Demand for passenger jets lifts Meggitt

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The boom in demand for large passenger jets lifted half-year profits at Meggitt, the aerospace engineering company said on Tuesday. However, the group sounded a note of caution on its military business, where it expects sales growth to soften in the coming years as governments cut defence spending.

Terry Twigger, Meggitt’s chief executive, said that the surge in demand for jets was all the more unusual given that it was not the result of a typical bounce after a recessionary decline in demand.

“This has not been a typical aerospace cycle because we did not see the drop in volumes that everyone was expecting two years ago,” said Mr Twigger.

“Boeing and Airbus managed their way through a potential downturn very well.”

In spite of the general economic downturn, commercial aviation has continued to expand, fuelled by growth in the emerging markets of Asia and Latin America. Passenger traffic is expected to triple in the next 20 years, and companies such as Meggitt that supply everything from landing gears to temperature control systems for airplanes have been successfully riding this wave.

Civil aviation makes up about 45 per cent of Meggitt’s revenues and, similarly to the engine-maker Rolls-Royce, Meggitt makes more money from after-market sales of services and repairs than it does from sales of original equipment. However, the boom in new aircraft construction has made this original equipment the fastest-growing part of Meggitt’s civil aerospace business, with sales up 27 per cent to £89m in the half year.

The military market has been less buoyant for the company, but sales still rose by 6 per cent to £239m in the period. Meggitt makes parts for aircraft such as the Blackhawk helicopter, Eurofighter Typhoon and the new Joint Strike Fighter. The group is predicting annual growth in military sales of 2 per cent in the coming years, a significant fall from previous years where growth in the division averaged between 8 and 10 per cent.

“Military is not going to be a comfortable marketplace over the next few years,” said Mr Twigger.

“Absent some new military threat, defence expenditure is going to come down. But in our case there are factors to mitigate that, because 40 per cent of our military business comes from spares and repairs.”

In the six months to June 30, pre-tax profits rose 69 per cent to £112m on revenues that were up 18 per cent to £650m. Earnings per share increased from 7.5p to 11.6p and Meggitt raised its interim dividend from 2.85p to 3.2p.

Shares in Meggitt fell 6.4p to 380.2p in early afternoon trading on Tuesday.

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