By Tom Batchelor

Aug 3, 2025, © Leeham News: Melrose has reported a strong set of interim results for the first half of 2025 as demand for its defense products soared, driving expanding margins and a sharp uptick in profitability.

The UK-based group – now a focused aerospace and defense specialist – posted 6% like-for-like revenue growth compared to the same period last year, to £1.7bn, and a 29% increase in adjusted operating profit, to £310m.

Across the aerospace division, Melrose reported sales growth of 6%, a 27% increase in operating profit to £324m, with margins expanding by 3.9ppts.

Within that division, Melrose’s engines unit saw sales growth of 11%, driven by the civil aftermarket, with operating profit up 26% to £261m.

The structures unit registered sales growth of 3% and an operating profit up 32%, to £63m. A £14m loss in the corporate division took overall profit to £310m.

“We delivered a strong performance in the first half with a 29% improvement in profit and cash flow significantly stronger than last year despite the backdrop of supply chain and tariff disruptions,” said CEO Peter Dilnot.

Multi-year transformation

“Our multi-year transformation programme will be completed by year end and the benefits are already reading through with more to come,” said Dilnot.

“We have a clear strategy underpinned by attractive aerospace and defense markets, differentiated technology and established positions on the world’s leading civil and defense aircraft.

“We are confident about delivering sustained increases in profit and cash flow in the years ahead and our free cash flow target of £600m in 2029.”

Defense momentum

Despite the ongoing supply chain challenges and tariff pressures, Melrose reported continued commercial momentum and improved cash generation.

Its defense business has performed particularly well, with the target of repricing 85% of the defense portfolio by the end of 2025 being met six months ahead of schedule.

Notable defense agreements include a six-year contract extension signed with BAE Systems for canopies on the Typhoon, and a five-year contract signed with Lockheed Martin for C-130J nacelles.

Melrose has also deepened its relationship with the Swedish Defence Administration (FMV), investing in engine assembly, test and MRO repair capabilities for the RM16 engine that will power the JAS 39 Gripen E.

Order backlogs

“Aerospace and defense markets are growing structurally with record order backlogs and an expanding aftermarket,” Dilnot said.

“In particular, the outlook for defense has changed significantly in recent months, with a step change in European and NATO spending commitments.”

He added: “This is reading through in three ways. First, the existing European fleets of US-led aircraft such as the F35 are set to increase, for example, recent further orders from the UK and Belgium.

“Second, European platforms are increasing production, and not just from continental demand, but from new global orders for platforms such as the Typhoon and Gripen.

“And finally, it’s clear that the nature of war fighting has changed with the proliferation of uncrewed air vehicles.

“As a result, there are many development programmes being progressed in the US, in Europe and here in the UK, and Melrose is set to benefit from all of the trends.”

Civil strength 

On the civil front, order backlogs for high-volume commercial aircraft have extended to approximately eight to nine years, reflecting sustained demand across global markets.

Widebody aircraft saw particularly strong momentum in the first half, with a book-to-bill ratio exceeding 4:1, an indication of a sustained order intake relative to deliveries.

Melrose said flight hours are projected to grow at an average annual rate of 6% in the coming years, providing a solid tailwind for the aftermarket as increased utilisation drives demand for shop visits and component overhauls.

One consequence of these prolonged OE backlogs is the extended service life of mature engine platforms such as the V2500 and the CFM56, which continue to operate in large numbers and require consistent maintenance support.

Simultaneously, newer widebody engine fleets – including the Rolls-Royce Trent XWB and GE’s GEnx – are advancing further into their aftermarket lifecycle, unlocking growing opportunities for MRO services as these powerplants reach key maintenance thresholds.

Improved output 

The post-pandemic manufacturing landscape has been defined by supply chain bottlenecks and Melrose said this continued to impact the business in the first half of 2024.

That said, the total incident rate in the period reduced by a further 14%, and customer “quality escapes” were down by 22% while productivity improved by three percentage points, despite these pressures.

The group remains on track to generate over £100m in free cash flow in 2025 – £91m better than the prior year, due to increased earnings and lower restructuring costs.

Full year guidance 

On a constant currency basis, guidance for the full year remains unchanged. However, Melrose has adjusted its revenue forecast to reflect sterling strength.

The group now expects revenue of between £3.425bn and £3.575bn (previously £3.55bn to £3.7bn). Adjusted operating profit is now slated to be between £620m and £650m (previously £650m to £690m).

“We’re firmly on track to deliver our full year guidance at constant currency,” added Dilnot.

“Looking forward, our path to value creation is both clear and compelling.”