Aerospace component provider, Meggitt, has posted a fall of 25% in group revenue to £384million in the third quarter of 2020. For the first nine months of the year, revenue fell by 18% to £1.301bn.
“While conditions in the global civil aerospace sector remained weak during the third quarter, our top line performance slightly improved, with revenue down 25% in the period, compared with down 30% in the second quarter, reflecting the breadth of our end markets and the continued strong performance of our defence business and growth in energy,” said CEO Tony Wood. “Although expectations of the extent of the recovery in civil aerospace in the important final quarter have softened in recent weeks, our global teams continue to focus on actions within our control, including our cost and cash actions where we have made strong progress.”
For the full year, Meggitt expects to deliver underlying operating profit between £180m and £200m, to be free cash flow positive in the second half, and cash flow neutral for the full year at the top end of the operating profit guidance range.
“While we remain alive to the challenges which COVID-19 continues to pose, we are encouraged by recent news on vaccine development and the positive implications for air travel,” says Wood. “With diverse end market exposure, strong market positions, and having taken a range of decisive actions, we remain well placed for the recovery.”
In civil aerospace, activity levels improved during the period, with global ASKs and RPKs recovering from -80% and -86% in June, to -63% and -73% respectively in September compared with 2019 levels.
With international flight activity remaining at very low levels, and a large proportion of regional jet flights in the US serving the major international hubs, regional jet activity levels remained subdued during the period at -55% versus 2019 levels at the end of September.
In business jets, activity levels have continued to recover with global flight activity increasing from -26% in June to -17% at the end of the third quarter, compared with 2019 levels.
In terms of fleet dynamics, deliveries of new commercial aircraft (a driver of civil OE revenue) were 36% lower in the third quarter compared with 2019 levels and 51% down for the nine months to the end of September.
Meggitt reports that margins were lower as airlines deferred spares purchases through pro-active management of their fleets to preserve cash, resulting in lower volumes across its manufacturing sites.
The company has reduced its cash expenditure and resized the business, stating that it is on track to deliver its target of £400m to £450m of cash savings for the full year.
At the end of September, Meggit had £1.66bn of committed facilities in place providing headroom of £814m. It also has additional liquidity available under the CCFF.
On 5 October, Meggitt repaid $150m on the maturity of a tranche of US PP notes. On 29 October the company priced a new private placement of debt and agreed, subject to standard closing conditions, to issue $300m in aggregate of three and five year senior notes to international investors. The issuance of the notes, which was significantly oversubscribed, is expected to take place on 19 November and will provide the company with additional liquidity and financial flexibility into 2021 and beyond.
“While we remain alive to the challenges which COVID-19 continues to pose, we are encouraged by recent news on vaccine development and the positive implications for air travel. With diverse end market exposure, strong market positions and having taken a range of decisive actions, we remain well placed for the recovery.”
