MTU sees flat profits as new engine investments weigh

* Q4 sales 963.6 mln eur vs Reuters poll avg 940 mln

* Q4 adj EBIT 106.8 mln eur vs Reuters poll avg 105 mln

* New engine business to grow faster than spare parts

* Shares rise 1.8 pct, among top midcap gainers

By Victoria Bryan

MUNICH, Feb 18 (Reuters) - Delivering costly new engines to meet a boom in orders for passenger jets will keep profits flat at MTU Aero Engines this year, before its more lucrative spare parts business benefits later this decade, it said on Tuesday.

The German firm, which supplies planemakers Boeing, Airbus and Bombardier, makes bigger profit margins from selling spare parts than supplying new engines, in which it has to invest more money, and saw its operating margin fall by 1 percentage point to 10.1 percent in 2013.

"We're investing now because this means good business for us in the future," board member Michael Schreyoegg said, adding it can take eight to ten years for investment in a new engine programme to pay off.

Revenue in the firm's new engine business will grow by around 10 percent this year in dollar terms, while the spare parts business will rise only by a mid single-digit percentage, it forecast.

Airlines placed firm orders for a record 11,200 aircraft last year, said MTU, which will be doubling production volumes to meet demand.

Its military business, which like others has been hit by reduced government spending on defence, is likely to see revenues drop around 10 percent, it added.

Rival Rolls-Royce last week sent shivers through Europe's defence and aerospace sector after it said U.S. and European spending cuts would halt profit growth in 2014, causing its shares to fall the most in one day for more than 13 years.

SOLID Q4

"We can expect a turnaround in the spare parts business to come at the end of the decade," Chief Executive Reiner Winkler told journalists.

MTU forecast adjusted earnings before interest and tax (EBIT) would be stable at around 373 million euros in 2014. That compares with analysts' forecasts of between 356 and 422 million euros, according to a Reuters poll.

Shares in MTU, which had dropped 12 percent this year, underperforming a 2 percent gain for German mid-caps, rose 1.8 percent on Tuesday.

"A scenario of an even lower EBIT number for 2014 has not become reality is the good news next to the solid fourth-quarter," Equinet analyst Adrian Pehl wrote.

MTU expects 2014 revenues of 3.75 billion euros, stripping out sales from a maintenance joint venture which will no longer be consolidated in results under IFRS accounting rules.

The group reported fourth-quarter sales of 963.6 million euros and adjusted EBIT of 106.8 million.

It said it would announce its dividend proposal on March 11. Analysts on average expect a dividend of 1.46 euros per share, up from 1.35 euros paid for 2012.

The new accounting requirements also means it will have to adjust its 2020 targets, which had forecast turnover of 6 billion euros by then.