2025, https://en.wikipedia.org/wiki/MTU_Aero_Engines
23. Business fields & Segments – MTU Aero Engines, accessed July 17, 2025, https://www.mtu.de/investors/company-profile-key-figures/business-fields-segments/
24. Our engine portfolio at a glance – MTU Aero Engines, accessed July 17, 2025, https://www.mtu.de/engines/
25. History – MTU Aero Engines, accessed July 17, 2025, https://www.mtu.de/about-us/history/
26. Commercial aircraft engines – MTU Aero Engines, accessed July 17, 2025, https://www.mtu.de/engines/commercial-aircraft-engines/
27. Aircraft Engine Market Size, Share, Growth, Trends & Forecast 2030, accessed July 17, 2025, https://www.mordorintelligence.com/industry-reports/aircraft-engines-market
28. Aircraft Engine Market to reach USD 183.7 billion by 2034, Says Global Market Insights inc., accessed July 17, 2025, https://www.globenewswire.com/news-release/2025/01/29/3016948/0/en/Aircraft-Engine-Market-to-reach-USD-183-7-billion-by-2034-Says-Global-Market-Insights-inc.html
29. Aircraft Engine Market Size, Share & Growth | Forecast [2032] – Fortune Business Insights, accessed July 17, 2025, https://www.fortunebusinessinsights.com/industry-reports/aircraft-engine-market-101766
30. Aircraft Engines Global Market Report 2025 – The Business Research Company, accessed July 17, 2025, https://www.thebusinessresearchcompany.com/report/aircraft-engines-global-market-report
31. Net zero 2050: new aircraft technology – IATA, accessed July 17, 2025, https://www.iata.org/en/iata-repository/pressroom/fact-sheets/fact-sheet-new-aircraft-technology/
32. Industry Credit Outlook 2025 – Aerospace and Defense – S&P Global, accessed July 17, 2025, https://www.spglobal.com/_assets/documents/ratings/research/101611598.pdf
33. Aerospace, Defense and Government – Dynamix-cdn, accessed July 17, 2025, https://dynamix-cdn.s3.amazonaws.com/cfawcom/cfawcom_689977157.pdf
34. Competition between Airbus and Boeing – Wikipedia, accessed July 17, 2025, https://en.wikipedia.org/wiki/Competition_between_Airbus_and_Boeing
35. The Boeing-Airbus Duopoly: Titans of the Skies – Quartr, accessed July 17, 2025, https://quartr.com/insights/company-research/the-boeing-airbus-duopoly-titans-of-the-skies
36. Aircraft Engine MRO Market Size, Share | Key Companies, 2030 – Fortune Business Insights, accessed July 17, 2025, https://www.fortunebusinessinsights.com/aircraft-engine-mro-market-108858
37. GE Aerospace – Wikipedia, accessed July 17, 2025, https://en.wikipedia.org/wiki/GE_Aerospace
38. Pratt & Whitney – Wikipedia, accessed July 17, 2025, https://en.wikipedia.org/wiki/Pratt_%26_Whitney
39. Rolls-Royce plc – IATA, accessed July 17, 2025, https://www.iata.org/en/about/sp/partners-directory/rolls-royce-plc/43/
40. Safran reports its full-year 2024 results, accessed July 17, 2025, https://www.safran-group.com/pressroom/safran-reports-its-full-year-2024-results-2025-02-14
41. Rolls-Royce Holdings Plc 2024 Full Year Results | Rolls-Royce, accessed July 17, 2025, https://www.rolls-royce.com/media/press-releases/2025/27-02-2025-rr-holdings-plc-2024-full-year-results.aspx
42. GE Aerospace Annual Report 2024, accessed July 17, 2025, https://www.geaerospace.com/investor-relations/annual-report
43. MTU Aero Engines – Public Comps and Valuation Multiples, accessed July 17, 2025, https://multiples.vc/public-comps/mtu-aero-engines-valuation-multiples
44. MTU Aero Engines AG (LTS:0RLL) EV-to-EBITDA – GuruFocus, accessed July 17, 2025, https://www.gurufocus.com/term/enterprise-value-to-ebitda/LTS:0RLL
45. MTU Aero Engines (MTUAY) AI Stock Analysis – TipRanks, accessed July 17, 2025, https://www.tipranks.com/stocks/mtuay/stock-analysis
46. MTU Aero Engines AG – ROE – Wisesheets, accessed July 17, 2025, https://www.wisesheets.io/roe/MTUAY
47. MTU Aero Engines (WBAG:MTX) – Earnings & Revenue Performance – Simply Wall St, accessed July 17, 2025, https://simplywall.st/stocks/at/capital-goods/vie-mtx/mtu-aero-engines-shares/past
48. MTUAY (MTU Aero Engines AG) ROIC % – GuruFocus, accessed July 17, 2025, https://www.gurufocus.com/term/ROIC/OTCPK:MTUAY
49. Safran (EPA:SAF) Statistics & Valuation Metrics – Stock Analysis, accessed July 17, 2025, https://stockanalysis.com/quote/epa/SAF/statistics/
50. Safran S.A. – ROE – Wisesheets, accessed July 17, 2025, https://www.wisesheets.io/roe/SAF.PA
51. Rolls-Royce Holdings plc – ROE – Wisesheets, accessed July 17, 2025, https://www.wisesheets.io/roe/RYCEY
52. Rolls-Royce Holdings plc – ROE – Wisesheets, accessed July 17, 2025, https://www.wisesheets.io/roe/RR.L
53. GE Aerospace ROE – Return on Equity 2010-2025 – Macrotrends, accessed July 17, 2025, https://www.macrotrends.net/stocks/charts/GE/ge-aerospace/roe
54. GE Aerospace ROI – Return on Investment 2010-2025 – Macrotrends, accessed July 17, 2025, https://www.macrotrends.net/stocks/charts/GE/ge-aerospace/roi
55. GE Aerospace Announces Fourth Quarter 2024 Results, accessed July 17, 2025, https://www.geaerospace.com/sites/default/files/geaerospace_webcast_pressrelease_01232025.pdf
56. MRO – MTU Power, accessed July 17, 2025, https://power.mtu.de/maintenance/maintenance-repair-and-overhaul/mro/
57. MTU Maintenance and All Nippon Airways sign CFM56-7B MRO contract, accessed July 17, 2025, https://www.mtu.de/newsroom/press/latest-press-releases/press-release-detail/mtu-maintenance-and-all-nippon-airways-sign-cfm56-7b-mro-contract/
58. Manufacturing and MRO of the future – MTU Aero Engines, accessed July 17, 2025, https://www.mtu.de/innovation/manufacturing-and-mro-of-the-future/
59. Sustainable aviation – MTU Aero Engines, accessed July 17, 2025, https://www.mtu.de/innovation/sustainable-aviation/
60. Preliminary FY 2022 Results – Conference call with Investors and …, accessed July 17, 2025, https://www.mtu.de/fileadmin/EN/5_Investors/7_Financial_Reports/PDFs/FY_2022_MTU_Presentation.pdf
61. Annual Report 2021 – MTU Aero Engines, accessed July 17, 2025, https://www.mtu.de/fileadmin/EN/5_Investors/7_Financial_Reports/PDFs/MTU_Geschaeftsbericht_2021_en.pdf
62. Annual Report 2020 – MTU Aero Engines, accessed July 17, 2025, https://www.mtu.de/fileadmin/EN/5_Investors/7_Financial_Reports/PDFs/Geschaeftsbericht_2020_en_locked.pdf
63. MTU Aero Engines AG presents figures for 2020, accessed July 17, 2025, https://www.mtu.de/newsroom/press/press-archive/press-archive-detail/mtu-aero-engines-ag-presents-figures-for-2020/
64. 2022_02_16_4Q2021_en.docx – MTU Aero Engines, accessed July 17, 2025, https://www.mtu.de/fileadmin/EN/7_News_Media/1_Press/1_Latest_Press_Realeases/2022/2022_02_16_4Q2021_en.docx
65. MTU Aero Engines AG publishes figures for 2021, accessed July 17, 2025, https://www.mtu.de/newsroom/press/press-archive/press-archive-detail/mtu-aero-engines-ag-publishes-figures-for-2021/
66. Annual Report – MTU Aero Engines, accessed July 17, 2025, https://www.mtu.de/fileadmin/EN/5_Investors/7_Financial_Reports/PDFs/MTU_GB2023_en_locked.pdf
67. Q1 2025 Results – MTU Aero Engines, accessed July 17, 2025, https://www.mtu.de/fileadmin/DE/5_Investoren/Financial_Report/2025_Q1_Results_Presentation_MTU.pdf
68. Airbus and MTU Aero Engines advance on hydrogen fuel cell technology for aviation, accessed July 17, 2025, https://www.airbus.com/en/newsroom/press-releases/2025-06-airbus-and-mtu-aero-engines-advance-on-hydrogen-fuel-cell-technology
69. The Flying Fuel Cell from MTU Aero Engines takes shape, accessed July 17, 2025, https://www.mtu.de/newsroom/press/latest-press-releases/press-release-detail/the-flying-fuel-cell-from-mtu-aero-engines-takes-shape/
70. Key considerations for stakeholders as Europe’s defence industry faces “once-in-a-generation moment”, accessed July 17, 2025, https://www.whitecase.com/insight-alert/key-considerations-stakeholders-europes-defence-industry-faces-once-generation-moment
71. The economic impact of higher defence spending – European Commission, accessed July 17, 2025, https://economy-finance.ec.europa.eu/economic-forecast-and-surveys/economic-forecasts/spring-2025-economic-forecast-moderate-growth-amid-global-economic-uncertainty/economic-impact-higher-defence-spending_en
72. Long-Term Implications of the 2025 Future Years Defense Program, accessed July 17, 2025, https://www.cbo.gov/publication/61017
73. United States Defense Industry Report 2025 | Rising Costs – GlobeNewswire, accessed July 17, 2025, https://www.globenewswire.com/news-release/2025/06/23/3103472/0/en/United-States-Defense-Industry-Report-2025-Rising-Costs-and-Innovation-Pace-Challenge-U-S-Defense-Market-Stability.html
74. MTUplus Intelligent Solutions – MTU Aero Engines, accessed July 17, 2025, https://www.mtu.de/maintenance/commercial-maintenance/mtuplus-intelligent-solutions/
75. Our individual services – MTU Aero Engines, accessed July 17, 2025, https://www.mtu.de/maintenance/commercial-maintenance/our-individual-services/
76. Investors – MTU Aero Engines, accessed July 17, 2025, https://www.mtu.de/investors/
77. MTU Aero Engines AG (MTX) Dividends – DividendMax, accessed July 17, 2025, https://www.dividendmax.com/germany/frankfurt-stock-exchange/aerospace-and-defence/mtu-aero-engines-ag/dividends
78. MTU Aero Engines AG (MTUAY) Dividend History, Dates & Yield – Stock Analysis, accessed July 17, 2025, https://stockanalysis.com/quote/otc/MTUAY/dividend/
79. Share buy-back for Employee Share Offering Program (“ESOP”) Munich, Germany, 3 May 2021 – MTU Aero Engines, accessed July 17, 2025, https://www.mtu.de/fileadmin/EN/5_Investors/5_MTU_Share/2021_05_03_Bekanntmachung_Aktienrueckkauf_eng.pdf
80. MTU Aero Engines to repurchase about 1 million additional own shares, accessed July 17, 2025, https://www.mtu.de/newsroom/press/press-archive/press-archive-detail/mtu-aero-engines-to-repurchase-about-1-million-additional-own-shares/
81. MTU Aero Engines AG (LTS:0RLL) Capital Expenditure – GuruFocus, accessed July 17, 2025, https://www.gurufocus.com/term/cash-flow-capital-expenditure/LTS:0RLL
82. TU ),,.ro – MTU Aero Engines, accessed July 17, 2025, https://www.mtu.de/fileadmin/EN/5_Investors/6_Rating_Bond/2024_MTU_fixed_rate_notes_Prospectus.pdf
83. After the first quarter, MTU Aero Engines is confirming its guidance for the full year, accessed July 17, 2025, https://www.mtu.de/newsroom/press/latest-press-releases/press-release-detail/after-the-first-quarter-mtu-aero-engines-is-confirming-its-guidance-for-the-full-year-1/
84. MTU Aero Engines AG (ETR:MTX) is favoured by institutional owners who hold 60% of the company – Simply Wall St, accessed July 17, 2025, https://simplywall.st/stocks/de/capital-goods/etr-mtx/mtu-aero-engines-shares/news/mtu-aero-engines-ag-etrmtx-is-favoured-by-institutional-owne
85. COMAC’s Impact on the Future of the Airbus-Boeing Duopoly, accessed July 17, 2025, https://sites.lsa.umich.edu/mje/2024/05/08/comacs-impact-on-the-future-of-the-airbus-boeing-duopoly/
86. Urban Air Mobility Market Size to Exceed USD 49.23 Bn by 2034 – Cervicorn Consulting, accessed July 17, 2025, https://www.cervicornconsulting.com/urban-air-mobility-market
87. Urban Air Mobility Market Size, Share, Industry Report, Revenue Trends and Growth Drivers, accessed July 17, 2025, https://www.marketsandmarkets.com/Market-Reports/urban-air-mobility-market-251142860.html
88. Aerospace EBITDA & Valuation Multiples – 2025 Report – First Page Sage, accessed July 17, 2025, https://firstpagesage.com/business/aerospace-ebitda-valuation-multiples/
89. MTU Aero (MTXGn) Stock Forecast & Price Target – Investing.com, accessed July 17, 2025, https://www.investing.com/equities/mtu-aero-eng-consensus-estimates
90. MTU Aero Engines (0FC9) Share Forecast, Price Targets and Analysts Predictions – TipRanks, accessed July 17, 2025, https://www.tipranks.com/stocks/gb:0fc9/forecast
91. Book-to-Bill Ratio: Definition, How It’s Calculated, and Example – Investopedia, accessed July 17, 2025, https://www.investopedia.com/terms/b/booktobill.asp
92. Mtu Aero Engines AG (MTX) Earnings: FY Revenue Forecast Boost and Estimate Beat Highlight Strong Growth Prospects | Smartkarma, accessed July 17, 2025, https://www.smartkarma.com/home/newswire/earnings-alerts/mtu-aero-engines-ag-mtx-earnings-fy-revenue-forecast-boost-and-estimate-beat-highlight-strong-growth-prospects/
93. LONG-TERM SERVICE AGREEMENTS (LTSA) FAQs – Rolls-Royce, accessed July 17, 2025, https://www.rolls-royce.com/~/media/Files/R/Rolls-Royce/documents/investors/rr-ltsa-faq.pdf
94. Evaluation of ultra-high bypass ratio engines for an over-wing aircraft configuration, accessed July 17, 2025, https://journal.gpps.global/Evaluation-of-ultra-high-bypass-ratio-engines-for-an-over-wing-aircraft-configuration,92455,0,2.html
95. Pratt & Whitney GTF™ engine – MTU Aero Engines, accessed July 17, 2025, https://www.mtu.de/engines/commercial-aircraft-engines/narrowbody-and-regional-jets/gtf-engine-family/
96. NATO’s 5 percent spending pledge is a threat to people and the planet – Al Jazeera, accessed July 17, 2025, https://www.aljazeera.com/opinions/2025/6/26/natos-5-percent-spending-pledge-is-a-threat-to-people-and-the-planet
97. New NATO target in line with our previously revised forecast – Oxford Economics, accessed July 17, 2025, https://www.oxfordeconomics.com/resource/new-nato-target-in-line-with-our-previously-revised-forecast/