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Fitch Ratings revises Outlook on MTU Aero Engines AG's IDR.

Warsaw: Fitch Ratings, a nationally recognized statistical rating organization (NRSRO) designated by the U.S. Securities and Exchange Commission, revised the Outlook on Germany-based aerospace and defence company MTU Aero Engines AG's (MTU) Long-Term Issuer Default Rating (IDR) to Positive from Stable.

The agency affirmed the IDR at 'BBB-'. The Short-Term IDR has also been affirmed at 'F3'. The Positive Outlook reflects MTU's better than previously expected cash generation. Fitch believes this may be sustainable through the medium to long term and remain at levels in line with expectations of a 'BBB' rated aerospace and defence supplier. Fitch expects the company to begin generating positive free cash flow (FCF) from 2018 and that it will remain at around 3% of revenue in the medium term. At the same time, Fitch believes that MTU is likely to maintain a conservative cash deployment strategy. This will ensure that the capital structure, which is already strong for the rating, remains broadly stable.

It expects the company's FCF to turn positive in 2018 and remain at around 3% in the medium term, as working capital and capex investment needs subside owing to key programmes maturing from their development phases. At the same time, Fitch expects the funds from operations (FFO) margin to remain around 12% in the short to medium term, which is materially higher than the upgrade sensitivity of 9%. MTU increased its FFO margin to 13.7% for the last 12 months (LTM) to 30 June 2017, from 12.7% in 2016, as a result of strong demand in its maintenance, repair and overhaul (MRO) business, as well as improvements in the sales mix in its OEM division.

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Publication:Daily the Pak Banker (Lahore, Pakistan)
Date:Apr 3, 2018
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