February 21, 2018 / 7:29 AM / a year ago

UPDATE 2-MTU Aero's profit guidance hinges on quick fix for A320neo engine

* 2017 adj EBIT 606.6 mln vs poll avg 601 mln

* 2018 forecast based on quick resolution to A320neo problems

* Expects to double GTF production in 2018

* Shares drop 3.4 pct (Adds further comments on GTF, supply chain)

By Victoria Bryan

MUNICH, Feb 21 (Reuters) - MTU Aero Engines’ forecast for a moderate rise in core profit this year hinges on a quick fix to problems with engines for Airbus’s A320neo jet, the German company said on Wednesday, after reporting record 2017 results.

MTU is a partner on the geared turbofan (GTF) engine made by Pratt & Whitney that powers the A320neo.

The engine has suffered a fresh round of problems that saw some A320neo jets grounded and certain deliveries halted this month.

The German company said its forecasts for 2018, including for a “moderate” increase in core profit, assumed the problems could be rectified quickly, without jeopardising delivery targets.

MTU’s shares were down 3.4 percent at 136.60 euros, among the top fallers on the MDAX index for German mid-caps.

Airbus said last week it expected A320neo deliveries to its customers could resume in April.

MTU Chief Financial Officer Peter Kameritsch said a fix had not yet been identified but that Airbus, Pratt and regulators were in talks.

MTU said 374 GTF engines were delivered last year and predicted that figure would double this year assuming the problems are resolved rapidly.

“The problem is not with our part of the work, we are producing normally,” CEO Reiner Winkler said, adding any extra costs were already included in the 2018 outlook.

MTU reported 2017 adjusted earnings before interest and tax of 606.6 million euros ($748.1 million), slightly above the average forecast in a Reuters poll. Revenue of 5.04 billion euros was slightly lower than expected.

It will switch to the IFRS accounting standard from this year, which will mean an adjustment of its 2017 figures, with revenue down to 3.65 billion and operating profit of around 570 million.

When asked about Airbus’s potential plan to increase production of its best selling single-aisle A320 jet to 70 a month, Winkler said MTU could manage the extra production and the “notable” investments needed given around 1.5-2 years’ run-up time, but that it would likely lead to problems further down the supply chain.

“It will probably not just be Airbus that increases production, but Boeing would be likely to follow. Everyone will be using the same supply chain and that is where the problems will be,” he said.

$1 = 0.8108 euros Reporting by Victoria Bryan and Alexander Huebner; Editing by Maria Sheahan and Mark Potter

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