By Tom Batchelor

Mar. 7, 2024, © Leeham News: Strengthening demand for airframe structures and engine components helped British supplier GKN Aerospace, a subsidiary of Melrose PLC, achieve higher profits and record margins in 2023.

GKN Aerospace has invested in its sustainable additive fabrication capability. Source: GKN

The company, whose supply contracts encompass all leading commercial narrowbody and widebody aircraft, as well as business jet and defence customers, announced full-year results on Thursday.

Melrose posted revenue of £3.35bn ($4.29bn), 17% growth over the previous year, and adjusted operating profit of £420m (up from £186m in 2022). Operating margin reached 12.5%, up from 6.3%.

The Birmingham, England-based group enjoyed growth within its engines division of 16%, and structures growth of 18%, largely from OEM deliveries ramping-up.

CEO Peter Dilnot told investors 2023 had been a “transformational” year with “profit more than doubling, ahead of expectations.”

He said order backlogs stretching nearly a decade across Airbus and Boeing lines, and a “significant gap” in time before next-generation platforms are likely to be introduced, had resulted in “something of a harvest period” for GKN.

New agreements

GKN inked new agreements in 2023, including with GE relating to the GEnx program, which is estimated to deliver $5bn in incremental revenue over the contract lifetime.

The company has also agreed a five-year extension with Airbus for the sole-source production of A220 wiring, and a new multi-year contract covering design and build of flight control surfaces for new urban air mobility developer Joby.

Dilnot said opportunities to expand a joint venture with Chinese state-owned manufacturer Comac were being explored.

Additionally, an agreement has been signed with The Netherlands defence ministry and Airbus for new helicopter developments, and GKN is also involved in the UK-Japan-Italy joint Global Combat Air Program to develop a next generation fighter aircraft.

Looking ahead

For 2024, revenues of between £3.6bn and £3.75bn are forecast, with adjusted operating profit of between £550m and £570m. Profits of £700m are being targeted by 2025.

GKN is doing particularly well within the aftermarket sector. The company said the division had seen growth of 34% driven by recovering flying hours.

By 2025, its engines division is forecast to contribute over 70% of Melrose profit, with over 85% of this being from aftermarket.

Industry capacity 

However, the growth is tempered by ongoing, sector-wide supply chain issues. Dilnot spoke candidly about the challenges facing GKN, warning that “it does mean sometimes that the business isn’t running as optimally as it might.”

He added: “We are staying ahead of our customers’ demand. The issues are reasonably broad-based. It is more about industry capacity now, less around people and materials. The industry is growing so fast, the reality is this is going to be an ongoing issue for a year at least.”

On the issues relating to powder metal manufacturing on some variants of Pratt & Whitney’s GTF engine, the inspection program is now well underway and GKN expects a total cash cost of around £200m over the next few years. “We remain confident that the GTF will be a robust and attractive narrowbody engine in the decades ahead,” the company said.

MAX pain?

GKN is also exposed to the 737 MAX fallout. The company contributes to the aircraft’s wing, engine and cabin including the winglets, engine nacelle inlet lip skins, and structures for CFM International’s LEAP-1B, including the combustion diffuser nozzle and the CDN assembly.

Dilnot said: “Boeing is clearly an important customer for us, and the issues they are having with quality is unfortunate. I don’t think that is good news for the industry at large.”

But he added: “Specifically as it relates to us…we have very little content on the 737. It is not a big deal for us. We focus on what we can control, which is our own quality. We are redoubling our efforts there.”